Editor's note:

The litigation between COFCO Wine & Spirits Company Ltd. and the Patent Reexamination Board (PRB) of the State Intellectual Property Office concerning the invalidation of the design patent ended in COFCO winning its suit after the first instance decision by Beijing No. 1 Intermediate People's Court and second instance decision in Beijing High People's Court. The significance of the case lies in the precedence established in two aspects in the final judgment. First, the court rendered its judgment on the similarity of design involved in the case by referring to the principle of similarity comparison provided by the Trademark Law and Anti-Unfair Competition Law. The explanation of the final judgment by the court is that, although the relevant provisions of the Trademark Law and the Anti-Unfair Competition Law have been referred to, these two laws are not used as legislative authority. Indeed, the court is saying that it introduced the principle of comparison in measuring similarity provided by these two laws, and declared the patent invalid in accordance with the Administrative Procedure Law on the basis of determining the similarity of the designs.

Second, the court's judgment directly invalidates the patent. This is the first time that an administrative action is directly declared to be invalid in litigation in China. In past administrative proceedings concerning patents, the judgments of the court tended to revoke the administrative decision, and ordered PRB to render a new decision. PRB believes that in accordance with the Patent Law, the patent agency is the only administrative organ authorized to invalidate a patent, and the court's invalidation of the patent goes beyond its authority. The court takes the view that in accordance with Article 54.4, the court can render the invalidation judgment.

I. Labels—Object of Design Patent Protection with Chinese Characteristics 
There are two kinds of objects for design patent protection under China's Patent Law. One kind is industrial design, and the other is the graphic design of a label. The former kind refers to the integral three-dimensional exterior design, and the latter refers to the label design attached to the surface of a product, such as a bottle label.

In foreign patent legislation, the grant of a design patent and the objects of protection are limited only to industrial design. That is, a design patent is granted only to products with a three-dimensional exterior design, and can be sold independently and integrally in the markets. In principle, two-dimensional labels cannot become objects covered by design patent, because two-dimensional labels are not products that can be sold independently, and they must be attached to a certain product in order to be used. Its function is to indicate such elements as the trademark, packaging and decoration of the products relevant to the source of the products. Trademark, packaging and decoration fall into the scope of protection of the Trademark Law and Anti-Unfair Competition Law, as well as relevant laws. It is not only unnecessary to establish a patent right under such a circumstance, but also may cause a conflict of rights.

In the earlier period of design patent protection in China, owing to the backward ideas and low competency in the design of the exterior of industrial products, provisions on patent application and protection practice also placed two-dimensional labels into the scope of protection of design patents considering the economic and market environment of the time, and this practice has been a tradition until now. Consequently, granting patent to labels is a special design that has "Chinese characteristics" in China's Patent Law, and it is the result of special historical and legal environments. 

II. The Emergence of the Problem

The legislative objective of the Patent Law is to encourage industrial innovation and creation. The state adopts an open attitude toward granting patent rights. Patent rights can be granted to design patents and utility model patents without going through substantive examination, and going through a formal examination shall suffice. The legislative objective of the Trademark Law and the Anti-unfair Competition Law is to regulate market order. Therefore, the Patent Law runs counter to the Trademark Law and Anti-unfair Competition Law in its legislative objectives. Patent rights for two-dimensional labels are the likeliest to become a source of this conflict. 

With the development of the Chinese economy, the disadvantage of granting patent rights to two-dimensional labels is apt to trigger a conflict of rights, which is becoming increasingly obvious. Many infringers slightly change the trademarks or special packaging and decoration of famous brands and turn them into bottle labels, and then apply for a design patent. When the obligee complains or sues for trademark infringement or unfair competition, the infringers use the design patents they own as a defense. When a design patent right bears the "legal semblance" for an infringing product, the infringers can take advantage of it and openly carry out their infringement activities.

