The protection of intellectual property rights has become one of China’s major goals, and new protection mechanisms have taken shape, writes Richard Li

It can be said that effective protection of intellectual property (IP) is the cornerstone of modern economic development, and with the continuous development of China’s economy, the establishment of an effective IP protection mechanism has become one of the key tasks of the central government. In this regard, the state has already made some heavyweight moves, and new protection mechanisms have already taken shape in China.

The State Council Institutional Reform Plan, published on 13 March 2018, proposes the restructuring of the State Intellectual Property Office (SIPO), as well as the integration of the duties of the current SIPO, the trademark administration duties of the State Administration for Industry and Commerce (SAIC) and the designation of origin and geographical indication administration duties of the State’s Administration of Quality Supervision, Inspection and Quarantine (AQSIQ).

“As, after the restructuring, patents, trademarks, designations of origin and geographical indications will all fall under the administration of the [SIPO], there will be greater consistency in law enforcement standards,” says Helen Cheng, a partner at Zhong Lun Law Firm in Shanghai.

“Second, trademarks and patents involve a large number of administrative approval procedures, which were formerly subject to the administration of two different authorities, so in terms of means and efficiency of administration, there is sure to be a difference. With unification under one authority, the efficiency of administration will greatly increase.”

The reorganized SIPO will fall under the authority of the State Administration for Market Regulation (another new authority created during the recent institutional reorganization). Cheng contends that this type of arrangement signifies that “what are commonly known as fake and shoddy goods, counterfeit registered trademarks, passed off patents, etc., will all be overseen under a single comprehensive market regulatory law enforcement environment, which will not only help in avoiding overlapping law enforcement but will also be helpful in unifying law enforcement standards”.

In February 2018, the State Council issued the Opinions on Several Issues Concerning Strengthening Reform and Innovation in the Intellectual Property Adjudication Field, with reforms in intellectual property adjudication including improving the litigation system, strengthening development of the court system, strengthening the selection and fostering of adjudication talent, etc. Guo Xiaojun, deputy director of the business development department of CCPIT Patent and Trademark Law Office in Beijing, says that the opinions are a comprehensive plan for the reform of intellectual property adjudication, and will have a strong positive effect on strengthening the protection of IP.

Zhang Hui, a partner at ZY Partners in Beijing, says the expression of such specific opinions on IP protection at the central government level “truly is all to the fortune of China’s IP circles, and is of major significance for strengthening foreign investors’ confidence in investing in China and stimulating endogenous innovation by Chinese enterprises”.

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In terms of improving the litigation system, the opinions particularly emphasize that major efforts need to be expended in resolving the issue of “low damages” awarded in IP infringement legal actions, intensifying the punishment of infringement and reducing the costs of rights protection. Where there are repeated infringements, either in bad faith or other instances of serious infringement, greater damages will be awarded in accordance with the law and the measure of damages will be increased.

The newest version of the Law Against Unfair Competition entered into effect on 1 January 2018. Liu Mengling, counsel at ZY Partners in Beijing and a former judge, says the new law “increases the number of acts deemed to be unfair competition and provides greater detail, recognizing a large number of new economic sectors, and new types of acts of unfair competition, which will be conducive to protecting enterprises’ IP in the internet environment”. Furthermore, the law’s newest version implements the notion of three-in-one protection of the public interest, of the lawful interests of business operators, and of the lawful rights and interests of consumers, thus broadening the scope of its protection.

The new Law Against Unfair Competition further intensifies administrative law enforcement and civil damages. “The new law strengthens coercive administrative measures, expands the scope of administrative penalties, and intensifies penalties,” says Liu Mengling. “Additionally, it improves the damages system for civil liability, increasing the statutory damages for certain acts, which makes for a smoother organic convergence between administrative penalties and civil damages.”

