CHINA: An Introduction to Intellectual Property: Non-litigation (PRC Firms)

CHAMBERS GREATER CHINA REGION: PRACTICE AREA OVERVIEW

China: Intellectual Property 

By Chuanhong LONG and Aimin HUO 

According to WIPO Global Innovation Index 2022 (GII), Switzerland, the United States, Sweden, the United Kingdom and the Netherlands are the world’s most innovative economies with China on the threshold of the top ten. The GII 2022 shows some key changes in the top 15 of the ranking, with the United States climbing to the second position, the Netherlands reaching the fifth position, Singapore reaching seventh, Germany reaching eighth and China up one place to eleventh. China, having ranked fourteenth and twelfth in 2020 and 2021, respectively, steadily rose to the eleventh place in 2022, and is now on the doorstep of the world's top ten most innovative economies. China firmly remains the only middle-income economy in the top 30.

China has embarked on a grand endeavour to reach the strategic goals of technological self-reliance and to elevate China to a global IP powerhouse by 2035 according to the Guidelines for Building a Powerful Intellectual Property Nation (2021-2035) issued on 22 September 2021.

The legislatures in China have been amending laws and, among other things, introduced punitive damages for IP infringement acts. The courts in China have been continuing the efforts to improve trial quality and efficiency, aimed at dispensing perceptible fairness and justice and strengthening judicial protection of IP rights. The Supreme People’s Court of the People’s Republic of China (SPC) have been issuing judicial interpretations on applications of law in IP litigations and publishing guiding cases and typical cases to improve quality of trials and ensure consistent applications of law in IP-related trials at all levels. The Chinese IP law enforcement authorities have been taking aggressive actions against IP infringements. With all of these efforts, China is enhancing IP protection in China, helping the IPR right holders to build a stronger IP-based moat for their businesses and creating a competition environment friendly to the market players and beneficial to the consumers.

1. IP litigations in China 

From 2018 to 2020 the SPC Intellectual Property Court accepted 9,368 cases and concluded 7,625 cases. In 2021 the number of IP litigation cases handled by Chinese courts increased significantly.

The SPC Intellectual Property Court accepted 4,335 new cases and concluded 3,460 cases in 2021. The total number of IP-related cases docketed and concluded by the Chinese courts in 2021 are 642,968 and 601,544, respectively 22.33% and 14.71% higher than the cases in 2020. The SPC docketed and concluded 4,243 and 3,557 IP-related civil cases, respectively 22.28% and 9.11% higher than the cases in 2020. The local courts docketed and concluded 550,263 and 515,861 IP-related civil cases of first instance, respectively 24, 12% and 16.52% higher than the cases in 2020.

Breakdown of IP-related Civil Litigation Docketed at Courts of First Instance in 2021 and Increase Rate Compared to 2020 

The local courts docketed and concluded 49,084 and 45,468 IP-related civil cases of first instance in 2020 respectively with an increase of 14.22% and 4.5% compared to 2020.

In 2021 the Supreme People’s Court docketed 2,852 IP-related administrative cases and concluded 2,487 IP-related administrative IP cases with an increase of 49.4% and 43.34 respectively compared to 2010. The local courts accepted 20,563 IP-related administrative lawsuits of first instance, 11.37% higher than the cases in 2020 and 19,342 IP-related administrative lawsuits of first instance were concluded, 7.8% higher than the cases in 2020.

Breakdown of IP-related Administrative IP Docketed at Courts of First Instance and Increase Rate Compared to 2020

Source: SPC Annual Report on Intellectual Property Protection by Chinese Courts in 2021

The local courts accepted 8,215 IP-related administrative lawsuits of second instance and concluded 7,418 IP-related administrative lawsuits of second instance with an increase of 34.85% and 19.97% respectively compared to 2020. Among the concluded cases, the judgments were affirmed in 5,636 cases and reversed in 1,597 cases, one case was remanded for retrial, 115 cases were withdrawn, and 11 cases were dismissed.

