| ISSUE N° 7 November, 2002 |
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The Intellectual Property Protection in China Download Shanghai Flash N° 7 pdf-version 1. Law enforcement 1.1. Progress in IPR protection During the last few years, essential improvement in the intellectual property right (IPR) protection have been made in China. First of all, knowledge and consciousness about the IPR protection is growing in China. One of the main elements was the health risks to the Chinese population due to false drug production or prohibited use of agro-chemicals, not least due to infringements of Chinese firms. The Chinese authorities have realized that a sound system of intellectual property protection is important for a favorable business environment. It will not only benefit foreign investment but the final consumers of the goods. As a result, courses on intellectual property law are now being offered at every top law school in China; high priority has been given to IPR protection by the State Council, expressed in its continuous promulgation of legislation, administrative regulations, and enforcement guidelines; various intellectual property cases have been settled in the courts in favor of the holder of the right. Furthermore, China entered the WTO in December 2001. Prior to the accession, China amended her Patent Law, Trademark Law and Copyright Law and formulated other IP laws and regulations including regulations on the protection of new plant varieties and the layout designs of integrated circuits to bring her laws and regulations in line with TRIPS agreement of the WTO. At the same time, China loosened the limitation for foreign patent applicators. The gap between total patents applied by and patents granted to foreign applicators is narrowing (see Appendix 2). Patents received from foreign applicators are growing steadily in China. The total accumulated number of patents applied reached 258,000 by the end of July, 2002. After Japan, USA, Germany, France and Korea, Swiss applications ranked 6th. China' s courts and judges have begun to improve judicial protection with the guidance of WTO regulations. China set up the No. 3 Civil Court in 2000 and gave it the responsibility for hearing IP case trials in her 31 mainland provinces. China has also provided special training for judges to make them more familiar with TRIPS regulations and the newly amended IP laws. More and more judges have been given formal education in science and technology, given opportunities to communicate with their foreign counterparts and study in the US or Europe. Statistics reveal that 5265 civil cases (5041 concluded) and 319 criminal IP cases (314 concluded) were initiated at all court levels in China in 2001. Among them was a case submitted by Rolex. The Swiss watch maker Rolex has successfully prevented a Chinese Internet company from using the domain name rolex.com in 2001. The People's Intermediate Court in Beijing decided that CINET, a local Internet service provider, did not have the right to the rolex.com.cn web address because Rolex is a famous brand in China. In addition, Rolex won RMB 10,000 from CINET in compensation for damages. Progress in IPR protection is more obvious in big cities in China. In Beijing, for example, a copyright protection center was set up by the government in 1993 to monitor newspapers (some 2,000) and magazines (about 7,000). The center also protects the rights of artists in the music industry and in the performing arts. Shanghai carried out a series of activities to celebrate the first "World Intellectual Property Day" on April 26th, 2001. From October 23rd to 27th, the Shanghai government hold a symposium named "Preparing Tactics for Intellectual Property Issues after China's WTO Entry". Participants were many high ranking government officials. 1.2. International cooperation in the field of IPR protection China is becoming more and more integrated into the global IPR protection networks. China is a signatory to the most important international intellectual property agreements. On June 3rd, 1980, China acceded to the Convention Establishing the World Intellectual Property Organization. It is now member state of the Paris Convention for the Protection of Industrial Property, the Patent Cooperation Treaty (PCT), the Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure, the Berne Convention for the Protection of Literary and Artistic Works and the Locarno Agreement Establishing an International Classification of Industrial Designs (see Appendix 1). Chinese officers and experts are becoming more and more internationally cooperative in IPR protection. They are playing an active role in multinational discussions at the United Nations, at the Hague and at the World Intellectual Property Organization. Bilateral exchanges are also increasing rapidly. These are shown in the following examples:
2. Problems of IPR protection in China However, IPR protection in China is still at an early stage for a market economy. The situation of the IPR protection in China is similar to the situation of environment protection: there is a big gap between government policy and day to day reality. Enforcement of IPR remains weak and ineffective in most parts of China. Due to local protectionism and due to the lack of truly independent enforcement authorities, infringers of intellectual property are often not prosecuted or punished. Fines imposed on infringers are still ridiculously low, far too low to deter further infringing activities. Small-scale counterfeiters often escape with low fines that can not easily be collected and offer minimal deterrence, and the rights' holder receives minimal compensation. The court system still has a shortage of adequately trained judges and the resources of the police, prosecutors, and relevant administrative agencies are insufficient. It is often difficult for these various bodies to cooperate smoothly, particularly in transferring cases from civil to criminal proceedings. The general perception of the international community remains
