Last year, the Chinese government issued amendments to the Patent Law, Copyright Law, and Criminal Law, as well as other measures aimed at addressing intellectual property (IP) protection and enforcement. Despite these efforts, IP infringement and theft continues to be a problem in China, and foreign companies operating there must take steps to protect and enforce their IP rights.
International firms doing business in China face a range of challenges in protecting and enforcing their IP. They should understand that the Chinese IP legal system is different and that the registration of rights in their country of origin does not automatically confer rights in China.
It is important that foreign companies develop and implement a comprehensive strategy for protecting their IP in China.
Last April, the Office of the United States Trade Representative (USTR) published the 2022 Special 301 Report on Intellectual Property Protection and Enforcement, including a section on new Chinese IP laws. The annual report designated 27 countries as either “Priority Watch List” or “Watch List,” including China in the priority watch list.
According to the report, China continues to be the world’s leading source of counterfeit and pirated goods. Both China and Hong Kong account for over 83% of U.S. IP seizures and are the largest exporters of counterfeit foodstuffs and cosmetics.
In 2021, China enacted amendments to the Patent Law, Copyright Law, and Criminal Law, as well as other steps targeting IP protection and enforcement. The report stated that the United States is closely monitoring China’s progress in implementing its commitments under the US-China Economic and Trade Agreement (Phase One Agreement).
However, companies continue to express concerns about the suitability of these laws and their effective implementation, as well as long-standing issues like bad faith trademarks, counterfeiting, and online piracy. Statements by Chinese officials that tie IP rights to Chinese market dominance are also a problem, the USTR noted.
Though these legislative and judicial reforms have been welcomed news, they present new challenges. According to right holders, the replacement of “income” with “gains” for purposes of establishing thresholds for criminal prosecution under the amended Criminal Law could allow counterfeiters to contend that they did not make substantial profits because of their expenses.
Lengthy delays in courts, lack of preliminary injunctions, competition law concepts in the Patent Law, and undue emphasis on administrative enforcement constitute obstacles to patent enforcement and are reason for concern.
The Chinese Ministry of Justice presented in August of 2020 the draft of the Guiding Opinions on Strengthening the Protection of Trade Secrets and Confidential Business Information in Administrative Licensing for public comment but hasn’t yet finalized the document.
The draft guiding opinions and other reforms are needed to limit government requests for trade secrets and confidential business information and prevent the unauthorized disclosure of such information submitted to government authorities, including unauthorized disclosure by third-party experts and advisors.
Unauthorized disclosures continue to be a serious concern for the U.S. stakeholders in industries such as software and cosmetics.
Last May, the Reexamination and Invalidation Department of the China National Intellectual Property Administration (CNIPA) annulled a patent due to “not filing a request secrecy review with the CNIPA before filing outside of China.”
A secrecy review is required for any invention or utility model developed in China (except for Hong Kong and Macao) before filing an application for patent abroad, even if the patent was already filed in the country.
Trademarks, patents, copyrights, trade secrets (know-how), geographical indications, and plant breeders’ rights are all recognized forms of IP that can be protected under Chinese law.
Registration of IP in China is essential to protecting one’s IP rights. On June 23, the CNIPA announced that the general trademark registration period was shortened to seven months, helping stimulate the innovation of market players.
The average periods for reviewing trademark objection and rejection have been cut to 11 months and 5.5 months, respectively, said Li Chang, deputy head of CNIPA.
China has continuously improved its online services for trademark applicants, with the adopted electronic trademark registration certificates and patent certificates further shortening their processing period, according to Li.
By the end of May, the online application rate for trademark registration had reached 99.45 percent, with the number of applicants totaling 279,000. Online services offered by the CNIPA include trademark inquiry, payment, announcement, consultation, and registration certificate publicity.
Tough an important first step, registration alone may not be enough to deter infringement. Companies should monitor the Chinese market and other export markets to ensure that copies of their products are not making their way to clients.
Another important step is to ensure good communication with suppliers and maintain oversight of distributors' activities. Foreign companies should have clear contractual IP protection, including clauses on ownership rights and use limitations, with partners, distributors, licensees, or employees.
Counterfeiters and infringers in China are increasingly sophisticated. They often exploit procedural loopholes, proactively seek to invalidate legitimate patents and trademarks, deploy advanced techniques such as reverse engineering, and find new ways to infiltrate legitimate distribution networks and build their own parallel networks.
Decades in the trenches have equipped multinational corporations with hard-won expertise and a set of strong preventive best practices, including internal controls and external engagement with key stakeholders. To be successful in China, companies should develop an integrated IP protection strategy that reflects the nature and extent of the IP problems they face and is grounded in a realistic assessment of internal goals and resources. To learn more about our services in China, contact our Head of Business Advisory - Ms. Kristina Koehler-Coluccia at firstname.lastname@example.org.
DISCLAIMER: All information in this article is verified to the best of our ability and is assumed to be correct at time of release; however, Woodburn Accountants & Advisors does not accept responsibility for any losses arising from reliance on the information provided within. The information provided is for general guidance and does not replace specialized advice.