How IP Protection Is Progressing in China
Here, we explore how China has made changes in their IP system. With infringement and trademark violations becoming an issue for the jurisdiction, Guanyang YAO touches on the changes China has made to tackle these issues for the betterment of inventors and their business.
An Introduction to IP protection in China
The IP legal system in China provides protections on patent, trademark, copyright, trade secrets, integrated circuit layout design and geographic indications. There are three patent categories: invention, utility models and design. In 2019, around 4.4 million patent applications were filed, with 1.4 million being inventions, 2.3 million being utility models and 0.7 million being designs. The increasing rate of patent filings is around 10% annually.
Until February 2020, the total valid invention patents were at 2.7 million, utility model patents 5.4 million and design patents 1.86 million. China is a member of the Patent Cooperation Treaty (PCT) and until February 2020, a total of 68,000 PCT applications were filed. Huge amounts of trademark applications are filed every year, and in 2019 the filing number was at 7.8 million. By February 2020, total valid trademarks were around 25.93 million, total approved geographic indications trademarks were 5,474 and 28,396 IC layout certificates were issued.
Until February 2020, the total valid invention patents were at 2.7 million, utility model patents 5.4 million and design patents 1.86 million.
The court system applies the “1+3+21” mode, in which the Supreme Court IP Tribunal which was established in January 2019, hears appeals of IP cases on the second instance; on the first level, there are three specialised IP courts in Beijing, Shanghai and Guangzhou which were established in 2014 and 21 IP specialised tribunals established during 2016-2019 to have cross-regional jurisdiction on certain IP cases in the province to which the city belongs or its neighbouring cities. There is no case law in China but the Supreme Court occasionally issues Judicial Interpretations of various IP laws to address new legal issues. Anti-unfair competition law and Anti-monopoly law are adopted in China to regulate behaviours of enterprises and to keep business competition in good order. The typical remedies for IP right holders include automatic injunction and damages. A multi-dimensional system has been formed to protect IP rights from multiple perspectives in China.
By February 2020, total valid trademarks were around 25.93 million, total approved geographic indications trademarks were 5,474 and 28,396 IC layout certificates were issued.
What needed changing in regard to IP protection?
The Chinese IP legal system was not mature but remained to evolve over the years. The most fundamental element that needed to be improved was the mindset of respecting IP rights and finding any resolution to protect such rights. This was somewhat reflected in damages awarded by the courts in IP infringement cases. There is one statistic from a university in China in 2013, which states that the average damages awarded for invention patent infringement cases were around RMB 80,000 (USD 11,000), which is far less than attorney fees.
Since 2014, the economy in China has gradually developed to be more innovation-driven.
One reason for such low damages seven years ago could be explained by the ‘Civil Evidence Rule’, which was not very favourable to IP owners. Most “burden of proof” was on the IP owner, for example, the patentee side, even for damages. However, the sales record to prove the number of infringed products sold was controlled by infringers, which cannot be accessed by IP owners. Therefore, IP owners could, at most, only provide indirect and secondary evidence, somewhat not deemed convincing by courts, thus leaving little possibility for high damages.
From the trademark side, bad-faith registration, including bad-faith filings for free-ride and huge volume filings merely for sale for profit rather than using, could also be a reason for those low damages, since such IP owners are not authenticated thus not deserving of legal protection for respective innovations.
From the trademark side, bad-faith registration issues become the legal system’s focus.
What has changed in order to tackle such issues?
Since 2014, the economy in China has gradually developed to be more innovation-driven. IP rights are playing critical roles in generating revenue. In this situation, China is paying more attention to protecting the interests of such innovations. From high government level, the spirits of “strict, equal, broad scope and quick speed” protection are promoted as strong IP protection and it is under discussion for the incorporation of punitive damages. The Supreme Court and local high courts are all issuing guidance on increasing damages and making the Civil Evidence Rule to be favourable for IP owners to collect evidence.
