Intellectual Property in China -- A “strategic” status in 2007

2008/02/01,Ginny Han, China IP,[Comprehensive Reports]

To China's intellectual property (IP), the year 2007 marks a milestone in its history with a series of significant events. "Intellectual Property" was set as a State strategy, the long-simmering Antimonopoly Law was formally promulgated, China was challenged again by the United States on IP protection, and even ordinary Chinese came to be familiar with the term intellectual property.

The importance of IP for a nation is self-evident in this Knowledge Economy era. China as a participant in the global economy is surely aware of this. Prior to entering the WTO, China had made its IP laws basically comply with the requirements of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Regardless, China has been receiving challenges from the international community repeatedly, of which IP is undoubtedly one of the incentives. Facts can help us best in understanding the process of China's IP mission in 2007.

Transition from "Protection" to "Strategy"

Five years ago, "improvement of intellectual property protection system" was proposed in the Report of the 16th National Congress of the Communist Party of China (CPC). In 2007, Premier Wen Jiabao figured in the "Government Work Report" at the Fifth Session of the Tenth National People's Congress (NPC) that we must lose no time in formulating and implementing the national intellectual property strategy to conscientiously strengthen IP protection. "National intellectual property strategy", for the first time, appeared in the government work report as an important term.

After the annual sessions of NPC and CPC, the Blue Book of IPR in China, its first encyclopedia comprehensively reflecting the protection and status of China's IP, was formally published. Besides the overall introduction and synopsis of China's IPR development, the Blue Book exposes from various angles seven issues that focus on IP. They are IP strategy, IP education and personnel training, protection of IP in criminal law, traditional resources and IP protection, IP and antimonopoly, Internet dissemination and copyright protection, and the third amendment of the Patent Law. Covered In the book is also a survey on awareness of IP by Chinese citizens and students. 

On April 24 of 2007, Vice Premier Wu Yi said at the "China High-level Forum on Intellectual Property Rights Protection 2007" that IP protection is a logical choice to improve China's international competitive capacity. The Chinese government pays great attention to IP work, and has established IP protection as a national strategy. To implement this strategy, the government has made great efforts in stepping up the construction of an IP system and improving the IP protection mechanism, in carrying out IP protection actions and effectively protecting the interests of right owners, as well as in doing more publicity to create a sound atmosphere for IP protection.

On October 15, Chinese President Hu Jintao talked about the "implementation of IP strategy" in the Report of the 17th National Congress of CPC. The first release of "implementing national IP strategy" in China shows that the Chinese government has been realizing the importance of promoting self creative ability and the emergency of constructing a creative-oriented nation.

Accelerated Progress of Legislation and Law Amendment

On March 16, the world attentive Property Law and Enterprise Income Tax Law were passed with few opposing votes at the closing ceremony of the 5th Session of the 10th NPC. In the Property Law set to standardize the relations of material properties, the exclusive right of trademark, patent right and copyright are classified in guaranteed properties, which provides an important legal basis for solving the impawn problem of IP.        

At the end of 2006, the State Intellectual Property Office (SIPO) submitted the third amendment of Patent Law to the State Council for review. In the online interview titled "Progress of the Third Amendment of China's Patent Law" held by SIPO's official website on January 16, 2007, the director of SIPO Department of Treaty and Law, Yin Xintian and vice director Song Jianhua disclosed for the first time the latest progress and content of this third amendment, and gave online answers to questions commonly concerned by netizens, such as the criterion of absolute novelty, compulsory license and design patent. In response to the amendment, SIPO also formally commenced the revision work of the Rules for the Implementation of the Patent Law in February of 2007.   

At the beginning of April 2007, China's Action Plan on IPR Protection 2007 was publicized by the Ministry of Commerce. With 276 specific measures of 10 aspects, it became the guidance plan for China's IP work in 2007. The Plan put forth a legislation agenda for the increasingly rough trademark problem: the amendment draft of Trademark Law should be completed in 2007.

On August 30, the publicly concerned and 13-year-simmering Antimonopoly Law, known as a "constitution of economy", was passed at the 29th Session of the 10th NPC Standing Committee, and will be formally implemented as of August 1, 2008. Article 55 of the Law stipulates that "This law shall not apply to the conduct of business operators to exercise their intellectual property rights in accordance with the laws and relevant administrative regulations on intellectual property rights; however, this Law shall apply to the activities of undertakings which abuse their intellectual property rights and engage in activities that eliminate or restrict market competition." It is until then that China has a law on antimonopoly examination of abuse of IP from the angles of restriction of competition and abuse of market advantages. 

