Intellectual Property Rights in China

Introduction

The legal framework for intellectual property protection is fairly complete. China is a signatory to various international treaties and conventions:

• Paris Convention
• Berne Convention
• Madrid Agreement
• Universal Copyright Convention
• Patent Cooperation Treaty

There is also a set of laws covering most issues concerning patents, copyrights, trademarks and licensing. The main relevant laws at present are:

• The Patent Law (1985, amended 1993)
• TheTrademark Law (1983, amended 1993)
• The Copyright Law (1991)
• The Unfair Competition Law (1993)

There are also regulations on licensing imported technology, trade secrets protection and Customs enforcement of IPR. China has undertaken to revise IP law to bring the situation into line with the WTO’s TRIPs protocol. This will probably also bring about some changes in the IP institutions.

Revision of laws is not the greatest challenge facing the Chinese authorities, however. The main problem IP owners face is poor enforcement of the law. This varies depending on the problem: it is generally agreed that copyright is the most poorly protected area, while the authorities crack down on infringers of registered trademarks fairly effectively. Local protectionism is a big problem in many areas, as is the unwillingness of the various administrative bodies to work together. More fundamentally, many government officials in China, and the police force, have yet to be convinced that infringement of intellectual property is wrong.

The central authorities are aware of these problems and some of them are being addressed. It may be that the increasing value of the IP of some Chinese companies will be the biggest catalyst for change, however. In the meantime, there are lobby groups that work on identifying problems and possible solutions, and communicate them to the Chinese authorities. The China Anti-Counterfeiting Coalition, with high-profile members such as Procter & Gamble, Unilever and Johnson and Johnson is an example.

Major Authorities

State Council

The Intellectual Property Working Conference of the State Council oversees the drawing-up of IPR legislation.

State Intellectual Property Office (SIPO) and local Patent Administration Offices

SIPO was created in 1998, by changing the name of the former Patent Office. Its functions have not changed, except in that it now takes more responsibility for international affairs across the IP sector. The government has said that the major revision of all IP laws will give a lot more power to SIPO, giving it some jurisdiction over trademark and copyright matters.

Currently, SIPO reviews patent applications (processed by local PAOs) and grants rights. It is under the authority of State Council. The PAOs handle disputes and use administrative means to stop infringements. Unsatisfied parties can take the case to court.

State Administration for Industry and Commerce (SAIC) and local AICs

Similarly, the SAIC in Beijing is the trademark registration body, while the local AICs handle disputes and infringements. They are quite powerful organisations as they also issue (and revoke) business licences to companies in their administrative area. This probably makes AICs more effective at taking enforcement action than other administrative bodies.

National Copyright Administration of China (NCAC) and branches

NCAC is under the Press and Publication Administration of China. The PPA is fairly toothless and NCAC is hence an ineffective enforcement body.

Technology Supervision Bureau (TSB)

TSBs are involved in technology licensing. The local offices can be proactive and helpful in taking enforcement action against IP infringers generally, particularly where there are questions of product safety involved. They have less power over local firms than the AICs, however, and the two organisations do not communicate effectively, apparently for fear of ceding territory.

Ministry of Foreign Trade and Economic Cooperation (MOFTEC)

MOFTEC, and its local branches (the COFTECs), also have an interest in technology licensing. Their Treaty and Law Department, or geographical departments, may get involved in other, serious, cases of IPR infringement involving foreign parties, particularly when progress has been stalled by local protectionism or administrative problems.

General Administration of Customs

Customs has authority to seize shipments of pirated goods. In order to help with this, it maintains a database where foreign companies can record all their Chinese IP registrations.

China Internet Network Information Centre

This organisation registers domain names.

Trademarks

Trademarks are registered by the Trademark Office, which is an agency under the State Administration of Industry and Commerce. Trademark rights are on a first-to-file basis, not first-to-use, and should therefore be filed as early as possible. Trademarks are valid for 10 years from the date of registration, not the date of application, and can be renewed for periods of 10 years at a time.