that China is one of the world's largest infringers in the field
of intellectual property. China maintains a very high rate of
piracy for CDs, audiocassettes and computer software. Through
State media, China has always shown that she is serious about
stopping the booming piracy industry. However, what was openly
destroyed is only a small part of the vast false and piracy industry
in China. 3. Some important aspects of IPR in China 3.1. In the field of patents The Patent Law of the People's Republic of China was adopted on March 12th, 1984, amended twice on September 4th, 1992 and on August 25th, 2000. The Implementing Regulations of the Patent Law of the People's Republic of China were promulgated by Decree No. 306 of the State Council of the People's Republic of China on June 15th, 2001, and became effective as of July 1st, 2001. Following are the most important aspects specially for foreigners: The Patent Law was substantially revised. Previously, design patents lacked substantive examination prior to approval, meaning that such rights were often granted in contravention of earlier existing rights. The remedies of original rights owners have now been strengthened: design patents may not conflict with another' s prior legal rights; the rights of an original patent holder shall prevail over those of the later in a patent dispute. Prior legal rights include trademarks, copyrights, enterprise names and unique packaging or branding associated with well-known products. According to Article 29 of the Chinese Patent Law, anyone, who files an application for a patent in China within twelve months from the date on which he first filed an application for a patent for an invention or for an utility model in a foreign country, or within six months from the date on which he first filed an application for a patent of a design in a foreign country, may enjoy a right of priority for a patent for the same subject matter in accordance with any agreement concluded between the said foreign country and China, or in accordance with any international treaty to which both countries are party, or on the basis of the principle of mutual recognition of the right of priority. According to Article 19, any foreigner, foreign enterprise or other foreign organization having no habitual residence or business office in China applying for a patent, or has other patent matters to attend to, shall appoint a patent agency designated by the Patent Administration Department Under the State Council to act as his agent. Offering or selling infringing goods is now accepted as an infringing activity itself, meaning that preemptive action can be taken against those offering to sell infringing goods but who have not participated in their manufacturing, distribution or wholesale. Prosecuting patent infringements is now easier as pre-litigation injunctions and requests for evidence preservation will now be accepted by the court, provided there is sufficient evidence and that the plaintiff provides a guarantee. The patentee may bring a law suit against an infringing agent within two years from the date when he knew or he was proved to be known of the happening of infringement. The newly revised laws endeavor to ensure that the patent owner will receive a financial compensation from RMB 5,000 to 300,000 (US $600 to $36,000), in serious cases even RMB 500,000 (US $60,000). These sums are arguably still too low to provide an effective deterrent. 3.2. In the field of trademarks The Trademark Law of the People's Republic of China was adopted on August 23rd, 1982, revised for the first time on February 22nd, 1993, and revised for the second time on 27 October 2001. Following are the most important aspects for foreigners in particular: The revised trademark law extends protection to more marks, including , geographical indications, collective and certification marks, three-dimensional symbols and colour combinations. Judicial review of administrative decisions is now possible. Courts are now authorized to order an infringing party to cease its use and in some cases order property preservation. Previously, where an infringing trademark could be separated from the goods on which it was displayed, the infringing trademark could be removed and destroyed, and the goods returned to the infringing party. Now, the practice of reverse passing off, which occurs when a trademark is removed from goods and another trademark, is put in its place for the purposes of further sale, is recognized as an infringing deal. According to the old Trademark Law, only foreign individuals could apply to register trademarks in China. The new Trademark Law now allows any individuals, legal persons and other organizations to apply for registration of a trademark and obtain the exclusive right of use for a product they manufacture, produce, process, select or sell, or a kind of service they render to their clients. Article 5 stipulates that two or more individuals or legal persons or other organizations may jointly apply for registering the same trademark and enjoy the exclusive right of use of such trademark. This new stipulation meets the requirement of a group of companies in a partnership to jointly own the rights to a trademark. This is an important amendment, as many foreign applicants jointly owned a trademark in other countries but were not able to enjoy joint-ownership in China. Another important change is the specific recognition of the international principle that whether a mark is "well-known" is determined according to market factors such as the extent of public knowledge, the duration of use, and the publication of the mark. This ends the need for registration in the official registry of well-known trademarks. The fine for infringements is increased from RMB 10,000 or less to RMB 100' 000 or less, if the counterfeited business volume is impossible to determine. 3.3. In the field of copyrights The Copyright Law of the People's Republic of China was adopted on September 7th, 1990, and revised on October 27th, 2001. The implementing Rules for the Copyright Law also came to effect on September 15th, 2002. Following are the most important aspects specially for foreigners: Copyright protection under the new law was expanded to compilation works in order to protect databases and the right to transmit via the Internet as well. The "fair-use doctrine", which under the previous law allowed for certain uses of copyrighted material without permission from the owner, has been restricted. Radio and television stations must pay for the use of published music. Stronger enforcement measures have been introduced to combat
