In 1999, more than 80 percent of all US firms that exported to China were comprised of small and medium sized enterprises (SMEs), generating more than a quarter of US exports to China. As China’s WTO accession promises greater market access and a more predictable commercial environment, new entrants will be encouraged to enter China’s market. Though companies are finding commercial opportunities in China, there are many potential pitfalls companies should be aware of, including issues related to the protection of intellectual property.
This guide, prepared by the U.S. Department of Commerce, provides an introduction to China’s IPR environment, describes methods for safeguarding and protecting IPR, outlines possible enforcement actions available in China’s IPR enforcement regime, and explains the limited role of the United States Government in IPR infringement cases. The information provided is by no means comprehensive, and is not legal advice. A U.S. firm considering entering the Chinese market must perform significant, specific due diligence, of which this guide is only the first step.
CHINA'S CURRENT IPR ENVIRONMENT
Since joining the World Trade Organization (WTO), China has strengthened its legal framework and amended its IPR and related laws and regulations to comply with the WTO Agreement on Traded-Related Aspect of Intellectual Property Rights (TRIPs). Despite stronger statutory protection, China continues to be a haven for counterfeiters and pirates. According to one copyright industry association, the piracy rate remains one of the highest in the world (over 90 percent) and U.S. companies lose over one billion dollar in legitimate business each year to piracy.
On average, 20 percent of all consumer products in the Chinese market are counterfeit. If a product sells, it is likely to be illegally duplicated. U.S. companies are not alone, as pirates and counterfeiters target both foreign and domestic companies.
Though we have observed commitment on the part of many central government officials to tackle the problem, enforcement measures taken to date have not been sufficient to deter massive IPR infringements effectively. There are several factors that undermine enforcement measures, including China’s reliance on administrative instead of criminal measures to combat IPR infringements, corruption and local protectionism at the provincial levels, limited resources and training available to enforcement officials, and lack of public education regarding the economic and social impact of counterfeiting and piracy.
THE BEST PROTECTION IS PREVENTION
Though China is a party to international agreements to protect intellectual property (including WIPO, Bern Convention, Paris Convention, among others), a company must register its patents and trademarks with the appropriate Chinese agencies and authorities for those rights to be enforceable in China. Copyrights do not need to be registered but registration may be helpful in enforcement actions. A brief summary of China's patent, trademark, and copyright laws are described below.
China’s first patent law was enacted in 1984 and has been amended twice (1992 and 2000) to extend the scope of protection. To comply with TRIPs, the latest amendment extended the duration of patent protection to 20 years from the date of filing a patent application. Chemical and pharmaceutical products, as well as food, beverages, and flavorings are all now patentable. China follows a first to file system for patents, which means patents are granted to those that file first even if the filers are not the original inventors.
This system is unlike the United States, which recognizes the “first to invent” rule, but is consistent with the practice in other parts of the world, including the European Union. As a signatory to the Patent Cooperation Treaty in 1994, China will perform international patent searches and preliminary examinations of patent applications. Under China’s patent law, a foreign patent application files by a person or firm without a business office in China must apply through an authorized patent agent, while initial preparation may be done by anyone. Patents are filed with China’s State Intellectual Property Office (SIPO) in Beijing, while SIPO offices at the provincial and municipal level are responsible for administrative enforcement.
China’s trademark law was first adopted in 1982 and subsequently revised in 1993 and 2001. The new trademark law went into effect in October 2001, with implementing regulations taking effect on September 15, 2002. The new trademark law extended registration to collective marks, certification marks and three-dimensional symbols, as required by TRIPs. China joined the Madrid Protocol in 1989, which requires reciprocal trademark registration for member countries, which now include the United States. China has a ‘first-to register’ system that requires no evidence of prior use or ownership, leaving registration of popular foreign marks open to third party.
However, the Chinese Trademark Office has cancelled Chinese trademarks that were unfairly registered by local Chinese agents or customers of foreign companies. Foreign companies seeking to distribute their products in China are advised to register their marks and/or logos with the Trademark Office. Further, any Chinese language translations and appropriate Internet domains should also be registered.
As with patent registration, foreign parties must use the services of approved Chinese agents when submitting the trademark application, however foreign attorneys or the Chinese agents may prepare the application. Recent amendments to the Implementing Regulations of the Trademark Law allow local branches or subsidiaries of foreign companies to register trademarks directly without use of a Chinese agent.
China’s copyright law was established in 1990 and amended in October 2001. The new implementing rules came into force on September 15, 2002. Unlike the patent and trademark protection, copyrighted works do not require registration for protection. Protection is granted to individuals from countries belonging to the copyright international conventions or bilateral agreements of which China is a member.
However, copyright owners may wish to voluntarily register with China’s National Copyright Administration (NCA) to establish evidence of ownership, should enforcement actions become necessary.
