I. Defenses based on challenging the validity of Patents

The defenses based on challenging the validity of patents refer to an argument that the defendant denies plaintiff’s patent validity when being sued for patent infringement. The defense is drastic, and if successful, the plaintiff’s infringement claim will be found to be groundless, even to the effect that the patent rights will be stricken.

1． Defense Claiming Plaintiff’s Patent Invalid

China's Patent Law sets forth conditions and requirements for the patentability of inventions. For example, inventions and utility models must be novel, non-obvious and useful, and designs novel and original. A court entertaining a patent infringement suit should, upon defendant’s unequivocal claim as a defense that the plaintiff’s patent should be invalidated, and upon a motion to stay based on its request with the Patent Reexamination Board (PRB) for patent invalidation, allow such a stay of the present proceeding, pending a solution of the patent validity.

In judicial practice, some plaintiffs expressly state and offer evidence that the subject matter has been disclosed prior to the filing date of their applications. Defendants usually state their defense of patent invalidity, hence the invalidation proceedings. In such circumstances, mediation may be appropriate for a settlement, which often results in plaintiffs’ withdrawal of the infringement claims or defendants’ withdrawal of the invalidation requests. If no settlement is reached, the litigation may be suspended pending solution from the PRB on the patent validity issues. If the PRB finds the patent invalid, then the court proceeds to dismiss plaintiffs’ claims. If not, the court will resume the infringement proceedings.

2. Defense Claiming Patent Expiration

Article 42 of China’s Patent Law provides, “The duration of the invention patent right shall be 20 years and that of the utility model patent right or design patent right shall be ten years.” This means that patent protection has a statutory time limit, patented technologies will not be protected by the Patent Law beyond the statutory period of protection and will fall into public domain. Therefore, upon expiration of the patent, any exploitation of the patented technologies will not constitute an infringement upon the plaintiff’s patent rights. If the patentee sues others for patent infringement on the grounds of exploiting the patented technologies beyond the patent protection period, the defendant will win a hand down victory by simply arguing that the plaintiff’s patent rights have expired.

What is worth noting is whether a defense based on expiration of a patent may be sustained when the infringement lawsuit is brought after expiration, but infringement took place during the patent. We are of the view that such a defense cannot be established as long as the statute of limitation has not run out against the plaintiff. This is mainly because the alleged patent infringement has occurred during the patent. Even though the patent has expired at the time of plaintiff filed, it would not mitigate the fact that the alleged infringing act took place during the patent. Therefore, where the statute of limitation has not barred plaintiff’s action, defendant’s argument of patent expiration should not be sustained.

3. Defense Based on Patent Invalidity

The patent invalidity here refers to the status of a patent, which would be valid during the term of patent, but for one reason or another, has lost its validity due to some condition subsequent. Article 43 of China’s Patent Law provides that “The patentee shall pay annual fees commencing from the year when the patent right is granted.” Article 44 provides that “Under any of the following circumstances, the patent right shall be terminated before the expiration: 1) The annual fee as required is not paid; or 2) The patentee abandons the patent by a written declaration. Any patent terminated before expiration shall be recorded and published hence with by the patent authorities.”

Voluntary abandonment in writing, in judicial practice, is rare, but many patents may have lapsed due to nonpayment of annual fees. Therefore, a patentee is usually required to submit evidence that it has timely paid the annual fees when filing the lawsuit. It is particularly worth noting that the annual maintenance fee is mandatory and failure to pay results in loss a of patent rights which cannot be resurrected. Some patentees fail to pay the annual fees in time for various reasons, such as neglect or lack of money and try to sue later on when they find their patents exploited by others. A defendant could simply assert patent invalidity as a defense to rebut the plaintiff’s infringement allegation.

4. Defense Based on Prematurity of Patent

Under Chinese Patent Law, patent duration is counted from the date of application invention patents which are not rejected upon substantive examination, or utility models or designs not rejected upon preliminary examination, which will be issued Letters Patent, and recorded and published. The patent for invention, the utility model or design goes into effect on the date of publication. In other words, although China’s patent term is counted from the date of application, the patent is not effective until approval is published. Therefore, patent protection does not begin until publication.

