1. Chinese Patent Enforcement & Trade Secret Protection April 16, 2013 International Patent Forum

2. China IP’s Challenge Since joining the World Trade Organization (2001), China has strengthened its legal framework and amended its IPR laws and regulations to comply with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)

3. Prevention — Best Protection Registerable/Non-registerable IPs –Patent: the State Intellectual Property Office (SIPO, the Patent Office) –Trademark: the Trademark Office of the State Administration for Industry and Commerce –Copyright: China’s National Copyright Administration (NCA) –Unfair Competition: the Fair Trade Bureau under the State Administration for Industry and Commerce (SAIC) –Trade Secret (know-how): protected under Anti-unfair Competition Law

4. Legal Authorities Relevant Law—by the National People’s Congress –The Patent Law (effective October 1, 2009) Relevant Regulation—by the State Council –Implementing Regulations (effective February 1, 2010) Relevant Rule—by the State Intellectual Property Office –Examination Guidelines (effective February 1, 2010) Judicial Interpretation—by the Supreme Court –Provisions on Issues Relating to Applicable Laws to Trials of Patent Infringement Controversies (effective January 1, 2010)

5. IP enforcement Administrative Proceedings –Quicker and cheaper than using the courts –Administrative authorities also accept a lower level of evidence. –Fast results. 2012 –SAIC local offices: 120.4k cases against counterfeits and infringement of trademarks –SIPO local offices: 2510 cases of patent disputes, 6512 cases of patent passing off acts –NCA local offices: 282 internet copyright infringement and closed 183 websites

6. IP enforcement Civil Court Proceedings –Dominant method for intellectual property rights protection –Relative low damages awards –Also supervise and review IP-related administrative decisions –Growing amount of cases brought to Chinese courts, an encouraging factor that shows growing enforcement of IP rights 2012 –First instance people’s courts: 87,419 accepted cases

7. IP enforcement Criminal Prosecution –Individual is subject to prosecution where the number of counterfeit items exceed 20,000, or where the brand more than one brand, 10,000 items. Criminal prosecution is appropriate where the illegal revenues exceed RMB 50,000. If more than one brand is involved the threshold is 30,000 RMB 2012 –People’s procuratorates: accepted 17244 cases transferred from law enforcement authority

8. The trial courts carry out “4 levels 2 instances system” The Supreme People’s Court of PRC (1) High People’s Court of provinces, autonomous regions, municipalities (32) People’s Army Court Martial Court Martial in Regional Military District, Various Types of Army Local based Court Martial Intermediate People’s Court of railway transportation Base People’s Court of railway transportation Admiralty Court Intermediate People’s Court of local regions, cities, league, autonomous state ( 369) Basic People’s Court of local counties, cities, townships, district and autonomous counties (10,392) Hierarchy of the Judiciary

9. YearAccepted Cases% IncreaseConcluded Cases% Increase 2006142195.92140564.95 20071787725.731739523.75 20082440636.522351835.2 20093062625.493050929.73 20104293140.184171836.74 20115988239.485820139.51 20128741945.998385044.07 First Instance Civil Proceedings (2006~2012)

10. First Instance Civil Proceedings (2006~2012)

11. 2011 Civil Proceedings CourtDispute TypeAccepted Cases Increased (vs. 2010) Concluded Case Increased (vs. 2010) 1st Instance Court* Patent781935.16% Trademark1299153.56% Copyright3518542.34% Technology Contracts 557-16.87% Unfair Competition 11370.53% Others219311.55% total5988240.14%5820139.51% 2nd Instance Court total764217.17%765918.18% Rehearingtotal294164.86%224105.50% Supreme Court305311 *Foreign-related cases: 1321 (-3.51%)

12. 2011 Administrative Proceedings CourtDispute TypeCase Newly Filed Increased (vs. 2010) Case ClosedIncreased (vs. 2010) 1st Instance Court Patent65418.69% Trademark1767-12.78% Copyright20.00% Others10 total2433-6.06%24703.30% 2nd Instance Court total13331266 Supreme Court (by applicant)102101 Supreme Court (by court)1311

13. The Flow Chart of Civil Trials The possibility of infringement act Evidence Collection Court Procedure Invalidation Proceedings Continuation of Court Procedure Suspension of Court procedure Preliminary Injunction 1st & 2nd Instances Administrative Lawsuit In 1st & 2nd Instances

14. Patent Infringement –Civil litigation Venue: where the infringer's home office is, or where infringement occurs SOL: 2 years from the date the patentee becomes aware or should have become aware of an infringing activity. Patent disputes: infringement assertions are a court matter, while invalidity challenges are put before the Patent Reexamination Board Patent Rights Enforcement

15. Patent Enforcement Complaint –The complaint and the supporting evidence –File a complete but realistic complaint: a Chinese court does not have to accept a complaint and can dismiss it on its own initiative Preliminary Injunction –Patent Law Article 65 –Plaintiff must: (i) show there is direct infringement, (ii) show the plaintiff is suffering or will suffer irreparable harm, and (iii) post a security bond –Judicial Interpretations: court decides within 48 hours –2011, 130 granted (98.23% granting rate) –Evidence preservation, 2011, 186 granted (93.42% granting rate)

