Newsletter January 2021

With a judicial tendency of strengthening IP protection, the Supreme People’s Court specially issued the judicial interpretation, “Several Provisions of the Supreme People’s Court on Evidence for Civil Lawsuits Involving Intellectual Property” (hereinafter “the Provisions”) to try to break the dilemma. The Provisions came into effect on November 18, 2020, and make many significant breakthroughs to effectively reduce the IPR holder’s burden of proof in civil lawsuit, which are summarized as follows:

1. Effectively reducing the burden of proof for IPR holders whose patented process does not produce a new product

Article 3 of the Provisions stipulates that where an IPR holder (the plaintiff) whose patented process does not manufacture a new product has fulfilled the burden of proof for the following facts:

(1) the product manufactured by the defendant is identical to that manufactured by the patented process;

(2) the product manufactured by the defendant is more likely to be produced by the patented process;

(3) the IPR holder (the plaintiff) had made reasonable efforts to prove the defendant’s use of the patented process,

the court may transfer the burden of proof to the defendant, requiring them to produce evidence to prove that their manufacturing process is different to the patented process.

2. Setting up a remedy of evidence preservation, obstruction and punishment

With respect to evidence preservation conducted by the court, Articles 13 and 14 of the Provisions further emphasize that where the defendant, without reasonable ground, refuses to cooperate or interferes with the court’s action of evidence preservation so that the evidence could not be preserved, or where the defendant, without authorization, conducts the acts of disassembling, tampering with or any other acts of destroying the evidence successfully preserved so that the evidence could not be used, the defendant shall bear all the adverse consequences arising therefrom. Furthermore, where such acts constitute judicial nuisance, the defendant will be punished with fines, detainment and even criminal sanction.

3. Citing mandatory submission orders of evidence and evidence presumption

In consideration that some critical evidence is controlled by the defendant, and the IPR holder is unable to acquire it, under the basic principle of “who claims, who adduces evidence”, Article 24 of the Provisions further allows the court, according to characteristics of evidence in different civil lawsuits, to directly issue mandatory submission orders to the defendant who possesses the evidence, ordering them to submit relevant evidence. Article 25 further stipulates that where the defendant, without proper grounds, refuses to submit, submits false evidence or destroys evidence or conducts any other acts that make the evidence unusable, the IPR holder’s corresponding claims relating to the evidence will be presumed tenable.

4. Expanding the scope of evidence regarding damages

In order for further improving current issue of “high amount of claim but low amount of award of damages”, Article 31 of the Provisions expands the scope of evidence regarding damages, IPR holder is allowed to adduce the evidences including but not limited the financial accounts, sales contract, annual reports, prospectuses, records on the websites or brochures, transaction data stored in equipment systems, commodity circulation data from third-party platforms, evaluation reports, licensing contracts, and records from relevant authorities of market supervision, taxation and financial departments, etc., to support its claims of damages.

Patent backlog is a global concern and, in Brazil, has acquired the status of insolvable problem along the last decades.

After several years of discussion, with several proposals on the table – including a very controversial one (i.e., the possibility of automatic grant of all pending patent applications) – INPI (the Brazilian PTO) introduced, in 2019, a new program (“Program”) for handling this matter, through Resolutions 240 and 241, of July 3^rd, 2019, jointly issued by its Presidency and the Director of Patents, Computer Programs, and Topography of Integrated Circuits (DIRPA).

Resolution 240 (in force since Aug/01/2019): “governs the preliminary requirement for the application for patent of invention pending examination, without searches conducted in Patent Offices of other countries, International or Regional Organizations” and Resolution 241 (in force since Jul/22/2019) “governs the preliminary requirement for the application for patent of invention pending examination, by using the result of searches conducted in Patent Offices of other countries, International or Regional Organizations”.

These Resolutions regulate the tackling of a challenging backlog reduction target of 80% in 2 years. For that, two preliminary requirements (orders 6.21 and 6.22) were established with the rationale of optimizing the examination by means of the issuance of standardized priority search reports.

Received with great enthusiasm by the affected community, the Program is inserted in the context of several recent initiatives adopted by INPI aiming at excelling in terms of operational performance as well as strengthening its position as an agency which effectively promotes enhancements in the productive and competitive environment.

For instance, the intensive investment in information technology and teleworking proved to be the right way especially within the context of COVID-19. Such initiatives trends to be catalyzed by the Intellectual Property National Strategy (ENPI), officially launched by the Brazilian government in December 2020, as part of the celebration of INPI’s 50^th anniversary, which proposes 210 initiatives to transform the Brazilian IP system along the next decade.

In order to provide the society with full transparency and real-time monitoring as to the evolution of the Program, INPI has a specific page in its website (https://www.gov.br/inpi/pt-br/servicos/patentes/plano-de-combate-ao-backlog), which includes the supports received from national and international entities representing the most diverse sectors and types, including those defending a bigger restriction to the grant of patents.

