New CPC and State Council Opinions on Improving IP Protection

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On November 24,  2019, the General Office of Communist Party of China and the State Council jointly released the Opinions Concerning Enhancing Intellectual Property Rights Protection (关于强化知识产权保护的意见).

It is often too easy to dismiss documents like these, that have typically delivered an ephemeral higher state of vigilance by the Chinese government.  Nonetheless, there are some useful statements in this document that may be an indicator of future durable improvements, including:

  1. It is jointly published by the CPC and the State Council and thus has high level political and executive branch support.
  2. It does address some long-standing concerns raised by industry, such as development of a patent linkage system, patent term extension and copyright protection for sports broadcasts.
  3. There continues to be a focus on punitive damages in litigation. However, this document does appropriately point out the need to increase actual damages.
  4. Improving criminal enforcement, including revising criminal judicial interpretations – is also addressed.  Along with revising the criminal code, revising criminal JI’s and their high criminal thresholds was a goal of the WTO case that the US filed against China over 10 years ago (DS362).  This task is long overdue.
  5. Improving coordination between administrative and criminal enforcement is once again highlighted. This is also a long-standing issue.  In light of numerous prior efforts and experiments, a more concrete explanation of how this might be accomplished to better enable prosecution of major criminal actors would be helpful in the future.
  6. Case guidance and public trial systems are highlighted. Hopefully, the case guidance system will add further momentum to successful case law experiments in IP at the Beijing IP Court.
  7. The introduction of technical assessors into administrative enforcement could suggest a continued enhanced role for patent administrative enforcement, which has been increasing even as trademark administrative enforcement has been declining. If so, it may not augur well for foreigners who have traditionally been heavy “consumers” of the administrative trademark system, but not the administrative patent system.
  8. Improvements in the “examination” of utility models and designs are noted as a goal. However, these rights are generally not examined for substance except in the case of “abnormal” applications.
  9. Continuing attention is paid to challenging markets, such as e-commerce platforms and trade fairs, as well as establishing faster protection mechanisms.
  10. There is a continuing focus on supporting Chinese rightsholders overseas.

This document arguably goes part-way in establishing an outline for addressing US concerns about IP theft.  However, it offers little to address such concerns as ensuring greater transparency in the courts, publishing foreign-related cases, or addressing certain trade-sensitive topics outlined in USTR’s Section 301 report, such as cyber intrusions or criminal trade secret misappropriation.

The word cloud, above, is drawn from a machine translation of this document.  The original Chinese language and my redlining of a machine translation are found here.

Addendum of November 26, 2019:

Susan Finder in her Supreme People’s Court Monitor blog, reported on Judicial Interpretation drafting by the SPC for next year, some of which are referenced in the recently released Opinions.  According to that blog, on 29 April 2019, the SPC’s General Office issued a document setting out a list of 47 judicial interpretation projects, 36  with an end of 2019 deadline.  Several of these involve IP-related issues, including issues addressed in the joint CPC and State Council Opinions, including:

  1. Interpretation Concerning the Application of Law in Cases of Disputes over the Infringement of Trade Secrets (关于审理侵犯商业秘密纠纷案件应用法律若干问题的解释). Responsibility of the #3 Civil (IP) Division.
  2. Interpretation on Several Issues Concerning Punitive Damages for Intellectual Property Infringement (关于知识产权侵权惩罚性赔偿适用法律若干问题的解释). Responsibility of the #3 Civil (IP) Division.
  3. Provisions on Issues Concerning the Application of the Foreign Investment Law of the People’s Republic of China (I) (关于适用《中华人民共和国外商投资法》若干问题的规定(一)). Responsibility of the #4 Civil Division. The Foreign Investment Law and the recently released draft implementing regulations contain provisions protecting the intellectual property of foreign investors, including prohibiting forced technology transfers and enhancing the availability of punitive damages.

