Outcomes of the Fifth US-China Innovation Dialogue

The White House Office of Science and Technology Policy recently released a blog on the results of the bilateral Innovation Dialogue with China with the Ministry of Science and Technology and other agencies: http://www.whitehouse.gov/blog/2014/08/13/outcomes-fifth-us-china-innovation-dialogue.

Of particular note are the provisions regarding sanctity of contracts involving inventor compensation. According to the blog:

The United States and China resolved to protect the legal rights of inventors in accordance with their respective domestic laws and regulations, and in line with their domestic laws committed to respect the rules and policies developed by employers and/or legitimate contracts between employers and inventors concerning the awards and/or remuneration of inventors.

For further background see: http://chinaipr.com/2014/04/03/new-service-invention-draft-regulation-and-web-page/ .

MofCOM Hosts Annual IP Program Sept 12 in Washington, DC

MofCOM is hosting its annual IP exchange in the United States this September 12 at the Holiday Inn  on 2101 Wisconsin Avenue in Washington, DC.  There is no charge for attending, but seats are limited.  If you wish to attend, reserve by contacting Mr. Huangjie via huangjie@mofcom.gov.cn or 202-6253355.

Here is the draft agenda:

2014 China’s Overseas IPR Exchange Tour in the U.S.

 September 12, 2014   Simultaneous translation provided

08:30-09:00  Registration

09:00-09:05         Opening remarks by the Chinese side (Mr. Fuli Chen, China’s IP Attaché to the United States)

09:05-09:10         Opening remarks by the U.S. side

09:10-09:30         China’s efforts and achievements in combating IP infringement and piracy in 2014, presented by the Office of China’s National Leading Group on the Fight Against IPR Infringement and Counterfeiting. (Issues concerning trade secret protection will also be mentioned)

09:30-10:00         Ten typical IP cases in 2013, presented by China’s Supreme People’s Procuratorate

10:00-10:15         Q&A

10:15-10:30         Coffee Break

10:30-10:50         Highlights of the Regulations for the Implementation of the Trademark Law, presented by China’s Trademark Administration Bureau under the State Administration for Industry and Commerce

10:50-11:10         Latest development of China’s copyright protection, presented by the National Copyright Administration of China

11:10-11:30          Introduction to China’s GI protection system and the protection granted to Napa Valley Wine, presented by China’s General Administration of Quality Supervision, Inspection and Quarantine

11:30-11:50          Q&A

11:50-11:55          Closing remarks by the Chinese side

11:55-12:00         Closing remarks by the U.S. side

12:00-13:00         Lunch (Buffet)

14:00-16:00         Roundtable meeting (Moderator: Mr. Fuli Chen, China’s IP Attaché to the United States)

14:00-14:05         Opening remarks by the moderator

14:05-14:15         Self-introduction by members of the Chinese delegation (or by all the participants)

14:15-15:15         Comments and questions from U.S. enterprises

15:15-16:00         Q&A

Zhang Xinzhu Dismissed from AMC Expert Committee

Xinhua reported on August 12 2014 that  the State Council Antimonopoly Commission today fired Chinese Academy of Social Sciences researcher Zhang Xinzhu 张昕竹as a member of its expert advisory panel.  The official reason given was violating AMC expert advisory committee discipline. Zhang claimed the real reason was that he was speaking for foreign firms. Subsequent press reports have identified the relevant conflict of interest rules that Zhang is alleged to have violated. The relevant ethical code (enacted September 2008) is said to be “In order to protect the reputation of the experts committee, members cannot participate and effectuate activities conflicting with the interests of the experts committee; without the consent of the experts committee, they cannot use their title as a member of the experts committee to engage in activities unrelated to the work of the work of the experts committee” 《国务院反垄断委员会专家咨询组工作规则》第三章工作纪律中,第十三条规定了专家咨询组成员工作守则,其中第(三)项明确规定:“维护专家咨询组的声誉,不得从事与履行专家咨询组职责利益冲突的活动;未经国务院反垄断委员会同意,不得以专家咨询组成员身份从事与履行专家咨询组职责无关的活动。The conflict of interest appears to be that Zhang is identified as the second listed author of an AML report “Concerning Economic Evidence of Qualcomm’s Licensing Prices” “关于高通许可定价的经济学证据.”

