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External Affairs

Issued: April 29 2016

In Thailand, there are three types of patents in general: invention, petty, and design patents. Unlike most other countries where there are only civil remedies for patent infringement, Thailand provides for both civil and criminal remedies for infringement of any of these types of patents, says Say Sujintaya, a partner in the intellectual property practice group at Baker & McKenzie in Bangkok. “This is very unique.”

In criminal actions, there are two types of proceedings, namely, a private criminal action and a public criminal action. Procedurally, one main difference between the two criminal actions is in respect to the way the case is brought before the court. In a private criminal action, a patentee can directly file a criminal complaint with the Central Intellectual Property and International Trade Court (the IP court) to initiate the case. On the other hand, in a public criminal action, the patentee will need to convince the police to accept the case, says Peeyakorn Suparugbundit, an associate at Baker & McKenzie in Bangkok. “This is typically a significant hurdle to overcome, especially when the patent involves complex technology. If the case is accepted by the police, the police will submit a request to the IP court for a search and seizure order. If evidence is found, the alleged infringer will be charged and asked to submit a plea. If the alleged infringer pleads not guilty, designated investigation officers will take evidence from both parties and submit an opinion to a public prosecutor as to whether or not to prosecute. The criminal case will proceed to the IP court if the public prosecutor agrees with the investigation officer’s findings of infringement.”

In a private criminal action, when the patentee files a case with the IP court, the case is not automatically accepted by the court but rather the court will set an inquiry hearing to determine whether there is prima facie case of infringement, says Vasan Sun, an associate at Baker & McKenzie in Bangkok. “Only if there is such a finding will the court accept the case for trial.”

Pursuant to Section 85 of the Thai Patent Act B.E. 2522 (A.D. 1979), criminal penalties for infringement of an invention patent or a design patent may include fines of up to B400,000 (US$11,400) and/or imprisonment up to two years. For petty patents, Section 86 of the Patent Act provides that criminal penalties for infringement of a petty patent may include fines of up to B200,000 (US$5,700) and/or imprisonment up to one year. In addition, if the infringing party is a juristic person, the representative may also be subject to punishment, unless it can be proven that s/he conducted the infringement without knowledge, says Sujintaya.

Other than fines and/or imprisonment, Section 77 quarter of the Patent Act allows seizure and destruction of all infringing goods, as well as any other measures to prevent further distribution of such, says Suparugbundit.

Convincing the police to accept a patent case is oftentimes a significant hurdle to overcome, and, more often than not, results in patentees pursuing a private criminal action and/or civil action instead. “Patentees seeking financial restitution will generally prefer to pursue a civil action, which allows for an award of damages in addition to a forfeiture of goods and/or injunctions. However, the IP court will only award damages based on actual provable damages. In situations where actual provable damages are relatively low and/or difficult to quantify, private criminal action may be a more effective option to bring the infringer to discuss settlement since the infringer will face the possibility of imprisonment,” Sun says. “As such, the present criminal penalties available for patent infringement are sufficient. In fact, criminal sanctions serve more as a deterrent for potential infringers.”

IP Courts

New Zealand does not have an IP court. “Although the jurisdiction has some specialist courts (notably for employment, environment and family matters), current policy does not favour another specialist court. Reasons include the limited pool of High Court judges and the relatively low number of IP cases reaching trial particularly with little demand for such court from business. IP practitioners’ views are likely to vary however,” says Paul Johns, head of dispute resolution at Baldwins Intellectual Property in Auckland. “It would be convenient to have IP cases heard by judges already familiar with IP law, but the establishment of an IP court would be impractical for New Zealand.”

The High Court (New Zealand’s court of general jurisdiction) is the court of first instance for most IP infringement cases and hears appeals from trademark and patent office decisions. The High Court in Auckland (New Zealand’s commercial centre) has a Commercial List intended to speed up the pre-trial procedures for certain commercial, civil cases, including IP cases, Johns says. “This special procedure has largely fallen into disuse as the intensive case management it provides for is now more common in ordinary cases.”

There is currently proposed legislation before New Zealand’s Parliament intended to consolidate and reform laws relating to the judiciary and court system. If passed in its current form, this legislation would abolish the Commercial List. It would, however, establish a commercial panel of judges that may hear certain types of commercial cases. That class of cases is yet to be determined but is likely to include IP cases, Johns says. “The proposed legislation also provides for the future establishment of panels of judges to handle other types of proceedings but there has been no suggestion that this might lead to a panel of IP judges to hear IP cases.”

