Notable Revisions on Chinese Patent Law: Compulsory License and Its Impact on U.S. Patent Holding Companies and Pharmaceutical Companies

As some of you may know, Chinese Patent Law has gone through revision recently. On December 27, 2009, the Chinese government has approved the revision and the new law will take effect on October 1, 2009. We provide our preliminary analysis below.

One significant change occurs in Chapter 6 – “Compulsory License of Patent Enforcement.” Previously, the law was not clear as to under what circumstances the Chinese government may impose a compulsory license. Pursuant to the old Section 48, if a potential licensee requested a patent license “under a reasonable condition,” but has not got the license after “a reasonable time,” the Chinese government may impose a compulsory license. No explanation was given as to what is a “reasonable” condition or time.

The new Section 48 is more detailed. It states now that a compulsory license may be imposed “if (1) after 3 years since the patent issued and 4 years since the application was filed, the patentee does not have a reasonable justification as to why it has not practiced or sufficiently practiced such patent, or (2) the patentee’s enforcement acts are deemed as a monopoly, and [the Chinese government may impose a compulsory license] to negate or reduce its monopoly effects.”

Note that the Chinese government also passed its first ever comprehensive anti-monopoly legislation in 2008. It remains to be seen, however, how this new anti-monopoly law will shape the IP policies in China.

Nonetheless, the new compulsory chapter appears to be the Chinese government’s response to limit foreign patentees’ ability to seek “unreasonable” royalties from Chinese companies. In particular, the new law will have serious consequences for licensing companies that do not practice the patents themselves, although it is not clear at this point whether a licensing company (i.e., a patent holding company) can rely on related corporate entities that do practice the patents to avoid compulsory licenses.

In addition, the new law beefs up the provisions for compulsory licenses in connection with national emergency and interest (presumably consistent with TRIPS). It adds a new Section 50, which provides that pharmaceutical patents may be subject to compulsory licenses.

Please stay tuned for additional analysis as we comb through the revision in the next several days.

p.s. Mei & Mark LLP has obtained a copy of a redline version of the new Chinese Patent law in Chinese. If you have any question regarding the revision, please feel free to contact Lei Mei, Esq. of Mei & Mark LLP at mei@meimark.com.