Property Protection in China
Shanghai Flash N° 7 pdf-version
1. Law enforcement
1.1. Progress in IPR protection
During the last few years, essential improvement in the intellectual
property right (IPR) protection have been made in China.
First of all, knowledge and consciousness about the IPR protection
is growing in China. One of the main elements was the health risks
to the Chinese population due to false drug production or prohibited
use of agro-chemicals, not least due to infringements of Chinese
firms. The Chinese authorities have realized that a sound system
of intellectual property protection is important for a favorable
business environment. It will not only benefit foreign investment
but the final consumers of the goods. As a result, courses on
intellectual property law are now being offered at every top law
school in China; high priority has been given to IPR protection
by the State Council, expressed in its continuous promulgation
of legislation, administrative regulations, and enforcement guidelines;
various intellectual property cases have been settled in the courts
in favor of the holder of the right.
Furthermore, China entered the WTO in December 2001. Prior to
the accession, China amended her Patent Law, Trademark Law and
Copyright Law and formulated other IP laws and regulations including
regulations on the protection of new plant varieties and the layout
designs of integrated circuits to bring her laws and regulations
in line with TRIPS agreement of the WTO. At the same time, China
loosened the limitation for foreign patent applicators. The gap
between total patents applied by and patents granted to foreign
applicators is narrowing (see Appendix 2).
Patents received from foreign applicators are growing steadily
in China. The total accumulated number of patents applied reached
258,000 by the end of July, 2002. After Japan, USA, Germany, France
and Korea, Swiss applications ranked 6th.
China' s courts and judges have begun to improve judicial protection
with the guidance of WTO regulations. China set up the No. 3 Civil
Court in 2000 and gave it the responsibility for hearing IP case
trials in her 31 mainland provinces. China has also provided special
training for judges to make them more familiar with TRIPS regulations
and the newly amended IP laws. More and more judges have been
given formal education in science and technology, given opportunities
to communicate with their foreign counterparts and study in the
US or Europe.
Statistics reveal that 5265 civil cases (5041 concluded) and
319 criminal IP cases (314 concluded) were initiated at all court
levels in China in 2001. Among them was a case submitted by Rolex.
The Swiss watch maker Rolex has successfully prevented a Chinese
Internet company from using the domain name rolex.com in 2001.
The People's Intermediate Court in Beijing decided that CINET,
a local Internet service provider, did not have the right to the
rolex.com.cn web address because Rolex is a famous brand in China.
In addition, Rolex won RMB 10,000 from CINET in compensation for
Progress in IPR protection is more obvious in big cities in China.
In Beijing, for example, a copyright protection center was set
up by the government in 1993 to monitor newspapers (some 2,000)
and magazines (about 7,000). The center also protects the rights
of artists in the music industry and in the performing arts. Shanghai
carried out a series of activities to celebrate the first "World
Intellectual Property Day" on April 26th, 2001. From October
23rd to 27th, the Shanghai government hold a symposium named "Preparing
Tactics for Intellectual Property Issues after China's WTO Entry".
Participants were many high ranking government officials.
