The Supreme People’s Court has issues a new Judicial Interpretation to guide the courts in implementing China’s new Trademark Law, which goes into effect May 1, 2014. The JI was issued on April 10, 2014. The SPC Judicial Interpretation Concerning Questions on Jurisdiction and Use of Appropriate Law After the Decision of Implementation of the Revision of the Trademark Law (最高人民法院关于商标法修改决定施行后商标案件管辖和法律适用问题的解释), essentially mandates use of the new law for cases arising after May 1, 2014, as well as reaffirms the jurisdiction of the various courts in administrative appeals and recognition of well known marks.
China’s State Intellectual Property Office is a frequently misapprehended agency. Here are items I gleaned from reading SIPO’s “Brief Introduction and Review of State Intellectual Property Office in China” (2014), which may not be well understood today:
First the general observations
1. SIPO is more than just the patent office. SIPO has general IP responsibilities, including a coordinating role over “IPR protection work nationwide”, “implementing the Outline of the National IP Strategy” and “drawing up the policies of foreign-related IP work.” (pp. 1-2).
2. Although SIPO has aspired to have a direct role in the State Council, it “still is a government institution directly reporting to the State Council”, i.e. not at the ministerial level (p. 1).
3. In addition to its involvement with the four other leading patent offices in the world, SIPO participates in a BRICS head of IP offices meeting. It also has patent prosecution highways (HHP) with the United States, Mexico, Spain, Portugal and Britain. In addition, it has MOUs with Canada and Ecuador. It may also provide substantive patent examination services for Hong Kong.
4. SIPO also has close industrial contacts with Chinese enterprises, the nature of which is unclear. It has a “key contact mechanism” (undefined) with a number of central enterprises, including the Commercial Aircraft Corporation of China, Sinopec, and Datang Telecom. It also has a cooperation and consultation system (also undefined) with institutions directly under the central government such as the Ministry of Railways, Chinese Academy of Sciences, and China Association for Science and Technology.
SIPO’s Focus on Management and Human Talent
1. SIPO’s patent office has 3, 058 staff members, of which 2,010 are substantive examiners. SIPO also has seven Patent Examination Cooperation Centers: Beijing, Jiangsu, Guangdong, Henan, Hubei, Tianjin, and Sichuan, with approximately 5,500 employees. Tianjin and Sichuan appear to be the newest, with only one FTE at each of these places. In total SIPO has 12,752 employees.
2. SIPO greatly increased its examiner corps from 2001 to 2009. Since 2010, the numbers of examiners has dropped slightly. However, employment at its affiliated patent cooperation centers, where some examination work has been outsourced, has continued to grow. Overall the time periods for patent examination have dropped dramatically. In addition, the overall time period for patent examination was 53 months in 2001. It was 22.2 months in 2013 (p. 23).
A Snapshot on Patent and Administrative Enforcement Trends
1. There continued to be remarkable growth in patent applications in SIPO in 2013. The growth rate in invention patent applications for 2013 was 26%, the highest growth rate since 2005. Amongst the 1.313 million patents filed, 825,136 were invention patents.
2. Foreigners play a smaller role in SIPO than they do in the United States. During FY 2013, foreign patents applications received by USPTO constituted 51.9% of the total. In CY 2013, 14.6% of SIPO’s patent applications were foreign in origin. The United States is also responsible for one-fourth of the foreign patent filings in China.
3. In 2014, utility models and design patents appear to not have been granted as automatically or quickly as in the past. In 2013, the ratio between UMP applications and concluded cases was 11.6%, compared to 3.9% in 2012. For designs, the similar ratios were 13.2% and 9.9%, respectively. This may suggest that SIPO is beginning to perform a more substantive examination over some applications.
4. Administrative enforcement has also increased dramatically (p. 12). Administrative patent dispute cases increased in 2013 to 5,056 from 2,510 in 2012, or about double. This may have been in part to demonstrate an enhanced role for SIPO in light of proposed patent law amendments that would expand the role of administrative enforcement.
