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Protection of Intellectual Property in China
December 31, 1969 |Estimated reading time: 4 minutes
This first article in the SMTa Toolbox series discusses legal issues surrounding doing business in China.
By Robert J. Sayre
While rising Chinese exports have attracted substantial attention, the Chinese import market also is growing rapidly. For example, China now is America's sixth largest export market. Yet the far greater potential is readily evident. Approximately 3 million computers are sold each year in China, though only 0.3 percent of people in China own a computer.
Many transnational high-tech corporations have established R&D units and training programs in China to tap the inexpensive, technically trained labor force and establish an early hold in the market. The opening of the Chinese market and its integration into the global market are driving a revolution in the Chinese legal framework for protecting intellectual property rights. Consistent recognition of "intellectual property," as understood by the Western world, dates back only about 20 years in China. Under the earlier Socialist system, the absence of a free market economy essentially eliminated any need for intellectual property laws. Consequently, China lacked any significant domestic base of knowledge and experience to address these issues legally. Many Westerners accordingly ex-press concern over the current evolutionary state of intellectual property protection under the Chinese legal system.
With that in mind, however, China has made extraordinary progress over the past 20 years. To gain ascension into the World Trade Organization (WTO), China adopted a written framework of patent, copyright and trademark laws that closely match those of the rest of the developed world.
In terms of patents, China offers three different forms of protection: a) "invention" patents, which are substantively examined for novelty, inventiveness (non-obviousness) and practical utility, and have a 20-year term; b) "utility models," which are not substantively examined and have a shorter, 10-year term; and c) "design" patents relating to artistic designs. In 2002, 92,166 "utility-model" applications were filed by Chinese applicants and only 973 "utility-model" applications were filed by foreign applicants. Most foreign interests instead pursue "invention" patents for new technology.
Because China is a member of the Patent Cooperation Treaty (PCT), applicants can enter China in the "national stage" of an international PCT patent application. If a positive report is obtained in the first, international stage of PCT examination, obtaining a relatively efficient allowance of the application in China and consequent iss-uance of an "invention" patent is likely.
Figure. Invention patent applications filed in China, 1996 through 2002.
Filing of invention patent applications in China (directly or via the PCT procedure) has exploded in recent years. The figure measures filings by the Chinese and by foreign interests in China. Top sources of Chinese invention patent applications from foreign interests in 2002 were:
- Japan (18,275 applications)
- United States (10,012)
- Germany (4,015)
- South Korea (3,626).
The Chinese legal system provides a unique three-track framework, including civil, administrative and criminal systems for addressing infringement of intellectual property rights. China's civil court system serves as a forum for infringement litigation, allowing both the rights owner and the alleged infringer to submit their cases to a judge. Alternatively, an administrative system enables an aggrieved party to file a complaint with a local administrative office, which then conducts an investigation. The administrative office can only decide whether there is infringement, and if so, to issue an order prohibiting further infringement; monetary damages must be pursued in a separate proceeding before a civil court. The administrative system originally was established as a "back-up" to the court system due to a lack of judges with the competence to judge intellectual property cases. Finally, the criminal justice system can enforce several Chinese laws that criminalize intellectual property rights violations in cases deemed "serious."
The greatest perceived deficiency in the present Chinese system often is in the amount of damages awarded to prevailing parties. The courts can award damages to patent owners upon a determination of infringement on the following bases: a) the owner's actual economic loss caused by the infringement, b) the infringer's profits derived from the infringement, c) a reasonable royalty, and d) a "discretionary" basis that in most cases will not exceed US $36,000. The courts often apply the "reasonable royalty" basis for measuring damages, which is likely to enable the infringer to still profit from the infringement and therefore, largely fails to deter infringement. Nevertheless, the capacity of the Chinese legal system to handle intellectual property disputes has improved since the late '80s.
China's entry into the WTO and the explosive growth of its exports market further cement China's commitment to its transformation from a planned to a market economy, as well as its integration into the broader world trade community, which will continue to drive substantial harmonization of its intellectual property protection with that of the rest of the world.
Conclusion
High-tech development is expanding in China, and domestic high-tech interests are likely to benefit as much as anyone from strengthened intellectual property protection there and the subsequent reduction in piracy. Rapidly growing Chinese companies increasingly are pushing for improved intellectual property enforcement; most enforcement actions in China now are, in fact, brought by domestic companies. This domestic stimulus for strengthening en-forcement of intellectual property rights appears likely to promote an increasingly strong and coherent legal framework for promoting and protecting those rights in years to come.
References
http://www.chinaiprlaw.com The opinions expressed above are those of the author and not necessarily those of Mintz Levin or its clients.
Robert J. Sarye, registered patent attorney, may be contacted at Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, Boston, MA; E-mail: rsayre@mintz.com; Web site: http://www.mintz.com.