Prior to the publication date, an application does not mature into a patent and an applicant is not legally a patentee and is therefore unable to bring any infringement lawsuit. Thus, a defendant may raise immaturity of patent as a defense if a plaintiff files an infringement lawsuit prior to publication of the patent. From the judicial practice perspective, sometimes the Patent Administration Department under the State Council has decided to grant the patent rights and issued the patent certificates accordingly, but has not yet made an announcement of the patent rights. But the patentee erroneously thinks that it has obtained the patent certificate and is entitled to sue others over infringement, therefore, the patentee files a lawsuit prior to the announcement of the patent rights. At this time, the patentee will face the embarrassing difficulty of winning the lawsuit if the defendant asserts the plaintiff’s patent rights have not taken effect. The most undesirable result is that the plaintiff's rash behavior may alert its competitors, expose its patent strategies and market dispositions, possibly leading to consequences that are not worth a candle.

I. Defenses Based on the Non-Infringement Argument

Non-infringement refers to a defendants act which does not constitute infringement upon the plaintiff’s patent as alleged by the plaintiff. Generally the defendant does not question the validity of the patent, but merely denies that its act constitutes infringement.

1. “Not For Commercial Purpose”

Article 11 of China’s Patent Law provides that the infringing act must be for manufacturing or commercial purpose, i.e., it is an affirmative defense that the defendant’s act was not for manufacturing or commercial purposes. For example, if the plaintiff’s patent is a method of extracting juice, and the defendant uses the method and is sued, then it could argue in court that his use of the method was only to satisfy the personal or family needs, and does not have any manufacturing or commercial purpose. If no extracted juice has entered the market there is no unjust enrichment, and therefore, the defendant's may successfully rebut the plaintiff's infringement allegation.

2. Act Does Not Fall Within Scope of Patent Protection

Under Article 11 of China’s Patent Law, acts that infringe an invention patent or a utility model patent right includes the violating the following enumerated rights: production, use, offer to sell, sale, or importation. These rights apply to either the patented products or products acquired directly through the patented method. It is infringement to engage in any of these protected rights for production and business purposes without consent from the patent holder. In other words these rights are the patentee’s exclusive rights.

In terms of design patent, production, offer to sell, sale or importation of the design patent products for manufacturing and commercial purposes are the patentee’s exclusive rights. Unauthorized acts may lead to patent infringement. Acts not mentioned above do not fall within the scope of the patentee’s exclusive rights and are not infringement. Therefore, if the defendant’s use does fall not within these acts, the defense that the act is not statutory infringement is tenable and do not infringe. If the plaintiff sues for infringement, but the defendant asserts that it has not engaged in one of these acts and the defendant’s assertion is tenable, there is no infringement of the plaintiff’s design patent rights.

3. Prior Art, Technology or Design

Defenses based on prior arts refer to the argument the defendant makes against plaintiff’s infringement allegation that it merely practiced prior arts. Opinions have long been split among scholars and the judiciary as well over whether prior art ought to be treated as a non-infringement defense or an affirmative defense. For a long time, the majority view has considered the prior art defense as an affirmative defense.

Since the affirmative defense is premised on the alleged infringing product falling within the perimeters of the patent, a court will have to first ascertain whether this is the case when the defendant asserts the prior art defense, and if so, the court must then evaluate the defense. This appears to be a very strict practice and gives the court little maneuverability. It is particularly so in cases where it is much more difficult to determine whether the alleged infringing product falls within the scope of patent protection than to see that is prior art, which is a waste of judicial resources at the expense of litigation efficacy.

