The Real Story On the iPhone Patent Case in China

​This morning the Wall Street Journal ran an interesting article on Apple's infringement of a Chinese patent, leading to other outlets reporting on the same issue.

​I have been fielding a lot of questions today from media outlets and clients asking my thoughts on this. There are some facts that have been misreported by some agencies, and the implications have been reported as less than clear. Therefore, I will do my best to clarify what has occurred and what the likely consequences may be.

Design Patent Case
The first thing to get clear is that this was a design patent. A design patent is a form of legal protection for the ornamental design of a functional item. Design patents are a type of industrial design right. That is, a design patent protects the “look” of an invention. Function is not protected, and is not part of the analysis.
Importantly, China’s patent office does not even review design patents before granting them (that happens once the patentee attempts enforcement).

Interestingly, the US Supreme Court recently accepted certiorari in Samsung Electronics v. Apple, Inc., which relates to how much Samsung owes for infringing Apple design patents. A comparison of Apple's design patents in that case with Samsung's products (from trial exhibits) is below:

I do not have the Chinese design patent(s) at issue, so I cannot opine on the quality of the case.  But all that is required for infringement is that the accused product (the iPhone in this case) look like the design patent.

Administrative Infringement Action
​Patent enforcement in China can take place in three ways:  criminal, civil, and administrative.  First, infringement can be criminal.  Criminal charges are rarely brought, but can obviously create great leverage for a patent owner.  Second, enforcement can be done via the civil court system (like in the US).  And third, patents may be administratively enforced through a branch of the Chinese patent office.
 
Administrative enforcement is the most commonly used option by patent owners and is handled by provincial or city-level intellectual property offices (formerly and still generally known as a Patent Bureau).  The Bureau is empowered to make its own decisions, including issuing injunction. Sanctions can include destruction of products/tooling and an order to stop infringement (i.e., an injunction), but damages cannot be awarded.  One problem with administrative cases is that the Bureau lacks the authority to impose sanctions for failure to comply with injunctions, often necessitating application to a court for enforcement of the administrative order.

Importantly, administrative decisions can be appealed to the courts.  Also, under Chinese law, once a case is appealed, any injunction is stayed pending appeal.  In a Chinese patent litigation, an appeal, like the underlying case itself, takes very little time.  Most civil cases take 6-12 months from filing to judgment, and an appeal generally takes another 6-12 months. Design patents cases and administrative proceeding proceed even more quickly.  If the patentee is successful on appeal, the injunction then goes into effect, and no bond is required to be posted, even if a validity case is still pending at the Patent Reexamination Board (PRB).  If the patent is later invalidated, the rule is "no harm, no foul."  

Validity/Nullity Proceeding

As mentioned, any patent validity challenge is done via a collateral process at the Patent Reexamination Board, or PRB.  The PRB is a division of SIPO, the Chinese patent office.  Validity challenges can take anywhere from 1-3 years, with the average being around 18-24 months.  Again, design patent cases move more quickly due to their technical simplicity.


Procedural Status of the Apple Case

First, let me be clear:  I have not seen the Chinese patent(s), or any pleading.  I do not even know the patent number.  Neither my firm nor I represent Apple or the Chinese company, Shenzhen Baili, in this matter.  Everything I say about where this case is right now and where it may be heading is based on educated guesses and my knowledge of the Chinese patent system.

As I said, I have not seen the design patent(s) at issue.  However, the 100c is a phone produced by Baili, and compares to the iPhone as follows:

Without further information, it is impossible to tell how good or bad the infringement case might be.

What I have learned through various media sources is that the administrative Bureau has found Apple to infringe Baili's design patent(s), but that Apple has appealed this decision to the courts.  Further, I am told, Apple had previously sought to invalidate the patent(s) at the PRB but the PRB upheld the validity.  Although I have no proof of this, I am sure that Apple either is appealing or has appealed the PRB decision to the courts as well.  

Thus, because an appeal is pending, any injunction is stayed.  This is unlike the German system, in which an injunction can be enforced pending appeal so long as a bond is posted.  One way I have used to combat this waiting period is to file for a preliminary injunction, or "PI."  

PIs are rarely granted, but they get a case in front of a judge within a few weeks of filing a case.  A party seeking a preliminary injunction must prove both infringement and irreparable harm.  That is, a patentee must show that not only will they ultimately win, but than to not grant the PI would create imminent and irreversible harm.  Since most courts are reticent about granting an injunction before a defendant has had time to build its noninfringement case, most PIs are denied.  But showing the case to a judge can let both the court and the defendant know that this is the best case they have ever seen.  

Further, even if the patentee loses the PI, I generally tell the court that we respectfully reserve the right to refile our PI request once we win the case.   Winning a PI after winning on first instance is a much better proposition because the chance of winning on infringement is now 100% (the patent owner just won!) and imminent harm can often be proved based on the size and speed of the relevant market in China.  If the PI is obtained, even after first instance, then the injunction is enforceable notwithstanding appeal, just like any other PI.  The only disadvantage is that a bond must be posted (but that amount is generally significantly less than, for example, in Germany).

Anyway, Baili has likely not applied for a PI, so both parties are probably waiting for the appellate court in Beijing to adjudicate the infringement issue.  If they hold for Baili, then an injunction can be immediately instituted on the infringing products with no bond needed.  This is true even if the validity issue has not yet been addressed.  If the patent(s) is/are later ruled invalid, then Baili can no longer enforce the patent(s) but they need not reimburse Apple for any harm in the interim.  If the court invalidates the patent(s) before or at the same time as addressing infringement then no injunction can be issued.

Conclusion
Although the facts are not entirely clear, this case could pose a significant problem for Apple.  If an injunction is issued, then not only could Apple no longer sell the accused iPhones in China, but it could no longer export them from China.  This would effectively result in a worldwide shutdown of Apple's iPhone supply chain, as I (and Apple) mentioned in my previous blog post here.  I will try to get a copy of the patent(s) and post it/them here.