There are regulations to protect well-known trademarks, which should protect trademarks that are unregistered. These regulations have, however, been of no use at all to foreign companies; all of the applications processed to date have been by Chinese companies. The trademark office shows no signs of processing applications from foreign companies anytime soon. If your trademark is genuinely famous internationally, however, you can secure protection under the Paris Convention and Unfair Competition Law. The Embassy/Consulate can help you to apply pressure on the relevant authorities where necessary.

Service companies can register their trade names as service marks in the same way that trademarks for goods are registered. This does not apply to wholesale and retail service marks, however.

Trade dress is protected by the Unfair Competition Law. Some companies have succeeded in registering entire labels as trademarks, though this is quite rare and subsequently inflexible. It is not possible to seek protection for labels under copyright law.

How to register a trademark

You cannot register directly, but have to use a designated trademark agent. Expect to wait more than a year for the registration to be complete.

• If the trademark office approves your application, it will be published in the “Shangbiao Gonggao” and can be challenged within a 3-month time limit. If it is not challenged, you have been successful.
• If it is rejected, you can appeal (within 15 days with a possible extension to 30 days).
• The Trademark Office may ask for some amendments.

All products bearing registered trademarks must indicate that that trademark is registered with an â or the Chinese for “registered trademark”. If the trademark bearing the â differs in anyway from the registered specimen, however, the company in question is liable to a fine of 20% of turnover during the period of misuse of the â.

Unacceptable trademarks include national flags, place names, generic names of products, anything “immoral” and anything making claims about the product.

If you license your trademark to someone else, you must record it with the local AIC and Trademark Office in Beijing. The licensees must also record the agreement with the AIC themselves.

Patents

Patents are granted on a first-to-apply basis, which differs from many other countries. Types of patents are as follows:

• Inventions: “any new technical solution relating to a product or procedure, or relating to an improvement in a product or procedure”.
• Utility models: “any new technical solution fit for practical use relating to the shape of a product, its structure, or combinations of the shape or structure of a product”. This is easier to achieve than the invention patent.
• Designs: “any new design of the shape, colour, pattern, or a combination, creating an aesthetic feeling and suitable for industrial application”. Also not so difficult to achieve.

Patent protection is 20 years for inventions and ten years for others, starting from the date of application. To pursue a claim against an infringements taking place while the patent is pending, you must serve notice on the infringer that you are going to do so. You can then sue when the patent has been granted.
Applicants can also claim “priority right” under the International Patent Cooperation Treaty, which allows them to claim the date of filing in another signatory country as the date of filing in China, as long that the claim is made within one year.

Pharmaceuticals

A problem area. Only manufacturing processes could be patented from 1986 to 1993, after which product patents were introduced. Many drugs are not covered by the new product patents because they are too old to qualify as inventions. You can apply for special administrative protection for such a drug if: it did not qualify for protection under the old law; it has not yet been marketed in China; you have exclusive rights to its production and sale in your own country. Protection is limited.

How to apply for a patent

Processing an application for an invention patent takes several years, while design and utility patents take several months. You must go through a patent agent (see annex for details). These patent agencies are designated to work for foreigners, and do not have the same expertise in their field as officials in SIPO.

Applications must be in Chinese, though some foreign terms may be acceptable (such as names) if they are difficult to convey accurately in Chinese. The translation should be carefully checked by someone trustworthy, and not necessarily just the patent agent. A patent can still be challenged during the 6 months after it has been granted. Utility model and design patents are suspended if challenged; invention patents are not.

Copyrights

Copyright protection in China is comparatively poor, largely because the NCAC is less capable and less proactive than the other IPR administrative organisations. Most lawyers will look for a “trademark angle” to take action against infringement of copyright. The legal framework is not the main problem, though there are some anomalies with the Berne Convention, and other gaps, which this year’s revision of the law is supposed to eliminate. As it stands, China’s copyright law protects copyrights (including fine art) for 50 years plus the life of the author, or, in employment situations, 50 years from first publication. Works of applied art are protected for 25 years. Databases are not protected. FIE’s should bear in mind that copyright can belong to employees rather than employers, and it may therefore be advisable to sign licensing agreements with certain employees. Under the law, copyrights can be licensed for ten years (renewable).