However, in recent years, more people take the view that the prior art defense is a non-infringement defense: whenever the defendant proves that the alleged infringing product is in the prior arts, a per se non-infringement is established, regardless of whether it falls within the perimeters of the patent protection. As a matter of fact, there are judicial occasionally decisions contradictory to this view. For example, the Beijing High People’s Court expressly held in the trial of a utility model patent case in connection with “a type of soft and foamy fillings with strengthening hard layers” that:

In a patent infringement case involving utility model, when the alleged infringer asserts prior art defense, it may be resolved either by first determining whether the alleged infringing technology is in the realm of prior art on basis of determining whether the alleged technology literally or equivalently infringes the patent, or by first determining whether the alleged infringing technology is in the realm of prior art. What is meant by prior art defense is that the alleged infringing technology is identical with or equivalent to the prior art. If it can be determined that the alleged infringing technology simply practices the prior art, non-infringement is established without need to further discuss whatever literal or equivalent infringement.

Although views are still split among scholars and in practice, it has been gradually recognized by legislation and the majority of courts. For example, China’s current Patent Law adopts such view in Article 62 where it states: “It shall not be patent infringement if an alleged infringer proves by evidence that it has practiced prior art pertaining to a technology or design.” The Supreme People’s Court also directed in the Interpretations on Certain Issues Concerning the Application of Law in the Trial of Patent Infringement Cases (Fa Shi [2009] No. 21) (December 21, 2009), Art. 14, “If all the elements of an accused product that fall within the scope of patent protection are identical with, or are insubstantially different from, a prior art, the people’s court shall hold that the alleged infringer has practiced the prior art within the meaning of Article 62 of the Patent Law. If an accused design is identical to, or is insubstantially different from, a prior art, the people's court shall hold that the alleged infringer has practiced the prior art design within the meaning of Article 62 of the Patent Law.”

II. Affirmative Defenses to Patent Infringement

Affirmative defenses to patent infringement refer to the statutory exceptions to an otherwise full-fledged patent infringement. These exceptions are based on fairness, equity, or sovereign mutuality of immunities. The difference between affirmative defense and a non-infringement defense lies in that the former would have objectively met all the limitations of a patent, but for the special statutory provisions, will nonetheless be immune from infringement liabilities; the latter, on the other hand, does not objectively meet all the limitations of a patent, and thus does not, by law, constitute patent infringement. In terms of the provisions of China’s Patent Law, affirmative defenses to patent infringement are mainly stipulated in Article 69 of the Law.

1. Exhaustion

Under the Doctrine of Exhaustion, the defendant argues that the disputed product has first been sold by the patentee or a licensee. Generally speaking, a patentee, after first lawful sale of his patented product, may not have a second bite to assert his patent in further use of the product, and anyone is free to use the product without infringement liabilities. This is the Doctrine of Exhaustion. The exhaustion defense is based on the doctrine that if the patentee has disposed of his right, then any use of the underlying product will naturally not be constrained by the patent right and will not be deemed to constitute acts of patent infringement either.

According to Article 69(1) of China’s Patent Law, the following circumstance shall not be deemed as a patent right infringement: after a patented product or a product directly obtained by using the patented method is sold by the patentee or sold by any organization or individual with licensing from the patentee, any other person uses, offers to sell, sells or imports that product. When the plaintiff sues the defendant over infringement, the defendant may argue that his acts do not constitute infringement on the basis that the alleged infringing product was sold by the patentee or by any licensee with licensing from the patentee. Of course, the defense is conditioned on the premise that the alleged infringing product does fall into the scope of protection of the plaintiff’s patent rights or is the patented product of the plaintiff. If the alleged infringing product does not fall into the scope of protection of the plaintiff’s patent rights, then no defense on the ground of exhaustion of rights shall be applied.

2. Prior User Right

The prior user right defense refers to the argument that in patent infringement litigation, prior to the date of the patent application, the defendant had already made pertinent products, used the pertinent methods or had made necessary preparations for the production or usage and will continue to make or use it within the original scope. According to Article 69(2) of China’s Patent Law, the following circumstance shall not be deemed as a patent right infringement. Before the date of application, any person has already made identical products, used identical methods or has made necessary preparations for the production or usage and is allowed to continue to produce or use it within the original scope. The “original scope” here includes the existing production scale and use of the existing production equipment, or possible production scale based on the existing production scale; the “necessary preparations for the production or usage” includes completion, prior to the date of the patent application, of main technical drawings and documents necessary for the implementation of inventions or of main equipment or raw materials necessary for the implementation of inventions through production or purchase.

