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For many companies operating in China or planning to enter the Chinese market, intellectual property (IP) protection is a critical concern. The ubiquitous effects of IP leakages in China are no secret, ranging from counterfeited luxury goods, to unauthentic automotive and aircraft parts, to hoaxes in pharmaceutical products. However, IP violations extend beyond products as well; they can affect operational procedures and entire business models, which can be extremely costly for companies to recuperate from. Hence, it is often in the best interest of companies to procure the best IP protection for their products and services, as well as to remain vigilant to any potential IP breaches. In this article, we provide deeper insights on IP protection policies in China and what companies can do to avoid IP leakages.
Overview Of China’s IP Laws
People’s Republic of China (PRC) Patent Law (1984; amended in 1992, 2000, 2008) Relevant ministry: China’s National Intellectual Property Administration (CNIPA)
Patents grant a legal right to patentees for their inventions, designs and utility models, protecting them from being reproduced without permission. In order to qualify for protection, the patentee’s inventions and utility models must be novel and of practical use, whereas designs should also be distinctive and not be in conflict with existing designs.
The CNIPA grants patents on a first-to-file basis, regardless of whether the creation has been used in another country or whether it is protected by a patent elsewhere. According to Article 9 of the PRC Patent Law, patent rights shall be granted to the first applicant who registers for a patent, in the event there are two or more applicants registering for the same creation separately. Once the patent is granted, no organization or individual shall be allowed to exploit the patent without consent from the registered patentee.
On average, a patent application for an invention takes three to five years and will remain valid for 20 years. An application for a utility model or design patent takes about a year and the patent will remain valid for 10 years. Foreign businesses without a business site or regular residence are required to appoint a local patent agency to act as its agent.
PRC Trademark Law (1982; amended in 1993, 2001, 2014, 2019)
Relevant ministry: Trademark Office (TMO) of CNIPA
To register a trademark in China, the first step is to check if it has already been registered. Like the patent registration process, the ownership of a trademark is determined on a first-to-file basis. The trademark application and accompanying documents should be submitted to TMO, who would conduct a preliminary and substantive examination within 9 to 12 months after the application has been filed, after which they would publish and register the trademark.
Generally, it takes about 14 to 18 months to file and receive approval for a trademark in China. Upon approval, a trademark is valid for 10 years and can be applied for renewal within 12 months before their expiry date. Anyone can file an opposition against a trademark within three months of its publication. According to Article 18 of the PRC Trademark Law, foreign businesses are required to appoint a local trademark agency for their trademark registration.
PRC Copyright Law (1990; amended in 2001, 2010)
Relevant ministries: PRC National Copyright of Administration (CNAC), Copyright Protection Centre of China (CPCC)
The Copyright Law protects literary, artistic and scientific works through an automatic registration process, whereby the copyright owner is not obligated to register for their own copyright, according to Article 2. However, owners are encouraged to apply for a copyright certificate by submitting a sample of the work, as it will enable them to prove their right easily should a copyright dispute occur. The certificate will be issued by CNAC/CPCC after conducting an examination on the applicant’s work.
Anti-Unfair Competition Law (1993; amended in 2017, 2019)
Relevant ministry: State Administration for Market Regulation
Article 9 of the Anti-Unfair Competition Law defines trade secrets to be any technical or business operation information that is unknown to the public, has commercial value and which the owner has taken steps to protect. Amendments to the law also protects ‘negative value’ information, such as results from failed research data or business models. The law specifies that any third party aware of an infringement of a company’s trade secrets will be considered as an alleged party to the infringement as well. Foreign businesses may claim damages and seek compensation on infringements of their trade secrets if they are able to provide sufficient evidence that the defendant was responsible for obtaining and disclosing the trade secret.
How To Protect Your Business From IP Infringements
To be successful in China, a company should develop an integrated and comprehensive IP protection strategy that will allow them to prevent IP problems and tackle IP infringements in a timely manner once discovered.
Firstly, the company should conduct an internal audit of its operations to identify any IP assets and risks, as well as to assign appropriate levels of protection to all of its assets based on their risk of infringement. After assessing the relevant legal frameworks and identifying its IP assets, a company should register its copyrights, patents and trademarks with the relevant ministries as soon as possible, in order to obtain legal protection for all of its IP assets. Note that trademarks and patents not registered in China are not protected under Chinese law, so the company should still register its local IP assets in China.