As a comprehensive law in the field of science and technology with the nature of fundamental law, the Science and Technology Progress Law which had been applying for 14 years was put on the agenda of amendment. On August 26, its amendment draft was submitted to the 29th Session of the 10th NPC Standing Committee for review, and was passed at the 31st Session of the same Committee held in December. The revised law intensifies the protection over IP, clearly defines undertakers' ownership of the IP rights on financial, scientific, and technological creation projects, and specifically stipulates enterprises' leading position in technological innovation and their ownership of IP rights of nation-funded research projects. 

On January 11 of 2007, the Opinion of the Supreme People's Court on the Overall Reinforcement of IP Judicial Work and Judicial Safeguard for the Construction of an Innovative Country pointed out that crimes against IP rights should be strictly punished according to law, and infringers should be economically deprived of the capacity and conditions of recommitment of crimes. Additionally, Some Regulations of the Supreme People's Court Concerning the Application of Law in the Trial of Cases Involving the Disputes over Infringement upon the Rights of New Plant Varieties, and Interpretation of the Supreme People's Court on Some Issues Concerning the Application of Law In the Trial of Civil Cases of Anti-Unfair Competition was put into force as of February 1 of 2007. Subsequently on April 5, the Supreme People's Court and the Supreme People's Procuratorate jointly promulgated the Interpretation II of the Issues Concerning the Specific Application of Law in Handling Criminal Cases of Infringement of Intellectual Property Rights. This is a supplement and improvement on the Interpretation of the Issues Concerning the Specific Application of Law in Handling Criminal Cases of Infringement of Intellectual Property Rights issued in December of 2004. The Interpretation II obviously lowers the quantity requirement of offense of infringement upon copyright, and sets forth the criterion for imposing penalties on crimes committed by organizations and individuals.

Intensified IP Disputes between China and Other Countries

The Chinese government is accelerating the pace of IP legislation and judicial construction. However, disputes over IP are coming up continually in international trade. On April 10, 2007, the United States initiated the negotiation procedure under the WTO's dispute settlement mechanism on two issues: one is the inadequate protection and enforcement of China's legal system over copyright and trademark; the second is the admittance obstruction in China's market of books, music products, video products, and motion pictures. This event marked the first time in the WTO's history that one member filed two complaints concurrently against another member.   

Referring to the two complaints, Vice Premier Wu Yi said at China's High-level Forum on Intellectual Property Rights Protection 2007 that China, strongly displeased, would actively respond to the cases according to relevant rules of the WTO. Moreover, consultations were held between China and the United States in Geneva on June 5~8. On August 13, Sean Spicer, the spokesperson of the Office of the United States Trade Representative (USTR), declared that the U.S. government was not satisfied with the consultation result, and had requested the WTO to set up an expert panel to rule its charges against China on inadequate protection over IP. 

As a matter of fact, the United States is not the only source of pressure. Succeeding in its appeal to the WTO on China's IP infringement issues, Japan became involved in the Sino-US IP disputes as a third party and gave its support to the United States. Subsequently the Canadian trade minister David Emerson also declared that Canada had requested to be a third party in the negotiation of China's IP issues. Ultimately, there were three developed countries delivering different opinions on China's IP issues. 

Following the Sino-US IP disputes, friction between China and Europe erupted over IP issues.

The European Union Chamber of Commerce in China (EUCCC) released the Survey of Business Confidence 2007 in Beijing on November 22. It indicated that "inadequate IP protection" had become the second largest obstacle for EU enterprises to operate in China. Joerg Wuttke, Chairman of EUCC, cited the ruling by a Wenzhou local court in September of 2007 that Schneider Electric infringed a patent and was fined €31 million. On November 28, European Union Trade Commissioner Peter Mandelson also voiced his displeasure over the judgment at the IP Seminar of Commodities Fair of the 10th EU-China Summit. He said, "I regard the Schneider case as very serious evidence indeed that the level playing field in China on intellectual property protection is tipping even further against European companies. I urge the Chinese government to act to ensure that proper balance is restored".

As for the substantive efforts made by the Chinese government on IP protection, Mandelson said, "we have not seen the concrete results, although we'd prefer to prioritize dialogue and co-operation. But the sincerity of our approach is being tested, and I regret this. It is hard to see how much longer our patience can last if treatment does not improve." This is Mandelson's second statement on China's IP protection state and is more strongly worded than previously.

Highlight of Forum – IP Issues

Given the many deficiencies, it is true that China's achievement in IP protection is much less by comparison, and still has room for improvement in the IP system. However, with five years of WTO membership China has learned much. At least, IP protection has been put on the agenda by all social circles in China.

