By Lu Zhouhuang
On 1 July 2016, Patent Reexamination Board of State Intellectual Property Office declared invalid the patents for the utility model of two-wheeled electric vehicle (patent number: 201320128469.4) held by the patentee, Chen He, as appealed by Hangzhou Chic Intelligent Technology Co., Ltd (hereinafter called “Chic”). From then on the legend, “one patent to be a king”, was broken. Chic, accused to be a “cheater” by its competitors for a long time just because of the patent, tragically but heroically rose after one year of hardship.
As the China IP reporter knows, the patent invalidated this time was the China counterpart of the patent (patent number: US8,738,278) invented by an American, Shane Chen, which was also called “a basic patent that you can never ignore”. In September 2015, Shane Chen authorized his patent exclusively to Razor, an American electric scooter giant. As an aggressive, senior and old brand in patent litigation, Razor fought hard when it got this trump. It first directed the Amazon incident, a destructive strike on the industry. Three months later, it appealed to International Trade Commission, US to perform Investigation 337 for 29 balance vehicle enterprises. Chic was on the list. The invalidation of the China counterpart of the patent involved in Investigation 337 no doubt temporarily set Chic, which was then at the center of storm, at ease.
Since March 2016, Chinese balance vehicle enterprises have been given 337 investigated for many times. The patent war maybe just began in China when it was fierce overseas. Chic’s legal affair department said to the China IP reporter: “to invalidate Chen He’s patent in China is not only to clarify the long-time misunderstanding for Chic but also prepare for our counterattack in patent.” As the only Chinese enterprise that counterattacked after Investigation 337, Chic appealed against Razor’s infringement for successive two times in May 19 and August 22. This newcomer to American markets showed its confidence and ambition.
As China IP knows, the American patent, US8,738,278 (hereinafter called “Patent 278”) was always considered the earliest basic patent for the balance vehicle industry. The reporter searched public information and found that Patent 278 was officially applied for on 11 February 2013 and approved and granted on 27 May 2014 after publicity. To gain the protection for his originality early, Shane Chen sent temporary patent application on 12 February 2012, one year before official one, to ensure his plan not to be registered by others.
In March 2013, shortly after official application for Patent 278, Shane Chen applied for a similar patent for model utility of balance vehicles (patent number: 201320128469.4) in China. The patent was authorized on 28 August 2013, but the inventor & right holder was Chen He, who was said to be Shane Chen’s cousin. Chic said to China IP that Chen He personally attended the court and admitted that he was Shane Chen’s cousin. The reporter, however, wondered why such an important basic patent was granted only a model utility patent in China? According to Paris Convention for the Protection of Industrial Property, there was a 12-month period for International Priority Date. But why was the application of this model utility patent later than the first application date in US?
By the clue given by an insider, the China IP reporter found through searching that Shane Chen had submitted the application for the patent (application number: 201210112847.X) in China early on 18 April 2012, shortly after his first application for temporary patent of Patent 278. As he changed his identity, he did not require the priority date of his American patent. It can be known that the invention patent was rejected and finally not granted. The authorized model utility was proposed by the right holder in an embodiment after he received the first patent examination notice. As Liu Xingbin, a lawyer of Guangdong Zhe Li Law Firm of Intellectual Property said, this China counterpart of Patent 278 was one that you cannot ignore, but the strategy of application exposed the instability of this patent. In September 2015, Razor, the electric scooter giant from US acquired the exclusive permission for Patent 278 with 10 million dollar without questioning the China counterpart. Maybe Razor was aware of the risk in this? Some law practitioners guessed.
Ma Yufeng, a partner of Orrick Law Firm, US said to the China IP reporter: "An invention belongs to two inventors, one in China and the other in US. The effectiveness of this patent itself is doubtful. Which inventor does this patent belong to, from the perspective of patent law? Anyhow, the inventor at least cheated a patent bureau." It is said by Chic to China IP that Shane Chen authorized Patent 278 to Razor the giant and the China counterpart held by Chen He was also authorized to others. Ma Yufeng think there may be risk that these two patents in China and US may be against each other: Once Chen He authorizes his patent to a manufacturer, who then exports its products to US, Chen He's patent may encounter Shane Chen's, and also Razor's, patent, and a risk of infringement appears. This risk may also appear when Razor's products enter China. What Shane Chen and Chen He do, in law practitioners' opinion, seems a mystery. Unfortunately, the reporter cannot contact the two to get more details until the release of this article.
In 4 January 2016, Chic appealed to the Patent Reexamination Board to invalidate the Chinese counterpart of Patent 278 (patent number: 201320128469.4). On 1 July 2016 the Board finally made its decision and invalidated Chen He's patent for a lack of novelty.
