Context: In November 2023, under orders from President Xi Jinping, China’s Supreme People’s Court directed courts across the country to start following the “Fengqiao model”. Under this, by 2035, courts will be expected to get parties to settle disputes through mediation in the most “amicable” and “resource-efficient” way possible. The IP division of the Supreme People’s Court later confirmed this order in August.
What’s new: Earlier this month, the Supreme People’s Court announced the settlement of a dispute over the infringement of a patent related to an mRNA-based osteoarthritis drug. The case was first initiated by Zhen Medical, which also sued generics company Rui Biotech for the misappropriation of trade secrets and for a breach of contract. In line with the Fenqiao model, the court decided to “package” the three disputes into one case and facilitate a settlement that resolved all the issues at once. The settlement also involved a licensing agreement granting Rui Biotech access to Zhen Medical’s mRNA technology patent.
Direct impact and wider ramifications: The case is just one of an increasing number of mRNA-related cases that came after the COVID-19 pandemic. But it is also not the first time we have seen mediation being encouraged in patent cases in China. In July 2021, the China National Intellectual Property Administration (CNIPA) was empowered to hear patent infringement disputes that have a “significant impact” nationwide in a special administrative procedure. In July 2023, it presided over a case in which Huawei had accused Xiaomi of infringing four patents (two of which were 4G LTE SEPs) and the plaintiff had asked the CNIPA to intervene. The two companies ultimately struck a communications tech cross-licensing deal last September – but this method of concluding disputes has faced some criticism, according to GEN Law partner Dong Ning. While he too has been involved in another recent patent case that was resolved under Fengqiao, he notes that judges may occasionally exert undue pressure with this approach.
Zhen Medical was first founded by Dr. Hu and two other entrepreneurs in 2018. A year later, Dr. Hu left to start his own company, Rui Biotech. Zhen Medical then sued its rival for patent infringement in the Shenzhen Intermediate People’s Court in April 2022. In its cases, it claimed that the infringed patent and the misappropriated secrets were invented while Mr. Hu was still head of Zhen Medical. After the Shenzhen Intermediate People’s Court sided with Rui Biotech, Zhen Medical then appealed against the ruling in the Supreme People’s Court.
While this case seems like a standard dispute among three co-founders who diverged over approaches to commercialising their discoveries, the case involves an mRNA-based drug – cutting-edge technology that China has held in high importance in recent years. And China is not alone. Since the COVID-19 pandemic, the number of lawsuits related to mRNA technology has been growing rapidly. In October, Pfizer and Moderna celebrated wins in disputes against CureVac and Alnylam Pharmaceuticals, respectively, while a landmark judgment handed down by the High Court of England and Wales in July saw Pfizer become the first company to have its COVID-19 vaccine infringe a valid patent. GlaxoSmithKline also joined the mRNA patent wars in April, suing Pfizer and BioNTech for infringing five of its COVID-19 vaccine patents (April 26, 2024 ip fray article).
China’s Fengqiao model
The case is also significant because it falls under an order made by President Xi Jinping late last year to get Chinese courts to become more efficient and more amicable in their processes – also known as following the Fengqiao model (21 November, 2023 Supreme People’s Court press release). Instead of conducting separate trials for each lawsuit, the court investigated and helped the parties reach a settlement for all three cases in one – and held that the technology ultimately belonged to both companies (so they struck a cross-licence agreement).
“This case serves as a benchmark for how courts can efficiently and amicably resolve complex scientific and technological disputes while fostering trust and collaboration,” says Yannan Li at Sitao IP.
According to GEN Law partner Dong Ning, promoting settlements between parties is a method that China has always encouraged – in ancient China, governments sought to regulate individual behavior through morals, customs, and rituals, and did not encourage litigation, considering it “unseemly”.
Today, many courts have dedicated mediation centers and as noted earlier, in IP disputes, the CNIPA has recently gained the powers to mediate high-level patent infringement litigation. The patent office helped resolve a dispute between Huawei and Xiaomi over several communication tech patents, as well as between Boehringer Ingelheim and Guangdong HEC over the former’s linagliptin tablet patent.
Mr. Ning says:
“As a lawyer, I certainly understand the importance of litigation, but I also acknowledge that sometimes litigation is not an effective way to resolve disputes in China’s context. Chinese people place great importance on the relationship between parties when cooperating. Therefore, once a lawsuit is initiated, it signifies a complete breakdown of the relationship. Even if the court can determine who is right and who is wrong, it is unlikely the parties can restore their relationship.”
This Fengqiao model is being adopted more and more in Chinese courts. The Zhejiang Provincial Intellectual Property Office recently issued what it calls the “Fengqiao-style” intellectual property dispute governance mechanism last month (November 27, 2024 Zhejiang Metropolitan Express article). Additionally, Mr. Ning himself represented a UK-based tech company in a case in which three patent infringement lawsuits against a Chinese manufacturer ultimately led to a settlement. “Thanks in part to the court’s efforts – judges can adjust the expectations of both parties,” he says.
However, Mr. Ning adds, mediation has faced some criticism. In some courts, there is a compulsory mediation process before a case is officially docketed. “Some plaintiffs feel delays the trial proceedings,” he says. Additionally, judges may sometimes exert undue pressure during mediation, Mr. Ning notes:
“In one case I was involved in, the judge suggested that the plaintiff carefully consider whether their IP strategy was too aggressive, and warning that such a strategy could risk antitrust investigations.”