In Taiwan, the IP court was founded in 2008. The fundamental legal source of its organization is the Intellectual Property Court Organization Act (IPCOA), promulgated in 2007. The IP court adopts a dual system for patent litigations with respect to the forum: administrative tribunals and civil tribunals, depending on the merits of a case. Any appeal against the Taiwan Intellectual Property Office’s decisions should be resorted to the administrative tribunals, while infringement matters are pursued in the civil tribunals.

On average, six out of every 10 docketed cases in the IP court are patent matters. According to recent figures, in the first instance cases of civil action, patents account for 58% of the caseload, trademarks for 15% and copyright matters for 22%. (Miscellaneous cases make up the remaining 4%.) Likewise, for second instance cases, the shares for patent, trademark, copyright and miscellaneous cases are, respectively, 62%, 16%, 19% and 3%.

Historically, patentees have not seen much benefit from taking a case to the IP court in Taiwan, but that is changing. “The winning rate of the patentees as plaintiff, in sum of both fully and partially favourable decisions, has been steadily increasing from 11% in 2008 to 25% in 2014,” says Victor S.C. Lee, managing partner at Tsai, Lee & Chen in Taipei. “Although not skyrocketing as quickly as most patentees desire, a continuous increase of the winning rate is promising.”

Taiwan’s IP court has been more often used to rule a disputed patent valid during infringement cases. From 2009 to 2013, the invalidation rates in response to a defendant’s invalidity argument have been, respectively, 64%, 68%, 62%, 70% and 63%. “An over-50% chance of failure to enforce a patent may negatively derogate the economic incentive of a patentee to pursue a patent for protecting IP,” Lee says. “To cope with this trend, the IP court has restructured its case review system and the invalidation rate in 2014 has dropped to 32%.”

As for monetary damages, the mean value a winning patentee receives at the end of litigation is NT$3 million, which is less than US$100,000. “Besides, the court rarely awards punitive damages or grants provisional injunctive relieves,” Lee says. “Empirical studies reveal that the court exercised the instrument of triple damage in only 21% cases where the patentee claimed for damages. The granting rate of a series of provisional injunctions is usually less than 20%.”

Compared to other countries, the court’s statistics accumulated throughout the years may not satisfactorily meet the expectation of the majority of patentees. However, the court itself may not be the single factor leading to these facts, Lee says. “Taiwan has an active and rapidly changing legislative mechanism. IP holders may still be optimistic to see necessary reforms.”

Alternative Dispute Resolution

ADR has two main forms in Australia. They are:

(a) Mediation, where the parties are assisted by a third party to reach a resolution. No resolution is imposed on the parties; the mediator only acts as a facilitator to help the parties reach an agreement; and

(b) Arbitration, where the parties hire an arbitrator to act as a referee to determine their dispute. A resolution is imposed on the parties and generally parties need to agree to have a dispute resolved by binding arbitration.

ADR (particularly mediation) is a popular means of resolving IP disputes in Australia, says Chris Jordan, a partner at Davies Collison Cave in Melbourne. “Both mediation and arbitration have the benefits of allowing parties to resolve confidentially and often more rapidly than the usual court procedure. Other benefits include allowing parties to negotiate a resolution. Quite often these resolutions can be tailored and can include ‘outside the box’ resolutions. For example, a dispute might be settled by the parties agreeing to do business with one another, in what can be a win/win scenario. The parties also can avoid having a solution to their dispute imposed on them by reaching a mediated agreement. Mediation can also occur at an early stage of a matter, thus avoiding significant legal costs.”

The Australian Federal Court has been very active in encouraging mediation, Jordan says. “It encourages parties to try resolving through mediation and has a large number of judicial officers who are trained as mediators and who the court makes available (along with mediation facilities) to assist parties resolve disputes. The cost for these services is very modest.”

While not every matter is capable of resolution by ADR, the vast majority of court disputes in Australia are settled without the need for a trial and a large proportion of those matters are settled through mediation, adds Jordan.

These days, IP disputes between big companies seem to be regularly plastered all over the media (Apple v. Samsung, Christian Louboutin v. Yves Saint Laurent and so on), suggesting that bringing disputes before courts is the way to go. “However, litigation may not necessarily be best equipped to address the distinct elements of an IP dispute,” says Kevin Wong, a director at Ella Cheong in Singapore. “While the efficiency of the court system in Singapore is acknowledged, one of the major downsides of litigation is the mentally and financially draining process, often resulting in a battle between who has the better stamina, rather than a constructive process addressing real concerns. This brings to focus the concept of ADR, which generally refers to any method of resolving disputes other than the full works of the court litigation process.”

One of the key draws is that parties can formulate and adopt a framework of procedures and rules that they are comfortable with for the conduct of arbitration. “Having a neutral denominator of common expectations that is not restricted to domestic procedural laws may serve to offer flexible outcomes for dispute resolution, such as licensing and cross-licensing, adjustments to royalties and other innovative business solutions not typically available as remedies in the courts,” says Eileen Fong, a legal associate at Ella Cheong in Singapore. “Further possible advantages include time and cost-efficiency.”

