China’s Intellectual Property “Changes” in 2008

Issue 28 By Harry Yang, China IP,[Comprehensive Reports]

A key word “change” went through China’s intellectual property in 2008, which echoed Obama’s slogan during his presidential campaign. As seen in the past year, in different countries and different fields there was a common theme – “change”. Looking back on 2008, it is not difficult to see the progress of China’s IPR in the pursuit of changes.

Reshuffling the State Council organs

    In the year 2008, the first major change came from the 11th National People’s Congress held in March of that year. The State Council organs experienced another reshuffling, which affected several ministries and commissions. Though the major mission of this reform of the State Council organs included the transformation of governmental functions and the overlapping duties of the various ministries and commissions, it failed to integrate the various IP law enforcement departments whose functions are unclear and whose powers overlap. The media’s prior speculation that the Trademark Office would be incorporated into the State Intellectual Property Office (SIPO) was not confirmed. Thus, IP law enforcement by several agencies still continues.

After the 11th National People’s Congress, Wu Yi, the Vice Premier in charge of intellectual property work, concluded her five-year tenure. The efforts she made to protect intellectual property rights while in office have been recognized by various parties, whereas her successor, Wang Qishan’s attitude towards intellectual property is also the attention of various circles.

After taking office as Vice Premier, Wang Qishan published an article in the Wall Street Journal on June 17, 2008, and, for the first time formally stated his attitude towards IPR protection. In his article, Wang stressed that in recent years the Chinese government had constantly reinforced IPR protection and significant progress had been made, and stated that the Chinese government would in the future continue to further strengthen IPR protection work through such means as legislation and education.

Along with Wu Yi’s retirement from office came the cancellation of the National Working Group for Intellectual Property Rights Protection. The National Working Group for IPR Protection was established at the beginning of 2006 with its office (“IPR Protection Office”) in the Ministry of Commerce (MOFCOM) with Wu Yi as its director. The main function of the Working Group is to coordinate and integrate the IPR protection work of more than ten ministries and commissions.

In the past two years since its establishment, the “IPR Protection Office” mitigated, to some extent, the contradictions among the various IP law enforcement agencies and increased the efficiency of IP law enforcement. Yet, how should one harmonize future IP law enforcement work after the cancellation of the “IPR Protection Office”? No answer is available based on the current situation. The cancellation of the “IPR Protection Office” does not mean that the Ministry of Commerce has withdrawn from the stage of IP law enforcement. Rather, its administrative functions of participating in IPR management are reserved with the founding of the Department of Market Supervision under the Ministry of Commerce. The functions of the Department of Market Supervision are to carry out special rectification in cooperation with other relevant departments, and to participate in the organization of crackdowns on acts that disturb market order like IPR infringement and commercial fraud.

The promulgation of the Outline of the National Intellectual Property Strategy
 On June 5, 2008, the State Council promulgated the Outline of the National Intellectual Property Strategy, specifying that by 2020, China will become a country with a comparatively high level in terms of the creation, utilization, protection, and administration of IPRs.  The level of self-reliance upon intellectual property will be higher by a large margin for the next five years; the benefits of utilizing IPRs will be increased significantly; and the protection of IPRs will be significantly improved. The Outline includes five parts: preface, guiding principles and strategic goals, strategic focuses, specific tasks, and strategic measures. 

It took three years to enact this Outline and more than 30 departments and several hundreds experts participated in the work. The promulgation of the outline indicates the transformation of the Chinese government’s perception of intellectual property from simple protection to full-scale usage, which is of far-reaching significance. However, how to enforce this strategy is the key. For this purpose, the State Council approved the establishment of an inter-ministerial joint conference on the implementation work for the National Intellectual Property Strategy. The joint conference convenes those people in charge of 28 IP-related departments to hold meetings and conferences regularly, expecting to ascertain, coordinate, and solve major issues in the course of implementing the National Intellectual Property Strategy through research and consultation. It appears that the priority in the implementation of the strategy is to harmonize the functions of all department.

