Protection of Exclusive Rights in China: Theory and Practice.

Keywords: intellectual property, exclusive rights, means of individualization, patents in China, trademarks in China, copyright in China, infringement of exclusive rights, protection of exclusive rights in China, judicial system in China, specialized courts on intellectual property in China, infringement of exclusive rights to subject-matters of  intellectual property

Many Western companies are afraid of entering the Chinese market or organizing the high-tech manufacture there because of well-founded fears of the infringement of their rights to intellectual property. These fears are doubled when the company thinks about the implementation of the innovative activities in China or even about the development of new technologies on the territory of the PRC.

However, currently, the general conditions for the protection of the rights to intellectual property are constantly improving. Moreover, the number of Western companies, which succeed in the efficient management of their intellectual property and in dealing with the infringements, is increasingly growing.

Nevertheless, there are still problems, and the foreign right holders should take into account the complexities and risks that they will face when entering the Chinese market. They will have to familiarize themselves with the theory and practice of protecting the intellectual property in the PRC and develop carefully a strategy for protecting their rights.

The rights to the subject-matters of intellectual property in China in the modern sense of the word have been recognized and protected since 1979. The PRC has become a member to the main international conventions in this field.

In 1980, China became a member to the WIPO, the World Intellectual Property Organization, a global forum dedicated to political issues, to strengthening the cooperation, providing services and the information in the field of intellectual property.  Further, China joined the Paris Convention for the Protection of Industrial Property, adopted in 1883, dealing with industrial property issues in the broadest sense, including patents, trademarks, industrial designs, utility models, service marks, etc.

In 1989, China, becoming a member to the Madrid Agreement, joined the Madrid system, which allows protecting the mark in a significant number of states by obtaining an international registration that operates in each of the indicated Contracting Parties.

In 2001, China joined the World Trade Organization, and, accordingly, it became a member state to the TRIPS – the Agreement on Trade Related Aspects of Intellectual Property Rights.

By the general rule, as soon as China becomes a member to a particular international treaty, the norms of such an agreement have a direct effect on the territory of the country. Therefore, the PRC courts can in their decisions refer to the norms of the international treaty itself, without referring to the relevant norms of the national legislation.

At the same time, at the national level, the comprehensive legislation has been adopted, primarily in the field of the patent law, copyright and trademarks. This circumstance led to the creation of a developed and comprehensive legal framework for the protection of intellectual property of both local and foreign right holders.

Currently, there are three fundamental laws in the field of intellectual property in China: the Patent Law, the Trademark Law, and the Copyright Law. A large number of bylaws have been adopted on their basis.

Under the auspices of the government, the developed administrative system has been created at different levels to ensure the protection of the exclusive rights to intellectual property. For the consideration of disputes with the desired effect, specialized courts (and divisions) on the intellectual property have been established in some large cities and provinces. Such courts operate in Beijing, Shanghai and Guangzhou.

The customs measures are another effective means of protecting the exclusive rights. The customs regulations on the protection of the rights to the subject-matters of intellectual property were adopted in 1995, and it helped to strengthen the border control assisting to stop the movement of the counterfeit goods, both imported to China and exported from it.

However, in spite of the rapid developing of the legislation, the system of implementing the norms and the approach to the world standards, China remains one of the leaders in the scope of infringements of the rights to intellectual property. In addition, the possibilities for the protection vary depending on the interpretation of the law by the local authorities of China, as well as on some protectionism, which is especially strong in less economically developed areas and less greater courts. At the same time, the infringers are becoming more sophisticated. They use the shortcomings of the judicial system and procedural legislation, infringe the rights to patents and trademarks actively, try to find new ways of interfering in the process of the legal sales of products and apply advanced technologies such as “reverse engineering.” (The English term “reverse engineering” means the study of some finished device or program, as well as the documentation for it in order to understand the principle of its operation, in order to reproduce the device, program or another object with similar functions, but without direct copying).

To succeed in China, it is necessary to develop an integrated strategy for protecting one's rights, which reflects the nature and scope of problems connected with this and which is realistically linked to the company's internal goals and resources. First of all, it is necessary to carry out an internal audit of the company's activities in China to provide each subject-matter with an appropriate level of protection, based on the risks of infringing the rights. The protection of the exclusive rights to intellectual property should be the goal of all the leadership in China, and not only of the legal department.

In any case, the companies that intend to connect their activities with China somehow, first of all, should register their intellectual property in the PRC. As we know, the right to a patent or trademark is limited territorially. If the company obtains a patent or registers a mark in one country and does not do so in China, it’s Chinese (or any foreign) competitor can register his rights to this subject-matter in China and use them freely on the territory of the country. The person who does not have an entitling document, in fact, has no formal rights in the PRC.

As to patents, the companies must file applications with the State Intellectual Property Office (Eng. “State Intellectual Property Office”). They should ensure the correct translation of the application into Chinese. The applicant can file an application directly to the office or through an international system, such as the PCT.