Under this circumstance, the owner of the trademark of the special packaging and decoration has no choice but to apply to PRB for invalidation of the patent rights according to Article 23 of the Patent Law. Before the Patent Law was revised in 2000, the content of this article stated that "any design for which a patent right may be granted must not be identical with and similar to any design which, before the date of filing, has been publicly disclosed in publications in the country or abroad or has been publicly used in the country." Therefore, whether the patent design is identical with or similar to the prior design publicly disclosed in publications or publicly used by the applicant seeking the patent invalidation becomes critical to whether the design patent right should be invalidated.
It is almost impossible for the patent design to be identical with a design that has been publicly disclosed in publications or publicly used, because the infringer tries his best to avoid the design being invalidated. They tend to apply for design patents after they delicately change the trademarks or packaging and decoration owned by others.

Although the Guidelines for Patent Examination of the State Intellectual Property Office (SIPO) contains a special chapter dealing with the rules for measuring identical and similar designs, it can be seen from a detailed study that this criterion of judgment clearly aims at the similarity of industrial designs. As to the similarity comparison of two-dimensional designs, there are no special examination criteria. The criterion of similarity comparison for industrial designs continues to be applied mechanically. Moreover, some other principles provided by the Guidelines for Patent Examination such as "taking ordinary consumers as the subjects of judgment" and "comprehensive judgment" are vague criteria and the examination decision completely follows the subjective impressions of the examiners. Consequently, the following problems tend to appear in practice:

1) the patentee makes many adjustments of others designs, or increases or decreases the colors of others graphic trademarks or the packaging and decoration. The result would be that no similarity exists according to the mechanical method of comparison for similar industrial designs and the direct subjective judgment of the examiners. Therefore, the patent right would be held to be valid.

2) the patent design maintains the most striking and most distinguishing part of the infringed graphic trademark or the packaging and decoration of famous brands, which results in confusion with the patent design and graphic trademark, as well as the packaging and decoration of famous brands. In its economic activities, the infringer continues its "legitimate" infringement in the capacity of design patentee.

III. Amendment to relevant laws

With the emergence of the problems mentioned above, China's legislature gradually realized that loopholes existed in the statutory protection for intellectual property. Especially after China entered the WTO, China made modifications to the Patent Law and Trademark Law in order to make up for prior legislative loopholes. Article 23 of the Patent Law adds the language, "and must not be in conflict with any prior right of any other person" to the original provision. Article 31 of the Trademark Law provides after the second revision in 2001 that: "an application for the registration of a trademark shall not create any prejudice to the prior right of another person, nor shall unfair means be used to preemptively register the trademark having some repute that another person has used." Although the methods used to formulate the Patent Law and the Trademark Law were not completely the same, they both mean that the prior rights of others may not be infringed. Judging from the modification of these laws, we can see that with respect to the protection of trademark rights and patent rights, significant protection has been added to the law.

Prior rights, according to the Interpretation of the Supreme People's Court Concerning Some Issues in the Adjudication of Patent Cases, include trademark rights, copyrights, special packaging and decoration of famous brands and portrait rights.

IV. The unreasonable application of Article 65.3 of the Detailed Rules for the Implementation of the Patent Law to the invalidation proceeding makes the protection of the prior right provided by Article 23 of the Patent Law hard to achieve, and at the same time greatly increases the costs and difficulty of the owner of the prior rights to safeguard his rights.

In terms of legislation, the modification has made up for the original loopholes in the protection of design patent rights for two-dimensional labels. Such a result may be achieved if Article 23 of the Patent Law can be implemented correctly because the infringing two-dimensional labels cannot be granted patent rights for their infringement upon others' prior rights.

But in reality, the system of granting design patents makes it impossible for the protection of "prior rights" to be achieved in practice. Because a written form examination system is employed for design patents, the examiner does not directly contact the party involved, and thus he does not possess the relevant legal knowledge or capacity to judge the conflict of rights. Consequently, at the stage of granting patent rights, the conflict of rights is not examined. If the owner of the prior right claims the conflict of rights, he can only raise it in the invalidation proceeding.

