The Chinese government’s opinion on IP

19-05-2016

The Chinese government’s opinion on IP

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China’s government has committed to implementing changes to the country’s IP system through a state-backed ‘opinion’, but how realistic are the goals? WIPR investigates.

Ask a lawyer or in-house counsel where the most troublesome jurisdiction for protecting intellectual property is and it’s likely many will say that it’s China.

Often thought of as a counterfeiting and manufacturing hub, its reputation for respect and adherence to IP values has historically been far from positive.

But there are real signs of change.

At the end of last year, the State Council of the People’s Republic of China published one of its ‘opinions’—government-backed ideas that seek to help China become an innovative economy.

The latest, published in December, outlines how China can “accelerate” towards building a strong IP nation.

Called the “Opinion of the State Council on accelerating the building of a strong IP nation under new conditions”, it is expected to be implemented in the next four years.

Horace Lam, partner at law firm DLA Piper in Beijing, says the opinion is “very general” but that its principal aim is to provide “general measures to resolve IP issues and guide IP reforms in China” over the next few years.

The key aims are to strengthen the protection and enforcement of IP rights; promote IP creation and use; predict and prevent IP risks for “going out” Chinese enterprises [companies investing abroad]; strengthen planning for key industries; improve the level of international IP cooperation; and organise and implement policy guarantees.

Image conscious China

The opinion, explains Lam, follows on from the implementation of the National IP Strategy, in 2008—a document outlining how China planned to improve its IP image over several years.

According to Lam, since the strategy was published IP has undergone some “considerable developments” surrounding aspects including protection and enforcement, but new problems came to light during the development process.

The difficulties included low brand values, low rates of patents being granted to foreign applicants, serious infringements of IP rights, and high risks for China-based enterprises investing abroad.

“To solve these new issues with emphasis, China made this new directive document [the opinion] to guide IP developments in the next several years,” Lam says.

George Chan, partner at law firm Simmons & Simmons in Beijing, agrees with Lam.

“We believe this opinion primarily aims to provide high-level policy guidance to tackle the aforementioned problems, assisting China to build a more innovative, mature, and better-developed IP system,” he says.

The opinion is one of a string of initiatives pioneered in China in recent years as it bids to convince sceptics that it is a safe environment for IP owners in which to do business.

In 2014, changes to the trademark law were passed under which applicants were handed the ability to register sounds and colours as trademarks for the first time. Under the new rules, courts can now issue statutory damages of up to RMB 3 million ($463,000) for infringement, six times more than the previous maximum.

Late last year, the council also outlined an agenda aimed at tackling and reducing online counterfeiting and piracy.

Included in the opinion’s key aims are building stronger IP regulation and legislation, encouraging better collaboration between government departments, and facilitating enhanced regional cooperation to tackle cross-border sales of illicit goods.

There are also plans in place for China to accede to the Hague Convention, which provides protection for industrial designs, and the Marrakesh Treaty, which improves access to copyrighted works for the visually impaired.

Keeping a secret

One of the key features of the opinion centres on trade secrets and promises to “promote completion of trade secret law and regulations”.

Lam welcomes this move: “Trade secrets are different from traditional IP such as trademarks and patents in many aspects, but the goals of trade secret protection and traditional IP protection are the same—to motivate innovation.

“Since trade secrets belong to IP and closely relate to traditional IP, the enhancement of trade secret protection will surely improve the image of IP in China.”

Gang Bai, partner at Wan Hui Da Intellectual Property Agency in Beijing, says however that he doubts whether a specific trade secret law will be implemented.

He says the draft revision of the existing anti-unfair competition law already contains some interesting points in relation to trade secrets.

“It has been suggested in some of the comments not to restrict the law to business ‘operators’ [as it currently does], and to include employees and ex-employees,” Bai says.

He adds that around 80% of trade secrets-related disputes arise from the theft by a former employee who would “not usually qualify” as an operator.

Chan says the provisions surrounding trade secrets “seem quite general and ambiguous”.

Like Bai, Chan argues that the laws surrounding trade secrets are currently covered by other areas including unfair competition law, contract law, criminal law and employment law, “as well as several administrative regulations and department rules”. 

“These laws and legal instruments are dispersive and disunited. There has been no unified principle for judges to decide on which law shall be applied,” he says.