Dramatically, Chic's evidence used to invalidate the model utility was right the patent of SoloWheel, a company established by Shane Chen. When news came, Sino-US Times released Chinese Counterpart of Razor's Patent 337 Invalidated, and SoloWheel followed and released a long article, Special Declaration on Chinese Counterpart of Razor's Patent 337 Invalidated, saying that Chic was misleading the public and trying to exclusively disclose the truth. As the Special Declaration went, "SoloWheel's invention patents overlaps with its model utilities, and thus they lack novelty and become invalid." Except the word "invalid", which was obviously a mistake, Chen Xiaoliang, a lawyer from Zhejiang Inpro Law Firm wrote an article on that Special Declaration, explaining: "If there is overlap, it is obvious that the model utility is not that much the same with the invention patent. There may be some parts that are not the same, apart from some technical characteristics. So it is not possible for the model utility to lack novelty and even be invalidated. If a patent is invalidated for a lack of novelty, all of the technical characteristics of the invalidated patent can be found in the counterpart."
Li Lu, legal director of Chic said to China IP: "In fact, there are many cases where inventors disclose their patents too early. Many of China's earlier patents are disclosed in this way." For Chic, it did not deserve the client's anger when a patent with so many critical faults is invalidated. In 2015, SoloWheel's exclusive agent in China, Invanti Technology & Trade Co., Ltd. said during an interview with Leiphone.com: "For SoloWheel, there are 5 manufacturers at home that receive patents from it. SoloWheel's royalties in 2014 exceeded its sales amount and became the most profitable business." Now this company, of which the mainline is patent authorization, has to accept the truth that its critical patent in China is invalidated. It's ironical”.
Patent 207: Question and Mystery
SoloWheel released an article before, saying that it held an invention patent, an appearance patent and a model utility patent for its two-wheeled vehicles. It is known that the invention patent was numbered 201110435720.7 (hereinafter called "Patent 207") and named "self-balanced two-wheeled electric vehicle" and Chen He was both the inventor and right holder. The application date was even more conspicuous: it was applied for on 23 December 2011, even two month earlier than the first application for temporary patent of Patent 278 in US. For that reason, some insiders said recently that Patent 207 was the earliest basic patent of balanced vehicles and even more powerful than Patent 278, which was though be the origin of this industry.
"When we found this patent, we felt strange. When we first search the family of Patent 278 in US, we did not find any patent that have direct priority over it. Then we found an invention patent in China that are almost equal to Patent 278 in graphics and technology. It is almost the same with the invalidated model utility patent and simply the Chinese counterpart of Patent 278," said Li Lu to the China IP reporter.
When the reporter continued to check the examination records of Patent 207, he found the patent went through unfortunate hardship. In three and a half years from 23 December 2011 to 27 May 2015, there were four times of examination replies, five times of patent claims modifications and one time of right restoration after withdrawal. But it is hard to understand that, in the first three examination replies, the State Intellectual Property Office rejected Chen He’s application for Patent 207 on the reason that the claimed right is not creative, and there is no material content in the patent application that can be granted a patent and there is no potential to grant it a patent. On 30 October 2014, upon the fourth examination notice after being rejected for three times, Chen He finally entrusted an agent, Hangzhou Yu Yang Law Firm of Patent with opinion statement and modified the right claims on 10 March 2015. After this time of reply and modification, Patent 207 was finally granted on 1 April 2015.
It is coincidental, however, that the agent entrusted by Chen He, Hangzhou Yu Yang Law Firm of Patent was right the one that kept long-term cooperation with Chic. These two entrusted the same agent, which was such a not-so-popular firm. This leaved us much imagination. It can be seen that these two companies were very close in the time they applied for patents and were granted them. On 13 June 2014, Chic finished its patent application in this firm and Chen He entrusted Hangzhou Yu Yang to reply examination opinion for the fourth time in October of the same year. Chic’s model utility was granted in early 2015 and Chen He gained Patent 207 on 1 April 2015. As both did not initiate legal proceedings, the firm had not subjective fault, but Chic expressed its doubt to China IP: “We keep long-term cooperation with this firm for our balanced vehicles, including those patent applications before. If you ask us which firm knows our technology the most, it must be this one. But as luck would have it, this firm finally saved Chen He’s patent.”
