Intellectual property protection in China

By: Richard Li and Joy Jiao

The Chinese market presents tremendous opportunities, but also fierce competition. As the level of development of the Chinese economy increases, brand effect and the fruits of technical innovation play an ever larger role in market competition. If these intangible assets are not protected, they could fall onto the plates of hungry competitors.

Liu Minxuan, a senior partner at AllBright Law Offices in Shanghai, recounts that a new venture became a leader in its industry after several years of hard work. However, when it tried to register on the Tmall platform, it discovered that the trademark in Class 35 required for identification by Tmall had long ago been preemptively registered by a direct competitor.

Although that company was eventually able to preliminarily recover its trademark, “It frustratingly discovered that pirates had preceded it in pirating its trademark in nearly all of the other classes, greatly hampering the development of its business and exposing it to risks everywhere,” says Liu Minxuan.

“If that company had placed greater weight on intellectual property [IP] protection from the outset, registering its trademark in a greater number of classes, it likely would not have needed to desperately wage an all out war on each trademark [class], as now.”

Enterprises must learn how to use the law, as a shield to protect their IP rights, and as a sword to attack infringers. Fortunately, as China has placed increasingly greater importance on the protection of enterprises’ innovations and brand building, the legal weapons available to enterprises have become more potent.

Helen Cheng, an equity partner at Zhong Lun Law Firm in Shanghai, says that the Opinions of the Central Committee of the Communist Party of China and the State Council on Improving the Property Rights Protection System and Lawfully Protecting Property Rights, and the Opinions of the Supreme People’s Court on Fully Leveraging the Adjudication Function to Duly Enhance Judicial Protection of Property Rights, issued in November 2016, and the Outline for the Judicial Protection of Intellectual Property in China (2016-2020) issued by the Supreme People’s Court (SPC) in April 2017, all contain important provisions that will drive and assist in the establishment of an IP punitive damages system.

“It can be seen that China has in recent years consistently been endeavouring to intensify IP protection, intensify the punishment of bad faith infringement and force up the costs of infringement,” she says. “This trend will be of great assistance when enterprises claim damages against infringers through judicial means, and will also increase the deterrent effect on infringers to a certain extent.”

The Standing Committee of the National People’s Congress issued the Second Deliberation Draft of the Bill to Revise the Law Against Unfair Competition in September 2017. Han Jinwen, a partner at AnJie Law Firm in Beijing, states that, “according to the bill, the Law Against Unfair Competition proposes to increase the measure of damages for acts of unfair competition to RMB3 million (US$450,000), which is consistent with the rate for statutory damages specified in the current Trademark Law, greatly increasing the protection of rights holders.”

Severely cracking down on bad faith infringement was one of the key topics at both the China Trademark Festival and the China Patent Annual Conference held in early September 2017. During the Trademark Festival, the Trademark Office sponsored a practical forum entitled Stifling Bad Faith Registration in the Substantive Trademark Examination Procedure and Exploration of Hot Button Issues. At the Patent Annual Conference, the Commissioner of the State Intellectual Property Office (SIPO) also mentioned in particular that his office would introduce punitive damage measures to intensify patent protection and drive up the cost of infringement.

“This will have a major impact on enterprises’ brand building and protection of innovation,” says Chen Hao, a senior partner at DHH Law Firm in Beijing. “On the one hand, this will have a certain deterrent effect on bad faith infringers, will be conducive to cleaning up the IP environment, embolden enterprises to innovate, and reduce enterprises’ rights protection costs. On the other hand, in IP rights protection cases, [the aggrieved enterprise can] adduce evidence attesting to the infringer’s free riding on the well-known trademark or hoarding of trademarks, greatly increasing the probability of prevailing.”

Instances of winning the case but losing the market have been common in the past. Zhao Ye, a partner at DeHeng Law Offices in Beijing, argues that the most obvious judicial trend in recent times has been the increase in the amount of damages awarded by the courts. “Although the Supreme Court proposed increasing the measure of damages numerous times in the past 10 years, [until recently] there was no obvious change,” he says. “This round of changes began with the birth of the IP courts, particularly after 2016, when the Beijing Intellectual Property Court considerably increased the amount of damages awarded, leading the courts around the country in increasing the measure of damages.