1.2. International cooperation in the field of IPR protection
China is becoming more and more integrated into the global IPR
protection networks. China is a signatory to the most important
international intellectual property agreements. On June 3rd, 1980,
China acceded to the Convention Establishing the World Intellectual
Property Organization. It is now member state of the Paris Convention
for the Protection of Industrial Property, the Patent Cooperation
Treaty (PCT), the Budapest Treaty on the International Recognition
of the Deposit of Microorganisms for the Purposes of Patent Procedure,
the Berne Convention for the Protection of Literary and Artistic
Works and the Locarno Agreement Establishing an International
Classification of Industrial Designs (see Appendix
Chinese officers and experts are becoming more and more internationally
cooperative in IPR protection. They are playing an active role
in multinational discussions at the United Nations, at the Hague
and at the World Intellectual Property Organization. Bilateral
exchanges are also increasing rapidly. These are shown in the
2. Problems of IPR protection in China
However, IPR protection in China is still at an early stage for
a market economy. The situation of the IPR protection in China
is similar to the situation of environment protection: there is
a big gap between government policy and day to day reality. Enforcement
of IPR remains weak and ineffective in most parts of China. Due
to local protectionism and due to the lack of truly independent
enforcement authorities, infringers of intellectual property are
often not prosecuted or punished. Fines imposed on infringers
are still ridiculously low, far too low to deter further infringing
Small-scale counterfeiters often escape with low fines that can
not easily be collected and offer minimal deterrence, and the
rights' holder receives minimal compensation. The court system
still has a shortage of adequately trained judges and the resources
of the police, prosecutors, and relevant administrative agencies
are insufficient. It is often difficult for these various bodies
to cooperate smoothly, particularly in transferring cases from
civil to criminal proceedings.
The general perception of the international community remains
that China is one of the world's largest infringers in the field
of intellectual property. China maintains a very high rate of
piracy for CDs, audiocassettes and computer software. Through
State media, China has always shown that she is serious about
stopping the booming piracy industry. However, what was openly
destroyed is only a small part of the vast false and piracy industry
The counterfeiters and pirates still seem to sail safely on, while
foreign producers of music, film and software, who claim Chinese
piracy steals a large portion of their business, are obviously
3. Some important aspects of IPR in China
3.1. In the field of patents
The Patent Law of the People's Republic of China was adopted
on March 12th, 1984, amended twice on September 4th, 1992 and
on August 25th, 2000. The Implementing Regulations of the Patent
Law of the People's Republic of China were promulgated by Decree
No. 306 of the State Council of the People's Republic of China
on June 15th, 2001, and became effective as of July 1st, 2001.
Following are the most important aspects specially for foreigners:
The Patent Law was substantially revised. Previously,
design patents lacked substantive examination prior to approval,
meaning that such rights were often granted in contravention of
earlier existing rights. The remedies of original rights owners
have now been strengthened: design patents may not conflict with
another' s prior legal rights; the rights of an original patent
holder shall prevail over those of the later in a patent dispute.
Prior legal rights include trademarks, copyrights, enterprise
names and unique packaging or branding associated with well-known
According to Article 29 of the Chinese Patent Law, anyone, who
files an application for a patent in China within twelve months
from the date on which he first filed an application for a patent
for an invention or for an utility model in a foreign country,
or within six months from the date on which he first filed an
application for a patent of a design in a foreign country, may
enjoy a right of priority for a patent for the same subject matter
in accordance with any agreement concluded between the said foreign
country and China, or in accordance with any international treaty
to which both countries are party, or on the basis of the principle
of mutual recognition of the right of priority.
According to Article 19, any foreigner, foreign enterprise or
other foreign organization having no habitual residence or business
office in China applying for a patent, or has other patent matters
to attend to, shall appoint a patent agency designated by the
Patent Administration Department Under the State Council to act
as his agent.
Offering or selling infringing goods is now accepted as an infringing
activity itself, meaning that preemptive action can be taken against
those offering to sell infringing goods but who have not participated
in their manufacturing, distribution or wholesale.
Prosecuting patent infringements is now easier as pre-litigation
injunctions and requests for evidence preservation will now be
accepted by the court, provided there is sufficient evidence and
that the plaintiff provides a guarantee. The patentee may bring
a law suit against an infringing agent within two years from the
date when he knew or he was proved to be known of the happening
The newly revised laws endeavor to ensure that the patent owner
will receive a financial compensation from RMB 5,000 to 300,000
(US $600 to $36,000), in serious cases even RMB 500,000 (US $60,000).
These sums are arguably still too low to provide an effective
3.2. In the field of trademarks
The Trademark Law of the People's Republic of China was
adopted on August 23rd, 1982, revised for the first time on February
22nd, 1993, and revised for the second time on 27 October 2001.
