Technology Trade and Investment- China August 1999

Section 7.5 Intellectual Property Issues

Historically, China has not had a good record in the protection of intellectual property rights (IPR). Copyright fraud (piracy) has been a particular focus of international efforts to persuade China to reform its intellectual property system. In response to this pressure, and to further become a fully accepted member of the international trading community, China has recently implemented significant changes to its domestic legal framework governing the protection of intellectual property. A further Chinese motivation to improve its intellectual property regime is the need to encourage foreign advanced technology transfer and commercialisation.

Areas in which China does not recognise patent rights include new scientific discoveries, methods for the diagnosis and treatment of disease, some kinds of pharmaceutical products and substances obtained by chemical processes, animal and plant varieties, "rules and methods for mental activities", foods and beverages, and "substances obtained by means of nuclear transformation".

Patent agencies often used by foreigners include the CCPIT Patent Agency, Shanghai Patent Agency, China Patent Agency Co. Ltd. in Hong Kong, and the New York based China Patent and Technology Trade (USA) Ltd. Foreign firms seeking patent, trademark or copyright protection in China should seek expert legal advice. In this regard, the specialist Licensing Executives Society International now has a Beijing presence in co-ordination with the CCPIT Patent and Trademark Law Office.

China's 1984 Patent Law was extended in 1993 to provide increased intellectual property protection for chemical and pharmaceutical innovations, with a protection period lengthened to twenty years. Amendments provided import rights to those holding patents, and expanded the scope of patent infringement to include the unauthorised importation or sale of manufactured products derived from patented processes. China agreed to the 1994 Patent Co-operation Treaty, which requires the provision of the preliminary examination of patent applications and international patent searches. China's Patent Law requires that foreign investors must use a registered Chinese patent agent for the submission of patent applications, with the actual preparation of the application being done by either Chinese patent agents or their foreign equivalent. Relevant laws include the Implementing Regulations for the Patent Law, Procedures for Reduction or Deferral of Patent Fees, and the Provisional Regulations on Patent Agencies.

A new Copyright Law was implemented in June 1991, with its provisions being extended to computer software in October 1991. During mid-1993, revised patent and trademark laws took effect. In 1993, China changed its trademark registration systems from that of examination approval to an agent responsible system located in some 99 trademark agent institutions across China. In 1994, having been approved by the Assembly of the Patent Co-operation Treaty Union, the Chinese Patent Office (State Intellectual Property Office) became both a receiving office, international searching authority, and an international preliminary examination authority. In 1995, China published its Customs Protection Regulations Concerning Intellectual Property stipulating that holders of intellectual property rights (IPR) must complete designated procedures of the General Administration of Customs' Intellectual Property Border Protection Office, and that all pirated products discovered during routine inspections can be withheld. During April 1996, the Intellectual Property Training Centre was established in Beijing to contribute to personnel training and overall intellectual property protection throughout China. In 1998, the State Copyright Administration, China Copyright Agent General Corporation, China Software Registration Centre, and China Copyright Use and Royalty Centre were placed under the jurisdiction of a newly formed National Copyright Protection Centre.

In March 1992, China and the USA agreed to bilateral copyright relations, with China subsequently entering into several related international conventions. Foreign producers of films, sound recordings, computer software, books, and other copyright material currently have theoretical protection under China's copyright legislation (i.e. a Copyright Law with separate Regulations on the Protection of Computer Software), the Berne Convention, the Universal Copyright Convention and the Geneva Phonogram Convention. Foreign computer software programmes are to receive protection for fifty years without mandatory registration requirements. The National Copyright Administration has the purpose of acting upon foreign copyright infringement claims, as do specialised intellectual property courts in major business centres such as Beijing, Guangzhou, and Shanghai.
Trademark registration in China is basically a first-to-register system that requires no evidence of prior ownership or use, and the regime broadly follows international practice. In practice, well-established foreign trademarks usually do receive Chinese protection without prior registration, and China's trademark regime generally conforms to current global standards. China is a member of the 1989 Madrid trademarks agreement, which allows for the reciprocal trademark registration of member states. A 1982 Trademark Law was implemented, followed by a more restrictive 1988 Detailed Implementing Rules for the Trademark Law. During 1993, the Chinese Trademark Law was further amended to provide for special regulations for the criminal prosecution of trademark infringement, and the first time registration of service marks; the 1993 Unfair Competition Law provides intellectual property protection for trade related activities. Foreign firms and investors are required to use registered Chinese patent agents for trademark applications, with the Chinese agent or foreign equivalent preparing the application. Official trademark agents include CCPIT's China Trade Mark Agency in Beijing and the China Patent Agency in Hong Kong, the China Trade Mark Service in Beijing and the NTD Patent Agent in Hong Kong. Beijing has the legal right to prescribe categories of goods that may not be sold unless a trademark has been granted.

It is usually advisable to develop and register a Chinese language equivalent to a foreign trademark; such unregistered equivalents are often used by Chinese third parties. It is also advisable for a foreign firm to adopt a single corporate name for all Chinese speaking jurisdictions including the mainland, Hong Kong, Taiwan and Singapore and employ a Chinese linguistic expert to ensure that easily made faux pas using the complex Chinese character-based written language (with its multiple unintended meanings) are avoided. Trademark licensing contracts often require MOFTEC approval.

