Patent and Trademark Protection in China

Jari Vepsäläinen

Jari Vepsäläinen| MIF hina Excellence -sarjae

Patenttien, tavaramerkkien ja liikesalaisuuksien suojaaminen Kiinassa on haasteellista, mutta tilanne on osin muuttunut viime vuosien aikana Kiinan itsensä pyrkiessä yhä vahvemmin innovaatioita tuottavaksi maaksi. Blogissa Kiina-kouluttajamme Jari Vepsäläisen johdolla Fintrade-Mercer kirjoittaa Kiinan IPR-tilanteesta ja siinä toimimisesta, mm. omien mallioikeuksien, hyödyllisyysmallien, patenttien ja muiden kriittisten IPR-oikeuksien ensimmäisenä rekisteröinnin tärkeydestä.

 

Increasing Patent Disputes and Difficulties for IPR Enforcement in China

In March 1992 Chinese authorities found that Shenzhen reflective materials institute had copied 650,000 Microsoft Corporation holograms. The institute was found to be guilty of trademark infringement against Microsoft, but was fined a mere US $252. Losses to Microsoft as a result of the infringement are estimated at US $30 million.

In 2001, the China Environmental Project Tech Inc. filed a patent infringement lawsuit against American company Huayang Electronics Co. and Japanese FKK after those companies profited using a CEPT patented technique for using seawater in a fuel gas desulphurization process. Though the Supreme Court ruled in favor of CEPT, the court failed to issue an injunction because the infringing process was being used to generate electricity and an injunction would interfere with the public interest. The court instead awarded RMB 50 million to CEPT.

In 2007, CHINT Group Co. Ltd sued French low-voltage electronics manufacturer Schneider for infringement of a circuit breaker utility model patent. The Wenzhou Intermediate People’s Court ruled in CHINT’s favor, awarding RMB 334.8 million to the Chinese manufacturer, the highest amount ever in a Chinese IP case. After Schneider appealed to the High Court of Zhejiang province, the courts mediated the issue and the parties settled for RMB 157.5 million. In its judgment, the Wenzhou Intermediate People’s Court labeled the case “the no. 1 case of patent infringement in China.” At the EU-China summit 2007, EU Trade Commissioner Peter Mandelson said, “I regard the SCHNEIDER case as a test case of the level playing field in China on intellectual property protection that we want to see”.

Though it has been observed commitment on the part of many central government officials to tackle the problem, enforcement measures taken to date have not been sufficient to deter massive IPR infringements effectively. There are several factors that undermine enforcement measures, including China’s reliance on administrative instead of criminal measures to combat patent and trade secret infringements, corruption and local protectionism, limited resources and training available to enforcement officials, and lack of public education regarding the economic and social impact of counterfeiting and piracy.

New China IPR Plans with New Leadership

With the aim to promote the country’s IP development, China released the “Promotion Plan for the Implementation of 2013 National Intellectual Property Strategy” on March 21, 2013.

As China aims to be a creative and innovative country, the protection of intellectual property in the country has become one of the major social concerns. Huang Qing, a senior official in SIPO, said China will continue to improve the IP-related laws and regulations, and improve long-term mechanisms to combat IPR infringement.

For this, China has made remarkable headway. In 2012, the number of China’s invention patents granted reached 217,000 and the number of invention patents owned per 10,000 persons increased to 3.2.

Furthermore, by the end of last year, the number of China’s registered trademarks added up to roughly 7.7 million and the number of validly-registered trademarks reached 6.4 million, both ranking first in the world. Meanwhile, the number of registered work copyrights and software copyrights reached 688,000 and 139,000 respectively, both hitting record highs.

Timely Registration of Patents & Trademarks in China and Fast Reaction

While some foreign companies anticipate that the enforcement of IPRs in China is somewhat of a hopeless endeavour, in reality it is achievable. China’s IP enforcement system is now vastly improved over what it once was. Patents and design rights related laws have being revised constantly to make the IP protection system more aligned with those in Western countries. After decades of implementation of IPR laws, the courts and administrative authorities become more experienced to deal with cases concerning patents, trademarks, design rights and utility models.

IPRs such as patents, trademarks and copyrights are regional. Even if you have your IPR registered in somewhere out of China, you won’t obtain any legal protection in China unless you have them registered in China. The Paris Convention provides that an applicant from one contracting State shall be able to use its first filing date (the priority date) in one of the contracting State as the effective filing date in another contracting State, provided that the applicant files another application within 6 months (for industrial design and trademarks) or 12 months (for patents and utility model) from the first filing. Therefore, timely registration of your IPR in China is a critical step before doing technology transfer business.

In China Patent Protection Is More than Registration

Two decades in the trenches have equipped multinational corporations and their patent and trademark protection providers with hard-won experience and a set of strong preventive best practices. At the same time, counterfeiters and infringers in China are more sophisticated and increasingly deploy advanced reverse-engineering techniques, adopt legal measures such as preemptive filing and patent challenges, and find new ways to infiltrate legitimate distribution networks and developed markets.

While the old saying “an ounce of prevention is worth a pound of cure” still rings true, much more than an ounce of prevention is necessary today. Even the best internal IP protection systems face challenges from counterfeiters. Any successful China IPR protection strategy needs to encompass both offensive and defensive elements. Defensive actions include filing patents and trademarks, regularly reviewing IP security, and updating the company’s operations and internal policies. Offensive actions include using PRC laws to take action against counterfeiters and infringers; selectively deploying resources in surveillance; and continuing educational and advocacy efforts with suppliers, distributors, consumers, government officials—and the company’s own employees.

Unregistered IP Rights—How to Protect Your Trade Secrets in China

Trade secrets was cited as the top intellectual property concern in the US-China Business Council’s (USCBC) 2012 member company survey. Thirty-six percent of respondents across a range of industries flagged trade secrets ahead of other forms of IP, such as patents, trademarks, and copyrights. Despite the growing concern with trade secrets, companies are still figuring out how to best protect them in China.

Trade Secrets are unregistered IP rights, which means that a government doesn’t accept requests for registration of these rights or even recognize their existence by way of a certificate. This lack of a formal registration process, however, creates its own enforcement challenges because companies cannot benefit from the protection patents provide and lack a written document to rely on should infringement occur. Instead, when infringement is discovered, companies must prove that the trade secret is indeed a trade secret that merits protection by demonstrating to courts or other enforcement authorities that it meets the criteria used to define trade secrets in that legal jurisdiction.

Common practices we suggest would include installing physical controls and locks to prevent unauthorized access to trade secret information, regularly training employees about trade secrets policies, and signing confidentiality and non-disclosure agreements with relevant employees who might have access to trade secret information.

For more about practical measures and best practice you can take to protect your IPR in China please see China IPR training. China IPR is part of China Excellence training series.

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