Now that China is the second biggest economy in the world, very few companies can resist its lure. This has resulted in foreign businesses clambering over each other to get a foothold in what is a rapidly expanding market. However, the Chinese landscape is difficult to navigate and poses a number of problems; none more so than intellectual property (IP). Foreign companies must pay special attention to the IP protection and enforcement regime in China. Failure to do so can be extremely damaging to your business.
This analysis sets out the key IP issues surrounding doing business in China, considering the following areas:
- Trade mark registration;
- Protection of copyright; and
- Patent strategy.
Trade mark registration
The main problem a foreign entity faces in China is that it is a so-called "first to file" country. This means that the first company to file for a trade mark, whether that company's Chinese or foreign, will obtain registration and can prevent others from using the trade mark. There is no requirement to have any intention to use the trade mark. In some instances a foreign company has entered the Chinese market not only to find a competitor has registered the trade mark it owns elsewhere in the world, but that the competitor is seeking to enforce it against them and demanding payment to transfer the trade mark.
Chinese law does provide grounds for opposing a filed application or cancelling a registered trade mark. However, procedures can be costly and time consuming and to succeed, it is often necessary to prove that the initial application was made in bad faith. Being the first to file for registration is always the cheapest and most efficient way to secure a trade mark and prevent others from encroaching on your patch.
Applications for trade marks should be filed with the China Trade Mark Office (CTMO) through a recognised agent. Wragge & Co offers a trade mark filing service in China and has assisted many international companies with their filing programmes. The cost of filing is low (about £400-600 per application), but the benefits are substantial.
China follows the "Nice Classification" system and applications are made on a per class basis. Therefore depending on the range of goods and services a trade mark is intended to be used for, the applicant may have to file several independent applications.
Generally it will take 12 to 24 months for an application to be approved, though efforts are being made to speed up the process. In view of this, foreign companies should begin the registration process as soon as possible.
The following simple steps will help to safeguard company trade marks:
- Apply to register your trade marks as soon as you are starting to think about China;
- Register names in both English and pinyin (which is the official system for representing Mandarin with the Roman alphabet); and
- Seek advice on the most appropriate way to enforce your IP rights in China.
In China, copyright arises automatically and entitles the creator of an original work to protection provided that the work was first published or originated in China. As China is a member of the Berne Convention for the Protection of Literacy and Artistic Works 1979, foreign companies are offered the same protection for any work created outside of China.
Copyright lasts for a period of fifty years from the date of publication if the author is a company. Individual ownership of copyright subsists for a period of the author's life plus fifty years.
It is possible to record copyright in China and this can be done at the National Copyright Administration of China. To obtain a copyright certificate, companies or individuals must submit evidence of ownership and the date of creation. Recordal can prove very useful if a dispute arises over ownership. There is a small cost to obtaining it - between £300 and £600 depending on the nature of the copyright work - but the comfort it provides is well worth the investment.
One anomaly in China's copyright law relates to copyright arising out of employment. In China, an employee is not permitted to licence copyright without having obtained the consent of its employer within two years of the original work being created. A foreign company may seek to alter this position by including specific copyright ownership provisions in its employee contracts.
The Chinese patent system is also a "first to file" system and patent applications may be filed in the name of a corporation as well as an individual inventor. There are three types of patents:
- The invention patent;
- The utility model; and
- The design patent.
The design patent is similar to a registered design in Europe and the utility model is what is sometimes called a "mini-patent" - similar to its German equivalent and requiring a lower level of inventiveness.
Of the three types of patent, only the invention patent will undergo a substantive examination procedure by the State Intellectual Property Office (SIPO). Generally it takes between two and three years for an invention patent to be granted, while utility and design patents will take from one to two years. It is possible to file for both these types of patent protection at the same time and then drop the utility model protection once the invention patent has been granted.
Patent applications can be originated at SIPO, as with any other national office. China is also a signatory to the Patent Cooperation Treaty (PCT) and consequently, PCT applications can be converted into Chinese patents by undergoing the "national phase" through SIPO in accordance with the usual PCT procedures.
