HOW SAFE IS YOUR IP IN CHINA IN 2022?

(Published in CBBC Focus, 04 January 2022)

In October 2020, Dow and Johnson Matthey won a major intellectual property case against Shanjun Clean Energy Technology over the two companies’ jointly owned Oxo alcohol technology. Dow and JM have licensed their Oxo alcohol technology for over 20 years in China and this dispute was not the first time that they have fought legal battles over the product in the country.

This case is just one of many recent successful rulings in favour of foreign firms in China, highlighting the significant progress in how intellectual property disputes are handled in China and a growing professionalism within Chinese courts. While foreign firms have in the past feared lax legislation regarding intellectual property, this is increasingly not the case. However there remains much progress to be made.

So what’s changed in the IP environment in China over the past year?

Since the announcement in January 2021 within China’s new Civil Code that infringed parties would soon have the right to claim for punitive damages in IP litigation cases, 2021 has seen a series of important changes with regards to intellectual property rights (IPR).

On 1 June 2021, a series of amendments to PRC intellectual property policy came into effect. This has led to changes to patent and copyright law and seen new national standards and administrative measures drawn up.

Building on the establishment of a punitive damages system, the Amended Patent Law improves the system for service inventions, establishes an open-licensing scheme for patents, and establishes a patent term extension and a patent linkage system for pharmaceutical patents.

Alongside the legal amendments, two new national standards approved in 2020 also came into effect: one a guide to navigating patents, and the other relating to IP protection for e-commerce platforms. The changes have also introduced new administrative measures for resolving major patent infringement disputes.

Introduction of a patent open-licensing system and an improved system for service inventions

Rouse, a leading global legal firm specialised in intellectual property, believes that the new rules represent significant steps forward for China’s IP environment. Speaking to FOCUS, Rouse shared the following key benefits of the policy development.

“We think the establishment of the system could greatly promote the conversion and use of the patents. For example, it enables parties in request to obtain patent licenses in an open, reasonable, non-discriminatory way, which reduces the difficulty of license negotiation. At the same time it may increase the willingness of licensees to transform patents, which is conducive to enterprises in obtaining more patent commercialising activities.”

Rouse is hopeful that the open licensing of patents will enhance the market competition mechanism to allow the market to provide more high-quality and inexpensive new products and new technologies, which is beneficial to both companies and the public.

The amendments to service invention legislation develops property rights incentives and should further stimulate innovation. Article 15 of the Amended Patent Law states: “The State encourages enterprises that have been granted patent rights to implement property rights incentives, to adopt the means of stock shares, options, dividends, etc., so that inventors or designers can reasonably share the benefits of innovation.”

According to Rouse, the new rules represent the first time that the Chinese legislature has written “property rights incentives” directly into the law and is of great significance. “The implementation of this new rule will greatly stimulate the motivation of scientific researchers to transform their achievements… eventually realising a strategy of property rights-driven innovation and innovation-driven development.”

China’s ‘Outline for Building a Powerful Intellectual Property Country (2021-2035)’

On 22 September 2021, China’s state council announced the ‘Outline for building a strong intellectual property nation 2021-2035,’ a 15-year plan for vastly improved IPR and governing frameworks in China. Within the first five years until 2026, the outline aims for stricter IP protection, better market value of IP, and significantly enhanced brand competitiveness.

In more concrete terms, the outline envisions patent-intensive industries contributing 13% added value to GDP, annual import and export royalties of intellectual property to reach RMB 350 billion (£40.8 billion), and for every 10,000 people there will be 12 high-value patents.

The new outline follows on from the 2008 ‘Outline of the National Intellectual Property Strategy,’ which pointed out that IPR needed improvement in China and that public awareness of it remained relatively limited. This strategy aimed for a much-improved legal environment for intellectual property, accompanied by considerably higher numbers of domestic patents.

Progress in Chinese IP

Once infamous for its fake markets and copycat ‘shanzhai’ industries, Chinese firms now have an ever-increasing amount of their own intellectual property to protect. While counterfeit goods are still very much a presence in China, their prevalence is dying down and authorities look increasingly less favourably on them.

CBBC Business Environment Director Yuan Yuan believes that progress is now tangible, despite the continued need for improvement. “In recent years, China has made a lot of effort to improve its IP framework. It is now easier to enforce rights in China, which makes China’s business environment more conducive for foreign companies to enter the market. However, given Covid-19 and the lack of travel opportunities, these improvements are not necessarily well understood by British businesses.”

Considering some of China’s major growth areas, such as the high-tech sector, demand for heightened IP protection should come as no surprise. It should also come as a relief to businesses who fell victim to China’s former copycat habits in the past. Even if the new policy first and foremost aims to protect domestic companies and encourage economic growth, more robust intellectual property rights should better protect all businesses operating in the country.

The statistics show that foreign businesses are already benefitting from the rapidly improving legal environment, and that the courts are enforcing the changes. According to China’s Supreme People’s Court, China’s courts accepted over 480,000 IP related cases in 2019, an increase of 40% on the previous year. Fighting against preconceptions that the courts may lack goodwill towards foreign parties, the Chinese government has explicitly prioritised the fair treatment of foreign businesses.

Data from RPX suggests that foreign plaintiffs have won patent cases at a very similar rate to domestic parties in recent years. Between 2015 and 2019, foreign plaintiffs won around 77% of the time in litigation against Chinese defendants, while domestic plaintiffs won in about 74% of cases. The high success rate and relatively equal standing with domestic business in the courts certainly suggest that the stronger patent laws are helping provide foreign businesses operating in China with much more legal protection than in the past.

In 2020, Australian wine company Treasury Wine Estates won the trademark to Ben Fu, the transliteration of its flagship brand Penfolds, following a decade of litigation and enforcement. This particular case was not without its twists and turns. TWE won a lawsuit against Rush Rich in 2019 but it was overturned by the Beijing Intellectual Property Court. Only after an appeal was TWE successfully awarded its trademark rights.

One of the main purposes of IPR is to encourage innovation, and China certainly is innovating. China overtook the US in 2019 as the largest generator of new patents in the world, generating nearly 59,000 patents. This was the first time that the US had lost the top spot since 1978. To give a sense of just how rapid Chinese innovation has grown, patent applications have grown by 200 times over the past 20 years.

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