copyright infringement. The defendant, rather than the plaintiff,
must testify the legal source of its production at a lawsuit. Foreign copyright owners will receive legal protection equal
to that of their Chinese counterparts, according to the new regulation
for the implementation of the Copyright Law. The fine for infringement is also increased from RMB 10,000 or less to RMB 100, 000 or less, if the infringer' s business volume is not to be determined. 4. What are the chances for foreign small- or medium-sized enterprises in case of IP infringements? Up to now, most of the foreign winners of IPR law suits were the big international companies, such as Adobe Systems (against Nianhua Tuwen Computer Co. Ltd.) and Microsoft Corporation (against Shanghai Huahai Computer Electronic Facilities Co. Ltd.). The foreign small- or medium-sized enterprises also meet infringement problems, but in most cases they are reluctant to take legal steps, due to limited means. Do they have any chance to win disputes? Here is some advice to small- or medium-sized enterprises by legal specialists concerning their IP rights: First of all, they should register their trademarks or patents, as soon as they enter the Chinese market, in order to hold a sound legal position. This is especially true for products and trademarks that are easy to copy and which are quite well-known. Secondly, When transferring an IPR for establishing a Joint Venture, they should carefully value it, and determine the amount of a transaction price or capital contribution. They should clearly know, if the protection for the IPR strong enough in China and what are the provisions of Chinese law against infringement upon intellectual property rights. A joint venture contract should actually include an article on this question. Should there be any infringements, they may protect their right through the following channels: a) Administrative Action: The Chinese administrative system is very complicated. It is quite difficult for foreigners to find the right places and right persons for their business. Today, it is the local Intellectual Property Administration, which is in charge of the administration and protection of patents; the local Administration for Industry and Commerce (AIC) is in charge of the administration and protection of trademarks; the local Copyright Bureau deals with the administration and protection of the copyrights; and the local Administration of Culture, Radio, Film and Television should crack down on piracy activities in the audio and video market; finally, the local Customs are in charge of cracking down the smuggling trade. These authorities can order a public apology by infringing party and a stop of manufacturing and selling of infringing products, destroy infringing trademark representations, remove all the trademarks from existing goods in stock, seize tools and molds for making the trademark representations, destroy the infringing goods in case the trademarks are not easy to be removed from the goods. Concurrently, penalty fine may be imposed, which can amount to 50% of the illegal turnover, or five times the illegal profit. Upon request of the infringed party, the AIC may order the infringing party to pay damages for economic losses arising from the infringement. Advantages of the administrative action are the quick effectiveness and a lower cost. Only a minimum registration fee of about 300 RMB is necessary. Shortcomings are the longer duration and the lower compensation by the infringer. b) Civil Proceedings: c) Criminal Proceedings: The advantage of the judicial proceedings is that the amount of the damage compensation is usually larger than that by taking administrative action, whereas the shortcoming of the judicial proceedings is that the process will be rather long (about 1.5 years in average) and the cost relatively high. Summary: In accordance with its achievements in the field of economic reform, essential improvements in the IPR protection have been made in China. However, many problems still exist, because China today, as a whole, remains a developing country. A further improvement of the legal framework depends on a progressive reform of the political system, which can only be a gradual and steady process. China certainly needs to step up intellectual property protection in practice. The country learns to protect IPR from criticism by the outside world, but also by painful lessons hurting Chinese producers or the public at large.
Appendix 1. International Conventions, Treaties or Agreements to which China acceded
Appendix 2.
The State Intellectual Property Office (SIPO) Shanghai Intellectual Property Administration Trademark Office, State Administration for Industrial and
Commerce, PRC (TMO) Shanghai Administration for Industry and Commerce The National Copyright Administration (NCA) China Copyright Protection Centre Shanghai Copyright Bureau The State Administration of Radio, Film and Television Shanghai Administration of Culture, Radio, Film and Television General Administration of Customs Shanghai Customs The Supreme Peoples' Court (SPC) Shanghai Higher People's Court Swiss Lawyer in Beijing: Swiss Lawyer in Beijing Shanghai: 7.11.2002 Consulate
General of Switzerland |
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