China’s Unfair Competition Law provides some protection for unregistered trademarks, packaging, trade dress and trade secrets. The Fair Trade Bureau, under the State Administration for Industry and Commerce (SAIC) has responsibilities over the interpretation and implementation of the Unfair Competition Law. Protection of company names is also provided by SAIC.
According to the TRIPs Agreement, China is required to protect undisclosed information submitted to Chinese agencies in obtaining regulatory approval for pharmaceutical and chemical entities from disclosure or unfair commercial use. China’s State Drug Administration and Ministry of Agriculture oversee the marketing approval of pharmaceuticals and agricultural chemicals, respectively.
CHINA'S IPR ENFORCEMENT SYSTEM
In 1998, China established the State Intellectual Property Office (SIPO), with the vision that it would coordinate China’s IP enforcement efforts by merging the patent, trademark and copyright offices under one authority. However, this has yet to occur. Today, SIPO is responsible for granting patents (national office), registering semiconductor layout designs (national office), and enforcing patents (local SIPO offices), as well as coordinating domestic foreign-related IPR issues involving copyrights, trademarks and patents.
Protection of IP in China follows a two-track system. The first and most prevalent is the administrative track, whereby an IP rights holder files a compliant at the local administrative office. The second is the judicial track, whereby complaints are filed through the court system. (China has established specialized IP panels in its civil court system throughout the country.) Determining which IP agency has jurisdiction over an act of infringement can be confusing.
Jurisdiction of IP protection is diffused throughout a number of government agencies and offices, with each typically responsible for the protection afforded by one statute or one specific area of IP-related law. There may be geographical limits or conflicts posed by one administrative agency taking a case, involving piracy or counterfeiting that also occurs in another region. (In recognition of these difficulties, some regional IP officials have discussed plans for creating cross-jurisdictional enforcement procedures.) China’s courts also have rules regarding jurisdiction over infringing or counterfeit activities, and the scope of potential orders.
For administrative enforcement actions, the following is a list of the major players. Again this list is not exhaustive, as other agencies, such as State Drug Administration (for pharmaceutical counterfeits) or the Ministry of Culture (for copyright materials and markets) may also play a role in the enforcement process. In most cases, administrative agencies cannot award compensation to a rights holder. They can, however, fine the infringer, seize goods or equipment used in manufacturing products, and/or obtain information about the source of goods being distributed.
Administration for Quality Supervision, Inspection and Quarantine (AQSIQ), China’s standard setting agency is primarily tasked with ensuring Chinese product quality and standards, also handles infringements of registered trademarks, when the infringing products are inferior or shoddy quality goods. AQSIQ also issued administrative regulations regarding protection of geographic indications separately recognized by China.
General Administration of Quality Supervision Inspection and Quarantine (AQSIQ)
10A Chaowai Dajie
Beijing, China 100020
Website: http://aqsiq.gov.cn (Chinese)
State Administration on Industry and Commerce (SAIC), Trademark Office. The Trademark Office, under the State Administration on Industry and Commerce (SAIC) maintains authority over trademark registration, administrative recognition of well-known marks, and enforcement of trademark protection. The Fair Trade Bureau handles disputes arising under the Law to Counter Unfair Competition, including trade secret matters. In enforcement efforts, SAIC has the power to investigate the case. When an infringement is determined, SAIC has the power to order that the sale of infringing items cease and to stop further infringement, order the destruction of infringing marks or products, impose fines, and remove machines used to produce counterfeit goods.
State Administration for Industry and Commerce (SAIC)
8 Sanlihe East Road
Websites: http://www.saic.gov.cn (Chinese language only)
State Intellectual Property Office (SIPO) at the national level is responsible for the examination of foreign and domestic patents and supervision of local SIPO bureaus. Provincial offices generally handle the administrative enforcement of patent complaints.
State Intellectual Property Office (SIPO)
No 6 Xitucheng Road
P.O. Box 8020
Beijing, China 1000088
Website: http://www.sipo.gov.cn (Chinese/English)
National Copyright Administration (NCA) is responsible for copyright administration and enforcement. NCA is also responsible for nationwide copyright issues, including investigating infringement cases, administering foreign-related copyright issues, developing foreign-related arbitration rules and supervising administrative authorities. Though administrative remedies are available, NCA generally encourages complainants to use the court system due to lack of personnel.
National Copyright Administration of China (NCAC)
85 Dongsi Nan Dajie
Beijing, China 100703
Tel: 86-10-6512-7869 or 6527-6930
Website: http://www.ncac.gov.cn (Chinese/English)
General Administration of Customs (GAC). The Customs Regulations ban the import/export of IPR infringing goods.