These draft JI’s have a due date of the first half of 2020.  Susan Finder notes in her blog that given the worldwide attention on the issues set forth in these three judicial interpretations, she expects that they will be released for public comment.  I hasten to add that the IP Division of the Court has generally taken a positive attitude towards soliciting public comment on its draft judicial interpretations, and I hope that they maintain this tradition.

It was also noted by Susan Finder that certain JI’s were due by year-end 2019, including:

  1. Intellectual Property Rights Evidence Rules (关于知识产权民事诉讼证据的若干规定).  Responsibility of the #3 Civil (IPR) Division. This draft was discussed at a conference hosted by the SPC in Hangzhou in 2018.  As Chinese courts experiment with more expanded discovery, evidence preservation and burden of proof reversals, clearer rules regarding the obligations of parties to produce evidence are becoming more critical.  A particular notable example of such a reversal is found in the recent amendments to the trade secret law (Article 32), whereby  a rights holder that has preliminarily proven that it  has taken reasonable confidentiality measures on the claimed trade secrets and has preliminary evidence reasonably demonstrating that its trade secrets have been infringed upon, can shift the burden of proof (BOP) to the infringer to prove that the trade secrets claimed by the right holder do not belong to those as prescribed in this law.
  2. Judicial interpretation on administrative cases involving patent authorization and confirmation (关于审理专利授权确权行政案件若干问题的解释). Responsibility of the #3 Civil IPR) Division. Another interpretation that previously had a 2018 year-end deadline.  A draft was issued for public comment in the summer of 2018; see my earlier blog.

Addendum of November 27, 2019:

Another China law blog, the NPC Observer also expects that some of the IP legislation flagged in the Opinions for revision may be considered as early as late December of 2019t.  According to the NPC Observer:

We expect the session to review a … draft amendment to the Patent Law [专利法] …The session may additionally consider the following bills: …

I have previously blogged about proposed revisions to the Patent and Copyright Law.

Addendum of January 9, 2020: Here is a translation of the Opinions from China Law translate.

Foreign Investment Law Implementing Regs Open For Public Comment: Administrative and Punitive Enforcement Ascends Again

The Ministry of Justice had published a draft of the Foreign Investment Law Implementing Regulations for public comment.  Chinalawtranslate has prepared an English translation of the proposed regulations and of the law itself.   The due date for submitting comments is December 1.  The US-China Business Council has graciously already made its comments available in English and Chinese to the public.  The Foreign Investment Law was one of several laws enacted earlier in 2019 that appear to be responsive to US concerns and pressure.

The primary provisions addressing IP are Articles 24 and 25, which state:

Article 24: The state is to establish a punitive compensation system for violations of intellectual property rights, promote the establishment of rapid collaborative protection mechanisms for intellectual property rights, complete diversified dispute resolution mechanisms for intellectual property rights disputes and mechanisms for assistance in protecting intellectual property rights, to increase the force of protections for foreign investors’ and foreign-invested enterprises’ intellectual property rights.

The intellectual property rights of foreign investors and foreign-invested enterprises shall be equally protected in the drafting of standards in accordance with law, and where foreign investors’ or foreign-invested enterprises’ patents are involved, it shall be handled in accordance with the relevant management provisions of state standards involving patents.

Article 25: Administrative organs and their staffs must not use the performance of administrative management duties such as handling registration, approvals or filings for investment projects, and administrative permits, as well as implementing oversight inspections, administrative punishments, or administrative compulsion, to compel or covertly compel foreign investors or foreign-invested enterprises to transfer technology.

(chinalawtranslate translation).