Before invalidating Chen He’s model utility, Chic has long been called a cheater. “The R&D background of Chic was long ignored. In fact, we started the R&D of products in 2006. We focused on the most important control system of a balance vehicle.” Li Lu showed a patent list of Chic’s balance vehicle to the China IP reporter. In 2006, Ying Weijia founded an incubator company, Hangzhou Yi Nao Smart Tech Co., Ltd. to start the research and incubation of smart vehicles by production-study-research cooperation with Zhejiang University. It started to apply for patents from 2009. From 2009 to 2012, Chic applied for 22 smart balance vehicle patents until it gained mature tech foundations and technologies for it to establish Hangzhou Chic and start production and operation of balance vehicles. There were more than 150 patents for today’s Chic balance vehicles. But as a start-up company, Chic made a deadly mistake that Chinese enterprises always made: products went on the market before patents. Chic released its first balance vehicle in August 2014, but it started to apply for patents just two months ago. This eventually caused Chic’s passive state today.
SoloWheel said in its Special Declaration: “Related patents after our invention patents including Chic’s will be invalidated.” and “The date we applied for Chinese invention patents was 23 December 2011 and the date Chic applied for its patents was 12 June 2014. According to patent laws, all inventions of the same category applied for afterwards were invalidated.” Chen Xiaoliang thought the conclusion lacked legal basis and was too careless and irresponsible. He wrote: “Whether a patent is invalidated depends on whether its technical characteristics are open or inventive, but not on the name of a product. Also it cannot be considered that the later-applied-for patents of the same category deserve invalidation. It should depend on technical characteristics and plans.”
It is known that Chic has appealed to the Patent Reexamination Board to invalidate Patent 207 in March this year and the case is still in process.
Counterattack against Razor’s Upgrading of the Patent War
From 2016 until now China’s balance vehicle industry went through the Amazon.com event and did not restore from the industry reshuffle before successive 3 times of Investigation 337. Chic, among more than 10 balance vehicle companies in China that were involved in the case, was the only one defendant who counterattacked.
China IP knew from Chic that in early 2016, Razor visited Chic’s plant in Yuhang, Hangzhou. When the outside guessed the possibility of re-cooperation, a sudden Investigation 337 shocked the industry. On 22 March 2016, with its exclusive US8,738,278 patent from Shane Chen, Razor applied to ITC for Investigation 337. Chic was then listed into 29 defendants. On May 19, 2 months later, Chic swiftly started a patent counterattack and entrusted Orrick, a senior law firm to initiate legal proceedings for patents for Razor, claiming that it infringed Chic’s appearance patent, USD737,723.
“As the company was late in patent arrangement in US, so when we sued Razor in May, we did not get authorization of US invention patents. But we can’t wait. We can only sue it with our authorized appearance patents,” said Li Lu to the China IP reporter. “Until the invention patent was authorized, for Razor’s latest 2.0 new products, we did not hesitate to use invention patents to initiate proceedings.” Chic sued Razor to the local court, Middle District, California for the second time on August 24, 3 months after the first case, claiming that the other party infringed its US9,376,155 invention patent. It is known that the two cases were legally registered and the first one was listed into the judge’s schedule.
But whether the Chinese model utility corresponding to Patent 278 in Razor’s Case 337 affects Chic’s case in US? Li Lu said to China IP: “The patent law of US is totally different with that of China in claim scope and technical plan. But the technical content of a patent is the same. The problems in China’s patents are more or less reflected in other cases. However, there are no direct effects but indirect ones, as can be seen from the perspective of professional laws.”
In Razor337 case, the reporter knew an important incident from Chic: it is unexpected that Razor applied for reissue for its Patent 278. The US lawyer explained to China IP that reissue, as a special process of the patent law of US, allows the patent holder to regret. Once a patent holder finds its patent contains fault or error that may invalidate the patent fully or partially, the patent holder may amend it by applying for reissue on the condition that it should confess its fault or error. The patent administration will re-grant the patent according to the amended application when the patent holder waives its original patent.
“This process is dangerous for a patent holder. Once the amended patent is not accepted, the faults in the original patent are disclosed. New patent is not granted and the original one is disclosed. When an opponent catches you, you can never run away,” Li Lu said to the reporter of China IP. “But for such an important patent used in Case 337, its faults are identified during the case and even reissue is applied for to substitute the original Patent 278. This is a very severe problem. Once the new patent is granted, the original one is invalidated. Then where does the general exclusive order based on the original patent come? We defendants may, probably, waste the lawyer fee of several million dollars.”
According to Li Lu, Chic had entrusted lawyer to request to the ITC, requiring Razor to cease reissue or Investigation 337. Finally Razor waived reissue and bet its last to continue 337, but accidently disclosed the faults of the involved patent. “Because it submitted faults and, if we continue the process afterwards, the faults can be useful,” Li Lu said. It can be expected that a patent war was ongoing in the circles of balance vehicles. China’s innovative enterprises have turned to a path of rise by using patents to develop a safe international market.
Translated by Zhu Guandong