In fact, the Singapore International Arbitration Centre has seen a substantial increase in the number of cases handled over the past decade, and is one of the key arbitration centres in Asia. Singapore’s adoption of the UNCITRAL Model Law on International Commercial Arbitration facilitates arbitration in an environment conducive to resolving disputes, with minimal judicial interference, Wong says. “Arbitration awards are also generally enforceable in the more than 150 countries which are party to the New York Convention. While IP disputes currently constitute a relatively small proportion of SIAC cases, the popularity of this ADR option could perhaps trend upwards over time.”

Mediation is also gaining some traction in Singapore, Fong says. “Unlike arbitration, mediation is a non-binding process. Parties are free to withdraw from the mediation track after their initial meeting with the mediator.”

One of the driving forces of the gradual gain in popularity of mediation among IP owners is the support and encouragement of the Singapore courts and the Intellectual Property of Office Singapore, Wong says. “For example, in IP proceedings before IPOS, parties are given time to consider mediation after pleadings are filed. In addition, parties can submit to mediation at the WIPO Centre Office in Singapore at any stage before hearing, and the IPOS proceedings will generally be suspended for agreed periods.”

Since January 1, 2016, the WIPO Mediation Rules have allowed for a unilateral request for WIPO mediation by a party to a dispute before IPOS. After such a request is filed, the WIPO Centre will approach the other party to help them consider WIPO Mediation. The administration fee for a WIPO Mediation is substantially discounted, and the mediator’s fees are based on a fixed scale. Furthermore, a Mediation Promotion Scheme has also been launched whereby funding assistance for WIPO Mediation will be available from April 1, 2016, until March 31, 2019, subject to certain terms, says Fong.

Notwithstanding the above ADR options, where a private settlement is not on the cards, IP owners should remain realistic and pragmatic about their expectations when deciding which option to adopt for dispute resolution, Wong says. “The reality is that the monopolies afforded to IP in general (with trademarks being the main exception) are for limited terms during which the IP owner has an exclusive right to exploit the IP commercially. Beyond those terms, the IP falls into the public domain for anyone to use. Any backlog of cases awaiting hearing and the formal court process all contribute to what can be a significant delay, and resultant erosion of the term of IP protection inhibiting the IP owner’s full commercial exploitation of the IP. While arbitration may be expected to be a somewhat faster option, the still relatively formal structure and potentially extensive evidentiary process involved, if not properly managed by parties, may bring about similar erosion.”

Further, while parties may find the prospect of retaining control attractive, not all disputes are suited for mediation. “In cases of blatant counterfeiting, mediation is unlikely to work due to a lack of mutual cooperation. Mediation is also unlikely to be useful where the IP owner wishes to assert IP right ownership and stop alleged infringement,” Fong says. “Conversely, mediation is extremely attractive if parties wish to save time and costs, maintain control and confidentiality in settling their dispute, and retain and/or possibly further an existing business relationship.”

Hence, for disputes between parties in an ongoing contractual relationship, mediation can assist parties in achieving a mutually workable solution that meets their business interests, instead of getting bogged down by an insistence on their strict legal rights, says Wong.

There is no “one size fits all” approach. A holistic approach should be taken in dispute management, and perhaps one of the key considerations when deciding which dispute resolution option to take should be: what is the outcome that I want to achieve? “The value that litigation may offer should not be forgotten, especially if the IP concerned is highly valued by the business and budgetary constraints are not a main concern. A successful litigation may fortify an IP and its market position, and thereby attract gains in commercial value and confidence amongst consumers and stakeholders. However, this should be weighed against the uncertainty of litigation and the time and cost involved in the process, which could easily turn things around, especially if expectations are overly optimistic and ambitious,” Fong says. “With its main general benefits of flexibility, confidentiality and time and cost savings, ADR helps fill the gap as a window of opportunity to achieve an outcome that may be better aligned with overall business interests.”

“We had one case where a family brand settled a dispute surrounding the use of cartoon characters as the theme of a guesthouse. It was in the client and the defendants’ best interest to settle quietly and amicably to avoid any perceived negative press aimed at the brand,” says Peter Dernbach, a partner at Winkler Partners in Taipei. “Many IP cases can be handled in this manner, and we encourage brands to think carefully about their enforcement strategy before going in too heavy handed.”

Should Counterfeit Buyers Be Punished?

