Dr. Bijan Kasraie
Marchman and Kasraie, LLC
Social and Cultural Background
Until 1911, China was a monarchy and all rules and regulations were set by the imperial court. The revolution of 1911 gave birth to the Republic of China. Among many changes were the development of new laws and regulations. Most of these laws were derived from European laws. Among these new laws were some hints of protection for intellectual property rights (IPR). However, the country became unstable in the late 1920s and little attention was paid to the legal system. After years of civil war, the Communist Party officially took over the government of China in 1950.
The new regime’s efforts were primarily concentrated on establishing control by the Communist Party and Chinese Communist Manifesto (“Manifesto”) on all facets of life. Effectively, most previous rules and regulations were abolished, especially the right to own private property and adherence to the commercial laws. These actions, of course, were in line with the tenets of the Manifesto. Intellectual property rights were even less important during this period. Although elimination of the right to own private property did not appeal to most Chinese people, hardly anyone cared about the lack of IPR. This general lack of interest in IPR had deep roots in Chinese culture. Since the 12th century and evolvement of Neo-Confucianism (12th and 13th century), stealing knowledge was not only not a crime, but also perfectly acceptable. Copying, imitating, and plagiarism were encouraged.
It is true that for the short period of time when China was a republic there was some interest in promoting IPR, but the interest quickly dissipated for two reasons: IPR was both against the grain of Chinese culture and the tenets of the Manifesto.
In 1978, when the first economic reform was introduced by the central government, many commercial laws were either reintroduced from the republican era or were written for the first time. Among these laws, some basic IPR was also introduced. However, it was not until 1979 that IPR was officially acknowledged and became somewhat protected in the PRC.
Current legal and legislative attitudes
The PRC gradually has realized that the only way to attract new foreign technology and investment into the country is to provide adequate protection for such technology, and such protection can only be provided through proper laws and effective enforcement of such laws. Therefore, in the 1980s, the PRC embarked on developing comprehensive IPR laws. Most of these laws are very similar to those in major international treaties, more specifically the outcome of the Paris and Bern Conventions and Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
In 1980, the PRC, in order to give more credibility to its new legislative efforts and convince foreign entities as to the safety of their technology, also joined the World Intellectual Property Organization (WIPO). Furthermore, in 1984 and 1989, the PRC agreed to be a party to both the Paris Convention for the Protection of Industrial Property and the Madrid Agreement for the International Registration of Trademarks. Finally, in 1992, the PRC made a major revision in its IPR and promulgated it as the PRC’s IPR Law. In 1995, the PRC further promulgated a set of rules and regulations giving its General Administration of Customs (“Custom”), among other administrative bodies, broad powers to enforce the IPR. These rules and regulations are called the Custom Protection of Intellectual Property Rights.
However, the problems of IPR between the US and the PRC took much a longer time to resolve. The US was the most vocal critic of the PRC’s inaction in regard to protecting IPR. Among the most controversial items were CDs and movies. Finally, in 1992, after extended negotiations, the US and the PRC signed a very loose memorandum of understanding to provide some protection for Americans who were considering entering the PRC market. Like all issues between the two countries, IPR issues were heavily politicized in both countries and, therefore, IPR regulations were difficult to implement. Finally, after several years of further negotiations, a more comprehensive Sino-US IPR Agreement was reached in 1996 giving fairly good protection to American-owned intellectual properties. This agreement provides, among other things, the same protection to a well-known trademark, but unregistered, as to the registered trademarks.
As a general rule, it is very significant event when the PRC agrees to join a treaty or enter into an agreement with another nation because the Chinese courts readily set aside domestic law and rely on such agreements. For example, in the case of Walt Disney Productions vs. Beijing Publisher and Co., the first of its kind, the court totally relied on the terms of the Sino-US IPR Agreement in order to adjudicate the case in favor of Walt Disney.
Sources of Law and Legal Framework
Laws, rules, regulations, measures, and policies are made by the National People’s Congress (“PNC”), the NPC Standing Committees, the State Council, various ministries, bureaus, administrative offices and commissions, and of course, the Supreme People’s Court. Therefore, at any given time, there may be new laws or regulations that may adversely affect IPR holders.
IPR and Procedure in the PRC
One of the difficulties faced by foreign IPR holders trying to do business in the PRC is the existence of numerous and fairly autonomous bureaucracies. I will try to identify the more important of these agencies that IPR holders may have to deal with in the process of obtaining the protection of law for their IPR. To begin with, I advise that the holder register its right as soon as possible because in the PRC even a simple contract between two parties is not valid unless it is recorded with the appropriate agency.