The implementation of the Anti-Monopoly Law

On August 1, 2008, the Anti-Monopoly Law officially came into effect after ten years in the making, which took much more time than the Outline of the National Intellectual Property Strategy, it sent through an immediate wave. The lack of related implementation regulations resulted in a situation where there was no law to rely upon to implement the Anti-Monopoly Law. After the power game between various ministries and commissions, the National Development and Reform Commission (NDRC), State Administration for Industry and Commerce (SAIC), and Ministry of Commerce (MOFCOM), became the administrative enforcement agencies for the Anti-Monopoly Law, continuing the feature of permitting law enforcement by several agencies. The first day the Anti-Monopoly Law went into effect, Dong Zhengwei, the “whistle-blower,” submitted applications requesting anti-monopoly investigations with three ministries, adding to the confusion of the anti-monopoly law enforcement agencies, who had not found the main threads of the affair. Compared with the challenges faced by the fact that multinational enterprises abuse and monopolize intellectual property rights, the Chinese public’s concerns focus more on the monopolization of such industries as railway, airport, telecom, bank and oil which are closely related to the people’s livelihood.

The judicial agencies are also confronted with confusion with respect to anti-monopoly litigation. On the day that the Anti-Monopoly Law became effective, local courts around the country simultaneously received lawsuits alleging monopolistic behaviors of various parties. Since there are no prior experiences to fall back on, the judges can only wade across this stream of lawsuits by feeling their way in trying such cases.

The implementation of the Anti-Monopoly Law is more like a prelude to a drama whose brilliant contents may continue to emerge in the next few years. After the implementation of the Anti-Monopoly Law, the collection of fuel surcharges was suspended and the telecom industry was split up. This series of changes are good news to the public.

The “Tomato Garden” and the “Microsoft black screen” incidents

In September 2008, the People’s Procuratorate of Suzhou approved and arrested Hong Lei, the author of “Tomato Garden Window XP”, which aroused concerns with various parties. Has Microsoft changed its “rights protection strategy”? Does this action send a message that China has started its fight against network piracy by referring the criminal law?

Tomato Garden Windows XP is by far the most popular pirated software in the market. The arrest of its creator forced Microsoft (China) to declare its views publicly on many occasions as a response to speculation from the outside. Those on the outside speculated that through the Tomato Garden case Microsoft hoped to convey a message to the Chinese government that its pirated software accounted for a large share in China, which may be used as a bargaining chip against any anti-monopoly investigations.
On October 10, when the Chinese public was still immersed in the heated debate over the Tomato Garden incident and more and more compassionate words of sympathy were pouring out from some netizens in support of the pirate, Microsoft suddenly announced and implemented its operating system user verification program, which was called the “black screen” by the Chinese media. Since the implementation of the “black screen”, there have not been many people who are really affected by it. The reason why the incident attracted attention from more and more people was that the Chinese public expressed various opinions on Microsoft’s “black screen” action. Supporters maintained that Microsoft’s defense of its rights, on its own initiative, was a justifiable exercise of its rights. Opponents questioned the legality of Microsoft’s rights defense actions, thinking that Microsoft’s black screen scheme adopted a means similar to that used by Hackers, that it was against moral codes of conduct, and that it was suspected of violating citizens’ rights to privacy by attacking users by collecting information from the user’s terminals.

Mr. Yan Xiaohong, Vice Minister of the National Copyright Administration of the PRC, stated his views in public, noting that Microsoft’s strategy of pricing its products uniformly around the world was worth discussion. “Microsoft’s price policy should be suited to China’s situation. Microsoft used to price its products uniformly worldwide and failed to take into account the income gap between developed countries and developing countries. We need to remind them, with a good will, to consider Chinese users’ ability to afford certain products.”

“Shanzhai” culture (copycat culture)

The most fashionable term in 2008 should be “shanzhai,” which, in the past year, became a topic discussed in various fields on many occasions. The term “shanzhai” originates from Guangdong, describing how some private enterprises that used to be small workshops developed by imitating, at very low cost, the trademarks, designs, or functions of the mainstream brand name products, with some improvements. The products being imitated involved cellphones, digital products, and video game players, etc. Aside from imitation, the other feature of “shanzhai” is its ambush marketing, often walking on the edge of an industrial policy.

Though controversies still exist over the definition of “shanzhai,” it is usually no more than a name for a copycat or counterfeit. As “counterfeits” received more and more criticism from all circles of society, the act suddenly changed its identity and became “shanzhai.”