It is worth noting that application of the defense on the ground of right of first use is conditioned on the premise that the technology or product design the defendant has actually used or plans to use prior to the application date of the plaintiff should belong to the same technology or design as the alleged technology or design and fall within the protection scope of the plaintiff’s patent right. In addition, the alleged infringer shall not claim the defense on the ground of right of first use on the basis of illegally obtained technology or design. The first use right holder, after the application date of the patent, transfers or licenses the technology or design which has been implemented or about to be implemented after necessary preparations, to others, the people’s court will not support claims by the licensee or the transferee that its implementation falls within the original scope, unless the technology or design is transferred or licensed altogether with the original enterprise.

3. Transient Transportation

The transient transportation defense means that the plaintiff complains that the defendant infringes its patent rights as the defendant passes through the territory, territorial waters, or territorial airspace of China, or uses the relevant patent in its devices and installations for its own needs, and then the defendant argues that it temporarily passes through the territory, territorial waters, or territorial airspace of China, uses the relevant patent in its devices and installations for its own needs, in accordance with the agreement concluded between that foreign country and China, or in accordance with any international treaty to which both countries have acceded, or on the basis of the principle of mutual benefit. The defense should be conditioned on the premise that the means of transportation that temporarily passes and the relevant devices and installations have objectively fallen within the protection scope of the plaintiff’s patent right, but will not be deemed to constitute patent infringement in accordance with the relevant international treaties or on the basis of the principle of mutual benefit. Although China’s Patent Law stipulates the defense on the ground of use in transit, the judicial practice for the past 30 years has not resulted in any success stories with claims for the defense of use in transit to repel allegations of patent infringement from the plaintiff.

4. Experimental Use

The experimental use defense refers to the assertion by the defendant that the alleged act is for the purposes of scientific researches and experiments as a defense to repel allegations of patent infringement by the plaintiff. The history of human kind is also a history of the development of science and technology, and the development of science and technology has always been striding forward and standing on the shoulders of predecessors, thus the patent system shall not hinder the development of science and technology in its mission to protect the interests of the patentees. Scientific research and experiments on others’ patented technologies are always permitted for understanding, verifying and upgrading patented technologies, and will possibly create new technologies on the basis of the patented technologies. Therefore, protection of patent rights should not hinder use of the relevant patents for the purposes of scientific research and experimentation.

It is worth noting that Article 69 of China’s Patent Law provides that “use of the relevant patents specially for the purposes of scientific researches and experiments” will not constitute patent infringement. The “specially” here defines the sole directionality of the purposes or objectives of the relevant patent. The use is solely for the purposes of scientific researches and experiments. If the use of the patent does not fall within this statutory definition it is infringement.

5. Drug and Medical Appliance Approval

Anyone can freely implement patents of drugs or medical equipment upon expiry of the patents, but due to cumbersome administrative approval procedures for drugs and medical equipment, the administrative approval procedures and clinical trial processes last too long. Upon expiry of patents of drugs or medical equipment, others begin to implement the patents and it will take a long time from the implementation to the marketing of the relevant products. During this period, although the patents have expired, the patentee continues to have the de facto exclusive right, and the patent rights basically exist in name but not in reality, which goes against the balance of interests doctrine and is not beneficial to the interests of the patients.

Therefore, in the 1990s the US Federal court, in hearing a case about patented drugs, established the following defense principle: production of drugs which fall into the protection scope of others’ patent rights for the purpose of obtaining regulatory approval shall not be deemed to constitute infringement upon the patent right; this is called the “Bolar Exception.” After China’s entry into the World Trade Organization, the Chinese courts have encountered similar cases from time to time. Defendants cited different circumstances as defenses on the grounds of non-infringement. Some asserted the statutory circumstance of “scientific researches and experiments.” Others asserted the circumstance of “non-infringement not for the purpose of production and business.”