This issue also continues to play out in the Chinese media and the facts remain unclear. Fortunately thus far it appears to me to be unrelated to efforts to rectify the Chinese Academy of Social Sciences from foreign influence. In early August, the South China Morning Post, reported that Zhang Yingwei, head of the party’s discipline inspection office at CASS, said the academy had been “infiltrated by foreign forces” and “was conducting illegal collusion at politically sensitive times”. At the same time, no information has been provided about other ethical issues arising in AML investigations or whether this type of activity had otherwise been tolerated if, as Zhang might be suggesting, it had been conducted on behalf of a Chinese company despite any specific ethical rule.


Peter Humphrey and the Uncertain Status of the Private Investigator

Private investigation firms are important for many aspects of commercial life in China, particularly given the weaknesses in China’s evidence gathering system and the high thresholds that exist for criminal investigations. PI firms conduct every thing from due diligence for investment projects, background checks on business partners and investigations on trademark squatters, counterfeiters and patent infringers.

Peter Humphrey and his wife Yu Jingeng, private investigators hired by GSK, were recently sentenced by a Shanghai court during a one day trial, which followed 13 months detention. According to a Reuters report, the sentences were for two and a half and two years, respectively, plus fines. Humphrey is being deported. Prosecutors charged that the couple had illegally obtained and sold more than 250 items of private information, including household registration data, real estate documents and phone records. Yu is quoted by Reuters as noting that “In other countries, we were able to conduct similar checks, including personal information and private transactions, legally through courts.”

Private investigation firms are a critical component of an IP enforcement campaign in China. Thankfully, according to noted anti-counterfeiting lawyer Joe Simone, the conviction was not for “illegal business operations”, which can carry a harsh sentence.  Ironically, illegal business operations is routinely employed in IP cases for illegal publications in lieu of the lesser offense of copyright infringement (Criminal Code Art. 225).   Joe notes that there was a 1993 Ministry of Public Security rule on the illegality of private investigation firms.   However, as this was an administrative rule it is of limited binding effect. Nonetheless the Humphrey case has led many private investigation firms to question whether their operations are legal.

The status of PI firms has been of concern to many companies and governments for some time. As I recall, private investigators have also been used for a variety of domestic purposes, including, predictably, marital disputes. Evidentiary burdens in Chinese litigation, including difficulties of compelling the production of evidence by an adverse party, can make PI firms a key component of an IP enforcement team

Here was the question that the US government asked China about PI firms two years after it joined the WTO, back in 2003:

79. We understand that China currently restricts the operation of foreign private investigation firms in IPR matters. At the same time, police and administrative authorities are frequently limited in their ability to gather evidence in criminal and administrative prosecutions, making private investigative firms even more important. Current thresholds for criminalization of counterfeiting and piracy, if applied to case initiation, create a high barrier for police or administrative agencies to refer cases to criminal prosecution, making the necessity of private gathering of information even more critical. Please advise what rules apply to the operations of such firms, as well as any plans to permit these firms to more actively assist China’s administrative, criminal and civil enforcement authorities (IP/C/W/414, 12 November 2003).

China responded to that question a year later by noting:

60. With regard to the issue of private investigating firms, [the Chinese side] said that the Ministry of Public Security of China was taking active steps to consider it. However, there was still no new regulation being issued. (IP/C/34, 9 December 2004

Prof. Don Clarke of GW law school has collected the weibo transcripts for those who want to follow this issue further.



China’s Antitrust Enforcement Continues to Grab the Domestic and International Spotlight

With the New York Times reporting on the AML enforcement uptick in China, including SAIC’s investigation of Microsoft, and a concurrent article in Xinhua, China’s antimonopoly regime, including its application to IP is seizing an increasingly larger piece of international attention by the media and industry.

The Times notes that “Microsoft; the San Diego-based chip maker Qualcomm; Daimler , the German auto giant; and other formidable companies are on the defensive.”  The Xinhua page is entitled “Once Again Brandishing the Sharp Sword of China’s AML policy in 2014.” This webpage especially focuses on foreign companies.   Yet, MofCOM at the same time is insisting that foreigners are “steadfastly being treated equally” under the AML regime: “坚持内外一致原则.”:  Indeed, Chinese officials have been steadfast in rejecting notions of discriminatory treatment for some time in the face of foreign concerns: “It should be noted that the AML will be uniformly and equally applicable to both domestic and foreign enterprises of all types without any discriminatory treatment.”  said DG Shang Ming of MofCOM back in 2009 in an interview with the ABA.