The effective protection of trademarks, the designations used for the individualization of goods and services, is one of the components of success in business when expanding it to the markets of China. The entrepreneurs, who invest a sufficient amount of money and time to build their own company's reputation, should take all measures to make the protection of their brand in the PRC without “a vulnerable spot” from the legal point of view. Besides registering the “original” trademarks (as a rule, in the Latin alphabet), such companies are advised to adapt these marks in a certain way and register their Chinese “versions,” first of all, to deserve the attention and trust of the Chinese consumer. And, secondly, they should do so to get the maximum legal protection for their designations. In any case, the carefully selected “Chinese” trademarks can play a decisive role in the success of the brand and the whole business in the PRC.

Further, while China has adopted the International Classification of Goods and Services, China, in addition to the class division, also uses the subclass division. Goods and services in subclasses are considered to be identical or similar. When registering a trademark, it is important that the list should contain the items from each subclass, which contain the goods and services having (potentially) some relation to your business. It is also recommended to include in the list the items from each subclass forming the class of interest to you, even if they are connected with your activities quite distantly. This factor will not allow your competitors registering unfairly an identical or similar mark in the subclass not covered by you and to affect the reputation of your brand negatively.

The copyright. The registration of the subject-matters of copyright shall not be required, but it is recommended to deposit your works of art with the National Copyright Administration (Eng.: “National Copyright Administration”), because such depositing leads to the public issuance of the work of art and can serve as a sufficient evidence in the court during the legal proceeding concerning the copyright infringement.

It is also recommended to ensure that the legal protection, which the company expects, is available in China. For example, the software, which can be patented in other countries, is usually not a subject-matter of the patent protection in China and it is protected, as a rule, as a subject-matter of the copyright.

Also it is significant to elaborate the texts of the license agreements in detail and to register them with the state authorities. Please note that the royalty size is usually lower in China than in the West.

It is also necessary to analyze all laws and regulations that affect the protection of intellectual property, such as tax, anti-monopoly and labor laws.

In practice, it is necessary to take active measures of the internal protection.  They are: the measures to protect the confidentiality of the information, the monitoring of access to laboratories and research centers, the monitoring of the use of computers, laptops, mobile phones, the inclusion of detailed confidentiality provisions in the labour contracts with hired workers and suppliers, strictly limited access to the internal databases. It should be noted that the opportunities of monitoring the work of employees in China is broader than in many Western countries: it is a general practice when the employees are prohibited to use mobile phones during the whole working day, when the USB-ports of computers are blocked and the permanent supervision is exercised.

Of course, the human factor plays a significant role in the protection of intellectual property. Naturally, it is desirable to have motivated employees who want to build up a career in your company. However, it should be remembered that the Chinese are not as loyal to the company as such. They are much more devoted to their boss, so the management’s good attitude towards the subordinates is one of the ways to protect the company's rights in practice.

It is necessary to take active steps to document the internal policy and the rules for the protection of intellectual property, as in future these documents can play a decisive role in the case on the infringement of exclusive rights, especially in respect of the trade secrets.

As to the immediate cases of the infringement, it is necessary to monitor the situation permanently: to monitor the sale of counterfeit goods, to search “weak points” in the own distributive networks, to monitor permanently the filed applications for registration of trademarks and the grant of patents, to file notices of opposition in the applications, to carry out the search on the Internet to identify the existence of websites, whose domain names constitute the infringement of your exclusive rights, as well as on online trading platforms, where the counterfeit goods are sold.

If the infringement is detected, as a first step, it is necessary to send the letter of complaint to the infringer. This is a fairly cheap and often successful way to stop the infringement, especially in case of “trivial” infringers. On the other hand, sending such a letter will allow the infringers to understand that the company-right holder is aware of their presence. Such fact can encourage them to shift their operations somewhere else or to make some other changes in their activity, what may prevent the right holder from collecting sufficient evidence of the infringement of his rights.

It is also necessary to send such letters and requests with the confirmation of your rights to the administration of online platforms so as to remove the counterfeit goods from the sale, and delete the relevant information, and accordingly, to block the websites of the infringers.

If the infringement is detected, it is also necessary to analyze the available evidence of such an infringement in detail, bearing in mind that for the Chinese authorities the written, official documents (as opposed to the oral testimony or informal materials, for example, marketing materials) are much more weighty and convincing. It is also possible to resort to the help of the local agencies specializing in monitoring, gathering the information and documents. It is also necessary, if possible, to choose the jurisdiction – the court – where the plaintiff has more chances to win. As a rule, they are economically developed regions, large cities.

Before initiating the proceedings to bring the infringers to justice, it is necessary to consider the advantages and disadvantages of various means of protecting the rights: administrative, civil and criminal. It is necessary to assess the available resources, the available amount of time.

The key to success is the opportunity to find some “trump card” that will help to “persuade” legitimately the Chinese authorities to accept your side and to fight more actively against the infringers, for example, referring to the contribution of the company's activities to the local development, the safety of the products for consumers. These circumstances will also open access to the corresponding legislation on the consumer rights protection, the environment protection, etc., which provide for more severe penalties and more efficient mechanisms for suppressing the infringements of law.