The 2008 Patent Law, third amendment, provided that the act fell within the statutory exemption circumstances that were not deemed to constitute patent infringement. Specifically, Article 69(5) of the current Patent Law provides, “production, use, or importation of patented drugs or patented medical equipment, for the purposes of providing information required for administration examination and approval, or production, use, or importation of patented drugs or patented medical equipment specially for that purpose” will not be deemed to constitute patent infringement. As a matter of fact, the act is only aimed at implementing the patent for the purpose of production and business upon expiry of the plaintiff’s patent rights. It does not belong to an act of implementation of the plaintiff’s patents for the purpose of production and business within the validity period of the plaintiff’s patent rights, namely, the purpose of the examination is directed beyond the validity period of protection of the plaintiff’s patents, not in the validity period. Therefore, the act shall not be deemed to constitute patent infringement.

III. Exemption of Special Liability

The three defenses named above (defense on the ground of invalidation of the plaintiff’s patent rights, non-infringement of patent rights, and acts not deemed as patent infringement) state the defendant’s acts do not constitute infringement. China’s Patent Law also permits defense on the grounds of partial exemption of liability: the exemption of liability defense. The exemption of liability defense is different from the non-infringement defense. The former assert exemption from infringement liabilities after infringement has been determined. The latter means an utter denial of patent infringement. The two are connected in that the non-infringement defense naturally includes the exemption of liability defense. If the non-infringement defense is successful, the defendant will not bear any infringement liability. This means exemption from infringement liabilities for the defendant. While the exemption of liability defense usually exempts partial liabilities of the defendant and it is not possible to exempt all of the infringement liabilities of the defendant.

If the exemption of liability defense is successful, the exempted liabilities are only the infringement liabilities claimed by the patentees. The exemption of liability defense on the other hand is exemption for all liabilities. Compared with non-infringement liabilities, whether the former exempts all liabilities depends on claims of the plaintiff. Consequently it is not a genuine exemption of all liabilities. Therefore, the article classifies it as special exemption, while the latter is the defense of exemption of all liabilities on the basis of statutory reasons. In this sense, the non-infringement defense is a general exemption defense which exempts all liabilities. The general exemption of liability defense, in a broad sense, includes the non-infringement defense of exemption of all infringement liabilities of the defendant. The exemption of liability defense, in the narrow sense, refers to special exemption of infringement liabilities.

1. Exemption from Damages

The exemption of damages defense is a relatively common exemption defense, which means the defense the defendant makes to exempt its liabilities after the defendant has been determined to have infringed the plaintiff’s patent rights. In patent infringement litigation, the typical exemption of liability defense refers to the defense of exemption of liabilities of the seller who acts in good faith and is able to prove the legitimate source of the infringing products.

Article 70 of the China Patent Law provides that “Where an organization or individual, for the production and business purposes, utilizes, offers to sell or sells a patent infringing product without knowing that such a product is produced and sold without licensing from the patentee, they shall not be liable for compensation provided the legitimate source of the product can be proved.”

It is worth emphasizing here that the exemption of liabilities for the seller of the patented products requires not only proof of the legitimate source of the product, but also the condition of good faith. If the seller does not have objective good faith, the seller should bear compensation liabilities even though it is able to provide the legitimate source of the product. In addition, the seller that is able to provide the legitimate source of the product is only exempted from past compensation liabilities. The seller must cease infringement liabilities from that point forward.

2. Exemption from Injunctive Relief

China's Patent Law provides that a plaintiff in patent infringement litigation may seek injunctive relief against a defendant. It is virtually unheard of for a court not to grant injunctive relief if infringement is found. It is usually granted even if the defendant ceased the infringing acts long before the lawsuit. The difficulty in enforcement arising from wide application of injunctive relief has attracted much attention. Some scholars are also discussing circumstances where the defendant is exempted from injunctive relief. In judicial practice, when the defendant claims it is not subject to injunctive relief, the defense often includes possible impairment of the public interest, factual impossibility and possibly high costs. Judging from some successful defenses, although the defendant is exempted from injunctive relief, the defendant will usually pay more in compensation, or the people’s court will assess the royalties payable to the patentees.

The author is Judge of the IP Division of the Beijing Higher People’s Court.