In 2021 the local courts accepted 6,276 and concluded 6,046 IP-related criminal litigations of first instance with an increase of 13.2 and 9.53% respectively compared to 2020. Among them, there were 5,869 criminal lawsuits related to infringement of registered trade marks, 12.8 higher than 2020 and 333 criminal lawsuits of copyright infringement, 9.54% higher than 2020.

Breakdown of IP-related Criminal Litigations Concluded at Courts of First Instance in 2021 and Increase/Decrease Rate Compared to 2020

Source: SPC Annual Report on Intellectual Property Protection by Chinese Courts in 2021

The primary features of the IP cases docketed recently by the Chinese courts are:

Internet-based cases continue to increase. Online trading has developed rapidly in China and more businesses have gone online due to the COVID-19 pandemic. Internet has become one of the most predominate areas in which IP infringement occurs. In 2021 the three Internet courts in Hangzhou, Beijing and Guangzhou docketed a total of 66, 148 new cases related to online IP infringement in various forms. Judicial protection is indispensable to help IP right holders to overcome challenges in protecting IP rights on the Internet.

Cases involving novel and complex issues have been on the rise. New cases related to core Internet technologies, gene technologies, communication, integrated circuits, artificial intelligence, E-commerce, new business models etc continue to grow. Novel and complex issues in terms of law, technology and business models pose new challenges to the Chinese courts. In 2021 the Chinese courts have adjudicated a batch of new and hard IP cases involving biomedicine, online gaming, live streaming, sharing economy, artificial intelligence, responding to demand for judicial protection of IP rights involving new technologies and new business models.

Cases involving public interests have increased. The interests involved in IP rights are complicated and often closely related to social and public interests. The courts have managed to properly balance the interests between the IP right holders and the public, encouraging innovation and creativity and at the same time safeguarding the public interests.

IP protection has been enhanced in criminal cases. In recent years, IP infringement cases with entwined civil and criminal liabilities have raised issues in application of law. The Amendment (XI) to the PRC Criminal Law, effective as of 1 March 2021, has made major revisions to the IP crime and strongly supported further judicial protection of IP rights. In 2021 the number of IP-related criminal cases docketed and concluded by the Chinese courts at all levels rose rapidly and the deterrent and preventive functions of criminal penalties on IP infringement and counterfeiting became increasingly prominent.

In Wyeth, et al v Guangzhou Wyeth, et al, the Chinese Courts gave complete support to Wyeth on its claims for CNY30 million (about USD4,482,000) in compensatory and punitive damages in trade mark infringement and unfair competition lawsuit. In Jiaxing Zhonghua et al v Wanglong Group et al, the Supreme People’s Court awarded the plaintiffs record-high damages the amount of CNY159 million (about USD24.9 million) for the infringement committed by the defendants on the “Vanillin” trade secret. The “Wyeth” and the “Vanillin” cases was included in the Top ten IP Cases published by the Supreme People’s Court in April 2022 and demonstrate the Chinese courts’ determination to enhance IP protection, tackle IP infringers aggressively and offer IP right holders adequate compensations. In Emerson Electric Co, Ltd v Xiamen Anjier Water Angel Drinking Water Equipment Co, Ltd (now known as Xiamen Home Spring Drinking Water Equipment Co, Ltd, “Xiamen Anjier”) and Xiamen Xingjun Intellectual Property Co, Ltd et al (“Xiamen Xingjun”), both the trial court and the appellate court held that the Xiamen Anjier committed unfair competition for filing 48 trade marks, identical with or similar to the trade marks owned by Emerson, in violation of Article 2 of the PRC Anti-Unfair Competition Law and Xiamen Xingjun, the trade mark agency helping Xiamen Anjier in filing the conflicting trade marks, also committed unfair competition acts. Article 2 businesses shall, in their production and operation activities, adhere to the free will, equality, fairness, and good faith principles, and abide by laws and business ethics. The courts awarded Emerson CNY1.6 million in total in compensatory damages and ordered Xiamen Xingjun to pay damages in the amount of CNY480,000. The Emerson case shows that the Chinese courts are proactive in fighting bad faith trade mark filings and trade squatting is actionable under the unfair competition law. In addition to relying on oppositions and invalidation actions to fight against the bad faith trade mark filings, the brand owners now have new tools to overpower the trade mark squatters.