POSITIVE FEEDBACK

IP rights holders have also reacted positively to developments in China’s IP protection mechanisms. For example, the focus of, and difficulties in, Shanda Games’ protection of IP mainly lie at the copyright and trademark levels. Xie Fei, Shanda’s CEO, says that as early as 2013, the State Council amended such regulations as the Regulations for the Protection of Computer Software, the Implementing Regulations for the Copyright Law, the Regulations for the Protection of the Right of Transmission Over Information Networks, etc., all having in common the intensification of penalties for infringement, and showing China’s resolve in intensifying the protection of IP.

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“The legislative event that drew all eyes in 2017 was the amendment of the Law Against Unfair Competition, bringing domain names, trade names and website names into the scope of protection, and adding greater detail to the determination of acts of confusion, fully demonstrating legislation’s adaptation and adjustment to economic development,” says Xie.

Tang Xiaohong, the general manager of Shiseido China’s legal department, has also kept a close eye on the amended Law Against Unfair Competition. He notes that the law expressly prohibits acts of commercial confusion. It treats the use, without authorization, of a mark identical or similar to another’s product name, packaging, trade dress, etc., that has a certain influence – as well as the use without authorization of another’s enterprise name, entity portion of a domain name, website name, web page, etc., that has a certain influence – as acts of unfair competition, and expressly prohibits them.

“For the IP of a company like ours that has a certain degree of influence, these provisions play a strong protective role, and are conducive to stemming the flood of bad-faith acts of infringement, like free-riding on famous brands, and sparking a social ethos of fair competition,” says Tang.

Tian Shuai, the IP director at Gionee Communication Equipment, has seen China’s patent rules being updated at a fast pace. “About every eight years, the Patent Act … will be updated by the authority, and the updated versions each time have a big improvement compared to the last ones,” says Tian.

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“Those changes are making our patent system move forward quickly, and create many new jobs in various industries such as information and communication technology [ICT], and the medicine software businesses,” he says.

“Besides, lots of experiences that we accumulate from our daily practice, plus a bunch of good ideas or provisions from the EU and US patent laws, are also brought or localized into our patent system. The IP department is now playing a key role in most companies.”

Cui Ke, the IP director of Hengbao, says the degree of importance that the central government attaches to IP work, and the effort that it is investing in IP, are continuously increasing. “In the past few years, great strides have been made in the entirety of China’s IP work, particularly in the importance attached to protection,” says Cui. He argues that the effects of two measures are particularly marked: the first is the implementation of the technical investigator system in the trial of patent infringement cases; and the second is the establishment of the IP courts.

To date, China has established three IP courts (in Beijing, Shanghai and Guangzhou) and 15 IP tribunals (in Zhengzhou, Tianjin, Changsha, Xi’an, Hangzhou, Ningbo, Jinan, Qingdao, Fuzhou, Hefei, Shenzhen, Nanjing, Suzhou, Wuhan and Chengdu).

These courts and tribunals constitute China’s new “15+3” IP protection landscape. “All of these IP courts and tribunals enjoy a certain degree of multi-regional jurisdiction,” says Yang Zumin, an associate at ZY Partners in Beijing. “Their establishment is of great significance in reducing the effect of local protectionism, and also lays the foundation and makes preparation for the establishment of IP appellate courts.”

Xie, from Shanda Games, stays the establishment of the three IP courts realizes the professionalization of the adjudication organs, adjudication personnel and adjudication work. “This is something that Western countries do not have. For example, the US only has one IP court at the national level,” she says.

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Philip Yu, the Asia-Pacific IP leader at DuPont, also believes that the establishment of IP courts has been among the most important developments in mainland China in terms of IP protection. “[They] would improve the judicial process to make IP litigation more consistent,” he says.

Wang Xinchun, an IP Specialist at NXP Semiconductors, says that with the establishment and development of the IP courts, the trials of cases are becoming more and more professional. “From the participant’s perspective, much effort is saved without consuming time to communicate and explain even the IP law itself to the judges,” he says.

