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Chinese Company's Asset Frozen

Recently, the listed company Guonong Science and Technology disclosed that it would transfer a 50% stake in Shandong PKU High-tech Huatai Pharmaceutical Co., Ltd. (hereinafter referred to as Shandong Huatai) for a price of over RMB 70 million. According to media reports, Shandong Huatai has suffered losses for three consecutive years. As Shandong Huatai's operating income accounted for more than 90% of the total revenue of Guonong Science and Technology in 2017, the deal has received much attention.

Guonong Technology's move is not unrelated to the company's patent ownership and licensing disputes with a citizen named Hu Xiaoquan that has lasted for years.

The Patent Licensing Dispute

The series of disputes involve the "Licensing Agreement for the Patent for ATP Disodium Chloride for Injection" (hereinafter referred to as the ATP Patent Licensing Agreement). Shandong Huatai is required to pay the patentee, Hu Xiaoquan, more than 14 million yuan per year, totaling more than 100 million yuan, in order to obtain the license.

Previously, Guonong Science and Technology had been subject to administrative penalties by China Securities Regulatory Commission for failing to disclose the signing of the ATP Patent Licensing Agreement in a timely manner.

In the first half of this year, Hu Xiaoquan once again sued Shandong Huatai in the Jinan Intermediate People's Court on the grounds of patent licensing disputes. Hu Xiaoquan claimed that Shandong Huatai did not pay the license fee in full, which constituted a breach of contract. It requested for an order that Shandong Huatai pay the plaintiff Hu Xiaoquan for the remaining amount of 92.48 million yuan, pay the capital cost of 2,249,600 yuan as of September 1, 2018, and pay the subsequent capital cost at the annual interest rate of 24% based on the amount of 92.48 million yuan until the date of settlement.

On November 7, Guonong Science and Technology issued an announcement on the progress of major lawsuits of subsidiaries. Jinan Intermediate People's Court froze Shandong Huatai’s 90-million-yuan asset. After its asset was frozen, Shandong Huatai filed an application for lifting the assert preservation to the Jinan Intermediate People's Court. As of the disclosure date of this announcement, the Jinan Intermediate People's Court had made a ruling to seize several real estates under the name of Shandong Huatai, and unfrozen Huatai’s RMB 35 million bank deposit.

The Patent Ownership Dispute

In 2014 and 2015, Shandong Huatai paid 14 million yuan per year for the license fee. After deducting the personal income tax of 2.24 million yuan paid, the actual amount was 11.76 million yuan. Hu Xiaoquan believed that Shandong Huatai should pay him 14 million yuan after paying the personal income tax.

Therefore, Hu Xiaoquan sued Shandong Huatai in the Yantai Intermediate People's Court, requesting that Shandong Huatai pay the patent royalties of 4.48 million yuan and the capital cost. In February 2017, the court ruled in favor of Hu Xiaoquan.

Shortly after the defeat, in April of the same year, Shandong Huatai filed a patent ownership dispute case in the Jinan Intermediate People's Court, claiming that the patent at issue was owned by Shandong Huatai. Shandong Huatai believed that the patent held by Hu Xiaoquan was almost identical to the content of the ATP drug declaration initiated by the company in July 2004 and Hu Xiaoquan stole the technical data owned by Shandong Huatai.

According to the announcement of Guonong Science and Technology, Shandong Huatai conducted research on ATP technology from November 2002 to July 2004, initiated the ATP drug declaration in July 2004 and received the ATP registration approval issued by the State Food and Drug Administration on April 1, 2005. On May 13, 2004, Shandong Huatai and Hu Xiaoquan signed an agreement stipulating that Shandong Huatai would have the exclusive distribution rights of ATP drugs in China five years after the production approval.

Currently, the judgment on the case is not yet available.


The Validity of the patent at issue

Before Hu Xiaoquan and Shandong Huatai signed the ATP patent licensing agreement, Hu Xiaoquan had filed a claim against Shanxi Zhendong Taisheng Pharmaceutical Co., Ltd. (hereinafter referred to as Taisheng) and Shandong Telier Marketing and Planning Co., Ltd. Pharmaceutical Branch (hereinafter referred to as Telier) for infringement of the above-mentioned patent.

Later Teller initiated an invalidation request in February 2008. In November 2008, the Patent Reexamination Board declared that the patent was invalid. Hu Xiaoquan refused to accept the decision and filed an administrative lawsuit. The Beijing Higher People's Court revoked the invalidation review decision and ordered the Patent Reexamination Board to make a new decision. On September 7, 2011, the Patent Reexamination Board declared the patent to be valid.

Additionally, in May and July of 2017, Hefei Fawu Intellectual Property Agency Co., Ltd. filed an invalidation request for the ATP patent. The Patent Reexamination Board once again declared the patent to be valid.

After being repeatedly challenged, the ATP patent at issue stays intact, which shows its strong stability.

It is probably difficult to challenge the validity of the patent at issue, but if Shandong Huatai can obtain a favorable judgment in the patent ownership dispute, it can still reduce the financial pressure brought by the patent licensing agreement. For more progress of the series of disputes, the intellectual property will remain concerned.