Safeguarding innovation with IP litigation

Economist Joseph Schumpeter introduced the concept of “creative destruction” to describe how innovation drives the replacement of old products and methods. It is increasingly recognised that innovation is the driving force of economic growth, breaking down old structures from within, while creating new ones.

In response to the evolving economic landscape, the Central Economic Work Conference, in December 2023, set the tone for economic development in 2024 with the principle of “establishing before breaking”; emphasising a proactive and steadfast commitment to change – with a goal of stability amid progress – where establishment precedes disruption.

This broadly reflects groundbreaking developments in Chinese IP litigation in recent years. Chinese courts are demonstrating greater reach and confidence on the global stage. Experienced enterprises are closely integrating IP litigation with business decisions, while competition in the field of standard essential patents remains complex and fierce.

Looking ahead to the legal market in 2024 and beyond, empowerment through institutional and judicial means seems poised to elevate IP litigation into a potent tool for innovation protection, ensuring smooth sailing for innovation champions.

Legislative, judicial trends

The amendment to the Civil Procedure Law in 2023 focused on improving the procedural system for foreign-related civil litigation. By introducing a miscellaneous provision to establish a “proper connection” principle and allowing parties to agree on jurisdiction, the revised law further expands the jurisdiction of Chinese courts over civil cases, granting them more discretion over foreign-related cases.

Additionally, the new law introduced provisions on parallel litigation and the doctrine of forum non conveniens (acknowledging jurisdiction of another forum or court), further highlighted China’s judicial sovereignty and the expanding jurisdiction of its courts.

Simultaneously, Chinese courts saw a surge in high compensation cases in IP litigation in 2023, reflecting their increasing confidence in protecting the interests of rights holders.

Among typical cases of IP courts issued by the Supreme People’s Court, Hualu-Hengsheng Chemical and three other companies were ordered to pay RMB218 million (USD30 million) in damages for infringing on patents and trade secrets, in Sichuan Golden-Elephant Sincerity Chemical et al v Shandong Hualu-Hengsheng Chemical et al (2023). This represented a new high for damages awarded by the courts for infringement on the same project.

In the “Danyu No. 405” new corn plant variety patent infringement case, the court fully supported the rights holder’s request for punitive damages of RMB3 million based on the evidence presented.

IP litigation at key stages

IP litigation has never been a simple clash of forces. Experienced businesses and lawyers often understand the importance of precisely timing their attacks to significantly enhance their effectiveness, better serving their business strategies. In recent years, patent infringement litigation during the IPO stage has become increasingly common.

In 2023, during the IPO application stage on the Science and Technology Innovation Board, Hebei Gellec New Energy Science & Technology encountered a patent infringement lawsuit from industry leader Yunnan Energy New Material. In September 2023, Gellec withdrew its IPO application and launched a counterattack, filing a patent lawsuit against Yunnan Energy New Material.

Similarly, Baoding Visight Advanced Material Technology’s IPO application in 2023 faced a patent infringement challenge from Changzhou Tiansheng New Materials, with accusations directly targeting Baoding Visight Advanced Material Technology’s main products.

In addition to the common occurrence of IP litigation during the IPO stage, the eve of major events, such as the Double 11 shopping carnival and important product launches, have also become crucial windows for litigation.

In the past few years, there have been dozens of patent infringement disputes between Tineco, a sub-brand of Ecovacs Robotics, and its competitor Dreame, many of which were precisely filed before key sales seasons like Double 11.

Litigation battles directly impact brand promotion. During a new product launch event in August 2023, Ecovacs Robotics CEO Qian Cheng emphasised: “We should firmly resist blatant plagiarism and patent infringement together.”

Standard essential patent cases

In December 2023, the Chongqing First Intermediate People’s Court issued a judgment in OPPO’s dispute with Nokia over standard essential patent royalties. This was China’s first judgment on global licensing rates for standard essential patents.

For the first time globally, the court determined cumulative rates for the 5G standard industry (the key figures in calculating the patent royalty rate) at 4.341%-5.273%. It also determined the value contribution ratio of 5G-2G generations in 5G multi-mode phones as 50:40:5:5.

The “first-time determination” of cumulative rates for the 5G standard industry will undoubtedly become an important reference for similar cases and negotiations on 5G standard rates.

Regarding the calculation method of royalty rates, the court found no inherent superiority or preference between top-down and comparable licence approaches. In calculating the royalties for 5G multi-mode phones, the court creatively combined the two methods.

The judgment prompted OPPO and Nokia to announce a global patent cross-licensing agreement on 24 January 2024, subsequently ending all pending litigation in various jurisdictions. On 5 February 2024, VIVO also signed a multi-year patent cross-licensing agreement with Nokia.

With licence fees often reaching hundreds of millions, standard essential patents, and the complexity of determining essentiality and calculating fees, remain contentious among leading companies in the communication sector. In 2024, standard essential patents remain the crown jewels of IP litigation.

Luo Rui is a partner at Han Kun Law Offices. He can be contacted by phone at +86 10 8516 4130 and by email at rui.luo@hankunlaw.com

Zhang Yue is an associate at Han Kun Law Offices. She can be contacted by phone at +86 216 080 0253 and by email at yue.zhang@hankunlaw.com