SIPO released its latest draft for public comment of its proposed service invention regulations 职务发明条例草案 (送审稿), including a very useful Chinese language webpage on April 1. The website contains additional reference materials including summaries of comments on prior drafts (August 2012, November 2012 and December 2013), a comparison of these drafts as well as a report on the Japanese service invention system and summaries of meetings and surveys.
The draft is the product of several ministries and agencies, including SIPO, Ministry of Education, Ministry of Science and Technology, MIIT, Ministry of Labor and Social Security, Ministry of Agriculture, MIIT, NCAC, Forestry Bureau, China Patent Protection Association and the Chinese Inventors Association. There is no stated deadline for submitting comments, rather the draft appears to have been published on a more open-ended basis to solicit public comments, including considering the viewpoints of comments previously submitted by others. SIPO has once again done an admirable job of making its policy considerations public available.
The proposed rules appear to adhere to the principle that gives priority to contracts or agreements between employers and employees. However, the drafters rejected proposals to place freedom of contract in the chapeau language of the draft regulation. The drafters also believe that there are minimal compensation standards that should apply to employee compensation claims. The draft removes prior references to employee compensation for software based on service invention standards, while maintaining compensation for plant variety protection employee contributions. It also maintains protections for inventors when a patent disclosure is not filed for a patent and maintained as a trade secret, but the enterprise has benefited from the invention. The employee inventor also retains a right to know about the circumstances of his/her invention being licensed to others which now is based upon circumstances where it has a need to know.
The survey of Chinese enterprises also provides useful background concerning SIPO’s motivations. The data shows that enterprises recognized the need to provide service invention compensation. However, there was concern about compensation for trade secrets, and interference in the management of enterprises to compensate inventors. SME’s were particularly concerned about interference in their enterprise’s autonomy.
When I first blogged about this draft regs, I reached a high of 426 hits – an education for me about how important this issue is to readers of this blog.
USPTO has extended the deadline to apply for the recently published China IPR legal positions in Washington, DC to April 9: https://www.usajobs.gov/GetJob/ViewDetails/364794400. See my earlier post: http://chinaipr.com/2014/03/19/uspto-china-team-attorney-advisor-position-opens/.
The “US-China IP Cooperation Dialogue Report” was released last week. The Report was prepared by experts from both the US and China, including co-chairs Professor Liu Chuntian of Renmin University and Joseph Papovich, former Assistant US Trade Representative. I was an also a member of the expert committee, first as an academic with Fordham Law School, and later as an advisor when I returned to USPTO, in an otherwise private sector initiative.
The Report reflects the consensus reached during several days of meetings among this experienced team. Here are some of its suggestions:
Civil Enforcement: the Report urges greater use of precedents through a guiding case system, experimenting with amicus briefs for important cases, expanding evidence preservation and preliminary injunctions, and greater civil deterrence in damage awards.
Criminal Enforcement: the Report calls for adjustments to the criminal enforcement system and an expanded and stable role for criminal IP enforcement. The US experts sought greater clarity over “for profit” requirements in criminal IP convictions, while the Chinese side believed that current judicial practice will ultimate reduce these difficulties. Both sides agreed that criminal enforcement should be directed towards repeat offenders, large scale criminal activity, and cross-border criminals. In addition, officials should be encouraged to increase the volume of criminal prosecutions. Authorities should also consider plea bargaining and proportional criminal fines, as well as criminal settlement and victim-offender reconciliation. Victims’ compensation (fudai) claims should also be allowed. Specialized IP enforcement teams and specialized prosecutors were suggested, as well as clearer IP criminal investigation guidelines.
Customs: Greater support of Chinese customs, with more resources, and more engagement with foreign countries.
Copyrights: The experts supports the 2012 Supreme Peoples Court Judicial Interpretation on intermediary liability and commended the court’s openness in accepting outside comments and evaluating foreign practices. Both sides also encouraged foreign companies to more aggressively use legal remedies to stop infringement. While China has made significant improvements in end user piracy, the necessity of criminal liability was also underscored. The experts also believed that live sports programming should be protected under China’s copyright law, and expanded protection should be afforded to technological protection measures.
