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China’s Supreme People’s Court: Incorrect PCT Applicant Has Good Faith Duty to Actual Rightsholder

On October 13, 2022, the Intellectual Property Tribunal of the Supreme People’s Court of China released an explanation of case # (2022)最高法知民终130号 holding that an incorrect Patent Cooperation Treaty (PCT) applicant has a duty to the true rightsholder including notifying the rightsholder of deadlines for national phase entry. 

Guangdong Huishengda Electric Co., Ltd.  is the registered applicant of the PCT application  PCT/CN2016/071553 file in January 2016 and published on July 20, 2017. It claims priority to Chinese utility model patent number 201620021160.9 entitled “An Automatic Capsule Bread Maker.”

Zhang Zhonghua, the inventor of the Chinese priority patent involved in the PCT application, was originally a technician at Zhangzhou Cankun Industrial Co., Ltd. On January 12, 2016, Huishengda Company was listed as the applicant on the priority patent application and on January 21, 2016, the PCT application was filed claiming priority to the Chinese utility model with the China National Intellectual Property Administration (CNIPA) selected as International Search Authority.  After searching, CNIPA issued a written opinion on September 21, 2016 that all the claims (claims 1-8) of the PCT application involved were not inventive. On November 10, 2016, Huishengda Company applied for liquidation, which was completed on May 26, 2017. The members of the liquidation team were the then shareholders Gu Biwen and Zhou Zhirong.

On January 12, 2017, Cankun filed a lawsuit claiming that the priority patent involved in the case belonged to it. The Guangzhou Intellectual Property Court ruled in (2017)粤73民初226号 that the priority patent involved in the case belonged to Cankun effective November 16, 2017. However,  Huishengda did not further prosecute the PCT application. On December 8, 2017, Cankun then filed a lawsuit over the ownership of the PCT application . During the trial, the time limit for entering the national phase of the PCT application involved expired, and neither party took any measures during the process. On September 13, 2018, the Guangzhou Intellectual Property Court ruled in(2017)粤73民初4546号 that that the PCT application belongs to Cankun. So far, the applicant involved in the PCT application registration is Huishengda Company, and the actual right holder is Cankun. Based on the above facts, Cankun then filed a lawsuit against the shareholders of Cankun and the inventor to jointly and severally bear the economic loss of RMB 1 million caused by the termination of the PCT application rights involved in the case because of their failure to perform their obligations.

The Trial Court stated, as shareholders and members of the liquidation team of Huishengda, Gu Biwen and Zhou Zhirong should at least inform Cankun of the PCT application information involved so that Cankun could prosecute PCT application timely. Gu Biwen and Zhou Zhirong did not take any measures in this regard, and they were subjectively at fault. Due to the expiration of the time limit for entering the national phase of the PCT application involved, Cankun has lost the possibility to seek patents in other countries or regions. Accordingly, Cankun’s claim that the damage to its interests is reasonable. At the same time, given that the International Searching Authority issued a negative opinion on the inventive step of all the claims of the PCT application involved, there is also a high possibility that no foreign patents could be granted even if the national phase was entered. After comprehensive evaluation, it was determined as appropriate that Gu Biwen and Zhou Zhirong compensated Cankun for damages to the interests and rights protection expenses of a total of 50,000 RMB. Gu Biwen and Zhou Zhirong appealed to the Supreme People’s Court. 

On appeal, the Supreme People’s Court stated that Gu Biwen and Zhou Zhirong should have foreseen that due to the dispute over the ownership of the priority patent involved, the PCT application involved would directly affect the rights and interests of Cankun and whether the PCT application should enter the national phase is no longer a decision that Huishengda can solely make. Based on the prior behavior of Huishengda with respect to the priority patent application and the  PCT application, under the principle of good faith, during the period when Huishengda Co. entered into liquidation, Gu Biwen and Zhou Zhirong, as members of the liquidation group, should assume the duties of a good administrator of the PCT application involved in this case, and perform their obligations of notification, assistance, and protection, among others, in a timely manner, so as to avoid the  PCT application expiring without the knowledge of Cankun. Gu Biwen and Zhou Zhirong violated the principle of good faith, failed to perform the obligation of a good administrator, failed to notify Cankun about the PCT application information involved in the case, and thus were at fault.

The written opinion of the International Preliminary Examining Authority on the lack of inventiveness of all the claims of the PCT application does not necessarily lead to the possibility of no foreign patent grants after national phase entry. For the PCT application involved, Cankun has a reasonable and expected possibility of granting before the PCT application expires. Due to the expiration the PCT application involved, the possibility of granting that Cankun could expect was eliminated, which constituted damage to the interests of Cankun.

Accordingly, the Supreme People’s Court affirmed the Trial Court’s ruling.

The full text of the explanation is available here (Chinese only).

© 2023 Schwegman, Lundberg & Woessner, P.A. All Rights Reserved.National Law Review, Volume XII, Number 287
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About this Author

Aaron Wininger IP Attorney China Portfolio Development
Director of China Intellectual Property Law Practice Schwegman Lundberg & Woessner

Aaron Wininger is a Principal and Schwegman’s Director of China Intellectual Property. Aaron counsels both U.S. and Chinese companies on portfolio development and preparation of their patent applications and office action responses. He has worked with clients in the areas of software, networks (wired and wireless), lasers, medical devices, semiconductors and physics.

Aaron prosecutes both Chinese and U.S. trademarks. He has also drafted and prosecuted hundreds of U.S. and international patent applications in a broad spectrum of areas, including computer hardware and software, the...

408-278-4059
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