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IPR: IPR Protection in China for the Medical Devices Industry: Know Before You Go (Part II)
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Enforcement of IPR

altWhere IPR infringement has been discovered, there are a number of options that a company may take.

China has a dual track system of enforcement: the administrative process and the civil and criminal judicial process. The administrative route involves making a complaint to the administrative authorities who regulate various IP laws, and have their own powers to investigate and penalise acts of infringement. The administrative route does not involve court proceedings and is often favoured for quick, low-cost, and straight-forward infringement cases. However, the administrative system is also considered a relatively weak enforcement route and may not be available for certain types of cases.

Administrative Route

The administrative authority for patents is the local office of the Intellectual Property Office (IPO). For copyrights, it is the Copyright Administration (CA), and for Trademark and Unfair Competition Cases it is the Administration of Industry and Commerce (AIC). Complaints are usually brought to the local level office where the case occurs.

altFor patent infringement, the administrative system is used only for design patent infringement cases. The local IPO office does not have the power to seize all suspecting infringing items, but only take samples, and to try to mediate a settlement. Thus, the deterrent effect is considered quite weak. For copyright, the administrative route is usually only applicable for pirated media products.

altOnly for trademark and unfair competition infringement is the administrative system commonly used, as the AIC have a relatively powerful enforcement procedure, such as seizure of all infringing items and related materials on the spot, and may issue large fines.
It is recommended that IP owners not only use the administrative system as a form of sanction by itself, but as a simple and quick form of evidence gathering to bring other types of cases, such as civil or criminal.

Where infringement is large scale or complicated (such as an invention patent case, which requires careful examination), civil action is usually recommended.

Civil Courts

Detailed legal advice should be sought before pursuing action in the courts. In the civil courts, awards are generally low compared to those in Europe; under the new Patent Law, the maximum statutory damages have been raised to CNY 1,000,000.

A plaintiff generally has to identify evidence of infringement themselves, and the success of the case depends very much on what evidence the plaintiff is able to gather.

When prosecuting a civil case, it is important to note:
• Qualified PRC law firms with a track record in IPR litigation should be engaged.
• Experienced investigators should be engaged who are familiar with how to prepare evidence for civil litigation.
• The IP courts in Beijing, Shanghai, and Guangzhou tend to be preferred for complex cases as they have more experience and training in IPR disputes.
• While interim injunctions are available, they are rarely granted.

Consider Sending a Warning Letter

altWarning letters alleging infringement and demanding the other party to stop should be sent by a qualified PRC law firm, and followed up with demands of the infringer to provide written undertakings to stop infringement. When done properly, warning letters may be a low cost way to show that you are serious about enforcing your rights and stop an infringer’s activities.

Note that for patent infringement cases, however, a warning letter may trigger an invalidation action or pre-emptive civil suit for non-infringement in their home court, which may be less advantageous.

Counterfeit & Substandard Products

The high price of Medical Devices and lack of an official refurbished market in China creates a risk of counterfeit products being circulated.
Products which do not comply with a set standard, or which are falsely labeled and marked (ie, counterfeit products) may be dealt with in a number of ways.

1. Through an administrative raid by the AIC, the same as for any other trademark infringement case.
2. Through the Administration of Quality Supervision Inspection and Quarantine (AQSIQ). AQSIQ supervises product quality and safety, and is responsible for inspection of Medical Devices. Similar to the AIC, AQSIQ have independent powers to carry out raids and seizures and issue fines.
3. Through the Public Security Bureau (PSB, or police). Producers or sellers of counterfeit Medical Devices may be criminally prosecuted if the case meets the criteria.

altIn practice, assessment of counterfeit goods value in order to satisfy the economic threshold for criminal liability is a difficult area, and the PSB will often only accept very large cases where the threshold has very clearly been reached. While the PSB can accept complaints directly from a rights holder, in practice it is more common for criminal cases to arise from an initial raid by administrative authorities, which is then transferred to the PSB. Investigation to support a criminal complaint is often substantial – the PSB will expect a rights holder to have prepared the key evidence themselves, which may include identifying key suspects and connecting them to the counterfeit operations.

For refurbished products, while the law is not specific, rights holders in general have been able to treat refurbished products as counterfeit if examination finds that non-original components have been used.

Dealing with Infringements

Bearing in mind the critical importance of safety in the industry, medical device manufacturers selling in or sourcing product from China should have a procedure established in advance to deal with reports of suspect products, for example:

• Establish a quick reporting protocol with local business units and partners so that reports of potentially substandard or counterfeit products can be analysed quickly.
• Monitor industry trade fairs or internet trade portals to find potentially competing products
• Work closely with the AQSIQ and SFDA who have direct regulatory supervision over Medical Devices, in order to gain their assistance in dealing with suspected counterfeit products and reduce the likelihood of a product recall.
• Use security marking on products, and keep tight control over the system for authentication.
• Engage a professional investigation firm with experience in the Medical Devices or healthcare industry.

Industry Case Example

A European company in the dental instruments sector was selling their product in China through a distributor. They discovered a competitor in China was offering a similar, but lower-specification product, using an identical exterior design and coloured control interface. The technical manual, diagrams, and parts of their brochure appeared in part to be directly copied from the original. Overall, the competitor’s product gave the appearance of being similar in function to the European company’s, although its performance and price were much lower.

altThe European company’s representatives had previously approached the company at a trade fair to complain about the infringement but had not received a positive response. The company sought legal advice. They did not have a design patent to protect the overall shape of their product, nor were there any patents covering the product. Trying to claim infringement of the product shape and decoration by relying on other legal grounds was possible, but the chances of success were poor. The only clear legal grounds were copyright infringement of the contents of the technical manual.

Instead, the company decided to send a warning letter through their local lawyers that alleged infringement of the product shape (even though the legal grounds were not strong) AND copyright in the manual. The letter implied that the company would take the matter to court. The law firm and representatives of the European company followed up the letter and met with the infringer to press them to stop their infringement. The European company argued that a lawsuit would be wasteful for both parties, even if they were not successful, and that the Chinese competitor’s imitation of a European product would harm their own image in the long run. As a result, the infringing company decided to change a number of exterior features of the product, and produced new manuals and brochures which greatly reduced the similarities to the European product. Although the European company did not have very strong rights, in this case, use of a warning letter followed up by determined negotiation was able to create a satisfactory result.

Lessons to take away

The European company would have had an even better result if they had a design patent for their product in China which would have given them clear rights over the product design. Make sure that you register your rights as early as possible, to ensure maximum protection.

Do not assume that litigation is the only way forward. Make use of the full IPR framework that exists in China to achieve your goals. You should also not assume that any legal action will be very costly.
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