2. Administrative IPR enforcement actions in China

In 2021 the AMRs (Administration for Market Regulation) processed 5,460 patent infringement cases, 39,500 trade mark infringement cases and 8,563 unfair competition cases. The AMRs handed over 1,011 trade mark infringement cases to the local police and procuratorates, supporting the procuratorates in pressing criminal charges against the trade mark infringers.

In 2021 the copyright law enforcement authorities handled 3,095 copyright infringement cases, shut down 1,066 infringing websites and APPs, took down 1.197 million infringing links and pushed online service providers to take down about 8.47 million infringing links. The Chinese custom authorities took 792,000 customs seizure actions against the IPR infringers.

In 2021 and 2022 CNIPA has continued to organise nationwide ad hoc campaigns to crack down on patent or trade mark filings in bad faith and IP infringing acts to improve IP protection, protecting the IP right owners and consumer interest and encouraging innovation. As one of the effective approaches in curbing patent or trade mark filings in bad faith, CNIPA and the market regulation authorities have also imposed sanctions on the patent and trade mark agencies which are involved in providing assistance in bad faith patent or trade mark filings.

3. Legislation and Judicial Interpretations, etc.

China has been amending laws to address the evolving needs for IP protection. The key highlights of new IP-related legislations, judicial interpretations, regulations and guidelines in 2021 and 2022 are summarised as follows:

The Supreme People's Court promulgated a new Judicial Interpretation (“JI”) issued by the Supreme People's Court on the Application of Punitive Damages to the Trial of Civil Cases of Infringement of Intellectual Property Right which became effective on 3 March 2021.

The Fourth Amendments to China's Patent Law became effective as of 1 June 2021. The amendments have strengthened patent protection in China.

The new Patent Law has introduced punitive damages for serious wilful patent infringement. The courts can award punitive damages at the amount of one-to-five times the amount calculated according to the losses suffered by the patent holder, the benefit obtained by the infringer or the multiple of the patent licensing fee. At the same time, the amount of statutory damages is increased to CNY5 million maximum.

The new Patent Law extends the patent term for new drugs. It introduces a patent term adjustment (PTA), which is available for invention patents and is of great significance to pharmaceutical companies, as well as a patent term extension (PTE) for new drug-related patents to compensate for the time taken for review and approval of a new drug for marketing. The PTE may extend the patent term related to the approved new drug for a period of five years maximum, with the total effective patent term not exceeding 14 years from the marketing approval. The draft Implementing Regulations of the Patent Law propose that the patent holder shall submit to the CNIPA a request for PTA within three months from the date of the Notice of Allowance, or a request for PTE within three months from the date of obtaining marketing approval for the eligible patents of new drugs, preparation methods and pharmaceutical use.

The new Patent Law also introduces a patent linkage mechanism. Under the patent linkage mechanism, a dispute between an applicant for drug marketing approval and the holder of a relevant patent rights related to the drug and pending patent application can be resolved in civil judicial proceedings or administrative proceedings before the CNIPA during the drug review and approval process. The National Medical Products Administration (NMPA) may make a decision as to whether the approval of the relevant drug for marketing is suspended, according to an effective judicial decision.

The primary purpose of the patent linkage system is to link the drug approval process with the patent infringement suit, resolve patent infringement disputes as early as possible during the generic drug approval process, protect the legitimate rights and interests of drug patent holders, and reduce the risk of patent infringement that may occur when a generic drug is marketed.

The establishment of the PTE and the patent linkage system eliminates the shortcomings of the existing system, improves pharmaceutical patent protection in China and will boost new drug R&D and promote pharmaceutical innovation.

Design patents also received special attention in the recently amended Patent Law. Designs have played a more and more critical role to China's businesses, from start-ups to Fortune 500 firms. To enhance design protection, and to meet the requirements of the Hague Agreement, the new Patent Law introduces the long-advocated partial design and extends the term of a design patent from ten years to 15 years. Meanwhile, and for the first time, domestic priority for design applications has been added.

