China
IP filing and enforcement activity in China has continued to increase rapidly over the past 12 months, despite the Chinese economy showing signs of slowing down.
Special 301 Report
China remained on the Priority Watch List in the Special 301 Report published by the Office of the US Trade Representative in May 2013. Misappropriation of trade secrets, counterfeit pharmaceuticals, online piracy and indigenous innovation policies that may unfairly disadvantage US IP rights holders are some of the key concerns highlighted in the report.
Filing statistics Trademarks: The Chinese Trademark Office remained the world’s busiest trademark registry in 2012. It received over 1.6 million trademark applications – 16% more than the previous year. Almost 9% of those filings were made by foreign applicants. The average turnaround time for a trademark application in China was less than 10 months. Only four new foreign brands received recognition as wellknown trademarks in China in 2012.
Patents: The number of patent applications also soared. In the first half of 2013, the State Intellectual Property Office (SIPO) received over 1 million applications – 18% more than the previous year. Nearly 672,000 patents were granted during the same period – 27% more than the previous year.
Chinese patents are becoming increasingly important. All member countries of the Patent Cooperation Treaty (PCT) have been required to search invention patent filings in China when examining PCT applications since July 2012.
Patent filings in China are expected to increase further when the IP5 Patent Prosecution Highway pilot programme, between the world’s five largest IP offices, is launched in January 2014.
Domain names: The number of internet users in China surged to 564 million at the end of 2012; 420 million were mobile internet users, surpassing the number of desktop internet users.
There are now more than 7.5 million ‘.cn’ domain name registrations. This number jumped by 113% after the restrictions to register such domain names were relaxed in early 2012. The increase was also fuelled by the launch of English domain names with a ‘.cn’ extension in Chinese as a standalone top-level domain name in late 2012.
New laws and guidelines Trademark Law revised: The long-awaited amendments to the Trademark Law were passed on August 30 2013. Among other objectives, the revisions seek to streamline various trademark procedures and codify many existing practices, strengthen protection for brand owners and deter bad-faith filings. The key changes include:
introducing multi-class applications;
expanding registrable marks to include sound marks;
imposing a timeframe for various processes (eg, nine months for trademark applications and reviewing rejections, cancellations and cancellation reviews, and 12 months for oppositions); allowing earlier applications for renewals;
instituting a new action for the invalidation of registered trademarks;
restricting standing to oppose – only interested parties can oppose an application based on relative grounds;
removing the option to seek review of an unsuccessful opposition – instead, invalidation must be sought;
raising the statutory damages ceiling to Rmb3 million ($490,000);
proving use of a registered trademark when claiming damages in some cases;
formalising the prior use and fair use defences – users of existing unregistered trademarks may continue to use their marks within the original scope, and the use of descriptive elements in a registered trademark is deemed to be fair use;
prohibiting reference to the well-known status of a mark on packaging or in advertising;
clarifying that an unrecorded trademark licence cannot be enforced against a goodfaith third party;
confirming the prohibition against using another party’s registered trademark as a trade name; and
sanctioning rogue trademark agents.
These amendments to the Trademark Law are expected to improve significantly the efficiency and effectiveness of the Chinese trademark regime. A revised set of regulations setting out the implementation plan is expected to be released before the amendments come into force in May 2014.
New service mark protection: Marks used in the provision of retail or wholesale services do not generally qualify for registered trademark protection in China. An exception has been made since China’s adoption of the 10th edition of the Nice Classification of Goods and Service. Since January 2013, service marks used in retail and wholesale for pharmaceutical, veterinary and sanitary preparations and medical supplies are eligible for protection in China. Since registered trademark rights are generally accorded on a first-to-file basis and trademark squatting remains rampant in China, brand owners in the relevant retail and wholesale businesses should take advantage of this extension of protection for service marks by filing trademark applications in China.
Compensation for employee-inventors: Protecting the rights and interests of inventoremployees has long been a hot topic in China. Multiple judicial and government authorities have issued draft regulations, opinions and guidelines on this subject over the past 12 months.
A draft regulation issued by SIPO in November 2012 generated much discussion, particularly among domestic and foreign companies with active R&D operations in China, because a number of the proposals (eg, the minimum rewards and remunerations payable to employee-inventors) are inconsistent with and much more onerous than the requirements under the existing law.
In the same month, 13 Chinese government authorities jointly issued a set of opinions covering essentially the same topics as the draft regulations, but applicable only to specific Chinese entities –state-owned enterprises, military organisations, higher educational institutions and research institutes established by the state.
The Shanghai High People’s Court also issued guidelines in June 2012. In particular, it clarified that:
the form and amount of rewards and remuneration agreed between employees and employers shall prevail over the statutory standards;
the amount of rewards and remuneration agreed between employees and employers will generally be considered to be reasonable; and
disputes relating to rewards and remuneration of service inventions are classified as patent disputes and thus fall within the jurisdiction of the people’s courts rather than the labour tribunals.
How these different pronouncements interact with each other in practice remains to be seen.
Rights of communication and ISP liability: A new interpretation of the Supreme People’s Court that came into force in January 2013 clarified various issues relating to the rights of communication over information networks. In particular, it stipulated that the liability of an internet service provider (ISP) for aiding and abetting infringement or providing assistance to a primary infringer shall be based on the ISP’s fault.
Increased administrative penalties: In March 2013 the maximum administrative penalties prescribed in the following IP-related regulations were increased to Rmb250,000 ($41,000):
the Implementing Regulations of the Copyright Law;
the Regulations on Protection of Internet Network Dissemination Rights;
the Regulations on Protection of Computer Software; and
the Regulations on Protection of New Varieties of Plants.