The language in the first paragraph of Article 24 appears to track trade war pressures, including demands for punitive compensation.   As I have argued repeatedly, a better focus might be on deterrent civil damages, and/or the basic structure set forth in the WTO of having adequate and effective civil remedies with criminal remedies as an adjunct for willful, commercial-scale harm.  In this scheme, there is little place for administrative remedies, as was noted in DS362 (the IP enforcement case at the WTO).  The WTO panel, in that case, noted that “neither party [the US nor China] to the dispute argues that administrative enforcement may fulfil the obligations on criminal procedures and remedies set out in Article 61 of the TRIPS Agreement. Therefore, the Panel does not consider this issue.”  There have also been numerous academic studies on the challenges of creating a sui generis administrative IP enforcement system in China.  The language in Article 24 is also highly repetitive of the November 21, 2018 special Memorandum of Understanding/campaign mechanisms involving 38 government agencies to address six types of faithless IP conduct, about which I previously blogged.

What is notably absent from these commitments is an obligation to increase transparency, which is especially concerning due to an apparent slowdown in the publication of foreign IP-related court cases since the trade war began.   I will be blogging more about this soon, but here is what the decline in published US cases looks like based on IPHouse data, with a flatlining since January 1, 2018:

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See also my slides from the recent Berkeley transnational IP litigation conference available here.

The language regarding standards in the second paragraph repeats long-standing concerns about foreigners being excluded from standards-setting processes, as was addressed in the 2015 JCCT.  It does not set forth commitments about fairness or equal treatment which have been raised before in industrial policy drafting (as was addressed in the 26th JCCT on semiconductor policy), antitrust investigations, patent prosecution or litigation (for which there is a wealth of empirical data).

Article 25 also appears trade responsive.  It would be useful at this time to determine the current magnitude of forced technology transfer in foreign direct investment, and to determine how it subsists and whether it has measurably decreased since the trade war began, including whether legitimate licensing transactions have stepped in to provide increased revenue for technology licensors as a result of these and other reforms, including revision of the Administration of Technology Import/Export Regulations.

 

 

 

Second Annual Berkeley-Tsinghua Transnational IP Litigation Conference Is Fast Approaching

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Berkeley Law and Tsinghua law will be co-hosting their Second Annual Conference on Transnational IP Litigation, at the campus of UC Berkeley on October 22, 2019.  Details, including registration information, are available here.

The program will look at strategic concerns in many of the hot issues in cross-border US-China IP litigation, including trade secret cases, standards-essential patents, whether foreigners “win” in each other’s jurisdictions, Section 337, criminal cases, on-line enforcement, civil litigation and the role of China’s new IP courts, administrative challenges to validity, forum non conveniens claims, enforcement at trade fairs, and other issues.  Please register soon if you are interested in attending.

We have great speakers and we look forward to having a great audience!

Further Trade-Responsive IP Legislative Developments May Be In the Works…

“When a stranger lives with you in your land, do not mistreat him. The stranger living with you must be treated as one of your native-born. Love him as yourself, for you were strangers in Egypt.” (Leviticus, Vayikra וַיִּקְרָא) .

He Jing of the Anjie law firm brought to my attention today an article in the April 21 Legal Daily which identifies proposed amendments to the Trademark Law, Anti-Unfair Competition Law and Administrative Licensing law that appear to be responsive to United States concerns over unfair treatment of Americans, “forced technology transfer” and IP protection in the current trade war.   Here is a copy of the Legal Daily article.

While we wait for the actual draft, I will place these proposed changes in context.

In my posting on good faith in IP-related trade issues,  I identified several issues which this legislation attempts to address, including warehousing of bad faith trademark registrations without intent to use; and  the removal of “employee” as a covered party (经营者) in China’s revised trade secret law (Anti Unfair Competition Law) which facilitates bad-faith employee behavior.   Actually, I am relieved that China may now be understanding how tolerance of bad faith behavior has had a wide spread impact on foreign perceptions of China’s willingness to protect IP.  These are important new steps.

Other provisions this legislation attempts to address also appear to address long-standing US concerns, such as requiring the destruction of counterfeit goods or materials and tools used for their manufacture.  The destruction of semi-finished counterfeit goods and materials and tools was a subject of DS-362, the China IP enforcement case, particularly regarding Customs’ disposal of goods outside the channels of commerce and the role of semi-finished goods in calculating criminal thresholds.