The term “shanzhai” describes a copycat in a weak position and fights against the government and industrial overlords in order to obtain more sympathy. As a matter of fact, public opinion within China is showing more and more favor towards “shanzhai.” The emergence of “shanzhai” stars, “shanzhai” TV series and a “shanzhai” Spring Festival Gala has made the word increasingly associated with entertainment. In Nanjing, there even appears to be a “shanzhai” street, on which there are many shops who imitate famous brands like McDonald’s and Starbucks. The copycats on this street seek more to create a mocking atmosphere, rather than unfair competition.

Just as people around the country were immersed in the fun mood created by “shanzhai,” they may fail to sense that such tolerance of this culture is destroying their image in the world. For a long time, such an outlaw image has been the main reason for China-bashing. Faced with such prejudices, we may, for reason of defense, illustrate examples that business credibility has always been attached great importance by Chinese cultures. However, our allegation against international prejudice will become weak if China’s mainstream media show support for this “shanzhai” culture.

Collective action on copyright

Copyright is a weak link in China’s IPR protection. On October 17, 2008, music copyright holders in China changed their previously passive images and sued simultaneously, on their own initiatives and represented by China Audio-Video Copyright Association (CAVCA), 100 KTVs in several courts in Beijing seeking a compensation of 200,000 Yuan from each KTV. This collective action is unprecedented. The free use of music copyright is also expected to change from here on out.

In another large copyright case, 506 masters’ and doctors sued Wanfang Data before the Haidian People’s Court, alleging that their theses and dissertations were included in the China Thesis and Dissertation Full Text Database by Wanfang Data without their authorization and seeking a compensation of 6 to 7 million Yuan. Wanfang’s database embodies more than one million master’s and doctorate dissertations. If all of these dissertations were incorporated without consent, Wanfang may face more lawsuits in the future.
Behind the increase in the right holders’ awareness of rights protection, there are also controversies over the amount of compensation and royalty rates to be awarded. Challenges to the CAVCA’s agent status, the establishment of royalty rates without holding a public price hearing, the lack of detailed charging rules among others can be heard all the time. Behind this defense of rights is the increase of the public’s legal awareness. In addition, it may be an obvious improvement that the collection of royalties itself is no longer being questioned.

Olympic IP protection

If a summary is to be made about IP protection achievements in 2008, it is certain that the protection of Olympic IP should be included in that discussion. Over the past year, Olympic IP protection has received unprecedented attention and obvious changes have taken place in administrative law enforcement, whether in strength or speed. It not only was quick in combating direct counterfeiting and piracy, but also used several measures to prohibit Olympic ambush marketing. Even the unauthorized online broadcast of the Olympic Games was monitored and dealt with in real time. According to information from the National Copyright Administration of the PRC, in general, pirated broadcasts were successfully handled within two hours, and the fastest one took only about 20 minutes. These quick response mechanisms reflect an unprecedented and highly efficient coordination among China’s law enforcement agencies. The achievements in protecting Olympic IP were recognized by the international community and provided a new and better image of China’s IPR protection.

Patent Law revision

On December 27, 2008, the third revision to the Patent Law was adopted and became the last event of the year in the field of intellectual property. The first two revisions paid more attention to fulfilling international commitments and keeping in line with international rules by referring to and introducing the comparatively mature experience of the world. This revision was made based on the culmination of 20 years experience in China’s patent work and the construction of its patent legal system, in accordance with the needs of its own development in order to resolve the actual problems that China encountered in the development of its economic society, and to protect the interests of patentees at home and abroad in a more comprehensive manner, while at the same time balancing the public’s interests. In terms of the focus of the revision, the current revision has two features. First, it promotes the improvement of innovation capacity; and, second, it intensifies patent protection. Generally, the current revision does not change too many provisions. It should be said that promoting innovation and strengthening patent protection are the main theme of the revision.

The newly revised Patent Law will take effect on October 1, 2009. The amendments made to design patents are the biggest since the promulgation of the Patent Law, accounting for 1/3 of the total revision, which include: changing the criterion for granting a patent from relative novelty to absolute novelty; the narrowing down of the scope of the patented subject matter; stipulations regarding related design; and changes to the provisions concerning the appraisal report on design patents. All of these changes directly affect future theories and practices of the design patent. For interpretations of these design patent revisions, please see the “IP Salon” column of this issue.

                                   (Translated by Zhang Meichang)



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