On March 27, the "Global Forum on Intellectual Property Protection and Innovation" was held in Beijing. Its theme was "to encourage innovation, protect intellectual property and promote wealth creation". The specialized global multilateral meeting represented an initial and admirable opportunity for industrial and commercial circles to promote independent innovation and IP protection. It received high recognition from the Chinese government as well as from the governments of other countries. Participants had practical discussions on particular topics during the brief meeting, such as IP protection concerning Internet piracy and coordination in IP law enforcement between central and local governments of each country.

On April 24, the first IP Protection and Operation Forum of Chinese Telecommunication Industry, as one of the important activities of "Intellectual Property Protection Publicity Week", was held in Beijing. The forum focused on the policies of protecting and operating an IP competitive force of Chinese telecommunication enterprises, and communicated on IP system establishment and risk management. This is the first IP forum in China organized by national organizations and targeting enterprises. It is believed that this will play a positive role in promoting enterprises' protection and operation of IP.  

On August 14, officials and representatives from governments, enterprises, academic circles, APEC Secretariat and APEC's 21 Member Economies gathered in Beijing to attend the "2007 APEC Symposium on Paperless Trading Capacity Building and IP Protection". They had in-depth discussions on the strengthening of IP protection, effective integration of knowledge resources of all member economies in the Asia-Pacific region, and the promotion of paperless trading capacity building. Participants also reached consensus on four IP protection issues of paperless trading. 

At the "China (Beijing) International Copyright Forum 2007" of China Idea Fortune Summit Forum of China (Beijing) International Cultural & Creative Industry Expo held on November 9, experts and business runners from home and abroad approached the present pattern and development features of China's creative industry and the vital function of copyright protection. Yan Xiaohong, official representative of China and Vice Director of the General Administration of Press and Publication said, "compared to traditional products, products of creative industry are more vulnerable. Such a high-risk characteristic decided that to develop the cultural & creative industry, endeavors must be intensified for the protection of copyright, especially the copyright on the both ends of the industrial chain".

China's IP Protection – A Long-term Task 

The year 2007 saw China's achievements in IP protection. In terms of patent, SIPO totally filed 694,153 patent applications classified in three types, demonstrating a 21.1% year-on-year increase, granted 351,782 patents, a 31.3% year-on-year increase, and settled 475,000 patent examination cases, a 25.3% increase year-on-year. By the end of 2007, there had been totally 4 million Chinese and foreign patent applications filed by SIPO. It only took one and a half years for the figure to rise from 3 million to 4 million.  

In terms of trademark, the total registrations at the end of November reached 3,013,700, a 29.19% increase compared with the same period of 2006. In 2007,197 trademarks were recognized as well-known trademarks, and more than 1000 well-known trademarks were confirmed by the SAIC Trademark Office. 

In terms of copyright, statistics by the Copyright Protection Center of China shows that in 2007, the registration number of computer software was 25,666, a 15.9% annual increase. The registration of software copyright was 24,518, and accounted for 95.53% of all registrations. According to the State Copyright Bureau, local copyright law enforcement departments, with the assistance of public security departments and communication management departments, have totally handled 1,001 Internet infringement and piracy cases in their 2007 campaign, 60% more than the total cases handled in 2005 and 2006.

In terms of litigation, the IP division of the Supreme People's Court accepted 128 IP-related cases in 2007, in which 96 cases were applications for retrial. Together with the 34 undecided cases in the previous year, the division tried 162 cases in 2007, an increase of 18.25% compared to the previous year's 137 cases. By December 25 of 2007, the division had decided107 or 66% of the cases.

The year of 2007 also witnessed an epoch-making judgment. On June 12, Yamaha Motor Ltd. of Japan held a press conference in Beijing, declaring that the final judgment by the Supreme People's Court of China in the "Yamaha infringement case", and it was entitled to damages amounting to RMB 8,300,440.43, the highest award ever rendered in China for trademark infringement cases.

The statistics reflect the development of China's IP protection during 2007. However, compared with developed countries, China still needs to improve its IP protection.

Although the third amendment of the Patent Law is well underway, foreign businesspersons dispute some clauses of the draft, for example, how foreign corporations apply to foreign countries for a patent of their R&D results created in China.

Although the Antimonopoly Law has provisions for abuse of IP rights under the market competition condition, it has no clear definition of "abuse". Neither has it clearly stipulated the agency for its own enforcement.

Through three years of marathon litigation, the Chinese enterprise General Protecht Group INC. finally prevailed in a patent litigation in the United States, and became the first Chinese enterprise winning such a lawsuit. But how heavy is the cost? Nobody except Mr. Chen Wusheng, President of General Protecht, knows.

IP disputes involving China and other countries rose one after another in 2007. But we can never deny the efforts made by the Chinese government with regard to IP protection. In 2008, the formal national IP strategy of China is to be promulgated and implemented. Let's wait and see what changes will occur in China's IP field.

                                                                                    (Translated by Hu Xiaoying)

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