In general intellectual property in PRC is divided into three main categories:
The law to protect trademarks in the PRC, the Trademark Law of the People’s Republic of China, has gone through several revisions from the original law promulgated during the republican era. The Standing Committee of the Fifth National People’s Congress in 1982, the Seventh National People’s Congress in 1993, and, finally, the Ninth National People’s Congress in 2001, revised and amended the original law and codified it to the present form. This law, as it is summarized in Chapter 1, Article 1 of the Trademark Law of the People’s Republic of China, protects a trademark’s owner’s exclusive right to use the trademark. Furthermore, Article 1, which closely follows Article 4 of the Paris Convention, elaborates that the right of trademark owners is protected as long as all trademarks are clearly marked as “registered.”
The Trademark Law encourages producers and operators to maintain the reputation of their trademarks by guaranteeing the quality of their goods and services. It further encourages trademark owners to protect the interests of consumers, producers, and operators, as well as promote development of the socialist market economy. In fact, Chapter 1, Article 7, states that the trademark holder is held liable for the quality of goods for which the said trademark is used.
Legal or real entities who wish to apply for trademark registration must be aware that certain trademarks may not be registered. These items are described in Chapter 1, Article 10. One of the important parts is that if the trademark is not distinctive, it can not be registered. For example, a sign which simply says “10 pound,” can not be registered. In addition, it is highly recommended that entities seeking trademark registration use a designated trademark agent.
There are two ways to register a trademark:
a. International Registration: This is not available to US IPR holders because the terms and conditions involved follow the Madrid Convention, which the US has not ratified.
b. Domestic Registration: This is handled by the Trademark Office, a part of the State Administration for Industry and Commerce (“SAIC”).
Domestic registration takes anywhere from 18 to 24 months, and it is good for 10 years.
The usual process to register a trademark is that the applicant must file with the Trademark Office (“TMO”) for preliminary examination. If the application passes the preliminary examination, the application will then go through a more rigorous scrutiny called a “Substantive Examination.” If the application passes that too, then the TMC will post the trademark in the Trademark Gazette for 90 days. If there is no opposition, the trademark registration certificate will be issued.
Patent law in the PRC (“Patent Law”), like other IPR law, has gone through multiple revisions and amendments. In 1984, the Standing Committee of the Sixth National People’s Congress established the foundation for patent law in the PRC. In 1992, amendments were made to it by the 7th National People’s Congress, and in 2000 more revisions were made to it by the 17th National People’s Congress, which established the present form of the patent law in the PRC.
The essence of this Patent Law is clearly outlined in Article 1 of the Patent Law. It states, in summary, that Patent Law is intended to promote science and technology and to protect the inventions-creations. In Article 2, Patent Law defines “inventions-creations” to mean “invention, utility models and design.” Although anyone may apply for a patent for his/her invention-creation, no patent will be granted if such invention-creation is either against State law or against public interest and morality!
Article 19, Patent Law, is a critical article for any foreigner who is not a resident of the PRC and desires to apply for a patent or even discuss any patent issue: Such foreigner “shall” appoint a State-designated patent agency to act as its agent for all matters related to the patent.
Article 22, Patent Law, states that, in order for an invention or utility model be considered for patent, such invention or utility model must be novel, new and practical.
Article 25, Patent Law, imposes certain restrictions on obtaining a patent. The most important of these restrictions states that no patent will be issued for scientific discoveries, diagnostic methods or treatments of diseases, or for products or by-products obtained from nuclear activities.
All in all, the utility design patent is about the “external design” of a package and not the content of a package. Furthermore, the requirements and restrictions for patenting utility designs resemble the requirements and restrictions for obtaining a trademark.
Copyright law in the PRC (“CR Law”), like other IPR law, has gone through several revisions and amendments. Adopted at the Seventh National People’s Congress in 1990and finalized as the CR Law of the People’s Republic of China at the Ninth National People’s Congress in 2001, it was promulgated by 2002.
The spirit of CR Law is clearly reflected in Article 1. This law is intended to protect the copyrights of literary, artistic, and scientific “works” created by the copyright owners. And, as usual, such works must be in line with the spirit of socialism. “Works” has been defined to include, but are not limited to, literature, arts of any kind, natural, and social sciences. Great debates have taken place as to the “form” of such works and finally outlined in Article 3 of CR Law.