Trademarks: The experts expressed support for SAIC’s efforts to address online sales of counterfeit goods, and urged the SPC to consider leveraging its experience in dealing with secondary liability in the copyright context to the trademark context, in order to encourage more cooperation between platform owners and brand owners. The experts also urged the CTMO to adhere to the principle of good faith TM registrations to deal with squatting, and to expand cooperation with express mail services to deal with global counterfeiting organizations.
Patents: The experts agreed that the courts should continue to play a central role in adjudicating patent cases. The experts also suggested that China should consider centralized jurisdiction over patent cases to ensure specialization and predictability. If a centralized patent court cannot be established, the experts considered that the SPC might wish to reduce the number of courts that hear patent litigation cases from the current 89. The experts also expressed their concern about the low rate of injunctive relief for invention patent cases, and consider means of improving evidence collection, particularly in process patent cases. The experts also discussed Article 26.3 of the Patent Law (enablement), and problems with retroactive application of examination guidelines and restricting data supplementation. In evaluating appeals from the PRB to the Beijing courts, some experts also pointed to low reversal rates by the courts, and too much involvement by PRB officials in the court’s decision making process, which can impair impartiality. The experts also recommended a study on the impact of the short statute of limitations (two years) in China on protection of patent rights. The Chinese side also thought that foreigners also need better protection and planning for litigation in China.
Trade Secrets: The experts agreed that theft of trade secrets, whether the victims are foreign or Chinese, is “not tolerable.” The experts further noted that trade secret theft “harms business value and destroys trust” and that trade secret cases can have a big impact on “sustaining the growth of R&D facilities and technological collaboration in China.” The experts pointed out that parties in trade secret disputes need to be given a fair opportunity to discover key facts and to examine evidence. Police officers should be able to conduct undercover investigations (Criminal Procedure Law, Art. 51). Chinese experts also cautioned that criminal prosecutions may be abused and that in some cases the civil and criminal results of the same trade secret cases have had conflicting results.
This eight page bilingual Report is a very useful read for policy makers in the United States and China. What is perhaps even more important is that it was a joint collaborative effort, which showcases the potential for future cooperation on IP policy efforts.
Joseph Sternberg of the Wall Street Journal reported a few days ago that a European company, Ineos, has decided to bring a law suit against a Chinese State Owned Enterprise, Sinopec, for patent infringement involving its patents for manufacturing acrylonitrile, a product used to make carbon fiber. Sinopec is allegedly building unauthorized factories based on the technology. The article is entitled “A Watershed for Chinese Patent Theft – The first IP lawsuit by a foreign firm against a large state-owned enterprise tests Beijing’s reform mettle.”
While this case may be path-breaking, concerns about state owned enterprise or government supported infringement are not new. The 1995 MOU on Intellectual Property between the US and China for example, required that “public entities in both countries shall not use unauthorized copies of computer software in their computer systems and legitimate software will be used…[A]dequate resources shall be provided to permit the acquisition only of authorized computer software.” Legalization of government and SOE computers has been a theme in bilateral IP relations more or less since then. Concerns about state involvement and support of infringement are also found in the publishing sector, especially piracy of scientific and technological journals at Chinese universities and research organizations.
Chinese rightsholders also pursue cases against the government of China for copyright infringement. Perhaps the most notable instance was the piracy of five of the works of the late Professor Zheng Chengsi, one of China’s leading academics on intellectual property. These five works were compiled into a “Complete Book of Intellectual Property”, which was published by the Supreme People’s Procuracy (China’s attorney general) way back in 1992. Prof. Zheng’s efforts to secure royalties were unavailing.
Is the defining problem whether a company is foreign, or whether it is well-connected with the State? We have little data to compare how foreigners fare in Chinese court compared to Chinese entities. However, the analytical data for Shanghai, analyzed by Profs. Xin He and Su Yang , show that “When the litigants are classified by their organizational and social status, government agencies or government-related companies are the biggest winners.” In short, farmer’s don’t win cases – SOE’s do. However, this data gives little guidance to a foreign technology company. To me the data does, however, suggest that one might wish to avoid bringing a litigation against a large state owned enterprise where that enterprise is headquartered or enjoys significant “organizational and social status”, i.e.- don’t get ‘home-towned.”