COMMON MISUNDERSTANDINGS

Frank Liu, a partner at Jincheng Tongda & Neal in Shanghai, says there are certain enterprises that contend that China’s efforts to protect IP are still insufficient, and that its legal systems are insufficiently sound, with some enterprises giving up on the China market due to worries about IP protection.

However, Frank Liu says China has continuously been intensifying its protection of IP in recent years. According to statistics, in the past five years, the total number of administrative patent law enforcement cases alone reached 190,000, with a year-on-year increase of 40%. Additionally, the IP litigation system is continuously improving.

刘建强-FRANK-LIU-金诚同达律师事务所-合伙人,上海-Partner-Jincheng-Tongda-&-Neal-Shanghai

“In 2014, China had already established dedicated IP courts, and these courts have actively sought solutions to the problems of low damages, long delays, and difficulty in adducing evidence, and have intensified the punishment of IP infringement,” says Frank Liu. He notes that the cases in which infringers have been ordered to pay large damages have gradually increased in number, with the largest measure of damages in a patent case reaching RMB80 million, the measure of damages in certain trademark cases reaching RMB10 million and the largest measure of damages in copyright cases reaching several million renminbi.

“It is precisely because of the confidence in the protection of IP that the number of patent and trademark filings have been increasing year by year,” he says. “The most recent annual report issued by the World Intellectual Property Organization shows that the number of China’s global patent, trademark and design filings reached a new high in 2016. Among those, patent applications accepted in China rank first in the world, and the number of trademark applications have remained No. 1 in the world for 15 consecutive years.”

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Cheng, from Zhong Lun, states that her firm often has US clients who feel that China is not doing enough to restrict bad-faith pirating of trademarks. She says the reason that such a misunderstanding exists lies in the difference in the principles that govern trademark registration in China and the US. In China, a stringent registration system is the main principle, whereas in the US, the main principle in trademark registration is actual use.

“Although the trademark registration principles differ, China also has the appropriate measures to address bad-faith pirate registrations,” says Cheng. “First, if in China a trademark is not used for a period of three years in succession, anyone may file an application with the Trademark Office to cancel the registered trademark, and the owner of the registered trademark bears the burden of proving use of the trademark.

“Second, the Trademark Law specifies that one may not use unfair means to preemptively register another’s trademark that is already in use and has a certain degree of influence. Third, with respect to a registered trademark that was pirated in bad faith, a materially interested party may apply to the Trademark Review and Adjudication Board [TRAB] for the invalidation of the registration of such trademark within five years from the date of registration. Owners of well-known trademarks are not subject to the five-year rule.”

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Guo, from CCPIT, says some foreign enterprises feel they will not receive fair treatment in China when it comes to the judicial protection of IP. “However, we have never encountered such a situation in our handling of cases,” he says. “In most instances we prevailed in cases where we represented foreign clients in exercising their rights in China.”

Frank Liu says that statistical data show that foreign enterprises prevail in IP cases in China at a rate of more than 80%. “In judicial practice, we also feel that the rate at which we have prevailed when representing foreign clients in IP cases is very high,” he says.

Due to the huge number of patent filings in the China market, the majority of which only have information in Chinese, certain foreign enterprises are worried that the roll-out of products or services in China could easily result in infringement of patents already existing in the market. However, Guo states, in fact, if a client engages an experienced patent agent to conduct search and analysis, he can effectively avoid infringement.

CONTINUOUS IMPROVEMENT

Although significant success has been achieved in terms of IP protection in China, with the rapid development of the new economy there is a continuing need to keep up with the times and improve protection mechanisms.

Xie, from Shanda Games, says China’s games industry is a rising cultural industry that is growing at breakneck speed and, from the legislative perspective, there is a need to protect the flourishing innovation in this market. “However, the never ending copying and imitation has, to a great extent, dampened the enthusiasm of creators and disrupted the normal market competition order,” she says. “Games are newly emerging IP, and in the past few years, academic circles and judicial circles have been busy exploring the legal definition and scope of protection of game IP.”