The link between IP and antitrust in China’s current efforts is hardly surprising.  I noted in 2012 that at the very least the IP background of many of the senior competition officials in China is likely to inform their approach towards competition law.  DG Shang Ming, for example, formerly head MofCOM’s activities on IP before he became in charge of its antitrust division.  Chief Judge Kong of the IP Division would certainly bring his prior experience in the Administration for Industry and Commerce to bear on IP issues and antitrust.  I also noted at that time that “IP is as much a part of China’s vision of its market-oriented competitive advantages, as is the competition law.”   Wen Jiabao’s oft quoted view that “the future of competition in the world is intellectual property” (2004), could equally apply to competition including the AML which was then under debated and ultimately adopted in 2008.

What is the Chinese press saying? The following is a partial summary by Ms. Yao Yao, an LLM candidate at Fordham Law School:

According to the news from SAIC, the antitrust investigation against Microsoft began in June.  Ni Nanguang(倪光南), of the Chinese Academy of Engineering, Institute of Computing Technology, Chinese Academy of Sciences, said: ”Microsoft system and office software source code is not completely open, for example, some of the interfaces information is not enough open.  The third-party software is hardly compatible with Microsoft so that it difficult to enter the market.  In addition, Microsoft is bundling the browser and some players when it sale the system and software so that it is influence the market space for the third party.”   Ni Nanguang also said:”China might learn the foreign antimonopoly experience, both the problem of compatibility for no inter-operability and tying.”  The Xinmingwanbao noted” If Microsoft is confirmed as a monopoly, it’s good for the local company to get the opportunity to develop. ”

The Chinese press also noted that on July 11, Qualcomm’s president Derek Aberle and his team visited the National Development and Reform Commission for a third time.  The tone of the Chinese media is that the trouble of Qualcomm’s is not small.   In this latest investigation, the investigators of NDRC focused on some aspects such as using the machine as the basis for calculating the license fee, and standard essential patents and non-standard essential patent bundled licenses; requiring the patent licensing fee for expired patents, patent licensing and sales of bundled chips; refusing to license patents and some additional unreasonable trading conditions in patent licensing and chips.   China Trade News said: ”The monopoly of Qualcomm was confirmed.   Qualcomm abused the market domain position by collecting high licensing fee, bundling, asking terminal factory cross-licensing for free, refusing to licensing or bundling with additional unreasoned condition to competitors.   Qualcomm may be punished one billion dollars. ”  A Chinese electrical  engineering website  noted: “ although the AML investigation of Qualcomm begain in the 3G period, however it became especially prominent with 4G. The most important reason is that that domestic 4G technology is much more mature than 3G technology. “ 对高通的反垄断调查早在3G时代就开始了,但4G时代的声音却格外响亮,最重要的原因是,国内的4G技术(TD-LET),比3G技术(TD-SCDMA)成熟得多.”  The same article noted that “if the licensing fee cannot be lowered, it will influence the final price of 4G mobile. “

Let’s see how things develop…

The views expressed here are the authors’ own.


Microsoft under Chinese Antitrust Scrutiny?

Yesterday, July 28, the Western press, including the Washington Post and South China Morning Post, as well as Chinese online media reported that the State Administration for Industry and Commerce (SAIC), one of China’s three antitrust regulators, was investigating Microsoft for possible antitrust violations by visiting Microsoft’s offices at Beijing, Shanghai, Guangzhou and Chengdu.

Chinese IT analysts suggested that if there were an antitrust investigation, it would involve Microsoft’s operating system, which controls 95% of the market.   However, analysts also noted that while PC OS has not been a principal focus of attention of China’s antitrust regulators, China has potentially eight domestic competitors to Microsoft in the OS sphere, and that there market share has been growing in part through government procurement efforts. While OS is a basic platform for building computer systems and services, these analysts noted Microsoft’s technological depth in this area has brought it many competitive advantages.

