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Intellectual Property Rights in China

31 August 2011

[The below text will be published as Chapter 3.5 (IP) of “Equipment Manufacturing and Machinery in China: Business opportunities for Dutch SMEs in China”, written by the Netherlands Business Support Office (NBSO) Dalian, together with other NBSO’s, Consulates-General, the Dutch Embassy, R&P China Lawyers, FME-CMV, PTL Group and EU SME, which will be presented at a conference in October in Zoetermeer (the Netherlands), where Managing Partner Maarten Roos will be a guest speaker.]

For any business planning activities in China, the protection of IP rights is a necessary component of the strategic business planning from the very start. All kinds of products are subject to IP infringement in China: DVD’s and software, books, electronics, machinery, medicines, even cars. As soon as copyrights, patents, trademarks, domain names and trade secrets gain value, a real risks exists that Chinese counterfeiters will seek the opportunity to profit. But this does not mean that IP should not be introduced to China. Valuable IP (e.g. trademarks or patents) is an important part of what distinguishes a foreign company from its domestic competitors. The question becomes, how can a company combat infringers?

This is not always easy, and continuously innovating with new IP is a good way to stay ahead of infringers. However the other part of a successful IP strategy is to take the rights steps to eliminate or at least limit the biggest IP infringements. Companies should start by understanding the following golden rules:

  1. Identify which IP is important to the business, and effectively protect such IP without delay, if possible before entering the Chinese market!
    Why? Another company may register your IP first!
  2. Take protective measures against abuse of IP (incl. confidential information) by business partners and employees by signing agreements that include non-
    disclosure and IPR protection, and take measures to ensure that such agreements are followed!
    Why? Most IP infringements are by business partners!
  3. Do not presume that your IPR is automatically protected in China if you already have registrations in other countries.
    Why? Most IP (trademarks, patents, domain names) must be (separately) registered in China.
  4. Do not rely on others (employees, distributors, suppliers, agents, “friends”) to register your IPR for you.
    Why? If the other party registers the IP in its own name, it can claim against you.

How to establish IP rights under Chinese law

  • Brand names, logo’s and other marks that are associated with the company or its products can be registered in China as trademarks. Upon registration, you will have exclusive rights to use the trademark on goods in the relevant class. Foreign companies should not forget to register their Chinese brand names, as they often become very popular.
  • Chinese domain names (i.e. ending with .cn) should be recorded with the CNNIC.
  • Copyright arises out of the creation of a work, but can be recorded to facilitate enforcement proceedings.
  • Designs and technological solutions can be registered as patents, as long as novelty, inventiveness and practical application requirements are met. This means that new designs or inventions should be registered before publication or use, or within a (6 or 12 month) period from registration in another jurisdiction.
  • Adequate measures should be taken to ensure that sensitive information and valuable know-how used in dealings with business partners (suppliers, distributors, JV partners, employees) are recognized and therefore protected as trade secrets.

First-to-file: China applies a first-to-file principle for trademarks, patents and domain names, and so it is crucial for IP owners to file for registration as early as possible. If you find another company has already registered your IP rights, then immediately discuss with your lawyer if / how you can get these rights back. If you don’t, your competitor may prevent you from using your own IP in the future!

How to Enforce IP rights in Chinese

As long as IP is protected under Chinese law, owners have a number of options to enforce such rights against infringers. Each method of enforcement comes with its own benefits and drawbacks, and so a case-by-case assessment should be made on how to tackle a certain type of infringement.

A cease and desist letter drafted and sent in Chinese by a Chinese law firm is an inexpensive step that may help to pressure an infringer into compliance, or it may create an opening for negotiations.

  • In an administrative action, the support of a competent administrative department (e.g. the AIC, the IPO, or Customs) is enlisted to raid the premises of the infringer; upon confirmation of the infringement, counterfeits are confiscated, an injunction is issued and the infringer can be fined.
  • Civil lawsuits allow IP owners to demand not only for an injunction, but also to claim for compensation. As long as damages remain difficult to prove however, awards will remain low by international standards,
  • Criminal prosecution of individual infringers is by far the most effective means to IP enforcement, but is only available if specific, relatively high thresholds are met.