Common IP issues in healthcare civil disputes

By Chen Guo and Wu Xiaoxue, Jingtian & Gongcheng
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With vigorous development of the healthcare industry in recent years, related intellectual property (IP) disputes have attracted an increasing amount of attention. This article briefly analyses common IP issues arising from those civil disputes.

Title dispute

Clearly defined title is the basis of protecting one’s rights and interests. Entrusted development and co-operative development are common R&D modes in practice. The licence of patents, know-how data, and other background IP is often expressly defined between the parties, but there is often no agreement, or no clear agreement, regarding foreground IP arising from continued development or improvement.

Chen Guo, Jingtian & Gongcheng, Common IP issues in healthcare civil disputes
Chen Guo
Partner
Jingtian & Gongcheng

In accordance with the Civil Code, Patent Law and other relevant laws and regulations, in the absence of agreement between the parties, the rights of inventions and creations completed in entrusted development belong to the party conducting R&D – namely the entrusted party. The client has the right to operate them free of charge; and when the entrusted party transfers the patent application right, enjoys the right of priority under same conditions.

Title to the invention and creation completed in co-operative development should be shared among the parties. In either above-mentioned development mode, any agreement between the parties, if it exists, will prevail. Therefore, an agreement in advance is conducive to avoiding disputes and losses. If there was no agreement in the initial contract between the parties, but one is entered into later, it is necessary to preserve relevant evidence to avoid failure to produce evidence in the case of dispute.

The healthcare industry is an innovative system with deep integration of industry-university research. The title to IP arising from co-operation between enterprises and universities is particularly noteworthy. When universities assign their faculty and staff to participate in enterprise R&D, it is often difficult to directly determine any de facto labour relation between enterprises and university staff, and the IP generated in such cases are not necessarily service inventions of the enterprise.

For example, in Wuxi Lertech & Bai v Doway Tech (2020), the Supreme People’s Court (SPC) held that only a general co-operative relationship existed between the entity and the inventor – and where the entity does not have the right to control the inventor’s labour, such inventions and creations should not be considered to be in service.

Therefore, it is necessary to arrange IP titles via contracts. In practice, where an enterprise enters into a development agreement with university staff, even if the IP was agreed to belong to the enterprise in the contract, it may still be claimed by the university and recognised as a service invention belonging to the university. Thus, it is a safer choice to clarify the IP title with the university in addition to signing an agreement directly with the university or staff.

Contract dispute

An appropriate cause of action should be selected to establish jurisdiction. In the area of IP contract disputes there is much confusion between disputes over patent contracts and technology contracts. The choice of cause of action can affect the party’s choice of court.

Wu Xiaoxue, Jingtian & Gongcheng, Common IP issues in healthcare civil disputes
Wu Xiaoxue
Associate
Jingtian & Gongcheng

Since 2014, IP courts have been set up in Beijing, Shanghai and Guangzhou. The SPC has further approved the establishment of specialist IP tribunals in several intermediate people’s courts since 2017. By February 2022, 26 regions in China had been cleared to set up IP courts.

According to regulations, the first instance of patent civil cases is generally under the jurisdiction of the IP court or intermediate people’s court local to the IP court, while jurisdiction over general technical contract disputes may belong to primary courts.

In practice, whether it is a “patent contract dispute” – the first instance of which falls under the jurisdiction of the IP court – is usually judged by: the content of the contract; claims stated in the complaint; actions alleged; substantive points of dispute; involvement of technical disputes over related patents; and whether the main technical subject matter of the contract is the relevant patent.

Tort dispute

IP protection should be a combination of offence and defence. For starters, enterprises must establish a regular IP protection system.

Common issues in the development process of healthcare enterprises include whether patent application covers its core products; whether core patents can be successfully granted; whether core products run the risk of infringing others’ patents; or whether there is the risk of leaking key data in the development process?

Therefore, enterprises should conduct thorough patent and product analysis on the prospect of patent grant and Freedom to Operate (FTO) before project commences, as well as on the process of product R&D before product launch, and at other key time junctures. A sound IP mining and early warning system together with a trade secret protection system are the foundations upon which enterprises gain competitive advantages.

In addition, healthcare enterprises must protect their own IP from infringement. In such cases, enterprises may file patent infringement, trade secret infringement and other lawsuits to protect their legitimate rights and interests.

Distinctive issues

In the patent infringement lawsuit, the authors realised that the healthcare industry faces particular difficulty in obtaining infringing products such as prescription drugs, testing reagents and testing instruments used in hospitals, usually key evidence in infringement comparison. Infringing products in other industries are usually aimed at ordinary consumers – while those in the healthcare sector often target patients with specific diseases or a limited number of hospitals, making it difficult to obtain evidence. It is therefore necessary to use a combination of methods, investigation, evidence preservation and on-site inspection.

In summary, technology-related IP issues in the healthcare industry require further attention from enterprises. Only by adopting appropriate protection strategies for patents, trade secrets and other IP rights, and establishing relevant systems, can enterprises be adequately safeguarded, in turn allowing for long-term innovation and development.

Chen Guo is a partner and Wu Xiaoxue is an associate at Jingtian & Gongcheng

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