Other concerns raised in the legislation have been raised bilaterally.  Bad faith trademark registrations had long been discussed bilaterallyProtecting confidential information submitted by foreigners in administrative licensing has also been a long-standing concern of the United States and has been the subject of several JCCT discussions.

Although these changes are positive, I am reluctant to enthusiastically endorse them in the absence of corresponding measures ensuring their implementation.  As previously noted, newly amended provisions in the new Foreign Investment Law prohibiting forced technology transfer are likely to have little impact absent effective complaint and legal challenge procedures, such as the creation of a foreign investment ombudsman and/or appeals to the newly established IP court.  The inclusion of a non-discrimination position in administrative licensing procedures is also welcome news, although it may be similarly difficult to monitor and enforce.

China’s existing trademark law shows the limitations of forcing changes in behavior through legislation.  The trademark law and civil law have had provisions requiring “good faith” behavior, yet there has been little demonstrable impact on the flood of bad faith applications, which had increased to 7.3 million applications in 2018.  Chinese-origin bad faith and fraudulent applications are also causing USPTO to revise its own rules regarding pro se trademark applications from overseas.

As other examples, providing for treble or quintuple damages in patent or trademark proceedings is only useful in those still rare proceedings where statutory damages are not being used to calculate damages.  Similarly, the burden of proof reversals in IP cases, such as trade secrets can be useful but only if they are appropriately and effectively utilized and if motion practice in the courts is observable through online publication. Increasing penalties in administrative trade secret cases sound good on paper, but foreigners little use administrative trade secret enforcement proceedings.  Such proceedings have traditionally been an IP enforcement backwater.  According to the 2011 SAIC Yearbook (p. 855), there were only 57 reported administrative trade secret cases in that year, with an average 77,543 RMB average value and only 1,430,000 RMB (less than five thousand dollars) in fines.  The greatest focus of these cases were individuals, as 26 cases involved natural persons.  The data suggests to me that these cases largely involve employer/employee disputes over trade secret misappropriation, which should be resolvable in the courts.  Perhaps even more striking was the 35% decline in criminal trade secret prosecutions in 2017 to only 26 cases, which was also accompanied by a significant decline in criminal IP cases generally since 2012.   To address tolerance of trade secret theft (and IP infringement) by Chinese society, the most effective approach will be a commitment to criminal trade secret enforcement and an even greater commitment to civil remedies.  The proposed legislation only addresses part of this need.

Substantive changes can only be as effective as they can be monitored.  With respect to changes in substantive trademark and trade secret law, it would be especially useful if the full court dockets and more final cases were published.  If the data cannot be observed, it cannot be monitored for compliance.

While these legislative developments are underway, there is also word that the State Council continues to solicit opinions from the foreign business community on how IP issues are handled on their behalf.  This may also lead to welcome news.

There have also been two separate, non-IPR developments, which may have some bearing on the negotiations over the resolution of the trade war.  According to Bloomberg, the European Union is said to have won a dispute brought by China at the WTO seeking recognition of China’s market economy status (“MES”).    A similar case is pending involving the United States.  The lessons from these cases for IP should be that both the US and the EU should encourage more comprehensive and systemic treatment by China of IP as a private right if China is ever to achieve full MES.

In another development, a WTO panel ruled in favor of Russia in a dispute brought by Ukraine that the “national security” exception afforded by the WTO was not completely self-judging. The case could be read as a warning that the United States does not have unbridled discretion in deciding what constitutes a threat to its national security.  Taken together both cases affirm the WTO’s desire to remain relevant to changing circumstances in China and a changed perspective on international trade of the United States.

I wish everyone a happy Passover, Easter or spring holiday.