There are interesting elements in CR Law, such as:
a. The right of compiler: A compiler may enjoy the protection of copyright registration if his work does not prejudice the individual copyright holders.
b. The right of employee in regards to the work he developed: The employee enjoys the right of authorship, but the employer reaps the benefit.
c. The copyright, in general, may be limited to a geographical area.
The owner of a copyright, under CR Law, enjoys two different types of rights: moral and economic. Moral rights include, but are not limited to, the right to claim ownership, the right to publish, and the right to change the work or stop anyone from changing it. Economic rights include, but are not limited to, the right to reproduce and distribute such reproduction, the right to assign (temporarily or permanently) and collect money for such assignment, the right to translate, and the right to compile.
There are some limitations and exemptions to copyright privileges. These include, but not limited to, the private use of published work, reprint or rebroadcast by mass media, use by teachers or in research (in small quantities), dissemination (if it is free of charge), and translation into other Chinese dialects.
Infringement and Damages: Infringement has not been clearly defined, but it is considered to be any action by the wrong doer that violates the rights granted to the intellectual property holder. For example, in the case of a patent violation, it would be an infringement if one builds a widget similar to a patented widget; in case of a trademark violation, it would be an infringement if one uses a mark identical to a registered trademark. However, there are exceptions to such infringement that hold true for all IPR.
- A violation of IPR may be considered a criminal act depending on the amount of money and seriousness of the event surrounding the infringement. For example, in an infringement upon a registered copyright, if the illegal gain is substantial, the wrongdoer may be imprisoned for between 3 to 7 years and be forced to make financial retribution.
- Pretrial injunctive relief has been made available for IPR infringement issues. The injunction usually is issued 48 hours after filing. The defendant has a limited time to appeal the injunction.
- The statute of limitation for filing a law suit for infringement upon a registered IPR is two years from the date of discovery.
Patent infringement: In general, anyone who exploits the patent of another entity without proper authorization commits infringement on the patentee’s right under the law.
However, patent violation is the hardest of IPR’s infringement violations to prove because there are usually many details involved in a patent that may make the infringement action questionable. For example, in the case of a process patent, it is difficult to decide how much change in a given process is needed in order for the act not to be considered an infringement of the patent of the said process.
The burden of proof in patent infringement cases varies depending on the type of the patent. In the case of a process patent, the burden of proof is on the infringer. In such cases, the infringer must present evidence to the authorities that his process is different from the patented one at dispute. However, in the case of a utility model patent, the burden is shifted to the patent holder and the authority may ask the patentee for his research papers to prove his patent has been infringed.
Patent infringement damages: The violation of patent right is usually a civil issue, and unless the patentee can prove substantial damages, the penalty is about $6,000.00, plus a public apology. However, in the case of an entity using a patented box and filling it with inferior material, the damages could be assessed at three times more than the illegal gain by the guilty party. If the amount of damages is not is clear, then a fine of not more than roughly $6,000.00 will be imposed on the wrongdoer. In addition, sometimes the authorities impose penalties equal to the ill-gotten profit or losses incurred by the patentee, or even measure the damages by calculating a royalty loss.
Copyright infringement: CR Law extensively outlines what constitutes infringement upon a registered copyright. These include, but are not limited to:
- Unauthorized publication, distortion of one’s work, exploitation, plagiarism
- Unauthorized rendering
- Unauthorized broadcasting
- Unauthorized reproduction, etc.
The Supreme People’s Court of the PRC has declared that the burden of proof in case of copyright violation is on the plaintiff.
Copyright infringement damages: The damage granted to plaintiff is either the actual damage incurred by the plaintiff or the amount of illegal gain by the infringer. However, if neither can be calculated, then damage is assessed at roughly $60,000.00 maximum, and, of course, a public apology.
Trademark infringement: The Trademark Law is fairly clear as to what constitutes infringement upon a registered trademark:
- Unauthorized use of a trademark identical to the registered trademark used for identical or similar goods
- Knowingly selling goods with a counterfeit trademark
- Unauthorized creation of a replica of a registered trademark for sale to a third party
- Unauthorized sale of the registered trademark to a third party
- Unauthorized replacement of a registered trademark for the purpose of sale of goods bearing such replaced trademark
- Misleading the public by unauthorized use of a registered trademark for the sale of similar product
- Aiding a third party to infringe upon a registered trademark.