In October 2019, the Evidence Rule was updated to incorporate an “evidence sanction system” to force infringers to provide accounting books and financial materials on infringing products. One result is that damages awarded by courts are increasing, up to an average of 0.3 – 0.5 million RMB, since infringers now have to submit evidence stating their products’ sales amount, otherwise, the courts shall conclude IP owners’ evidence on damages. Some IP infringement judgements are issued with rather high damages, such as Huawei v. Samsung patent case awarded damages of 80 million RMB in 2017, air conditioner Gree v. Aux series patent cases awarded damages of 46 million RMB in 2018, and Xiaomi trademark infringement case awarded punitive damages of over 60 million RMB in 2019.
In 2019, around four patent group cases were initiated between the competitors with high damages that claimed over 20 million RMB
Further, although there is no Case Law system in China, the precedent cases guiding mechanism is in the making, so that judges generally will consider similar precedent cases to avoid different decisions on almost the same facts and circumstances. In practice, lawyers are welcomed to provide similar precedent cases for reference by judges. Moreover, the pendency for legal proceedings is also as short as one to one and a half years for the first instance and four to eight months for invalidity procedure.
From the trademark side, bad-faith registration issues become the legal system’s focus. Detailed scenarios of bad-faith registration have been listed as guidelines from the courts in 2019, so that courts may accurately identify bad-faith acts in practice.
The impact these changes has had on businesses
Enterprises are feeling the benefits of such strong IP protection. From the patent side, more companies are conducting FTO analysis before new product research is initiated. Companies are also making plans on patent portfolio layouts to protect their markets. With accumulated patents strengths, companies are leveraging those patents as weapons, especially to create barriers for competitors applying for IPO. In 2019, around four patent group cases were initiated between the competitors with high damages that claimed over 20 million RMB; the defendants have to cancel their efforts for IPO since it is regulated in China that companies for IPO should not be involved in any litigation.
For enterprises involving telecommunication technology, Standard Essential Patents (SEP) are their most valuable assets. Guidelines for SEP infringement cases are issued in Guangdong and Beijing High Courts to provide guidance on how company behaviour could be considered as “FRAND” (fair, reasonable and non-discriminatory). Communication during the SEP licensing negotiation process among enterprises is carefully reviewed to evaluate which side has faults. This is sure to bring good order between competitors in the telecommunication industry.
The long-term impact and further changes are on the horizon
With a strong IP protection spirit alongside automatic injunction and huge markets, China is becoming a favourable jurisdiction for international companies to solve their IP disputes. Patent and trademark filings will steadily be on the rise in the future. For enforcement, there were over 20,000 IP cases accepted in courts all over China in 2019 and more than that number can be anticipated in the years to come.
IP right holders are gradually asserting combined IP rights from different perspectives, for example, asserting trademark infringement plus anti-unfair competition claims, to seek judicial reliefs in multi-dimensions and more chances for court support. Surely, there new and more complicated IP issues will emerge, and more and more high-profile cases with high damages will be issued in 2020. This is a challenge for the IP legal system in China, but it is also the opportunity for the country to perfect this system to construct a sound business environment.
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Established in March 1993, Liu, Shen & Associates is a patent and trademark agency designated by the Chinese government to deal with patent and trademark affairs involving overseas parties.
They are also registered at the Ministry of Justice. As a three-in-one firm, Liu, Shen & Associates has the capability to serve its clients in all phases of intellectual property: acquisition of the rights, transfer and/or licensing of the rights, investment with the rights, enforcement and protection of the rights, and related litigation and administrative proceedings.
Mr Yao specialises in providing legal services related to patent law. Based on his extensive experience from patent prosecution and litigation in almost fifteen years, Mr Yao has a deep understanding of the spirit of China’s patent legal system. As the leading attorney, Mr Yao has handled patent disputes for various international and domestic enterprises. He has the expertise to design overall litigation strategies based on specific cases and also a strong ability to summarise and analyse case details for his client’s benefit. Mr Yao is proficient in patent searching, with excellent skills in combining searching resources, established with a solid basis for the success of patent invalidation.