Following are the most important aspects for foreigners in particular:
The revised trademark law extends protection to more marks, including
, geographical indications, collective and certification marks,
three-dimensional symbols and colour combinations. Judicial review
of administrative decisions is now possible. Courts are now authorized
to order an infringing party to cease its use and in some cases
order property preservation.
Previously, where an infringing trademark could be separated
from the goods on which it was displayed, the infringing trademark
could be removed and destroyed, and the goods returned to the
infringing party. Now, the practice of reverse passing off, which
occurs when a trademark is removed from goods and another trademark,
is put in its place for the purposes of further sale, is recognized
as an infringing deal.
According to the old Trademark Law, only foreign individuals
could apply to register trademarks in China. The new Trademark
Law now allows any individuals, legal persons and other organizations
to apply for registration of a trademark and obtain the exclusive
right of use for a product they manufacture, produce, process,
select or sell, or a kind of service they render to their clients.
Article 5 stipulates that two or more individuals or legal persons
or other organizations may jointly apply for registering the same
trademark and enjoy the exclusive right of use of such trademark.
This new stipulation meets the requirement of a group of companies
in a partnership to jointly own the rights to a trademark. This
is an important amendment, as many foreign applicants jointly
owned a trademark in other countries but were not able to enjoy
joint-ownership in China.
Another important change is the specific recognition of the international
principle that whether a mark is "well-known" is determined
according to market factors such as the extent of public knowledge,
the duration of use, and the publication of the mark. This ends
the need for registration in the official registry of well-known
The fine for infringements is increased from RMB 10,000 or less
to RMB 100' 000 or less, if the counterfeited business volume
is impossible to determine.
3.3. In the field of copyrights
The Copyright Law of the People's Republic of China was
adopted on September 7th, 1990, and revised on October 27th, 2001.
The implementing Rules for the Copyright Law also came
to effect on September 15th, 2002. Following are the most important
aspects specially for foreigners:
Copyright protection under the new law was expanded to compilation
works in order to protect databases and the right to transmit
via the Internet as well.
The "fair-use doctrine", which under the previous law
allowed for certain uses of copyrighted material without permission
from the owner, has been restricted. Radio and television stations
must pay for the use of published music.
Stronger enforcement measures have been introduced to combat
copyright infringement. The defendant, rather than the plaintiff,
must testify the legal source of its production at a lawsuit.
The burden of proof is now placed on the party suspected of infringement.
Any producer, manufacturer, or distributor who can not prove that
their copying is authorized will now be held liable.
Foreign copyright owners will receive legal protection equal
to that of their Chinese counterparts, according to the new regulation
for the implementation of the Copyright Law.
The previous regulation stipulated that only the State copyright
authority was eligible to handle complaints of infringement on
foreigners' copyrights. The new regulation eliminates this restriction
and allows foreign copyright owners to seek redress from local
administrations. Protection of the copyrights held by foreigners
or stateless persons whose works were first published in China
starts from the day their works are published.
The fine for infringement is also increased from RMB 10,000 or
less to RMB 100, 000 or less, if the infringer' s business volume
is not to be determined.
4. What are the chances for foreign small-
or medium-sized enterprises in case of IP infringements?
Up to now, most of the foreign winners of IPR law suits were
the big international companies, such as Adobe Systems (against
Nianhua Tuwen Computer Co. Ltd.) and Microsoft Corporation (against
Shanghai Huahai Computer Electronic Facilities Co. Ltd.). The
foreign small- or medium-sized enterprises also meet infringement
problems, but in most cases they are reluctant to take legal steps,
due to limited means. Do they have any chance to win disputes?
Here is some advice to small- or medium-sized enterprises by legal
specialists concerning their IP rights:
First of all, they should register their trademarks or
patents, as soon as they enter the Chinese market, in order to
hold a sound legal position. This is especially true for products
and trademarks that are easy to copy and which are quite well-known.