Remittance in cross-border IP transactions: From September 2013 foreign IP licensors are no longer required to record their licences with the relevant IP authorities before their Chinese licensees can remit royalties outside China, provided that the amount in question is less than $50,000. This new arrangement is expected to facilitate cross-border IP transactions.
Chinese trademark clearing house: The worldwide trademark clearing house of the Internet Corporation for Assigned Names and Numbers does not provide verification services for both traditional and simplified Chinese marks at the same time, leaving domain names comprising Chinese characters unprotected. To fill that void, in June 2013 the China Organisational Name Administration Centre launched a trademark clearing house to provide preventive protection for owners of Chinese domain names and trademarks.
Enforcement statistics
Both the Chinese judiciary and the criminal and administrative authorities have remained active in adjudicating and enforcing IP rights over the past year.
The people’s court concluded nearly 13,000 criminal IP cases in 2012. The Administration for Industry and Commerce accepted more than 120,000 counterfeiting cases in 2012, more than 1,500 of which were transferred to the Public Security Bureau for criminal investigation. The value of goods involved in the latter cases exceeded Rmb2 billion ($26 million).
Court statistics: The number of civil IP cases continues to soar. More than 87,000 new civil IP cases were commenced and 83,850, including 1,429 foreign-related cases, were concluded in 2012. These numbers were 46% and 44% higher than the respective figures in 2011. About 62% were copyright-related cases; trademark and patent cases accounted for 23% and 11%, respectively; and the rest were know-how, unfair competition and miscellaneous IP cases.
In total, more than 350 cases reached and were concluded by the Supreme People’s Court, the highest court in China.
New precedents and guidelines: The Supreme People’s Court issued eight representative patent, trademark, unfair competition and trade secret decisions in October 2013, which have the effect of serving as precedents to lower courts in adjudicating similar cases. In September 2013 the Beijing High People’s Court issued detailed guidelines regarding the adjudication of patent infringement that seeks to address many difficult topics, such as the doctrine of equivalents and indirect infringement. SIPO also published a consultation paper seeking feedback on various issues relating to the standards for determining patent infringement and counterfeit patents in October 2013.
Notable cases
Many foreign companies were embroiled in IP disputes in over the past year.
Patents: Just days after Apple Inc paid $60 million to settle the IPAD trademark case, another Chinese company tried to take a bite from the big Apple. In June 2012 Shanghai Zhizhen Network Technology alleged that Siri, the artificial intelligence assistant installed on many Apple products, infringed its patent on a voice-controlled robot. The first hearing took place in July 2013 and the case will be watched closely by rights holders worldwide.
The Patent Review Board revoked a patent for tenofovir, an antiviral drug for treating hepatitis B and HIV, which many believe would have been a candidate for a compulsory licence in China had the patent been allowed to stand.
Trademarks: In April 2013 French wine company Castel and its Chinese distributors were ordered by the Wenzhou Intermediate Court to pay Shanghai Banti Wine and its owner more than Rmb33 million ($5.4 million) for infringing the registered trademark KA SI TE in Chinese characters. This was one of the largest amounts awarded in an IP case in China. Castel has filed an appeal.
Other well-known foreign brands that reportedly found themselves in trademark hot water in China during the past year include Samsung, Heineken and Tesla Motors.
Trade secrets: Trade secret theft is very common in China. Before the Civil Procedure Law was amended in January 2013, interlocutory injunctions were not available in such cases. The Shanghai Intermediate People’s Court granted the first such order in Eli Lilly v Huang in August 2013, enjoining a former employee from disclosing, using or allowing others to use trade secrets contained in certain confidential documents belonging to his employer which he downloaded via his work computer.
Another closely watched trade secret dispute involved a series of proceedings brought by AMSC against former customer Sinovel in both China and the United States. The US energy technologies company accused the Chinese wind turbine manufacturer of trade secret theft, copyright infringement and other wrongdoings, and sought damages in excess of $1.2 billion. The case filed with the court in Beijing has been accepted. However, the case filed in Hainan was refused on jurisdictional grounds and AMSC had appealed to the Supreme People’s Court.
Outlook The IP legal landscape in China is maturing. Chinese rights holders have also become more sophisticated and their heightened awareness of IP rights has led to more disputes. Foreign companies doing business in China must be prepared to deal with this evolving IP risk.
Hong Kong
The Hong Kong government has stayed the course in developing the territory into an Asian innovation and technology hub by refining the IP protection and enforcement regime during the past year.
New patent regime In February 2013 the Hong Kong government published a report mapping out the direction for developing a new patent system for the territory. Most notably:
an ‘original grant’ patent system will be introduced, with substantive examination outsourced to other patent offices, and the existing re-registration system will be retained;
the existing short-term patent system will be retained, with suitable refinements; and
a regime for regulating patent agency services will be established.
Copyright consultation
In response to a public outcry last year concerning the potential reach of a provision in the Copyright Ordinance that criminalised unauthorised online communication of copyrighted works, and its possible effect on stifling freedom of expression, in July 2013 the Hong Kong Intellectual Property Department launched a three-month public consultation to explore how parody, including politically sensitive parodies, should be dealt with under the copyright regime. This will remain a hot topic on the agenda of the legislature over the next 12 months.
Shadow companies
The Hong Kong Companies Registry continued to exercise actively the statutory power conferred on it in December 2010 to combat shadow companies (ie, companies formed in Hong Kong using names that are identical or confusingly similar to the famous marks or names of others). During the past year, 400 companies were ordered to change their names or had their names replaced by their registration numbers. This positive enforcement trend has been hailed by many rights holders, which have been plagued by the shadow company issue for a decade.