Tangible results can already be noted. Of the nearly 150,000 applications mapped in the beginning of the program (August 2019), around 75,000 had already been examined on December 2020, a remarkable (and symbolic) reduction of 50% in only one and a half year.

Overcoming such a critical and historical problem and bringing the patent examination timeframe to reasonable parameters allow a new and promising perspective for the national and foreign entrepreneurs and companies intending to protect their innovative assets in Brazil, therefore fostering and benefiting all of the Brazilian productive and competitive ecosystem. Brazil is (definitely) coming back to the patent game.

The Supreme Court unanimously upheld the High Court’s 2017 decision which held that as an alternative to an injunction a Defendant could enter into a licence on FRAND terms, which would be determined by the court. The High Court determined the terms of a global FRAND licence to be offered by Unwired Planet to handset manufacturer Huawei as an alternative to an injunction against infringement of two UK patents.

The Supreme Court upheld the High Court’s judgment, and also provided guidance on:

i) When a global licence will be FRAND;
ii) In what circumstances the UK will be the suitable forum to determine a FRAND licence;
iii) Whether licensors are obliged to offer all licensees the lowest rate they have offered elsewhere; and
iv) The effect of the CJEU’s judgment in Huawei v ZTE.

The Supreme Court's decision was given in the context of appeals in two separate cases. In one appeal patentee Unwired Planet sought an injunction against further infringement of its patents unless Huawei took a FRAND license, and the determination of what a FRAND licence should be. In the other case Conversant sought similar relief against Huawei and ZTE.

The Supreme Court's decision can be accessed online here.

Global Licensing

The judges of the Supreme Court reached a unanimous decision that the UK courts could determine the terms of a global licence, including the per-patent royalty rates for patents said to be essential to 2G, 3G and 4G. The royalties that could be determined could relate to patents in force in other jurisdictions, even where there were existing proceedings between the parties as to the validity and essentiality of those patents in the foreign jurisdiction.

In reaching their decision the Supreme Court relied on the terms of the undertakings entered into by SEP holders, in particular those of the European Telecommunications Standards Institute (ETSI). The court determined that based on those undertakings, and in the context of the standards in question, a global licence was FRAND. On that basis, an implementer could be subjected to a UK injunction based on a standard essential UK patent if it refused to enter into a global licence to the patents owned by the patentee.

The court also strongly implied that the decision would remain the same if considering the undertakings of the International Telecommunications Union (ITU).

It remains possible that for certain parties, industries, technical fields, or types of portfolio, a global licence may not be FRAND.

Suitable Forum

The English court determined that the evidence submitted before the lower courts was insufficient to show that there was an alternative jurisdiction in which the court would set the terms of a global licence. For that reason, there was no basis to interfere with their decision that England was the appropriate forum.

In future cases where the court is satisfied of the ability of one or more foreign courts to set a global FRAND licence, it will be necessary for the English courts to decide questions that were not answered by the Supreme Court. In particular, the English courts will have to reach a conclusion on (a) the question of whether FRAND litigation is properly characterised as a claim for settlement of a licence, or whether it is a claim for infringement of patents with a contractual defence; and (b) in each case whether England is the natural forum for the determination of the issues in the claim, according to the approach set out by the House of Lords in 1986 in The Spiliada (link).

Discrimination

The Supreme Court was asked to decide whether the 'non-discrimination' part of FRAND meant that the Claimant was obliged to give an offer to Huawei at the same rate at which it gave an offer to Samsung. This rate was lower than that settled by the court in the global FRAND licence.

The Supreme Court decided it was not necessary for an offer to match the lowest offer given to a similarly situated licensee, the effect of the non-discrimination limb was general and not 'hard-edged'.

Safe Harbour

The Supreme Court also considered the effect of the CJEU's decision in Huawei v ZTE (link). They held that the behaviour set out in Huawei v ZTE provides a safe harbour within which conduct will not be anticompetitive, but that this did not mean that conduct which did not strictly comply with the CJEU's decision would be inherently anticompetitive. The Claimant had not acted abusively, as it was willing to grant a licence on whatever terms the court deemed to be FRAND.

Licence Terms

The Supreme Court considered that some potential issues with global licensing could be addressed by the use of adjustment clauses, that allowed overseas decisions about the essentiality and validity of patents to cause an adjustment of the rate in the UK licence. The Supreme Court did not, however, consider whether the licence could account for royalty rates set by foreign courts in respect of the patents in their jurisdiction.

The question of whether adjustment clauses will be FRAND will be dictated by the extent to which they have the potential to reduce uncertainty in the royalty rate under the licence. For important jurisdictions (in terms of sales volume) such clauses are more likely to be FRAND, particularly where the cost of the necessary litigation in that jurisdiction is proportionate.