Abstract

The current judicial interpretations have established a system of "rule to dismiss the action first and initiate a separate action" to save judicial resources and improve the efficiency of patent infringement action trial. After a patent has been declared invalid by the China National Intellectual Property Administration (CNIPA), the court that tries the patent infringement dispute may procedurally rule to dismiss the action. However, under such circumstances, is it possible for the accused infringing party to initiate an action for confirmation of non-infringement? In this article, the author discusses this issue in reference to a judgement made by the Supreme Court.

KEYWORDS Patent infringement, Rule to dismiss the action first, Action for non-infringement

The system of "rule to dismiss the action first and initiate a separate action"¹ means that in civil action for patent infringement, after the CNIPA has made a decision to declare the patent invalid, the court that tries the patent infringement dispute may procedurally rule to dismiss the action without waiting for the final outcome of the administrative action and provide a way of judicial remedy to the right holder through the "separate action". This system is conducive to balancing the interests of both parties, improving the efficiency of patent infringement action trial, and reducing the adverse impact caused on the parties by the long period of patent action trial. However, the system does not and cannot fundamentally resolve related patent infringement disputes. The patentee can still use a variety of means (such as sending warning letters, lawyer letters, etc.) to urge the counterparty to cease the infringement, thereby affecting the counterparty's commercial behavior. Under such circumstance, is it possible for the accused infringing party to initiate an action for confirmation of non-infringement? The Supreme Court gave an affirmative answer in the (2020) Supreme Court IP Civil Final Trial Judgment No. 225.

Basic Facts

Zhang, a patentee, complained to the Beijing Intellectual Property Office for a bank (hereinafter referred to as “the bank”) infringing on his patent (hereinafter referred to as “the patent involved”). During the handling of this complaint, the patent involved was declared invalid completely by the CNIPA. Zhang was dissatisfied and filed an administrative action, alleging that the decision of invalidation would soon be revoked by the Beijing Intellectual Property Court, and sent an infringement warning letter to the bank involved, which was then in the critical stage of IPO preparation, on the basis that the patent involved was still shown as “maintained” on the website of the CNIPA. Meanwhile, Zhang demanded payment of high license fees of the patent involved, and threatened to take further measures if the bank refused to pay, including but not limited to complaining to the China Securities Regulatory Commission, taking legal action to claim infringement compensation, complaining to Apple Inc for removal of infringing apps, and applying for administrative infringement investigation and enforcement etc. Due to the complaints made by Zhang, the bank's app was removed from the App Store of Apple, which had a huge impact on the bank's business reputation and company operation.

Therefore, the bank initiated an action for confirmation of non-infringement of the patent right to the Guangzhou Intellectual Property Court. Subsequently, the Guangzhou Intellectual Property Court ruled that the action did not meet the conditions for case acceptance for the reasons that the patent had been declared invalid completely, and the invalid patent was deemed to be non-existent from the beginning. Thus, the court ruled not to accept the action. The bank was dissatisfied and appealed to the Supreme Court. The Supreme Court revoked the first-instance ruling and ordered the Guangzhou Intellectual Property Court to accept the action.

The Gist of Judgments of the Two Instances

        The first instance court held that: this case is an action for the dispute over confirmation of non-infringement of patent right, where the relevant civil entity actively exercises the right of action, requesting the court to confirm that its relevant behavior does not infringe on any other person's intellectual property right, the purpose is to eliminate the interference while whether it infringes any other person's intellectual property right is in a state of uncertainty. However, before the bank initiated the action, in this case, the patent involved had been declared invalid completely, which came into effect as soon as the decision was made, whether it is in the process of administrative action does not affect its effectiveness. In accordance with the provision of Article 47.1 of the Patent Law, any patent right which has been declared invalid shall be deemed to be non-existent from the beginning. Therefore, the bank's claim to confirm its non-infringement of the patent involved lacks a factual basis as the patent involved had been previously declared invalid completely. Consequently, the bank's action did not meet the conditions for case acceptance. Therefore, the court ruled not to accept the action.

The Supreme Court as the second instance court held that the dispute in this case focused on two issues: First, whether this case meets the conditions for an action for the dispute over confirmation of non-infringement of patent right; second, whether the decision of declaring the patent invalid causes the bank to lose its right of action.