Trademark infringement damages:The damage granted to the plaintiff is either the actual damage incurred by the plaintiff or the amount of illegal gain by the infringer. However, if neither can be calculated, then damage would be roughly $60,000.00, maximum, and of course, a public apology.
Contributory infringement: There is no law against contributory infringement. For example, party A draws pieces of a symbol that is registered, but never puts them together. He then sells the drawing to party B who assembles the pieces from the drawing and makes the symbol. In such a case, party A has committed contributory infringement upon the registered symbol.
Recourse and Procedure
When an IPR conflict arises, regardless of the type of IPR involved, the plaintiff may choose from the following remedies:
- The plaintiff can negotiate with the other party: It is the Chinese way to try to settle disputes between parties by negotiation, or, as they call it, by consultation, if at all possible. If the negotiation fails:
- The plaintiff can go to the IPR administrative offices, usually set up inside the State Administration for Industry and Commerce. These offices have far-reaching authority, from mediating and arbitrating, to issuing an order. AND, if such an order is not complied with, the respective office will take the matter to court. The advantage of referring disputes to these offices is that the offices have more technically knowledgeable people on the staff with better understanding of the nuances of the dispute.
- The plaintiff can file a law suit directly with the court: The plaintiff may simply file a law suit in the region where the dispute has taken place. The government also has set up special IPR courts in certain large cities, such as Shanghai and Beijing. An appeal of any of the courts’ rulings must be filed within 15 days of the date of the court ruling.
In spite of the general misconception that the PRC has a lax attitude toward IPR, in general and specifically toward foreign IPR, the PRC’s courts have been adjudicating several thousand IPR cases each year since 2000. These cases vary from Chinese entities against other Chinese entities, foreign companies against Chinese entities, Chinese companies against foreign companies, two foreign companies against each other, and even foreign companies against Chinese IPR administrative authorities.
Walt Disney, 1995
The first prominent IPR dispute between an American company, Walt Disney, and a Chinese company took place in 1992. This was a landmark case in Chinese IPR litigation involving an American company. Walt Disney had properly obtained copyright registration for several of its famous children’s books and cartoon characters. However, the books and cartoon characters were published and sold without Walt Disney’s permission by a Chinese company. The court ruled against the infringer and fined the infringer roughly $26,000.00, plus the requisite public apology. The court reasoned that all Disney’s works are forms of art and thus protected under IPR.
Sometimes the parties follow two different routes to the same end. For example, they may file with the court and also try to negotiate at the same time. This is a case in which, beginning in 1997, a trademark was used, without registration, by one of Hitachi’s subsidiaries. In 2000, a Chinese company applied to register a similar trademark and filed against Hitachi for infringement. Hitachi, although it had removed the disputed logo from its product, filed to invalidate the request for registration based on bad faith on the part of the applicant. Meanwhile, the parties are in negotiation with each other to settle the dispute out of court.
The court frequently relies on precedent of other cases or a given doctrine inside the law. In this case, Lacoste, a French clothing manufacturer using the logo of a green alligator, had registered its logo as early as 1983. Lacoste sued one Chinese garment manufacturing company and two Chinese sales’ outlets for trademark violation. The Chinese manufacturer was using a golden alligator and contended that there are very few similarities between the two logos. However, the court, relying on the doctrine of “famous brand” of the Trademark Law and a relevant court case, found the manufacturer guilty of infringing upon Lacoste’s registered trademark. The court also found the seller companies guilty for not doing their due diligence in re the Lacoste trademark. The court ruled totally in favor of Lacoste. It ordered all clothing with the counterfeit mark destroyed, ordered the production of such garments to cease, fined the companies $100,000.00 for cash damages, and demanded a public apology.
Occasionally, world opinion and international outcries influence the court’s decisions. In this case, Pfizer actually faced two separate legal battles. The first was that the court, in 2004, revoked Pfizer’s application to patent the main ingredient of its famous product, Viagra. This action created such a worldwide outcry that the court reinstated the application in 2006. The second action occurred when Pfizer, in 2007, filed against four Chinese pharmaceutical companies and asked the court to grant Pfizer the trademark for a name, “Wei Ge.” Pfizer argued that the name is too closely resembles Viagra, at least in Chinese, and the court should bar Chinese companies from using the trademark by granting Pfizer the trademark for that name. That court ruled that Pfizer’s argument was not convincing and denied Pfizer’s motion on both accounts.