The PRC Copyright Law came into force on 1 June 2021 with the following amendments:

1. Statutory damages for copyright infringement have been raised to CNY5 million maximum as compared to CNY500,000 maximum in the previous Copyright Law.

Damages for copyright infringement are calculated in consideration of the losses of the copyright owners, illegal profits of the copyright infringers or the copyright royalties when it is hard to calculate the losses of the copyright owners or illegal profits of the copyright infringers.

The damages also include reasonable disbursements for the copyright owners to take legal actions to stop the copyright infringement.

2. Punitive damages for copyright infringement are provided.

In light of the circumstances of the intentional copyright infringement, the court may award punitive damages at the amount of one-to-five times the losses of the copyright owners, illegal profits of the copyright infringers or the copyright royalties under the amended Copyright Law.

3. The amounts of administrative fine on copyright infringement are specified.

Although the previous Copyright Law stipulates that a fine may be imposed on the copyright infringers by copyright enforcement authorities, the amounts of fine are not specified. The amended Copyright Law provides: “If the illegal business turnover is more than fifty thousand RMB Yuan, a fine of not less than twice the illegal business turnover and not more than five times the illegal business turnover may be imposed; if there is no illegal business turnover, it is difficult to calculate the illegal business turnover or the illegal business turnover is less than fifty thousand Yuan, a fine of not more than two hundred and fifty thousand RMB Yuan may be imposed.”

The Measures on Administration of the List of Serious Violations of Laws and Loss of Credit issued by State Administration for Industry and Commerce and effective as from 1 September 2021 stipulated, among other things, that the parties involved in the following acts shall be included in the List:

1. Intentional IP infringement.

2. Filing patents or trade marks in bad faith, causing damages to public interests.

3. Patent or trade mark agencies in grave violations of laws in the process of representation in patent or trade mark filings.

The List will be published for public reference and the parties in the List shall be subject to much stricter scrutiny in the process of granting administrative licences, reviewing qualifications, participating in government procurement projects or project tenders and will also be treated as priority targets for stricter supervision and more frequent inspections, and do not have qualification to receive awards or honorary titles granted by the market regulatory authorities, etc. The State Administration for Market Regulation is trying to strengthen the market credit supervision and push the market participants to conduct business in good faith.

CNIPA released the Guidelines for Trademark Examination and Trial (hereinafter referred to as “new Guidelines”) on 22 November 2021. The new Guidelines were effective from 1 January 2022 with the view to standardising the procedures for trade mark examination and trial and ensuring that the application of laws and standards in all procedures of trade mark examination and trial are consistent. CNIPA also published four follow-up policy interpretations of the new Guidelines, interpreting key issues in the formulation of the Guidelines from the aspects of the examination and trial of a bad faith application for trade mark registration for a purpose other than use, signs that may not be used as trade marks, distinctiveness of trade marks and well-known trade marks, so as to facilitate the public and trade mark practitioners to better understand the Guide and respond to public concerns.

CNIPA issued Standards for Judging General Trademark Violations on 13 December 2021. The Standards took effect on 1 January 2022. Formulated on the basis of the PRC Trademark Law, the Implementing Regulations of the PRC Trademark Law, the practical experience, the problems and best practice in trade mark law enforcement as well as opinions solicited from the public and the industry, the Standards are aimed at enhancing trade mark administration, providing guidance for the trade mark law enforcement authorities, unifying trade mark enforcement standards and offering transparent and predicable rules on trade mark use and administration.

On 7 January 2022 CNIPA issued the Administrative Measures for the Establishment of Permanent Representative Offices by Foreign Patent Agencies in China (hereinafter referred to as the “Measures”). There are four chapters and 19 articles in the Measures, providing the application procedures and licensing conditions for the establishment of permanent representative offices by foreign patent agencies in China and clarifying legal liabilities for the offices. The Measures are aimed at regulating the permanent representative offices established by foreign patent agencies and their activities in China, protect the legitimate rights and interests of these offices and their representatives, optimise the business environment, and ensure the high-quality development of the patent agency industry.