Secondly, When transferring an IPR for establishing a
Joint Venture, they should carefully value it, and determine the
amount of a transaction price or capital contribution. They should
clearly know, if the protection for the IPR strong enough in China
and what are the provisions of Chinese law against infringement
upon intellectual property rights. A joint venture contract should
actually include an article on this question.
Should there be any infringements, they may protect their right
through the following channels:
a) Administrative Action:
when the foreign small- or medium-sized enterprises are confronted
with an IPR infringement, they can address the relevant local
authorities above county level (pls. see Appendix
3.) and ask them for help and consultation. The authorities
are committed to take proper measures to protect IP right holders.
The Chinese administrative system is very complicated. It is
quite difficult for foreigners to find the right places and right
persons for their business. Today, it is the local Intellectual
Property Administration, which is in charge of the administration
and protection of patents; the local Administration for Industry
and Commerce (AIC) is in charge of the administration and
protection of trademarks; the local Copyright Bureau deals with
the administration and protection of the copyrights; and the local
Administration of Culture, Radio, Film and Television should
crack down on piracy activities in the audio and video market;
finally, the local Customs are in charge of cracking down
the smuggling trade.
These authorities can order a public apology by infringing party
and a stop of manufacturing and selling of infringing products,
destroy infringing trademark representations, remove all the trademarks
from existing goods in stock, seize tools and molds for making
the trademark representations, destroy the infringing goods in
case the trademarks are not easy to be removed from the goods.
Concurrently, penalty fine may be imposed, which can amount to
50% of the illegal turnover, or five times the illegal profit.
Upon request of the infringed party, the AIC may order the infringing
party to pay damages for economic losses arising from the infringement.
Advantages of the administrative action are the quick effectiveness
and a lower cost. Only a minimum registration fee of about 300
RMB is necessary. Shortcomings are the longer duration and the
lower compensation by the infringer.
b) Civil Proceedings:
The plaintiff may initiate civil proceedings with the People's
Court, which will usually decides that the infringement be stopped,
ill effects be removed and damages paid. Article 45 and 46 of
the Copyright Law provide the following civil liabilities: anyone
who commits any of the following acts of infringement shall bear
civil liability for such remedies as ceasing the infringing act,
eliminating the effects of the act, making a public apology or
paying compensation for damages, depending on the circumstances,
and may, in addition, be subjected by a copyright administration
department to such administrative penalties as confiscation of
unlawful income from the act or imposition of a fine.
c) Criminal Proceedings:
Article 213, 214 and 215 of the Criminal Code stipulate that serious
infringement of trademark rights may face an imprisonment of up
to three years, concurrently or separately with penalty fine.
Where the cases are extremely serious, the sentence will be imprisonment
of 3 to 7 years, together with a fine. Article 217 reads that
whoever, for the purpose of reaping profits, has committed one
of the following acts of copyright infringement and gains a fairly
large amount of illicit income, is to be sentenced to not more
than three years of fixed-term imprisonment, criminal detention,
and may in addition or exclusively be sentenced to a fine; when
the amount of the illicit income is huge or when there are other
particularly serious circumstances, he is to be sentenced to not
less than three years and not more than seven years of fixed-term
imprisonment and a fine.
The advantage of the judicial proceedings is that the amount
of the damage compensation is usually larger than that by taking
administrative action, whereas the shortcoming of the judicial
proceedings is that the process will be rather long (about 1.5
years in average) and the cost relatively high.
In accordance with its achievements in the field of economic
reform, essential improvements in the IPR protection have been
made in China. However, many problems still exist, because China
today, as a whole, remains a developing country. A further improvement
of the legal framework depends on a progressive reform of the
political system, which can only be a gradual and steady process.
China certainly needs to step up intellectual property protection
in practice. The country learns to protect IPR from criticism
by the outside world, but also by painful lessons hurting Chinese
producers or the public at large.
(Main information sources of this report:
other web sites and various newspapers)