Chinese law also provides grounds for invalidating a registered patent. China adopts the "absolute novelty" standard, which means a patent can be invalidated by prior publications of patents anywhere in the world. However, procedures can be costly and restrictions are set for evidence that is admitted by SIPO. As with trade marks, the better option is to file as soon as possible to avoid unnecessary costs and delays. The cost of taking a PCT application through the national phase in China can be anywhere between £3,000 for a simple patent and £10,000 for a lengthy complex patent, including significant translation costs. For a patent application at SIPO, costs are within the same range, again depending on the length and complexity.
It should be noted that a patent can lapse if the patent annuity is not paid on time. So maintaining and updating a full IP register is as important in China as in other markets.
Other IP rights
Rather like the German system, there is further protection afforded by unfair competition legislation. This is not "competition law" in the sense of anti-trust law, but rather a more general right to prevent unfair or derogatory use of unregistered trade marks, trade names, get-up or image.
Unfair competition cases can be expensive and difficult to run due to the nature of evidence required. Evidence is a major issue in Chinese courts where only notarised evidence or that legalised by apostille, if provided from overseas, has any real weight. Wherever possible it is better to obtain a registered right and in China in particular, much greater respect is accorded to a registration certificate.
Following the new regulation in 2010, all domain name registrants are required to go through real name authentication in China. Furthermore, if the website is intended for business use, the owner should also file an internet content provider (ICP) record with the Ministry of Industry and Information.
The domain name agent will send a request for the authentication and ICP record to the registered owner as part of the domain name registration or acquisition purposes. Those records will be used as evidence of ownership of the domain name in the event that any dispute arises. Therefore companies should ensure they maintain a proper record, even though they may have an agent or a subsidiary operating the domain name as a matter of fact.
Generally speaking, domain name registration will be subject to the existence of prior rights such as trade marks and copyright. The China Internet Network Information Centre (CNNIC) is the main authority for domain name dispute and arbitration in China.
It is also important for foreign companies to consider whether they need to register any IP outside mainland China. Hong Kong, Macau and Taiwan have separate IP registration systems. Therefore, even if a company's IP is registered in China, these rights are territorial and its trade marks and patents will not be protected if sold into Hong Kong, Macau and Taiwan, and vice versa.
Hong Kong adopts a UK-like approach and applies the "first use" principle, but Macau and Taiwan will require "first filing" like mainland China. Consequently if foreign companies intend to sell products in Hong Kong, Macau and Taiwan, they should apply for IP in those jurisdictions separately.
Contrary to popular belief, it is possible to enforce IP rights in China. There are three main enforcement options: administrative enforcement, civil litigation and criminal prosecution.
The main bodies responsible for conducting administrative enforcement are:
- Administration for Industry and Commerce (AIC) - trade mark and unfair competition matters
- Intellectual Property Office (IPO) - patent issues
- Copyright Office - copyright infringement.
Administrative proceedings are usually quick and inexpensive. IPO and Copyright Office actions, particularly in the more developed cities, can also be an effective means of enforcement. In areas with a high level of foreign investment, Chinese authorities may be more willing to take action to encourage further foreign investment.
These type of proceedings can be a useful means of obtaining evidence for use in subsequent civil litigation. Wragge & Co has worked effectively on behalf of Dyson in China to secure successful decisions at a judicial level; most notably concerning the design infringement of its Air Multiplier fan. The firm has also advised the company in relation to administrative action.
Judges in China are becoming more IP savvy. Although most litigation in the civil courts is between Chinese companies, foreign companies are beginning to increasingly engage with the system. Plaintiff win rates in Guangzhou, Shenzhen, Nanjing, Shanghai and Beijing are encouraging and although damages awards are not on the same scale as in the UK and Europe, there are instances where high awards have been made. For example, a Beijing Court awarded British kettle component maker Strix RMB 9.1 million in damages from Chinese kettle components makers for making and selling patent infringing kettles. Assuming the thresholds for criminal action are met, sanctions for such offences have a very good deterrent value.
It is possible to record IP rights centrally with the General Administration of Customs. This is relatively inexpensive and we recommend rights are recorded as Customs have a valuable role to play in enforcement, particularly in relation to clear-cut cases of infringement.
With a burgeoning middle class with money to spend, China provides exciting opportunities for foreign companies looking to invest or distribute in the Far East. Nonetheless, since China operates a "first to file" system for trade marks and patents, it is important that foreign companies take adequate steps to maximise IP protection in China. Most importantly, foreign companies should apply to register their IP before entering the Chinese market and, if the need arises, be prepared to enforce these rights.