However, SIPO improperly brings the conflict of rights that cannot be examined at the examination stage to the invalidation proceeding. Article 65.3 of the Detailed Rules for the Implementation of the Patent Law drafted by SIPO provides that "where a request for invalidation of a patent for design is based on the ground that the patent for design is in conflict with a prior right of another person, if no decision, settlement, or court's judgment, which has entered into force to prove such conflict of rights, has been submitted, PRB shall not accept it." It is extremely unreasonable to apply this provision to the invalidation proceeding. Because in the invalidation examination proceeding, a form of examination by a collegial panel is adopted and an oral examination proceeding is set up, in which both the claimant and the person against whom the claim is filed can introduce their own materials and opinions. They can argue and cross-examine. PRB possesses a function similar to that of a collegial panel of a court, and it is completely capable of reaching a conclusion as to the conflict of rights. There is severe criticism over this practice in jurisprudential circles. Many intellectual property law jurists, including the late professor Zheng Chengsi, have published articles criticizing this provision believing that it is bad law resulting in the retrogression of the protection of lawful rights.
At the same time, the condition set by Article 65.3 of the Detailed Rules for the Implementation of the Patent Law greatly increases the costs and difficulty for the owners of the prior rights to safeguard their rights.

In order to apply Article 23 of the Patent Law and to make clear the conflict of rights, the owner of the prior right must first file an infringement suit or take other actions to safeguard his rights so as to obtain a judgment or other kinds of valid decisions. Then he can claim an invalidation declaration according to Article 23 of the Patent Law on the basis of conflict of rights. Under this circumstance, he shall have to confront the following difficulties:

1) Because the infringer's product label possesses a design patent, the law enforcement officers from the Administration for Industry and Commerce are often unwilling to render an infringement decision and find against the design for its infringement on the exclusive right to use the trademark, packaging, or decoration of famous brands because they worry about the infringer filing an administrative suit against them concerning their "improper" disposition of the conflict of rights. Instead, they prefer to adopt a more conservative disposition to dismiss the complaint filed by the owner of a trademark, special packaging or decoration. 

2) The owner of the prior right shall have to spend a lot of time and energy if he wants to obtain an effective judgment through complicated proceedings, such as first-instance and second-instance proceedings. After that he might have to go through first instance and second instance proceedings to obtain an invalidation decision. Undoubtedly this greatly increases the costs and energy of the owner of the prior right to safeguard his rights, and many rights owners cannot afford it. Take the invalidation dispute case of COFCO Wine & Spirits Company as an example. Because its "Great Wall" trademark had been maliciously changed into a label by the infringer and a design patent had been granted to the infringer, COFCO was faced with a very serious situation. It filed more than 70 invalidation claims to PRB and all these claims involved the conflict of trademark rights concerning the graphic trademark "Great Wall". If all the problems associated with the application of Article 23 of the Patent Law are to be solved in accordance with Article 65.3 of the Detailed Rules for the Implementation of the Patent Law, several hundred proceedings might have to be gone through before the desired result is achieved, which is unbearable even to a large state-owned enterprise like COFCO.

Therefore, it is very rare to succeed in having the patent right invalidated through the assertion of conflict of rights. Patent legislation and judicial interpretations are circular and place the owner of the prior right back in the starting position. That is, he can only seek to have the patent invalidated through claiming the similarity of the patent design and the design previously published or publicly disclosed.

V. Solution to the Problem

Laws and regulations possess authority and cannot be changed without statutory procedures, even if they are unreasonable. However, the claimants for invalidating a patent suffer from the infringing act. They approach the PRB or court to seek justice, including substantive justice, procedural justice and social justice.

In the current legal environment, when PRB and the court hear invalidation dispute cases, and when they encounter a situation where they are able  to apply Article 23 in disposing the conflict of rights, but not satisfying the provisions of Article 65.3 of the Detailed Rules for the Implementation of the Patent Law, their correct understanding of the legislative intent of Article 23 of the Patent Law shall make the problem readily solvable if the former part of Article 23 can be applied in pursuance with the legislative objective. 

