Ukrainian Law Blog: IP Litigation in China: Foreign Companies Still Face Challenges

Anna Zhang, The Asian Lawyer

Companies have always found China a challenging place to protect their intellectual property, but several recent studies have concluded that foreign patentees are achieving a high win rate—well above 80 percent—in patent infringement litigation in China. So does this mean it is now easier for international companies to protect their patents in China?

The short answer is: not quite. While the win rate might seem counterintuitively promising given that protectionism is still prevalent in the country, there are more nuances behind the statistics that can't be overlooked.

One study that suggests foreign companies are now better able to protect their intellectual property was done by the London-based law firm Rouse. In analyzing 346 first-instance patent infringement cases initiated by foreign plaintiffs between 2006 and 2014, the firm, which runs the Beijing-based intellectual properties litigation database CIELA, found an 82 percent win rate (282 cases).

In a separate study , Beijing-based Kangxin Intellectual Property Agency Co. Ltd., an affiliate of law firm Kangxin Partners, found an 89 percent win rate in 114 first-instance patent cases initiated by foreign plaintiffs (102 cases won) between 2013 and 2015.

But put in context, the high win rate has a lot to do with the small number of foreign party-related patent cases. In the Rouse study, the 346 cases account for less than 7 percent of the 5,109 patent infringement cases filed between 2006 and 2014 examined by the firm. In Kangxin's study, foreign parties were involved in less than 5 percent of the 4,388 patent infringement cases filed between 2013 and 2015. (This also includes a fraction of cases in which foreign companies were defendants.)

Erick Robinson, Rouse's Beijing-based chief patent counsel for Asia, said the high win rate and the low percentage of foreign plaintiff-related cases were correlated. "Foreign companies tend to do a lot of due diligence and make sure they have a good case before filing it," he said.

Foreign patentees, Robinson says, can now count on a more mature and fairer court system in China, as long as they have a good case and steer clear of sensitive sectors such as energy and nuclear power.

Others are less upbeat. "The overall win rate [for patent infringement cases] was around 80 percent," said one Shanghai-based IP partner at an international firm who requested anonymity as he was not authorized to speak. "Foreign companies aren't treated better," he said, adding that they were merely winning the normal rate expected in any patent infringement case in China, regardless of the plaintiff's nationality.

Elliot Papageorgiou, a Shanghai-based partner at Rouse, agreed that the win rate for local players and foreign companies is about the same, but he said the playing field is not exactly leveled. "Even though the win rate is the same, foreign companies work a lot harder to achieve that same win rate," he said.

Papageorgiou said while there isn't necessarily systemic bias against foreigners, it did seem that Chinese courts expect more from foreign parties. "When it comes to a foreign company, the court relies on a different level of rigor than with some local company," he said. "When we represent our foreign clients, we make sure that every 'i' is dotted and every 't' is crossed. You don't want to give the court the chance to say, 'Hmm, you could have done that better.'"

It has been 28 years since China saw its first patent infringement case in 1988—three years after the country's Patent Law first came into effect. Much has improved since then: For the past five years, China has topped the world's patent filing list; the Patent Law has been amended three times and is up for a fourth amendment; in late 2014, three specialized intellectual property courts were set up in Beijing, Shanghai and Guangzhou.

But the Shanghai-based IP partner said that the problem with litigating patent cases in China lies less in the IP regime than in the overarching civil court system. He said that, often, judges are simply reluctant to decide on a case for fear their decision might be reversed by a higher court. "After a few reversals, their opportunities for promotion are gone," he said.

Judges then have an incentive to not accept cases, or delay hearings, or push for mediation or settlement. "For patent cases involving complicated technologies, judges will refer to expert witnesses," he said. "But in the end, there will still come a time when they have to make a judgment."

Papageorgiou noted that in addition to the promotion review, China's conflict-averse culture creates an environment that makes judges reluctant to deal with patent cases. But mostly, courts and judges are simply overburdened with cases. According to the Supreme People's Court , in 2015 courts in China accepted 11,607 new civil patent cases, up 20 percent from the previous year. But the number of judges remains relatively low: last year, the three specialized IP courts had about 42 judges, and there were about 420 IP tribunals at local courts across the country.

Papageorgiou said that, overall, judges are gaining more experience in IP cases. In fact, the sheer volume of patent litigation between two Chinese parties has also indirectly benefited foreign companies, as it has resulted in judges making more decisions on the merits, rather than giving consideration based on nationality and politics.

Robinson also said that Chinese courts are more open to the idea of seeing the actual product being challenged, which could be helpful to patentees. Also, he pointed out that whereas in the United States, many patent cases are decided by a jury, and technical experts are hired by parties to support their point before a jury, in China, experts are hired by the court to assist the judge in reaching a decision. The Chinese system is actually better because technical advice is given to the person who actually decides the case, Robinson said.

Still, protectionism is something that China's IP regime still can't quite shake. "There is still a clear delineation in cases where there is national interest," said Papageorgiou, adding that in the energy, infrastructure and telecommunications areas, China is still supporting national champions.

In his China IPR blog, Mark Cohen , who heads up the China team for the U.S. Patent and Trademark Office, wrote that hints of bias and protectionism could be found in high-profile cases. Referring to Huawei's victory over InterDigital on a licensing antitrust dispute, where Huawei's triumph was championed as a success of "aggressively using Chinese antitrust law to address technology roadblocks in China and overseas," Cohen raised the issue of the government actively intervening in cases.

Papageorgiou said this kind of bias won't go away soon. In fact, the greater the economic pressure on China, the more judges might be required to consider national interest and economic impact in decisions.

"The decisions of the courts are still interpreted 'through the lens' of China's industrial policies," he said.