China is quickly becoming a global leader in innovation. Companies around the world are starting to take notice. For businesses that wish to break into the Chinese market, the country’s IP (intellectual property) system can be a major obstacle.
Many foreign business owners don’t understand how this system works or what steps need to be taken in order to keep intellectual property secure. In this third post of the IP protection series, we’ll walk you through the landscape of intellectual property rights in China. Keep reading to learn about core IP Laws and regulations in China, how IP disputes are resolved, and how to overcome some common challenges.
Core IP Laws and Regulations in China
Businesses that work with intellectual property know the value of intellectual property rights (IPRs) and IP protection, regardless of where they operate. But for those who are considering entering the Chinese market, it is common knowledge that the practices, laws, and regulations surrounding intellectual property in China have long been under scrutiny in a global context. While there are certainly issues to be addressed, much of this skepticism can be attributed to a lack of information. To better understand the IP landscape in China, you’ll first need to know how patent, trademark, and copyright laws work.
Patent Law in China
The Patent Law of China encourages invention and creation, specifically the development of science and tech. Patents are granted on a first-to-file basis and only to designs that are distinctive and do not conflict with existing patents. Once granted, no entity or individual is allowed to use the patent without the consent of the patentee. That being said, China does not have a patent opposition procedure. This means that any entity can challenge the validity of an existing patent by submitting an invalidation application to the Patent Review Board alongside with sufficient evidence.
Trademark Law in China
The Trademark Law in China sets out specific guidelines on trademarks, with “a view to protecting consumer interests and to promoting the development of the socialist market economy.” Trademarks are registered and approved on a first-to-file basis by China’s Trademark Office, giving the holder the exclusive rights to use. It’s important to note that foreign businesses must go through a Chinese trademark agency to register their trademarks.
Copyright Law in China
The Copyright Law of the PRC aims to protect the authors’ copyright of literary, artistic, and scientific works. Copyright owners are not required to register their copyrights as they are automatically protected in accordance with the Berne Convention. There is a policy of voluntary copyright registration, but having an issued copyright certificate can help owners easily prove ownership during disputes. Works created by companies typically hold copyright terms for fifty years.
Perceptions of the IP landscape in China
The perception of international businesses is that Chinese courts often favour Chinese nationals and businesses, and tend to “side” with Chinese businesses in issues of IP disputes. In 2009, 86% of European businesses perceived IP enforcement in China as inadequate. However, IP laws in China really aren’t so bad or different when compared to U.S. laws. Still, there are myths that abound when it comes to the IP landscape in China.
Myths about intellectual property in China
One myth involves the issue of forced technology transfers (FTT). While some businesses do face the risk of forced technology transfers, the actual frequency of the issue is far lower than most people assume. In fact, according to a recent foreign industry association survey, only 8% of respondents were concerned about or faced issues with FTT in China. Plus, in 2018 and 2019, the Chinese government implemented a number of heavy-handed changes to the majority of its controversial technology transfer policies.
Secondly, there is a perception that China’s IP regime is underdeveloped and therefore not capable of reasonably protecting IP rights, but a significant lack of data to back up that claim. In reality, China’s IP regime is much stronger and therefore better suited for IP-intensive businesses than other countries. Patents for technology and business methods are often easier to obtain compared to the US, as are non-compete agreements. In terms of enforcement, the costs associated with IP litigation are often cheaper in China and IP trials are faster. Most importantly, foreigners win most of the IP infringement cases they bring in China.
Intellectual Property Dispute Resolution and Arbitration in China
The risk of a business dispute in a foreign country is enough to deter many businesses from going international, especially if intellectual property is at stake. However, if you’re dealing with a dispute over IPRs in China, you have options.
Specialized Intellectual Property Courts and Tribunals in China
To manage the influx in market activity and therefore new cases, the Chinese government recently increased its courts’ capacity. This has led to the creation of specialized IP Courts and Tribunals. The Supreme People’s Court (SPC) launched IP Courts in 2014. In 2017, the SPC further launched IP tribunals in 19 cities.
The IP courts consist of 20 to 30 judges, while IP tribunals have 12-15 judges. The judges all have a mixed background in law and technology, and some have years of knowledge handling IP-related disputes. These new courts have the specialized technical knowledge to support, promote, and improve the efficiency and quality of IPR enforcement.