China's 1993 "Unfair Competition Law" has defined unfair competition to include infringements on the "lawful rights" of other businesses, including the violation of "commercial secrets". Commercial trade secrets have been defined as including non-public domain technical and operational information that accrue economic benefits to authorised users, and are protected by appropriate security measures. Resulting legal sanctions include criminal penalties for "serious violations", civil remedies and damages, and administrative sanctions such as fines. Regardless of the protection supposedly provided by this law, foreign firms are advised to rely upon confidentiality and contractual non-competition clauses for technical and business activity protection. China is a signatory to the Paris Convention for the Protection of Industrial Property, and is thus required to protect trade secrets.

In addition to changes in domestic policies, China has agreed to various international obligations for the protection of IPR through its membership in international agreements and organisations such as:

  • World Intellectual Property Organisation
  • Paris Convention for the Protection of Industrial Property (1985)
  • Berne Convention for the Protection of Literary and Artistic Works (1992)
  • Madrid Agreement Concerning the International Registration of Marks (1989)
  • Patent Co-operation Treaty (1994)
  • Convention for the Protection of Producers of Phonograms Against the Unauthorised Reproduction of Their Phonograms (1993).
In addition, China has applied to become a contracting party to the General Agreement on Tariffs and Trade (GATT), and (ultimately) the World Trade Organisation (WTO) established by the Final Act of the Uruguay Round of GATT talks. Adhesion to the Uruguay Round Final Act will commit China to a more comprehensive protection and enforcement of specified IPR, with better mechanisms for handling disputes.

China and the USA agreed to a 1992 Memorandum of Understanding on the Protection of Intellectual Property, which specified that China was to improve its laws governing intellectual property protection and join the Berne Copyright and Geneva Phonograms Conventions. A March 1995 extension of this agreement outlined a plan for the enforcement of US IPR, and also granted increased market access to certain American products. In this agreement China indicated that non-tariff restrictions would not be imposed on the importation of published and audiovisual material. It also allowed for Chinese-US joint ventures to produce audiovisual and computer software products (though specifically only permitting foreign firms to contract local Chinese companies for product recording, duplication, and distribution in China). Total foreign audiovisual joint ventures have yet to see official approval, in part due to Beijing's growing concern with the socio-cultural effects of the exposure of the Chinese population to foreign communications media of all types, particularly the Internet. US investors have been allowed to market film products in China on a revenue sharing basis with Chinese enterprises, and recent agreements have moved towards the elimination of de facto quotas on foreign films and sound recordings licensing and imports. Central government continues to exercise censorship over what gets distributed.

During 1998, the National Copyright Administration of China reiterated that "copyright protection is a protracted task that requires regular inspection and strengthened law enforcement". The central government claims it is to enforce stricter rules to protect IPR in a bid to create a more favorable climate for domestic and overseas businesses. China has reportedly made progress on legislation to enhance the enforcement of IPR protection over the past few years, according to the IPR Office under the State Council. The new rules cover intensified crackdowns on copyright violations and cases of laserdisc, compact disc and video compact disc piracy. Authorities will also focus on copyright violations of computer software, books and electronic publications. Research institutes and enterprises are encouraged to promote name-brand products under the umbrella of IPR protection. The state is to provide more protection on developing herb resources, particularly traditional Chinese medicine; China implemented the Regulations on Protecting New Plant Species on 1 October 1998, and is reportedly ready to join the Union for Protection of Overseas Vegetation.

China claims it will fully practise international IPR conventions and bilateral accords which it has joined, provide effective IPR protection for overseas investors and partners, and address violations involving domestic products. However, officials admit the smuggling of pirated products is still rampant, and problems are particularly serious concerning book, audio, video and electronic publications, and copyright with high-tech industries such as the information industry. An estimated 200 underground production lines for illegal CDs, VCDs, and CD-ROMs exist in Hong Kong, Macau and Taiwan alone. Officials have stated that China will revise its current Copyright Law during the next several years and establish a "National Anti-Piracy Alliance" and a related nationwide information network. Crime gangs will be particularly targeted. Allied anti-piracy groups include the National Copyright Administration, State Press and Publication Administration, China Publishers' Association, China Software Coalition and the China Audio and Video Publication Association.

To promote the industrialisation of patented techniques, the Patent Office of China is to choose 100 key patents every two years as "pilot projects" for industrialisation. Each of the candidate techniques applying for the "pilot project" should have an enterprise as its supporter which would base its production on the patent. The sales volume of such patent products for each enterprise is estimated at 10 million Rmb in the first year of production and 100 million Rmb after five years. Many high-tech patents in China have difficulties reaching the commercial stage because of the traditionally slow process of industrialisation. The "pilot project" will co-ordinate major state actions to develop the high-tech industries. The Patent Office of China will help pilot enterprises prioritised by state projects and provide consultation services and personnel training.

These recent legislative changes and treaty commitments on China's part represent significant steps towards bringing its intellectual property system up to global standards. However, in practice, enforcement of IPR currently remains a major problem in China, with administrative enforcement often lagging behind the principle of its laws. IPR infringement reports are common, and the application of legal recourse under the current system is erratic. Another area of difficulty involves the central government's desire to protect such areas as foreign trademarks versus local governments who view infringement and counterfeiting activities as major sources of employment. In addition, PLA commercial operations have reportedly been involved with IPR piracy activities in various technology fields. In general, the protection of IPR remains inadequate, and foreign exporters of intellectual property comprised of sensitive products and services (i.e. technology-related, as most aerospace products are) are advised to exercise extreme caution in this area. For example, the US software giant Microsoft complained during 1997 that despite recent tightened Chinese government intellectual property legislation, its was still losing millions of dollars per year on software piracy.