A Practical Guide for foreign CompaniesDespite the global financial crisis, Chinese economy has been still growing fast in the past years. Additionally, the consistently increasing consumption capacity of China’s 1.4 billion populations attracts more and more attention of companies worldwide.
Though companies are finding commercial opportunities in China, there are many potential pitfalls companies should be aware of, including issues related to the protection of intellectual property. This guide provides an introduction to China’s IPR environment, describes methods for safeguarding and protecting IPR, outlines possible enforcement actions available in China’s IPR enforcement regime. The information provided is by no means comprehensive, and is not legal advice. Foreign enterprises considering entering the Chinese market must perform significant, specific due diligence, of which this guide is only the first step.
1.China’s Current IPR Environment
Since joining the World Trade Organization (WTO) in 2001, China has strengthened its legal framework and amended its IPR and related laws and regulations to comply with the WTO Agreement on Traded-Related Aspect of Intellectual Property Rights (TRIPs). Despite stronger statutory protection, Chinacontinues to be a haven for counterfeiters and pirates. According to one copyright industry association, the piracy rate remains one of the highest in the world (over 90 percent) and U.S. companies lose over one billion dollar in legitimate business each year to piracy. On average, 20 percent of all consumer products in the Chinese market are counterfeit. If a product sells, it is likely to be illegally duplicated. Overseas companies are not alone, as pirates and counterfeiters target both foreign and domestic companies.Though many central government officials committed 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 IPR infringements, corruption and local protectionism at the provincial levels, limited resources and training available to enforcement officials, and lack of public education regarding the economic and social impact of counterfeiting and piracy.2.The Best Protection is PreventionThough China is a party to international agreements to protect intellectual property (including WIPO, Bern Convention, Paris Convention, among others), a company must register its patents and trademarks with the appropriate Chinese agencies and authorities for those rights to be enforceable in China.
Copyrights do not need to be registered but registration may be helpful in enforcement actions. A brief summary of China's patent, trademark, and copyright laws are described below.Patent: China’s first patent law was enacted in 1984 and has been amended twice (1992 and 2000) to extend the scope of protection. To comply with TRIPs, the latest amendment extended the duration of patent protection to 20 years from the date of filing a patent application. Chemical and pharmaceutical products, as well as food, beverages, and flavorings are all now patentable. China follows a first to file system for patents, which means patents are granted to those that file first even if the filers are not the original inventors. This system is unlike the United States, which recognizes the “first to invent” rule, but is consistent with the practice in other parts of the world, including the European Union. As a signatory to the Patent Cooperation Treaty in 1994, China will perform international patent searches and preliminary examinations of patent applications. Under China's patent law, a foreign patent application files by a person or firm without a business office in China must apply through an authorized patent agent, while initial preparation may be done by anyone.
Patents are filed with China’s State Intellectual Property Office (SIPO) in Beijing, while SIPO offices at the provincial and municipal level are responsible for administrative enforcement.Trademark. China’s trademark law was first adopted in 1982 and subsequently revised in 1993 and 2001. The new trademark law took effect in October 2001, with implementing regulations taking effect on September 15, 2002. The new trademark law extended registration to collective marks, certification marks and three-dimensional symbols, as required by TRIPs. China joined the Madrid Protocol in 1989, which requires reciprocal trademark registration for member countries. China has a ‘first-to register’ system that requires no evidence of prior use or ownership, leaving registration of popular foreign marks open to third party. However, the Chinese Trademark Office has cancelled Chinese trademarks that were unfairly registered by local Chinese agents or customers of foreign companies. Foreign companies seeking to distribute their products in China are advised to register their marks and/or logos with the Trademark Office. Further, any Chinese language translations and appropriate Internet domains should also be registered. As with patent registration, foreign parties must use the services of approved Chinese agents when submitting the trademark application, however foreign attorneys or the Chinese agents may prepare the application. Recent amendments to the Implementing Regulations of the Trademark Law allow local branches or subsidiaries of foreign companies to register trademarks directly without use of a Chinese agent.
Copyright. China’s copyright law was established in 1990 and amended in October 2001. The new implementing rules came into force on September 15, 2002. Unlike the patent and trademark protection, copyrighted works do not require registration for protection. Protection is granted to individuals from countries belonging to the copyright international conventions or bilateral agreements of which China is a member. However, copyright owners may wish to voluntarily register with China’s National Copyright Administration (NCA) to establish evidence of ownership, should enforcement actions become necessary.Unfair Competition. China’s Unfair Competition Law provides some protection for unregistered trademarks, packaging, trade dress and trade secrets. The Fair Trade Bureau, under the State Administration for Industry and Commerce (SAIC) has responsibilities over the interpretation and implementation of the Unfair Competition Law. Protection of company names is also provided by SAIC. According to the TRIPs Agreement, China is required to protect undisclosed information submitted to Chinese agencies in obtaining regulatory approval for pharmaceutical and chemical entities from disclosure or unfair commercial use. China’s State Drug Administration and Ministry of Agriculture oversee the marketing approval of pharmaceuticals and agricultural chemicals, respectively.3.China’s IPR Enforcement SystemIn 1998, China established the State Intellectual Property Office (SIPO), with the vision that it would coordinate China’s IP enforcement efforts by merging the patent, trademark and copyright offices under one authority. However, this has yet to occur. Today, SIPO is responsible for granting patents (national office), registering semiconductor layout designs (national office), and enforcing patents (local SIPO offices), as well as coordinating domestic foreign-related IPR issues involving copyrights, trademarks and patents.
Protection of IP in China follows a two-track system. The first and most prevalent is the administrative track, whereby an IP rights holder files a compliant at the local administrative office. The second is the judicial track, whereby complaints are filed through the court system. (China has established specialized IP panels in its civil court system throughout the country.) Determining which IP agency has jurisdiction over an act of infringement can be confusing. Jurisdiction of IP protection is diffused throughout a number of government agencies and offices, with each typically responsible for the protection afforded by one statute or one specific area of IP-related law. There may be geographical limits or conflicts posed by one administrative agency taking a case, involving piracy or counterfeiting that also occurs in another region. (In recognition of these difficulties, some regional IP officials have discussed plans for creating cross-jurisdictional enforcement procedures.) China’s courts also have rules regarding jurisdiction over infringing or counterfeit activities, and the scope of potential orders.For administrative enforcement actions, the following is a list of the major players. Again this list is not exhaustive, as other agencies, such as State Drug Administration (for pharmaceutical counterfeits) or the Ministry of Culture (for copyright materials and markets) may also play a role in the enforcement process. In most cases, administrative agencies cannot award compensation to a rights holder. They can, however, fine the infringer, seize goods or equipment used in manufacturing products, and/or obtains information about the source of goods being distributed. Administration for Quality Supervision, Inspection and Quarantine (AQSIQ), China’s standard setting agency is primarily tasked with ensuring Chinese product quality and standards, also handles infringements of registered trademarks, when the infringing products are inferior or shoddy quality goods. AQSIQ also issued administrative regulations regarding protection of geographic indications separately recognized by China.
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