For the former, the bank has formally sent a reminder letter to the patentee, while the patentee did not withdraw the warning or filed an infringement action so far, which has satisfied the two conditions as provided for in Article 18 in Interpretation of the Supreme Court on Several Issues concerning the Application of Law in the Trial of Patent Infringement Dispute Cases that the warning of the patentee has been received and the patentee neither withdraws the warning nor exercises the right of action after receipt of the reminder. Although the bank had not met the required duration of the period for the written reminder at the time of its action to the first-instance court, the first-instance court did not rule to reject the case on the ground that it did not meet the period conditions; Nevertheless, the case has entered the appellate stage due to other disputes., if the case is now rejected only on the ground that the period conditions are not met, it will undoubtedly lead to an idling procedure, increase the litigation burden of the parties, and is not conducive to the substantive resolution of disputes. Therefore, the court determined that the bank's action has met the statutory conditions for the action for the dispute over confirmation of non-infringement of patent right, in consideration of the fact that during the trial of second instance the bank's action has met the period conditions.

As for the latter, the decision of patent invalidation does not become legally effective as soon as it is made. Instead, it becomes legally effective when the party involved fails to initiate an action before the expiration of the period legally required, or a judgment that maintains the decision comes into effect. Therefore, when the decision of declaring the patent invalid is not effective, it cannot produce any effect of negating the validity of the patent right, and the infringement warning sent by the right holder still has a right basis. Correspondingly, the person being warned can also initiate an action for confirmation of non-infringement of patent right under the statutory conditions, so as to eliminate the anxiety caused by the receipt of the infringement warning.

        In summary, the bank's action meets the statutory conditions for the action for the dispute over confirmation of non-infringement of the patent right and shall be accepted by the first-instance court.

Brief Analysis of the Key Points in the Case

        In this case, the Supreme Court discussed the relationship between the invalidation of the patent right, the system of "rule to dismiss the action first", and the action for confirmation of non-infringement.

        First, the decision of patent invalidation does not become legally effective upon it is made.

        Article 46.1 of the Patent Law stipulates: "The Patent Reexamination Board shall examine the request for invalidation of the patent right promptly, make a decision on it and notify the person who made the request and the patentee. The decision declaring the patent right invalid shall be registered and announced by the patent administration department under the State Council". The above provision does not clearly stipulate the exact time point for the decision of patent invalidation become legally effective. There lacks direct basis for determining the effective time point of the decision of patent invalidation either in China's administrative or patent laws. Therefore, it should be judged according to the special nature of the patent right and the purpose of the patent authorization and confirmation.

        Patent right is an intangible property right that needs to be granted by the competent authority. The patent authorization and confirmation, as procedures for obtaining and maintaining the patent right, will lead to the establishment and loss of the exclusive right. The purpose thereof is to judge whether an invention-creation should be protected by the exclusive right, rather than taking administrative enforcement measures or granting executive force. Only when the administrative counterpart and interested parties waived their right of remedy or exhausted their right of remedy, is the decision of patent invalidation indisputable. At this time, the validity of the patent right may be finally determined. The procedures for patent authorization and confirmation in China include judicial remedy procedures. If the interested party is dissatisfied with the decision of patent invalidation, it may initiate judicial remedy procedures. The result of the judicial remedy procedures will affect the legal status of the patent right, which is the judging procedure in the judicial field of patent authorization and confirmation. Therefore, only when the period allowed for the above-mentioned action as stipulated in the Patent Law expires, and the interested party fails to initiate an action or the judicial judgment to maintain the decision of examination becomes legally effective, will the patent authorization and confirmation procedures come to an end in a true sense, thus the administrative counterpart and the interested parties are obligated not to engage in actions anymore, and the decision of patent invalidation is indisputable. Therefore, this time-point should be taken as the effective time point.

Second, when the decision of patent invalidation has not become effective, the person being warned may initiate an action for confirmation of non-infringement.

As mentioned above, the decision of patent invalidation does not become legally effective once it is made but takes effect when the time limit for action expires or the judicial judgment takes effect. In this case, Zhang, the patentee, has filed an administrative action with the Beijing Intellectual Property Court, and the decision of patent invalidation has not yet taken effect. Thus, as the person being warned, the bank has the right to initiate an action for confirmation of non-infringement of the patent right.

Lastly, the system of "rule to dismiss the action first" does not apply to the action for confirmation of non-infringement of patent right.