Xie says her company has consistently been actively reporting to relevant authorities the instances of infringement that they have encountered and the difficulties that they experience in protecting their rights. “We would very much like to see the issuance of directed judicial guiding opinions addressing the legal protection of the special IP in games and, particularly in terms of the criteria for comparing the substantive similarity of infringing works, the use of injunctive relief against infringing products, the measure of damages for infringers, etc. We would like to see substantive breakthroughs at the levels of laws and regulations and judicial practice,” she says.

Cheng, from Zhong Lun, notes that patent infringement and acts of passing off continue to occur in China’s constantly growing e-commerce market. She argues that the main reason is the presence of defects in the vertical co-operation mechanism between various authorities responsible for the enforcement of IP laws, and an insufficient number of professional personnel. “Accordingly, the relevant law enforcement authorities need greater co-ordination, need to formulate a sound co-operation mechanism, and need to gradually increase the number of professional law enforcement personnel so as to further mould a favourable business environment,” she says.

Yu, from DuPont, finds one of the biggest challenges in managing IP in China is to implement trade secret protection to safeguard research and development (R&D) investments in China. “Without adequate protection, it would be extremely difficult to get global headquarters to create opportunities for our R&D scientists,” he says.

Frank Liu, from Jincheng Tongda & Neal, says that although China has established a relatively sound patent, trademark and copyright protection regime, the difficulty faced by enterprises in protecting trade secrets remains substantial, as evidence requirements in such cases are relatively stiff. He says that as trade secrets are likewise important assets of enterprises, the relevant authorities could consider making appropriate adjustments to strengthen their protection efforts in this regard.

Wang Xinchun, from NXP Semiconductors, says evidence and testimonies are of high significance to IP cases. He suggests that “with the reform in the judicial system in China, it becomes possible and necessary to set up a [particular] rule of evidence which is practical and specific to IP proceedings”.

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Frank Liu recommends that, in cases where infringement is clear, consideration could be given to using an even simpler procedure to carry out hearings so as to prevent infringers from exploiting the procedures to drag out the case hearing process, and to bring in a penalty mechanism to address deliberate acts of delay.

Cui, from Hengbao, hopes that at the legislative level China can, in terms of the recognition of the extent of the technology contributions of patents, increase research efforts so as to further reduce judicial discretion and lessen the interjection of artificial subjective factors in judicial processes.

Liu Mengling, from ZY Partners, notes that new types of irregular patent filings have manifested themselves in recent years: for example, the submission of multiple patent applications after the simple substitution or jury rigging of materials, components, etc.; the submission of multiple patent applications on the strength of fabricated experimental data or technical effects; and the random generation of product shapes, patterns or colours through computer technology followed by submissions of multiple patent applications on that basis. “The strong secretiveness and great harm of such irregular filings seriously disrupt the patent filing order while also lowering the quality of patent grants,” she says.

“We would recommend that the examination standards at the patent right grant and confirmation stages be made more stringent, that the sharing of information and the coordination of communication between the courts and the patent office be strengthened, that various examination rules be applied so as to deny the granting of rights for irregular filings, that relevant applicants be assessed the attendant penalties and that a ‘blacklist’ system be established to prevent and control irregular filings on a priority basis.”

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With respect to the continuing existence of counterfeiting on the market, Tang, from Shiseido, hopes that the legislative authorities and administrative law enforcement authorities can place greater emphasis on the serious threat to the new age Chinese economic order that counterfeit goods pose, and strengthen penalties and law enforcement, “tackling counterfeit goods as if tackling drunk driving”.

Judgments of substantial similarity between works in China

Determination of IP infringement damages in China

Protection of right of publicity in China

International technology transfer agreements

Infringement risks of performances on live-streaming platforms in China