Occasionally, the case does not get resolved by the lower courts, and it has to be adjudicated by a Supreme Court, equivalent to the Court of Appeals. Here, the case involved Starbucks and its Chinese assignee as plaintiff filing an infringement suit against a major Chinese store. Starbucks entered the Chinese market in 1996 and registered its name and logo. Shortly after, it also registered many of its drinks, services, and products as well. Starbucks then registered a trademark which in Chinese would represent Starbucks. Starbucks started a massive advertising campaign for its American and Chinese names. While the application for the Chinese name was under review, a Chinese company, the defendant, pre-registered a corporation name using the Chinese version of Starbucks. The defendant was in the business of serving alcoholic and non-alcoholic drinks, including coffee. Furthermore, the defendant used Starbucks’ logo on its menus. At the conclusion of the trial, the court ruled in favor of Starbucks on several grounds. Although the defendant appealed to the Shanghai Supreme Court, the court affirmed the lower court’s decision and ordered the defendant not only to pay the damages, but also attorney’s fees and make the expected public apology. Motion for reconsideration was denied.
Eli Lily, 2006
IPR law suits for pharmaceutical cases often become very involved because they often involve a given ingredient in the product. In this case, a Chinese pharmaceutical company is suing Eli Lily for patent violation. The plaintiff contends that a type of insulin, the main ingredient in a product manufactured by Eli Lily and sold in China, was registered by the plaintiff several years previous to the suit. Eli Lily, in turn, contends that its researchers found this compound in 1989, and it has been in clinical use since then. The court finally ruled that Eli Lily must stop selling that product in China.
This is a case between an American company and an administrative office, the Trademark Review and Adjudication Board, of the PRC. In this case, Zippo, an American lighter manufacturer, applied to the administrative office for a three-dimensional trademark. The said office declined to register Zippo’s trademark, stating that such trademark is not distinctive enough and cannot be protected by the law. After several requests for reconsideration, Zippo finally filed a suit against the administrative office. The court ruled that Zippo’s logo is distinctive and must be protected by the trademark law.
Johnson & Johnson, 2001
Sometimes IPR cases become criminal issues and the infringer is sent to prison and fined as well. In this case, a Chinese company was selling fake Johnson & Johnson band-aids. This practice took place for several years, and Johnson & Johnson suffered a great deal of financial damage. In 2001, Johnson & Johnson filed suit against the infringer. It took over a year before the court collected enough evidence against the infringer and ordered the arrest of the defendant. The court found the defendant guilty and sentenced him to six years in prison and a $250.00 fine. This was a rather lengthy prison term for violation of IPR; however, the court believed the sentence was justified because it had become apparent that the defendant routinely sold a variety of counterfeit materials.
Johnson & Johnson 2003
Sometimes an IPR dispute takes a longtime to settle. In this case, Johnson & Johnson lost a six-year battle over a trademark for its sanitary napkins. The Johnson & Johnson product was called “Carefree,” and a Chinese company had filed an application for a similar product under the name of “Careful.” Johnson & Johnson filed first with an administrative office asking it to deny the application for Careful, based on the similarity of name and possible confusion between brands. The administrative office rejected Johnson & Johnson’s motion twice, and the court ruled against Johnson & Johnson. The courts stated that the two names are pronounced differently, spelled differently, and differ in meaning. The entire process took more than six years to completion.
Sometimes parties to an IPR dispute file in different countries at the same time. This fairly complicated case began in 1998 when the Chinese company was working in China under Motorola’s license. Once the contract expired in 2002, the companies continued to work together. However, the Chinese company believed that the development done by the Chinese company should belong to the Chinese company, but Motorola believed the development should belong to it. Both companies filed law suits in Taiwan, China (the home of the Chinese company), and in the US. The Chinese company demanded roughly 25 million dollars in damages. Motorola demanded more than 200 million dollars in damages. By 2003, the courts in China and Taiwan found for Motorola. In contrast, Motorola lost its motion for injunction in the US, but the main case in the US is still in progress.
Sometimes the timing of a law makes all the difference. In this case, two companies, Yahoo China and Baidu, were sued by a group of Chinese music companies for providing links to illegal music download sites. The court, in the case of Yahoo China, found for the music companies and ordered Yahoo China to stop the practice. In contrast, in the case of Baidu, the court ruled that because Baidu started this practice before the relevant addendum to the law went into effect in 2006, the law does not apply to Baidu.