There are collection societies, set up by NCAC, such as the Copyright Agency of China (for book publishers) and the Music Copyright Society of China (for music composers). These are intended to help copyright owners collect royalties.

Registering copyrights

Publishers and producers need a permit from the PPA, State Administration of Radio, Film and TV or the Ministry of Culture before producing, publishing and reproducing audio-video or software products in the PRC. These permits should then be registered with NCAC or local CAC, which are responsible for checking that the company in question actually holds the copyright. The NCAC will then issue a “Certificate of Title Registration”.

Software

One problem that the revision of the law needs to address is the poor protection granted to software. NCAC currently requires that software be registered with the Computer Software Registration Centre before it can be granted protection. Most manufactures are reluctant to comply with this as it means revealing about 60 pages of the source code; preconditions for protection are in any case outlawed by the Berne Convention. Relying on foreign copyright certificates is an option that can be quite effective.

The Berne Convention provides for software protection of 50 years, while Chinese law provides for 25. Moreover, when China acceded to the Berne Convention in 1992, they secured a grandfather clause allowing those who had been using others’ software before that date to continue to use it, without “unduly harming” the rightful owner. Loopholes in the law have, however, been rejected as defence in court in Beijing, giving new hope to IP owners.

Compulsory licensing

Some copyright works are subject to compulsory licensing. For example:

• Published work for commercial performances
• previously published musical works for new sound recordings
• previously published work for use in a radio or television program (permission must be sought for whole films or parts of films).

Licensing

Licensing can be straight licensing to another party, or licensing by a foreign investor to the joint venture in which it is investing. It is worth noting that the Chinese government strongly encourages technology transfer, and the Chinese side of the agreement may be inclined to see licensed technology as transferred technology. Many foreign investors with valuable IP prefer wholly owned investments, as the risk of abuse in a JV is high.

1. Technology licensing

Technology can only be licensed to foreign-invested enterprises and to Chinese companies with foreign trading rights. “Technology” includes patents, proprietary industrial information and know-how. Except for in exceptional circumstances, the term of the licence is limited to 10 years, after which the rights to the technology pass to the licensee.

Technology transfers require approval by MOFTEC or local COFTECs, depending on the size of the investment. The government limits the restrictions that may be placed on the licensee, but is willing to negotiate.

How to apply

The contract must be submitted to MOFTEC or COFTEC within 30 days of execution. Approval should be granted within 60 days, after which an Approval Certificate for Technology Import Contracts will be issued. This is needed by the licensee for various administrative procedures. Many contracts are rejected rather than approved.

Although MOFTEC has published (in 1996) new procedures indicating that it will abolish the approval process and introduce a simpler registration process. This has not happened. The process is much the same, but “registration certificates” are issued instead of “approval certificates”. The new process may even also require you to “register” with the provincial COFTEC as well as the local COFTEC.

The Contract

The contract with the licensee is obviously the most important part of the process. Important elements to consider are royalties, warranties, and how to protect the confidentiality of the technology after the 10 term expires.

2. Trademarks

Standalone trademark licensing (which does not include licensing of patents or any other technology) is quite simple and requires no approval. The licence must be recorded straight away with the local AIC.
Protecting Yourself

It is important thoroughly to investigate all the different ways in which you can protect your IPR through registration, and to make sure that you complete registrations fully and properly, in accordance with the relevant regulations. IPR registration can be expensive, but it is good insurance against later problems. Proper registration is your strongest weapon against infringers of your IPR. It is strongly advised that you engage an experienced lawyer or IPR consultant (see annex for contacts) to handle the process for you. Experience in the field minimises delays, and they will be aware of possible pitfalls.

Some companies use technology to protect themselves from counterfeiters. Hologram packaging, for example, makes copying more difficult.

It is also important to watch the market to be aware of possible infringement. This can be as simple as surveying the shops to look for counterfeits, or just being plugged into what is going on in your industry so that you notice any suspicious developments. Some companies also carry out full investigations – investigators can be hired for one-off investigations into the marketplace, or on a retainer basis where persistent counterfeiting is a problem.