       In practice, there is an issue that is likely to cause confusion whether "rule to dismiss the action first" is applicable to the action for confirmation of non-infringement of patent right. The Supreme Court believes that this provision aims to improve the efficiency of the patent infringement dispute trial and reduce the impact of the long trial period, it shall only be applied to the action for non-infringement filed by the patentee, as stipulated by judicial interpretations. In contrast, the person being warned initiates an action for confirmation of non-infringement of patent right is to eliminate the anxiety caused by the infringement warning sent by the patentee. The purposes of the two systems are different. Therefore, "rule to dismiss the action first and initiate a separate action" stipulated in the judicial interpretations does not constitute an impediment to the party being warned to initiate an action for confirmation of non-infringement of patent right.

Further Discussion

The Supreme Court supports that after the patent has been declared invalid, the person being warned may initiate an action for confirmation of non-infringement of the patent right, which is undoubtedly beneficial for the person being warned to conduct business activities normally. As pointed out in the judgment, if the court determines that the act of the person being warned does not constitute infringement of the patent right after a trial, the court may directly make a judgment of non-infringement; if the court determines that it constitutes infringement of the patent right, in order to avoid a repeated outcome of the action, the trial may be suspended. However, regarding the latter situation, the author believes that this still does not provide sufficient remedy for the person being warned from the system perspective.

As we all know, China adopts a civil-administrative dual system of patent right enforcement and confirmation. After the patent right is declared invalid and entered into administrative action, due to the huge case amounts of the court, the action often lasts for 2-4 years. If the second-instance procedure, retrial procedure, and foreign-related factors are taken into further consideration, the case may be delayed for more than ten years. During this period, if the case is only suspended, the patentee can still send an infringement warning or file a complaint based on the patent right declared invalid. Thus, it is impossible for the person being warned and the respondent not to suffer aloss of business interests (such as impact on the production and sales of products, loss of trading opportunity, obstruction of the IPO listing process, or the circumstance as in this case where the App was removed, which affects the user's experience, thereby causing loss of users, etc.) Such loss can be huge. However, on the one hand, due to the lack of relevant civil causes and the theoretical possibility of future patent right restoration, the person being warned and the respondent also cannot file an action such as "dispute over the liability for harm caused by malicious institution of an intellectual property action", and they do not have any institutional channels to obtain remedy; on the other hand, it is also difficult for the person being warned and the respondent to obtain evidence to prove their losses. Even if they have successfully invalidated all the other party's patent right, they still cannot conduct business activities normally. It is hard to say that it is reasonable to cause irreparable loss of benefits to others based on an unstable right basis.

In this regard, the author suggests that the exercise of patent right that has been declared invalid (but the decision has not yet taken effect) should be restricted, and the patentee should be ordered to suspend the exercise of the right before the patent right is formally restored. For example, the court may issue interdict or behavior preservation with conditions (e.g., the person being warned and the respondent shall provide guarantee, promises and so on). Of course, the specific forms thereof still need to be discussed. The reasons are as follows:

First, compared with the inevitability of the loss of the person being warned and the respondent, the probability of restoration of the patent right is low, and thus it is the person being warned and the respondent that should obtain remedy. Indeed, there exists a theoretical possibility for a patent declared invalid to be restored, and it may cause economic losses if the patentee is not allowed to defend his right in the form of warning letters. However, practice shows that in administrative action, the possibility for the invalidation decision to be reversed is very low, which is no more than 15% in the author's experience. On the contrary, the loss of the person being warned and the respondent cannot be avoided, otherwise the patentee would not have to issue a warning or file a complaint.

Secondly, it is difficult to prove the loss (whether direct or indirect economic loss) of the person being warned and the respondent; in contrast, although there exists a certain degree of difficulty in proof for the patentee, it is relatively low; and the cost of obtaining compensation for the patentee can be further reduced in view of the fact that the person being warned and the respondent may be required to provide guarantees or related commitments. Allowing the person being warned and the respondent to carry out their business activities normally after the patent is declared invalid is more conducive to promoting market prosperity and economic development, and it is the lesser of two evils.

Thirdly, since the system of "rule to dismiss the action first" has already expressed a negative attitude towards the exercise of the right of an invalid patent, it can be inferred a fortiori that the patentee shall not be encouraged to exercise his right beyond the judicial channels, or at least the counterparty should have a way to obtain remedy.

¹ see Article 2 "Where the claims of a patentee in a patent infringement action is declared invalid by the Patent Reexamination Board, the court that tries the patent infringement dispute case may rule to dismiss the action which is initiated based on such invalid claims. Where there is evidence proving that the decision of declaring the invalidation of the aforesaid claims is set aside by an effective administrative judgment, the patentee may initiate a separate action" in Interpretation (II) of the Supreme Court on Several Issues concerning the Application of Law in the Trial of Patent Infringement Dispute Cases.