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This article is written by Shradha Jain, pursuing a Diploma in Intellectual Property, Media and Entertainment Laws from LawSikho.com.

Introduction

Today, China has one of the five largest patent offices in the world and is home to the largest trademark office in the world. It has enacted laws and regulations to safeguard intellectual property rights (IPR), and it has taken part in activities coordinated by related international organisations, thus enhancing international exchanges and cooperation in the field of intellectual property rights. China’s intellectual property rights security scheme has been globalised and adapted to high international standards since its inception. However, the process is severely stalled for companies after they invest in or operate in the country in relation to intellectual property or the lack of protection of their intellectual property. The business here is extremely lucrative and also extremely risky when it comes to protecting intellectual property, and this has been an ongoing battle for intellectual property rights owners. However, the market is so big that it cannot be ignored. This article delves into what are the various challenges and obstacles to having the IPR used and filed in China and how to overcome those and secure its place at the top. China has vowed to undertake certain reforms. 

Types of IPR infringement in China : protection and challenges

China is estimated to be the source for more than 70% of global physical trade-related counterfeiting, amounting to more than 285 billion USD. Physical counterfeiting accounts for the equivalent of 12.5% of China’s exports of goods and over 1.5% of its GDP.

  1. Patents- China is a signatory to the Paris Convention, the Patent Cooperation Treaty, and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The patent system in China is first-to-file, with three forms of patent registration available: 

(1) Invention patents, 

(2) Utility model patents, and 

(3) Concept patents. 

A utility patent is valid for ten years and an invention patent is valid for twenty years. If there is an infringement of a patent or misuse of a patent without the permission of the patentee, compensation is provided under Chinese law, but the foreigners are critical of it because it is not adequate. 

  1. Copyright- China is a signatory to the Berne Convention, the Universal Copyright Convention, the TRIPS Agreement, and the World Intellectual Property Organization (WIPO). Foreign nationals from countries that are also part of these treaties are offered the same rights as Chinese citizens and legal entities. In China, copyright infringement is common and difficult to regulate. With the advancement of the internet, the unauthorised dissemination of copyrighted content becomes easier and hence more difficult to manage across the world, with China being no exception. 
  2. Trademarks- China has adopted the international trademark classification system and is a signatory to the Madrid Protocol, the Paris Convention, and TRIPS. In China trademarks are registered on a first-to-file basis and applications may be filed and registered without providing evidence that the applicant is the owner of the said marks or was involved in the creation of such marks. While no common law trademark rights exist, “well-known” marks (i.e., well-known in the country) are granted additional protection and original users or creators may challenge “pre-emptive registration” by applicants who are not the owners of such marks. Trademark “squatting” is a problem and it involves parties taking advantage of the first-to-file system by filing a trademark before original owners are able to, preventing the original owners of the trademark from filing successful applications for ownership of trademarks.  

US-China disputes

There has been an increase in tensions between the US and China when it comes to the use and protection of intellectual property. The U.S. Special 301 Report of 2018 came to the conclusion that China was involved in discriminatory practices of technology transfer. China’s policies on technology transfer from foreign entities have resulted in new World Trade Organization (WTO) dispute settlement cases. 

The United States’ WTO Case Against China [DS542]

The United States filed a complaint in WTO alleging that China’s policies on technology transfer prevented the foreign patent holders from enforcing their patent rights in China or negotiating licensing contracts on market-based terms. In this case, the US alleges that there are specific violations of certain provisions of the TRIPS agreement. However, the complication has arisen due to China’s adoption of a new foreign investment policy. In its earlier policy, it had adopted the stance of compulsory transfer of technology, now under the new policy, it has now done away with it. The new policy will come into force on 1.1.2020 and it remains to witness how this new dispute will affect the ongoing case.

China’s WTO Case Against United States [DS543]

China requested consultations with the US through WTO Dispute Settlement Body on certain tariff measures which would be allegedly implemented by the US through its US Trade Act. China claimed that the measures appear to be inconsistent with specific articles of GATT and DSU. In response to China’s request, a WTO panel has been established in the year 2019. Since then, the composition of the panel has not been determined. 

IP theft by China

Since the trademarks and copyrights registered in other countries are not recognised in China and if you fail to register them in China, then there have been instances where the suppliers have stolen the IP (Intellectual Property) of the foreign companies and have made huge profits by utilising their brand value. Some instances are mentioned here.

  1. American Superconductor Corp. has software code and IP for wind turbines which was stolen by a Chinese rival.
  2. Dupont chemical company has its white pigment’s (titanium oxide) recipe used to colour Oreo filling, car paint, etc stolen by the suppliers.
  3. Agricultural secrets were stolen from a cornfield in Iowa- A Chinese national in the USA admitted that it was involved in the conspiracy of stealing trade secrets from DuPont Pioneer and Monsanto. The stolen inbred, or parent, seeds were the valuable trade secrets of the company. 
  4. There have been cases where the importer falls into the trap of gifting the intellectual property to their supplier who in turn takes undue advantage and earns a profit. 
  5. Also, the supplier looks at foreign NDA as an opportunity to infringe the IP as it is not enforceable under the Chinese courts. 

There is also the issue that the Wuhan Intermediate People’s Court has claimed sole jurisdiction in an international patent case as it had done in the cases of Ericsson v Samsung and Xiaomi v InterDigital. This shows the bland disregard it has for IP in a foreign jurisdiction and tries its best to gain the benefit at the cost of others. 

Steps taken by China

As previously stated, it suffers from a tarnished intellectual property image, which jeopardises its vision of surpassing the United States as a global leader. Experts predict that China will overtake the United States as the world’s top leader by 2030 with the country taking the necessary steps for it as well. Some of them are mentioned below:

  1. Set up a comprehensive IP legal framework and operational system.
  2. Implemented an effective mechanism for the administrative and judicial protection of IP.
  3. Acceded to 13 WIPO-administered international IP treaties.
  4. Comprehensively carried out its obligations under international treaties and agreements.
  5. Provided effective IP protection to right holders at home and abroad.
  6. The Chinese government’s positive and proactive approach to the trademark system.
  7. Intensified reform and opening up.
  8. All-encompassing implementation of trademark strategies.
  9. Increased public awareness of IP issues.
  10. More efficient examinations.
  11. Stronger confidence in the system on the part of trademark applicants.

This is proof that China is earnestly and sincerely committed to improving its intellectual property protection system, making it one of the top destinations for intellectual property owners for their investments and innovations in the world.

Conclusion

China has been the topmost country in the world in the filing of international IP applications surpassing the USA. It also has secured 14th rank in Global Innovation Index released by WIPO in conjunction with INSEAD and Cornell University and 1st in the upper-middle-income group.  It has improved its rank from the 43rd position in 2010. It shows that China has realised that if it wants to earn the title of world leader it has to invest and improve in ‘science and technology leadership.’ This shows China’s extraordinary transition from manufacturer to innovator. 

Even though China’s reputation continues to be that of IP hijackers, for example, the locals file the IP under their name without obtaining permission from the foreign counterpart. As China follows the system of first to file, if the foreigners engage in local counsel and are diligent and quick in their actions, they are entitled to the same IP protection as to the nationals according to the China IR SME help desk. They also state that if the IP rights are not registered in China, then there is almost no recourse in the country for the aggrieved party. China’s international IP registration growth is terrific. In 2019, China-based inventors filed the highest number under the Patent Cooperation Treaty (PCT) of patent applications. It easily surpassed the US in two years. In other words, it sets China on the path of becoming a world leader but it is not without its own blemishes. 

References


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