Let your Embassy, Chamber and Trade Association know of any problems so that they can take opportunities to help you.

Action Against Infringers

Request to stop

The most obvious, but sometimes overlooked, first step. In minor instances of IPR infringement, pointing out to the company concerned that they are breaking the law and that you have noticed, and are prepared to take action, is sometimes effective.

Administrative Action

For some types of IPR infringement, administrative action is more simple and effective than legal action. Beware, however, of the fact that many courts will not hear cases that have been handled previously by administrative means, so proceeding subsequently to court is not always an option. Some forward planning is therefore necessary. Administrative action remains the most popular method of dealing with IPR problems, however, particularly for trademarks and using a “trademark angle” to deal with copyright infringement. Fees may be charged, legitimate and/or illegitimate, but administrative action is generally cheaper than legal action.

The procedure is that, once evidence of infringement has been discovered, the evidence should be taken to the appropriate authority (see details above) who will then decide whether or not to raid the premises of the alleged infringer. They generally decide in favour of a raid, as they do not need proof or a warrant to do so. They may, however, refuse to conduct a raid if they know that legal action is already in progress on the case in question. They may also refuse a raid for reasons of local protectionism.

A raid may be effective in itself, particularly if the pirate is a small operator. Counterfeit goods can be seized and destroyed. Many companies find, however, that the authorities are unable to follow up effectively, and that the police are not interested in pursuing criminal action against the infringers. Fines are not substantial enough to be a real deterrent. Another problem is that the different administrative bodies: AICs, TSBs, Customs etc, often do not communicate at all, minimizing the options for collecting evidence and taking action.

Customs

New regulations were introduced in 1995 allowing Customs to stop counterfeit goods from entering or leaving the country. In order to take advantage of this, IPR holders should register their rights with Customs. Customs can seize goods entering or leaving the country. The goods may be held for 3 weeks, as the shipper is given one week to object and Customs has 2 weeks to decide whether or not the goods are counterfeit. Infringed goods are either destroyed or sold.

One problem with this is that Customs requires a bond equal to the value of the shipment to be posted when a shipment of goods is seized. If infringement is a big problem, the IPR holder therefore needs to be prepared regularly to find large cash sums on the spot. Customs will then deduct the cost of storage of the goods before repaying the bond. Another problem is the real possibility of mistaken seizure of legitimate imports and exports.

Legal Action

The courts are acknowledged to be becoming more effective in their handling of IPR cases. Over the last two to three years several foreign companies have won judgments of over $100,000. Legal action is normally recommended over administrative action when the case is highly complex or involves a large amount of money. Courts may charge fees and require large bonds to be posted in case of a “not guilty” verdict.

Civil proceedings

Civil proceedings, pursued through the local People’s Court, must be filed through a Chinese lawyer, though foreign lawyers can assist. Unless the case is particularly complicated, employing two sets of lawyers is probably a waste of money.

Many larger cities have intellectual property tribunals in the intermediate courts, which will almost certainly handle IPR cases involving foreign companies. The judges involved can only be guaranteed to have relevant expertise in major cities such as Beijing, Shanghai and Guangzhou, where they deal exclusively with IPR cases.

Criminal proceedings

To pursue criminal proceedings, the rights holder must engage the Public Procurator (prosecutor). A Chinese lawyer must present the case for criminal prosecution. The maximum penalty is a seven-year jail term, and fines calculated as a multiple of turnover. Criminal convictions are rare, however. Another problem can be that a company that is already pursuing administrative action may find that the administrative body refuses to release evidence to the court.

Private prosecution

This is theoretically possible, but not yet tried.

Produced by the Commercial Section of the British Embassy, Beijing

Every effort is made to ensure that the information given herein is accurate, but no legal responsibility is accepted for any errors, omissions or misleading statements in that information caused by negligence or otherwise and no responsibility is accepted in regard to the standing of any firms, companies or individuals mentioned.