Appeals about IP disputes from the lower courts and tribunals are handled by the IP Court of Appeal, a division within the Supreme People’s Court. It has the mandate to hear appeals on all IP infringement cases involving technology, and appeals from the Beijing IP Court on cases involving invention and utility model patents. They have been very successful in handling IPR enforcement. Chinese courts have a famously short average adjudication period of 50 days. In 2018, out of the 301,278 new cases filed, they concluded 287,795.
Regional Differences in Enforcement of IP laws in China
There can be some significant regional differences in enforcement when it comes to IP laws in China. The most experienced courts in handling IP cases are in Beijing and Shanghai. Consequently, win rates in these two cities are some of the highest for patent holders at 84%, but not as impressive as Guangzhou and Nanjing at 88%. They all pale in comparison to Shenzhen, which scores 93%.
Role of evidence
In China, officials tend to focus on tangible proof when it comes to IP dispute cases. In fact, research shows that Chinese judges put more weight on documented evidence than oral evidence. It is crucial to get explicit supporting documents of your IP because Chinese courts have placed stringent legislative requirements to admit foreign evidence in Chinese IP suits. Evidence preservation orders and recommended.
Challenges for Intellectual Property in China
While China’s IP laws are improving, scam artists still find ways to circumvent regulations. Many will use reverse engineering, exploit legal and procedural loopholes, build parallel networks, and infiltrate distribution networks.
Another challenge involves patents. If you encounter a potentially infringing patent at the time of filing your patent, you cannot invalidate that patent in the court that is considering your patent infringement suit. You’ll have to commence a separate invalidation suit at the State IP Office. Keep in mind that China allows for double-patenting for the same product if it is an invention or utility model patent.
The presence of foreign evidence is another challenge. Chinese courts have put stringent procedures to admit foreign evidence. You will have to take the sample to a recognized court official such as a Notary Public. They must then make a statement of events and attach the sample for its legalization before going to court. For more information about the challenges related to intellectual property rights in China, you can read our next post in the IP protection series.
Challenges in arbitrating intellectual property rights in China
The main challenge when it comes to IPR arbitration in China is the very narrow scope of arbitration in the mainland. Article 3(2) of the PRC Arbitration Law prohibits disputes over patent and trademark validity. Such disputes are only handled by the Patent Review Board and the Trade Mark Adjudication Board, respectively.
Arbitration awards only have the force of affecting parties in the suit. Other entities with interest in the suit can challenge the award or the IPR in other administrative bodies with jurisdiction.
Future of Intellectual Property Rights in China
Since the Supreme People’s Court’s (SPC) launch of the Outline of Judicial Protection of IPR in China (2016–2020), China has committed to improving its IP regulations. Its main areas of improvement included better compensation for damages and better rules regarding evidence.
To achieve these goals, the SPC adopted measures for procedural law and improvements of the jurisdiction regime to improve IP litigation.
Additionally, China enacted the Foreign Investment Law (FIL) in March 2019, and Phase 1 came into effect in January 2020. Phase 1, which involved discussions about additional protections of foreign investments and better regulatory transparency, wrapped up early this year. In Phase 2, foreign businesses can expect to see enhancements in the trade secrets and patent law regime that touch on market liberalization.
U.S. China Trade Deal and IP Protection
Ever since the U.S. and China began their trade war, there have been concerns that the Chinese courts would be reluctant to observe or protect IPRs from American businesses. However, the Economic and Trade Agreement Phase One between the United States and China kicked in after its signing in January 2020 to ease those fears.
With relation to IP protection, China promised to change its laws regarding trademarks, counterfeiting, and piracy. Additionally, China is expected to change its admission of evidence in line with U.S. laws and procedures.
Despite your best efforts, IP infringement can still happen. But this is something that occurs in any country, not just in China. While China has faced backlash over its less-than-perfect IPR laws in the past, changes are definitely happening.
Intellectual property rights in China can be difficult to navigate without plenty of nuanced experience and local knowledge. It’s extremely important to solicit the aid of legal professionals with years of experience in China IP protection laws to help protect your business interest.
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