Sternberg also notes that Beijing is also developing an especially strong “reputation among intellectual-property lawyers for fair handling of highly technical disputes between private parties, including foreigners suing Chinese firms”. I am personally awary of generalizations of this nature. It is unlikely to me that any particular venue in China is always the best for complex technology IP cases. For example, the CIELA database on civil IP litigation in China shows that Beijing is not one of the top 10 cities where one is most likely to win a patent case. CIELA also reports that it was number 3 in average damages awarded, at about 180,000 RMB or 30,000 USD – hardly enough to pay a foreign lawyer’s complex patent litigation retainer. As for invention patents in the chemical and biological sector, CIELA reports only seven cases in Beijing, with damages being awarded that averaged 100,000 RMB, and a 100% incidence to date of a complete loss or partial loss for the plaintiff.
China has the laudable goal of developing innovative state-owned enterprises, private enterprises and research organizations. Understanding the relationship between China’s innovation policies, and the motivations it may provide for those tasked with developing new technologies to acquire needed foreign technology is likely be an increasingly critical issue. These state technology policies may give the litigants additional “social status” and thereby also tilt the balance of justice.
Will plaintiffs or defendants tasked with implementing China’s technology policies also become the “biggest winners” in IP battles in China in the future? To me, this is both an IP and rule of law “watershed issue.”
How many corrupted officials have got their Ph.D. from corrupted Universities in China?”, asks Sun Yifei, a professor of geography at Calstate Northridge, on the Google S&T and Innovation in China page. The answer seems to be, as one blogger noted, that: “China is considered a big “mountain stronghold” country, even master’s degrees for officials, and the title of Ph.D. are counterfeit and substandard” 中国号称山寨大国，连官场上的硕士、博士头衔也大都是伪劣假冒。
This particular episode of false credentials may even have an IP angle. It seems that a certain “DR. MA,… was just removed from the vice-governor position at Yunnan. Beijing Normal University, one of China’s 211″ and “985″ Universities, was the one that gave the degree to him. The executive vice president of the University, SHI Peijun, a geographer, was his adviser for his research on PU-ER Tea. The University got more than 10 million contract/grants from Yunnan” (where this tea is grown).
What is “mountain stronghold” (shanzhai) culture, and how is it implicated in counterfeiting, substandard products and fake degrees? Prof. Hennessey’s article “Deconstructing Shanzhai–China’s Copycat Counterculture: Catch Me If You Can” explains that “in popular slang in contemporary China, ‘to copy’ and ‘to parody’ as self-aware, casual, and public behavior by ordinary citizens is referred to as ‘shanzhai.’ The literal meaning of the word shanzhai is ‘mountain stronghold,’ which in traditional Chinese popular culture refers to the hideout of bandits and other outlaws”.
Puer tea is the subject of trademark and geographical indication protection in China and overseas. The tea is distinctive in taste and history. It has a peaty, fermented taste. It was carried on the backs of horses through Tibet, and is sold in brick form. As my brother, a tea connoisseur (picture below) notes, this tea is particularly well-suited to this Year of the Horse. Predictably the tea has also been the subject of counterfeiting and possibly abusive trademark registrations. For example, at the USPTO website, a Canadian Chinese tried to claim the name in 2007 as his own trademark, but abandoned the mark. The Yunnan Puer Tea Association now owns the mark in the United States, based on an application filed in 2011, which was granted in 2012 (see their trademark above).
Does counterfeiting hurt China? The answer seems obvious in the case of puer tea. Adequately defining what is the puer geographical region helps Chinese farmers and agricultural regions, as well as benefitting the IP system and consumers. Officials with knock-off diplomas, knock-off trademarks and knock off products for the same region help no one. Ultimately, the injury from “mountain stronghold” counterfeiting reaches deep into the Lancang mountain region where this delicious tea originates.