The Measures on Fast-Track Examination of Trademark Applications for Trial Implementation (the Fast-Track Measures) issued by CNIPA took effect on 14 January 2022. The Fast-Track Measures have been formulated to improve trade mark examination, adequately accommodate the differentiated needs of trade mark owners and expedite examination of trade marks, use of which involves national interest, public interest or major strategies for regional development.

According to Article 2 of the Fast-Track Measures, requests for fast-track examination can be filed for the trade marks used under the following circumstances:

1. The trade mark is related to the names of major national or provincial projects, major programmes, major scientific and technological infrastructure, major sport events, major exhibitions, etc, and it needs urgent trade mark protection.

2. During the period of major public emergencies such as major natural disasters, major accidents, major public health emergencies, major social security emergencies, etc, the use of the trade mark is directly related to the response to such public emergencies.

3. It is necessary to facilitate high-quality economic and social development and advance the implementation of the Guidelines for Building a Powerful Intellectual Property Nation.

4. It is of practical significance for national interest, public interest or major strategies for regional development.

On 5 February 2022 China submitted the instrument of accession to the Geneva Act of the Hague Agreement Concerning the International Registration of Industrial Designs (1999) (hereinafter referred to as the "Hague Agreement"), to the World Intellectual Property Organisation (WIPO), becoming the 68th contracting party and the 77th member of the Hague Union to the Hague Agreement 1999, which entered into force in China on 5 May 2022.

From 5 May 2022 non-residents may apply for international industrial design protection in China through the Hague System, which facilitates business expansion into one of the largest and most dynamic markets in the world. At the same time, Chinese companies and designers will be able to quickly and easily seek international protection for their industrial designs in the 94 countries covered by the Hague System, as needed, which helps expand the international market. Industrial design has increasingly become one of the core competitions of Chinese enterprises, providing important support in the process of enterprise internationalisation and has become an important tool for companies to participate in international competition. The Hague Agreement will provide great convenience for Chinese enterprises to seek international protection of industrial designs.

The revised PRC Seed Law went into effect on 1 March 2022. The new Seed Law reflects a significant expansion in the scope of plant breeders’ rights (PBR) protection in China. It addresses China’s goals as to the plant variety protection improvement, promotion of plant breeding and plant research, and incentivising innovation. The changes in the Seed Law have been met with praise in the industry.

On 16 March 2022 the Supreme People’s Court issued the Judicial Interpretations on Several Issues Concerning the Application of the Anti-Unfair Competition Law of the People's Republic of China. The Judicial Interpretations, which became effective on 20 March 2022, had 29 clauses in total and clarifies matters related to general clauses, business ethics, confusion, false advertising, conducts of unfair competition through the Internet and outside China, etc, with the view of helping the IP right holders and Chinese courts to better apply the Anti-Unfair Competition Law in protecting IP rights and public interests.

On 20 July 2022 CNIPA issued Guidelines on IP Protection at Trade Fairs to improve IP protection at exhibitions and trade fairs. The Guidelines cover issues such as the commitment of exhibitors to follow the IP Laws and rules at exhibitions, the on-site dispute resolution mechanism at exhibitions.

CNIPA issued Criteria on Determining Trademark Infringement on 15 June 2020 to provide guidelines on trade mark enforcement, unify enforcement practice and enhance protection of trade mark rights. On 28 July 2022 CNIPA published Interpretations and Application of Criteria on Determining Trademark Infringement, offering clarifications and citing cases to help the law enforcement authorities to better understand and implement the Criteria on Determining Trademark Infringement.

4. Summary 

China is moving ahead full steam with the Guidelines for Building a Powerful Intellectual Property Nation (2021-2035), taking concrete steps to drive innovation, create a pro-IPR environment and help the IPR holders to rely on IPR to protect their economic castles and ensure competitive advantages and continued growth in the market.