One hopes that Chinese regulators note that the 95% “market” dominance figure that is being discussed necessarily refers to the legitimate, non-pirated market only since Microsoft’s chief competitor in China is likely the stolen pirated versions of its own software.

The limited news that is available makes it difficult to infer much. SAIC handles non-pricing related investigations involving monopolistic agreements, and abuse of dominance. In recent months, however, NDRC has undertaken several price-related antitrust investigations. SAIC is a vast agency which also has broad authority in a range of IP and market regulation areas, including “abuse of IP” pursuant to article 55 of China’s Antimonopoly Law as well as supervisory authority under China’s contract law.

History also offers little guidance, in part because of Microsoft’s extensive involvement in a range of tech sectors. A Hong Kong based company reportedly accused Microsoft of discriminatory and excessive pricing for its software products in 2012 in a case in Guangdong. .” On a positive note, however, Microsoft’s merger with Nokia was also recently approved by China’s antitrust regulators

China does appear to be more clearly expanding its efforts to regulate technology markets.   These efforts began even when there was an unclear legislative basis. The press had reported that Microsoft had been reported to be the subject of an antitrust investigation by SIPO in 1998, which thereafter led nowhere except to a flurry of denials. In fact, as I noted in the 2011 book I coauthored on Antimonpoly Law and Practice in China, MofCOM Vice Minister Yi Xiaozhun complained even before implementation of the antimonopoly law (2007) of high licensing fees “running counter to fair competition”. More recently,the Huawei/Interdigital case appears to have been a harbinger of a more active role by the government, particularly NDRC, in regulation of foreign players in China’s technology markets.

We noted in the 2011 book that there are likely be “increasing concerns regarding policies that appear oriented towards enhancing national competitiveness rather than competition per se. These concerns over an emerging Chinese “techno-nationalism” have been escalating with increasing frequency.” At the same time, I also expressed hope that “China’s emergence as a major center of innovative intellectual property activity may alter policies that appear to diminish the value of foreign IP rights and may also temper rhetoric that is occasionally heard of using competition law and other policies as ‘counter strategies’ to Western ‘IP oppression.’”  More recently, these themes were echoed at the recently concluded Strategic and Economic Dialogue where China “recognized that the objective of competition policy is to promote consumer welfare and economic efficiency, rather than to promote individual competitors or industries, and that enforcement of its competition law should be fair, objective, transparent, and non-discriminatory. “

These days at conferences no one seems to doubt that China is interested in IP protection. The “goods news” remains that China is interested in IP. Unfortunately, the bad news is also that China is interested in IP  —  as a tool of development for its “socialist market economy.” Striking the right balance will be a critical issue for both China and its trading partners in the years ahead.

The opinions expressed above are the author’s own.

SPC Publishes Revised Judicial Interpretation on Patent Infringement Litigation for Public Comments

On July 16, the Supreme Peoples Court published a public comment draft of proposed revisions to its “Decision of the SPC Regarding Questions of Application of Law in Adjudication of Patent Cases”, 最高人民法院关于审理专利纠纷案件适用法律问题的若干规定. Comments are due by August 15, 2014. Comments may be emailed to: zhuanliyijian@163.com。 The last revision to this document was in 2013, when a provision was inserted to give jurisdiction to designated basic courts to handle patent cases.

Of particular note in this short set of revisions are provisions regarding providing an appraisal report for utility model patents to the court if such a report had been requested by the plaintiff of SIPO, as well as provisions which appear to provide more flexibility in calculation of damages by the court, consistent with the 2008 patent law.

Many of the changes appear self-explanatory – such as those which track changes in relevant statutory provisions.  However, in light of the efforts to amend the patent law, experiments in specialized IP courts, calls for more deterrent damages and more extensive commercialization of IP rights, some additional explanation would be helpful regarding the reasons for any changes in policy that may be implicit in these revisions and any further changes that may be contemplated.

For earlier USG comments on the patent law revisions see: http://www.uspto.gov/ip/ip_overseas/china_team/USPTO_Comments_to_Chinas_Patent_Law_Amendments_FINAL_%289.10.12%29..pdf.

Once I receive a full translation or comparison of prior drafts from any reader, I will post it on line. Readers are encouraged to send in their translations, suggestions and comments. For now, the full Chinese text of the proposed revisions with my own initial bilingual observations are attached.