That is to say, in applying Article 23 in patent invalidation dispute cases, the criterion of examination shall be lowered as to whether the design of a two-dimensional label is similar to the design previously published, and then they shall be compared combining the criterion provided by the Trademark Law and Anti-Unfair Competition Law. If trademark infringement is involved, the criterion of trademark similarity provided by the Trademark Law shall be applied; and if unfair competition is involved, the criterion of packaging and decoration similarity provided by the Anti-Unfair Competition Law shall be applied. Thus, the similarity comparison of the two-dimensional design patent shall not be limited to the criterion for similarity of industrial designs. As long as it can indicate the distinctiveness and identifiability of the trademark, or the confusion with the packaging and decoration of famous brands, similarity should be determined and the patent right should be invalidated.

VI. Breakthrough in Adjudicatory Practice

Among the more than 70 applications for patent invalidation filed by COFCO Wine & Spirits Company, over 40 of them have received patent invalidation decisions according to the similarity criterion discussed above. And when the patentees filed suits in Beijing No. 1 Intermediate People's Court in these invalidation cases, the court affirmed the decision and supported the above judgment criterion.

However, in a small number of cases, the PRB still mechanically applied the rule of similarity comparison for industrial products, and consequently affirmed the patent validity decision for the patent design, which in fact constituted trademark infringement. COFCO brought suits in Beijing No.1 Intermediate People's Court, and the Court consolidated these cases. During the trial, the defendant insisted that the patent design was not similar to the previously published design provided by the plaintiff, and the plaintiff did not provide the decision or effective judgment determining the conflict of rights, and thus did not have the right to claim conflict of rights. The plaintiff, however, insisted that a judgment of similarity should be understood from the perspective of the legislative spirit of protecting the prior right.
On February 2007, Beijing No.1 Intermediate People's Court rendered the first instance judgment, concluding that, "judgment of the similarity of the designs includes not only the judgment of the shape, design and color of the industrial design itself as well as the similarity between these three elements, but also needs to consider whether the product design is similar. This is because industrial design is a new kind of design with aesthetic qualities, and, when applied to the industry, possesses more than a certain degree of creativity. More importantly, industrial design is itself a kind of product, and its outstanding function embodies a certain economic value especially the bottle labels involved in this case. The function of identification in the market is more obvious. In this connection, in judging the similarity, the standpoint of ordinary consumers should be considered and the relevant provisions in the Trademark Law and the Anti-Unfair Competition Law should be taken as a reference so as to comprehensively consider whether it is apt to cause confusion and mistake as to the source of the product. Only on this basis can the similarity be judged." In addition, the Court directly declared the patent right to be invalid in its judgment.

After the first instance judgment was delivered, the defendant, PRB, immediately appealed to Beijing High People's Court. In the process of the second instance hearing, the disputes between the two parties focused on two factors: 1) whether it is appropriate for the court to refer to the provisions of the Trademark Law and the Anti-Unfair Competition Law in judging the similarity of the designs involved in the case; and 2) whether the court has the power to directly invalidate the patent in its judgment (rather than issue an order to the administrative agency for a new administrative act). In June 2007, Beijing High People's Court delivered its final judgment, concluding that "the original court did not take the Trademark Law and Anti-Unfair Competition Law as the legal basis of its judgment although it determined that the patent was similar to the comparison document by referring to the relevant provisions of the Trademark Law and Anti-Unfair Competition Law; it is not inappropriate for the original court to invalidate the patent on the premise of determining similarity between the patent and the comparison document." Finally, the final judgment affirmed the first instance judgment rendered by Beijing No. 1 Intermediate People's Court.

We have reason to believe that the breakthrough in the adjudicatory practice shall produce a positive influence on PRB for the patent invalidation examination and on courts hearing similar cases. It shall enable the application of Article 23 in the administration of justice to become even more reasonable, to be closer to the legislative intent and to conform to social values. With the development of the judicial practice, modification of law and relevant judicial interpretation shall make additional progress so as to further achieve social justice.

                                                                                             (Translated by Ma Jing)