16. Patent Enforcement Invalidity NOT as a Counterclaim –Court does not address the issue of validity –Validity issue is considered solely by the Patent Reexamination Board (part of Patent Office) –Filing of an invalidity proceeding will not stay any civil action or administrative action involving an invention patent but may stay a utility model

17. Patent Enforcement Damages –Court filing fee is calculated based on the damage claimed –Methods of measuring damages (i) monetary loss to the patent owner, (ii) if (i) is not available, monetary profits to the infringer, (iii) if (i)-(ii) are not available, up to three times a reasonable royalty, or (iv) if (i)-(iii) are not available statutory damages of RMB10,000 to 1,000,000 Trial –A bench trial conducted in one or two hearings –Tried by a panel of three judges with a majority verdict –Evidence obtained abroad must be notarized and legalized, and all documents must be in Chinese

18. Patent Enforcement Trial (con’d) –A written judgment must be signed by the judge, clerk and sealed by the people’s court –Prior decision may not be followed as precedent –In major cities, a body of law essentially based on precedent is evolving that is enforced by the appellate courts Appeal –A litigant has a right of appeal to the people’s court at the next higher level (High People’s court) –Two-instance trial system, the decision from the appellate court is final

19. Infringement Claim Construction –Intrinsic evidence –Extrinsic evidence Determination of Infringement –Literal (all-limitation rule) –Doctrine of equivalents (e.g., dedication to the public rule) –Prosecution history estoppel/argument based estoppel –Indirect infringement (contributory and inducement)

20. Defenses Prior use Experimental use For regulatory approval purpose (Bolar Exception) Prior art defense

21. SPC (2012): Zhongyi v. Shanghai Jiuying 2009 Zhongyi filed a complaint of patent infringement with Shanghai 2 nd Intermediate People’s Court, on its utility model filed in April 2007 against Shanghai Jiuying Beijing High People’s Court finally affirmed claims 1-2 invalid and claim 3 valid. 1 st instance court: accepted prior art defense and found non- infringement based on a prior art reference (2005) and common knowledge 2 nd instance court: denied applying DOE based on estoppel and found non-infringement (no prior art defense due to the difference between the art and product)

22. SPC (2012): Zhongyi v. Shanghai Jiuying SPC on estoppel only applicable when the applicant/patentee abandons certain claim scope himself by narrowing claims or construing claims narrowly In this case, the patentee did not abandon any claim scope but the broad claims were declared invalid by the Board/courts. Thus, infringement was found under DOE.

23. Trade Secrets Definition –The Anti-Unfair Competition Law (effective September 2, 1993), Article 10 –It refers to “the utilized technical information and business information which is unknown by the public, which may create business interests or profit for its legal owners, and which is maintained secrecy by its legal owners.” Misappropriation –Article 10, illegal means to acquire and breach of agreement

24. Trade Secrets Burden of Proof –P: (1) existence of trade secrets [including the carriers, specific contents, commercial values of the trade secrets as well as the specific confidentiality measures taken to protect the trade secrets]; (2) the ownership; (3) proper measures to maintain; (4) the same information used by D; (5) access to the secrets; and (6) injury –D: (1) public availability of the secrets; (3) improper measures to maintain; (3) different information being used; and (4) legal means to obtain

25. Trade Secrets Contract Law (1999) –Article 43: neither party may disclose or inappropriately exploit the trade secret obtained in negotiating a contract, whether or not the contract is executed Company Law (2006) –Article 149: directors or managers of a company shall not illegally disclose the company’s trade secrets Labor Law (1995) –Article 22: an employer and employee can enter into a confidentiality agreement regarding the employer’s trade secrets in a labor contract Labor Contract Law (2008) –Article 23: an employer may impose confidentiality obligations on the employees in a labor contract regarding the employer’s trade secrets

26. Trade Secrets Judicial Interpretations on Civil Cases Involving Unfair Competition –Sufficient actions to keep confidential: 1.Limit the range where the confidential information can be known. The content of the information shall be only open to relevant people who must know it; 2.Take such preventive measures as locking the carriers of the confidential information; 3.Label confidentiality indications on the carriers of the confidential information; 4.Use passwords or codes for the carriers of the confidential information; 5.Sign confidentiality agreements; 6.Limit visitors to or propose confidentiality requirements as for the machines, workshops, and others locations related to the confidential information; 7.Other reasonable measures to maintain confidential information

27. Trade Secrets Contractual Protection of Trade Secrets –Confidentiality Agreement –Non-compete Agreement, limited to senior managers, senior technical personnel, or others with confidential obligations –License Agreement: clauses relating to definition of confidentiality information, obligations of the licensee, time period, termination of contract, right to audit for compliance, etc [additional CDA with licensee’s employees, request licensee to set up policies] –Other Agreements

28. Thank you! Qinghong Xu, Ph.D., J.D. Lung Tin International Intellectual Property Agent Ltd. Tel: 86 10 84891188 Fax: 86 10 84891189 Email: LTBJ@lungtin.com