Tuesday, November 28, 2017

Some Transparency Into Chinese Patent Litigation

Despite knowing its growing importance in global IP, I've always kept the Chinese patent system at bay in my research. I primarily focus on the U.S. Patent system (which keeps me plenty busy) and, more important, there is very little transparency in Chinese litigation. It's a different language and courts did not routinely report their decisions until very recently.

There's been some movement, though. The language remains the same, but the courts are reporting more decisions.  They are supposed to be reporting all of them, in fact. So Renjun Bian (JSD Candidate, Berkeley Law) has leveraged this new reporting to provide some details in Many Things You Know about Patent Infringement Litigation in China Are Wrong, on SSRN. The good news for me is that I don't really know anything about patent infringement litigation in China, so I'm unlikely to be wrong. But that didn't stop me from reading:
As the Chinese government continues to stimulate domestic innovation and patent activities via a variety of policies, China has become a world leader in both patent applications and litigation. These major developments have made China an integral venue of international patent protection for inventors and entrepreneurs worldwide. However, due to the lack of judicial transparency before 2014, westerners had virtually no access to Chinese patent litigation data and knew little about how Chinese courts adjudicated patent cases. Instead, outside observers were left with a variety of impressions and guesses based on the text of Chinese law and the limited number of cases released by the press. Taking advantage of ongoing judicial reform in China, including mandated public access to all judgments made since January 1, 2014 via a database called China Judgements Online (CJO), this paper analyzes 1,663 patent infringement judgments – all publicly available final patent infringement cases decided by local people’s courts in 2014. Surprisingly, many findings in this paper contradict long-standing beliefs held by westerners about patent enforcement in China. One prominent example is that foreign patent holders were as likely to litigate as domestic patent holders, and received noticeably better results – higher win rate, injunction rate, and average damages. Another example is that all plaintiffs won in 80.16% of all patent infringement cases and got permanent injunctions automatically in 90.25% of cases whose courts found patent infringement, indicating stronger patent protection in China than one might expect.
Yes, you read that right: plaintiffs win 80% of the time and 90% of the winners get a permanent injunction. The win rates are affirmed on appeal most the time. I'll admit that while I didn't know anything, it didn't stop me from having a vision of a place where you could get no relief, but that appears not to be the case. More on this below.

The 90% injunction rate is misleading. The two primary reasons injunctions were not granted were failure to ask and expired patent. In short, plaintiffs with valid patents received the injunctions they requested.

Damages, on the other hand, were another story. Damages awarded would make US Plaintiffs faint: mean of $12K, median of $4.8K. That's not a typo: median damages under $5000. I'm sure cost of living is lower, but I don't see a lot of contingent fee opportunities out there. Then again, I like the idea that patentees with low damages claims can cheaply enforce their patents. It is something I think is severely lacking in the U.S. system.

This odd juxtaposition makes me wonder whether there's a good experiment here about the value of injunctions. For those who believe that eBay was the beginning of the end of patent value, it would be useful to look at the settlement rates in China (we don't have that - see limitations below) as well as the number and types of claims by PAEs. If injunctions are valuable, for example, we might expect PAEs to be drawn to litigation because of the injunction risk and settlements. I think there are different permutations based on how damages are viewed, but the differences seem worthy of study.

There is a lot more data in the paper - about the type of patents, the technology, foreign v. domestic, and so forth. There is really a wealth of information here, and I don't want to give it all away. The paper is worth reading to see all the information it reports.

Finally, a couple of caveats about the study. First, this is the affirmative infringement case only. China apparently uses a bifurcated system, where validity is tested separately. The author intends to complete a followup paper that includes validity case information. Hopefully that will tie the infringement cases to the validity cases - perhaps there is a lot of infringement because the patents are broad and thus invalid. Second, these are judgments. We don't know how many cases led to these judgments. In the U.S. 90% of cases settle, but with damages this low, maybe fewer settle, but maybe not, given the injunction risk. Third, relief in the courts is not the same as relief in practice. I know little of enforcement in China, but winning in court will mean little if the injunctions cannot be asserted to remove infringing products from the market.

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