In order for Customs to exercise this right, the IP holder must record its IP with Customs. The recordal certificate issued by Customs is valid for seven years and is renewable for seven-year periods. When a right holder suspects infringing goods are about to enter or exit China, he/she may submit a written application to Customs at the suspected point of entry or exist where protection is sought. When Customs’ investigation reveals a case of infringement, it has the authority to confiscate the goods, and may destroy or remove the infringing goods, and impose a fine.
General Administration of Customs
6 Jianguomenwai DaJie
Beijing, China 100730
Tel: 86-10-6519-5243 or 6519-5399
Shanghai Customs: http://www.shcus.gov.cn/apec/index.jsp
Tianjin Customs: http://tjc.online.tj.cn/
Guangzhou Customs: http://haiguan.gzfeihua.com/customs.htm
Public Security Bureau (police)/Procuratorate (prosecutors). Under enforcement provisions of TRIPs, China must provide IP remedies through criminal enforcement for commercial scale piracy and counterfeiting. China’s laws and regulations stipulate that IP administrative authorities and Customs may transfer egregious IP infringement cases to police and prosecutors (procuratorate) for initiating criminal investigation. Despite these criminal provisions, most IP cases continued to be handled through the administrative system. Under Chinese law, individuals also have the right to prosecute criminal cases (zisu), which has rarely been used.
Ministry of Public Security
14 DongchangAn Street
Beijing, China 100741
Website: http://www.mps.gov.cn (Chinese)
Regional IPR Bureau. In an attempt to coordinate local IP enforcement efforts, some provinces and municipalities in China have established IPR bureaus or IPR committees to coordinate public awareness campaigns and, to a more limited extent, enforcement. A local IPR bureau is generally a good source for companies seeking information on local regional enforcement mechanisms.
Judicial System. The second track companies can pursue is through civil actions in the local People’s Court. Since 1993, China has maintained Intellectual Property Tribunals in the Intermediate People’s Courts and Higher People’s Courts throughout the countries. The total volume of civil IP litigation in China is considerably less than administrative litigation. Though small companies may prefer to pursue the administrative route, it is expected that the number of IP litigation cases will significantly increase with recent changes in IP laws. Appeals of administrative IPR determinations, such as fines, are generally made to Administrative Tribunals of the Supreme People’s Court (SPC), while the Criminal Tribunals of the SPC are likely to hear criminal cases.
WHAT THE U.S. GOVERNMENT CAN DO IN IPR INFRINGEMENT CASES
Many companies, particularly SMEs that discover their products are being infringed in China, contact the Department of Commerce for assistance. Because intellectual property rights are private rights, the Department can provide only limited direct assistance. In many cases, the United States government can provide companies with information in navigating China’s legal system, including lists of local investigative firms and attorneys and share our experience and expertise in China. However, the Department of Commerce cannot provide American companies with legal advice or advocate on a company’s behalf without the company first taking legal action.
When a company encounters blatant infringement of its IPR, the right holder should hire local counsel and pursue a preliminary investigation on one’s own or through a contracted professional firm, keeping in mind that U.S. companies should ensure compliance with Chinese law, which restricts private investigation to certain forms of “market research” investigations. Once the initial investigation is complete, the company should determine if further action and possible costs related with such actions are worth pursuing. Right holders will have the option to initiate actions or seek redress through either the judicial or administrative system. Foreign rights holders have had considerably less success in encouraging criminal prosecution of IPR violations, particularly when copyright infringements are involved.
Once a company decides to pursue a remedy, the Department of Commerce, through our Washington DC or China-based offices will monitor the case, if requested to do so by the company. The U.S. Government cannot intervene in the case, however we can inquire about its status or contact government officials about concerns related to the effective administration of legal remedies available to IP holders. The Department of Commerce is most likely to become involved in a case where evidence indicates China is not complying with its enforcement under the WTO TRIPs Agreement. As with other types of commercial disputes, the Department’s efforts in assisting with IPR disputes are aimed at achieving a fair and timely resolution in accordance with international commitments, Chinese laws and in advancing adequate legal and judicial protection for all parties.
We strongly emphasize that the information provided above by no means constitutes legal advice and should not be substituted advice of counsel. Its intended purpose is to provide an overview of China’s IPR environment, available enforcement mechanisms, and Chinese government offices sharing jurisdiction over IPR protection and enforcement. We recommend that U.S. companies seeking to do business in China or are facing IPR infringement issues, retain qualified U.S. and/or Chinese legal counsel and pursue their rights through China’s IPR enforcement regime.
For a list of PRC- government authorized patent/trademark agents, please check SIPO’s website: http://www.sipo.gov.cn
For a list of consulting firms and law firms, the U.S. Commercial Service in Beijing publishes Contact China, A Resource for Doing Business in People’s Republic of China, available online at http://www.buyusa.gov/china/en/
For a list of law offices in the Beijing consular disrtict, please visit the U.S. embassy website: http://www.usembassy-china.org.cn/us-citizen/lwyrlist.html.