During this process, one should ensure that their assessment is as realistic as possible, and that it has accounted for the pros and cons of transferring all IP to China, versus keeping the latest designs and technologies overseas and only bringing what is necessary for supporting business in China. In an interview we conducted with Cindy Shu, a Partner at Beijing Wan Hui Da (Shanghai) Law Firm, she acknowledged that it is preferable for international companies to keep the titles of any IP assets that are at the core of the company’s operations under the name of the international company, instead of transferring them to China. That said, it is still crucial for companies to ensure that all of their IP assets tied to their operations in China are protected under the Chinese law.
In another interview with Juli Zheng, an IP lawyer at the Shanghai office of Beijing Wang Yu Mei Law Firm, we found out that the process of acquiring IP protection is especially important for companies with a high saturation of IP assets, such as mobile phone companies, as well as tech companies that are constantly churning out new technological updates. The latter includes social media platforms such as the popular TikTok/Douyin app, as well as various livestreaming platforms. Meanwhile, Cindy Shu noted that companies that enjoy high profit margins and brands with greater fame are also more likely to become targets of IP infringement.
Having successfully registered all IP assets, the company should remain vigilant in tracking its daily operations, including data flows and employee file transfers (both paper and electronic). Flash disks, portable hard drives, laptops, handphone cameras and other devices that can be used to capture and transmit sensitive information should be closely monitored or prohibited. Meanwhile, IT mechanisms should be put in place to limit widespread employee access to sensitive information like separate computer terminals or specialized passwords. The company should engage its human resources department to include nondisclosure and noncompete agreements in employee contracts and run regular background checks on key personnel, so as to identify any IP-related ‘red flags’ promptly. However, our interview with Juli Zheng tells us that internal IP leaks are still common, despite the signing of such agreements. Moreover, it is often difficult to obtain sufficient evidence that can prove an internal breach, especially in civil cases, making it all the more important to take precautionary measures against these threats.
When collaborating with any external parties, the company should conduct due diligence on them first prior to any agreement and continue to do so on a regular basis thereafter. Include IP protection clauses in all contracts and agreements, ensuring that all parties fully understand what those obligations mean for both parties before proceeding to collaborate. If and whenever information were to be transmitted to a third party, review the information to ensure that it is not sensitive, or that the benefits of sending it outweigh the risks of it being leaked.
Troubleshooting In An IP Breach
In the event that an IP infringement is discovered, you may contact infringers and their service providers immediately via cease-and-desist (C&D) letters. According to Juli Zheng, C&D letters are an effective way in stopping minor IP infringements, however, they may not work for major cases in which the directive to infringe comes from management or executive levels. Moreover, C&D letters may not work in instances where the perpetrator deems the pros of going through with the infringement to be more beneficial or profitable in the long run than the cons of being caught and punished.
Next, it is also important for a company to conduct a thorough review of internal documents that can prove infringement, including both physical and electronic evidence. Note that documentary evidence tends to carry more weight with Chinese officials than oral testimony or non-official documents like marketing materials. A company may also engage an experienced and certified IP investigative firm to collect evidence on the company’s behalf, so as to ensure that all evidence is collected legally, and that enough evidence is obtained to make a strong case.
After obtaining sufficient evidence, alert local law enforcement immediately and cooperate with government officials when they conduct enforcement proceedings. At this juncture, it might be beneficial to consider reinforcing the company’s contributions to local development or larger community goals such as product safety or public health, in order to illustrate to officials the value of pursuing the case. If used successfully, this tactic could also give the company access to additional protection under other laws, including Food Safety or Environmental Protection laws. This strategy is particularly important as IP assets are considered private assets, hence the onus is usually on IP owners to “take proactive measures [in protecting] their IP rights”, according to Cindy. As such, she acknowledges that law enforcement agencies are often “reluctant to get involved with infringement cases” unless the IP rights holder actively files a complaint, or if the case brings about harm to the public good.
Usually, the act of filing a lawsuit against the infringer itself sends a powerful message not only to infringers, but also to law enforcement, which can help a company’s case significantly. According to China Law Blog, though most IP infringement cases do not end up going to Court, infringers usually end up paying considerable damage awards, allowing the case to settle amicably and quickly. In fact, Cindy Shu mentioned that a few Chinese courts have even set up a “pre-trial stage”, during which both parties are given a chance to settle, “before a case is formally established”. Ultimately, whether a case is brought to trial depends on the priority of the company filing the IP lawsuit. Juli Zheng stated that pursuing a court case can often result in damages to stock and asset prices, hence a company should consider its costs and benefits carefully, as well as its priorities in both the short term and long term, before bringing an IP case to trial.
In a nutshell, though the process of securing a company’s IP assets may seem complex and complicated, the damages a company can suffer from an IP infringement is far more damaging, especially in the long run. Hence, it is imperative for companies to acquire strong IP protections for their assets and operations in the first place, before beginning their business operations in China.