“Since trade secrets belong to IP and closely relate to traditional IP, the enhancement of trade secret protection will surely improve the image of IP in China.”

"We do hope local governments and relevant administrations shall detail, specify, and issue legal instruments to interpret further and enforce the same [trade secrets laws], in order to improve the whole system of IP protection in China.”

The opinion also suggests improving damages, underscoring the role of the courts in IP protection, and calls for increased international cooperation on criminal justice. 

Bai says he believes the concept of punitive damages is not being envisaged. However, he adds that there is “a will to increase the amount of damages”.

“Raising damages has to be done according to the principles set out in the relevant laws, and with a cautious degree of discretion in the application of statutory damages. Whether this special mention by the council indicates that it is in favour of judicial enforcement, as opposed to administrative enforcement ... I would not venture too far in this direction,” he adds.

A closer look

Lam says the provisions for “implementing strict IP protection” and “promoting IP creation and utilisation” are the most important parts of the opinion since they “provide measures to solve the major issues of insufficient IP protection and high-quality IP” facing China.

The implementing part provides a path to crack down on IP infringement and crime; strengthen IP protection; establish a warning mechanism; and strengthen the protection of IP achievement in new areas.

For promotion, the ultimate goal is to create and use IP and the measures include promoting the reform of patent licensing; strengthening the IP trading platform; and cultivating IP-intensive industries.

On patent licensing, the opinion calls for an improvement in the regulation of IP abuse and the development of enforcement guidelines. It also calls for an improvement to the licensing policy for standard-essential patents (SEPs) and practical rules for stopping infringement.

These rules will address the issue of the availability of injunctions for SEPs, which are governed by fair, reasonable and non-discriminatory (FRAND) licensing obligations.

The issue has already been addressed by China’s competition regulator the National Development and Reform Commission (NDRC), which last year published its draft Anti-Monopoly Guideline on IP Abuse.

The guidelines, which stemmed from an NDRC probe in 2013 into whether InterDigital had violated Chinese competition laws, aim to clamp down on IP-related monopoly agreements and abuse of market position, and specify the conditions for immunity claims.

Huawei, China’s largest maker of phone network equipment, filed complaints in both Europe and China accusing InterDigital of demanding excessive royalties and failing to fulfil its pledge to license patents on FRAND terms.

A settlement, the terms of which were confidential, was agreed in 2014.

In its proposal the NDRC said the failure of a prospective licensee to take a licence could constitute infringement, rather than an abuse of power.

However, Bai says the council’s opinion could see a more holistic approach put in place, telling WIPR that the issue was discussed at length during an EU-China judicial forum in Shanghai in March this year.

He adds that the Huawei v ZTE case, which the Court of Justice of the European Union (CJEU) ruled on last year, was presented and commented on at the forum and that there are signs China could be inspired by the ruling.

The CJEU said that owners of SEPs should make a specific licensing offer on FRAND terms before seeking an injunction against the alleged infringement of an SEP. The court added that if an SEP owner has made an “irrevocable undertaking” to grant a licence to third parties on FRAND terms, it would not be an abuse of dominance to seek an injunction if certain conditions have been met.

Next steps

According to Lam the usual practice will be for the council to ask the relevant government authorities to start work on implementing the opinion. He adds that some local government departments have already promoted detailed rules and held conferences to discuss the opinion.

But Lam says the overall proposals in the opinion are both “comprehensive and general” and that it is hard to predict whether an implementation date of 2020 will succeed, as its success depends on the authorities “promulgating and implementing” the measures.

Chan describes the goals as “macroscopical”.

“The opinion only provided high-level guidance instead of specifying instructions or actions in detail,” he says, adding that local governments and administrations will endeavour to “adopt and enforce specific regulations in line with the opinion”.

He continues: “We are being optimistic about completion of the goals as China has a centralised and ‘dictatorial’ government, which means the ability of execution is extraordinary all over the state and local governments.

“If necessary, it would be possible to resort to rather intensive measures in order to tackle the problems and to achieve the goals identified.”

China has undoubtedly made efforts to improve its image for both promoting and protecting IP.

The latest measures appear at first glance to tick the right boxes, but until practical measures are announced, detailing exactly how the plans will be carried forward means an air of scepticism may remain. 

IP, State Council of the People’s Republic of China, counterfeit, piracy, SEPs, patent, patent licensing, NDRC,

WIPR