Selling or reselling counterfeits is infringing regardless of whether the seller knows the goods are counterfeit or not. “Different from other IPRs, it is generally considered that the value and functions of a trademark are realized in its use for the purpose of identifying the origins of the goods or services, in other words, in the course of trade,” says Xiaojun Guo, a patent attorney at CCPIT Patent & Trademark Law Office in Beijing. “In this sense, it seems fair and logical not to punish individuals who purchase counterfeit.”

On the other hand, a trademark can actually do more than its basic function as a source identifier, such as the functions of quality guarantee, communication, investment or advertising, Guo says. “Not restraining the purchase of counterfeit will inevitably damage those functions of the trademark, and further damage the business interests of the right owner, let alone the basic good faith doctrine.”

So, Guo says, he stands by a strict legal system preventing individuals from purchasing counterfeit goods.

New Zealand’s laws also aim at commercial infringement rather than at individual consumers. “This is unlikely to change significantly in the near future,” Johns says. “The Copyright Act has an exception to infringement by importing for goods for the importer’s ‘private and domestic use.’ The seizure powers of the New Zealand Customs under the Copyright Act and Trade Mark Act also do not extend to such goods. New Zealand also generally favours consumer freedom, including by permitting parallel importing.”

Any move to extend liability in this respect would likely be very unpopular with consumers generally. “IP owners might also be reluctant to be seen to take action against individual consumers, even if permitted,” Johns adds. “As a comparison, a recent law change implementing a ‘three-strikes’ system aimed at infringing file-sharing by individuals online has not been popular with either right holders or the public. Similarly, local holders of broadcast rights in foreign works recently commenced litigation intended to prevent individuals circumventing geo-blocking measures by foreign streaming right holders (principally Netflix, which offers greater content to US users than in to users New Zealand). This litigation, now settled, was launched against internet service providers and other companies offering circumvention technology rather than against individual consumers engaged in the primary infringement.”

Patent Pooling v. Monopoly

Patent pooling arrangements, where members of a patent pool agree to jointly own a set of patents and license them as a package to other firms, are per se legal, but the manner by which these patents are exercised remain subject to the operation of competition law in Singapore, says Stanley Lai, a partner and head of intellectual property at Allen & Gledhill in Singapore. “Where a denial or refusal of licensing constitutes an abuse of dominant position by the pool, or restrictive terms (for example ‘tie-in’ arrangements) are imposed on licensees, these may give rise to a basis for intervention under the Competition Act of Singapore.”

There is no specified regulation handling patent pooling in both the competition and IP laws in Vietnam. But in respect of anti-monopoly, the IP law has regulations on compulsory patent licensing, and the competition law prohibits patent pooling (horizontal agreements) in certain circumstances, says Dang The Duc, managing partner at Indochine Counsel in Ho Chi Minh City.

In accordance with Article 145 of Vietnam’s IP law, a compulsory patent license may be granted under the decision of the Ministry of Science and Technology in cases where (i) the use of the patented invention is for meeting the needs of national security, healthcare and nutrition or other urgent needs of the society; (ii) the patent holder fails to fulfill the obligation of using the patented invention in prescribed period; person in need of using the patented invention fails, in spite of efforts made after a reasonable time for negotiation on adequate price and commercial considerations, to reach a patent license agreement with the patent holder; and (iii) the patent holder is determined to perform a competition restriction act prohibited under the competition legislation, Dang The Duc says. “Rights to use the patented invention under the decision on compulsory patent license shall be non-exclusive and non-sublicensable, and limited as to scope and duration so that such rights are sufficient for meeting the purpose(s) of the licensing, and goods manufactured under the patent license are mainly for supplying domestic market, except for the cases in association with the competition restriction acts as mentioned above.”

Article 9 of Vietnam’s competition law prohibits horizontal agreement between competitors where they involve price fixing or market sharing, directly or indirectly, limiting or controlling the volume of goods manufactured or purchased, provided that the combined market shares of such competitors in the relevant market exceed 30%. Exemptions provided in Article 10 of the same law comprise the following circumstances (for the purpose of decrease of cost to benefit consumers):

(i) Rationalizing the organizational structure, business model, raising business efficiency;

(ii) Promoting technological advances, raising goods and service quality;

(iii) Promoting the uniform application of quality standards and technical norms of products of different kinds;

(iv) Harmonizing business, goods delivery and payment conditions, which have no connection with prices;

(v) Enhancing the competitiveness of small and medium enterprises; and

(vi) Enhancing the competitiveness of Vietnamese enterprises on the international market.

“But to enjoy the exemptions, undertaking parties are required to make a request to the Minister of Industry and Trade of Vietnam for approval in advance,” says Dang The Duc.

Patent pooling arrangements are per se legal, but the manner by which these patents are exercised may be subject to the operation of competition law.