Buddha

 

Reviewing the 2017 SPC Report on IPR Judicial Protection: The Generalities and the Exceptions

There have been a number of empirical reports in recent weeks on China’s IP system. In this blog, I look at the annual Supreme People’s Court 2017 Report on the Situation Regarding Judicial Enforcement of IPR in China  (中国法院知识产权司法保护状况) which was released during IP week (the “Report”).

According to the Report, 2017 saw a major increase in IP litigation in China.  There were a total of 237,242 cases filed and 225,678 cases concluded, with an increase of 33.50% and 31.43%, respectively, compared to 2016.

First instance cases increased by 47.24% to 201,039.  Patent cases increased 29.56% to 16,010.  Other increases were in trademarks (37,946 cases/39.58%); copyright (137,267/57.80%); competition-related cases (including civil antitrust cases of 114) (2,543/11.24%).  Two counter-cyclical numbers stand out:  technology contract cases dropped by 12.62% to 2,098, and second instance cases increased by only 4.92% or 21,818 cases. Note that disaggregated numbers for civil trade secret cases are not disclosed in the Report, but are presumably included under “competition” cases.

Comparing dockets with the United States, in 2017 United States courts heard 4,057 cases patent cases, 3,781 trademark cases, and 1,019 copyright cases, according to Lex Machina.  The biggest margin of difference between the US and China was clearly in copyright cases.  Chinese courts heard 134.7 times more cases than the United States. However, Chinese copyright cases are less likely to be consolidated amongst different titles, claims or causes of actions, which can inflate the statistics  — although I doubt to a 100 or more fold level.

Administrative cases, the majority of which are constituted by appeals from the patent and trademark offices, showed an overall increase while patent validity cases decreased.  Administrative patent appeals dropped 22.35% to 872 cases, while administrative trademark cases increased to 7,931 cases, or by about 32.40%.  The drop in administrative patent cases is particularly notable in light of the increased activity in patent prosecution and patent licensing.  By comparison the numbers of Inter Partes Reviews undertaken by the USPTO during 2017, according to Lex Machina, were 1,723, in addition to 9 cases involving covered business method patents.

The SPC did not offer disaggregated reversal rates of the PRB and TRAB in its data; combined patent and trademark cases included 964 cases involved  affirming the administrative agency decisions; 150 involving a change in the administrative decision; 5 cases involved a remand for further review; and 24 cases were withdrawn.

Criminal IP cases have also continued to decline.  There were 3,621 first instance criminal IP cases in 2017, a decline of 4.69%.  Among those 3,425 involved trademarks (-3.93%) and 169 involved copyrights (-13.33%).  There was also a decline of 35% in adjudication of criminal trade secret cases to only 26 cases.  The decline in criminal cases since 2012 (when cases totaled over 13,000) especially in copyrights and trade secrets is odd as Chinese leadership has in fact recognized the need for deterrent civil damages, including punitive damages and criminal trade secret remedies.

The five provinces that receive the most IP cases continued to grow in influence. Beijing, Shanghai, Jiangsu, Zhejiang and Guangdong saw an aggregate increase of 56.63% in IP cases, to 167,613 and now constitute 70.65% of all IP cases filed in China (p. 6).  Guangdong alone saw an increase of 84.7% to 58,000 cases and Beijing trailed behind at 25,932 cases with an increase of 49.2 percent.  Other less popular destinations also saw dramatic increases.  Jilin province had an increase of 210 percent, while Hunan and Fujian each saw increases of 73.8% and 73.14%.

Settlement and case withdrawal rates also changed in 2017.  Shanghai had the highest reported rate of the big five at 76.31%, while the inland province of Ningxia had an overall rate of 88.46%, including a 100 percent rate where litigants accepted judgments without appealing  服判息诉 (!).

The SPC also reported supporting 11 cross-district IP tribunals in Nanjing, Suzhou, Wuhan, Chengdu, Hangzhou, Ningbo, Hefei, Fuzhou, Jinan, Qingdao and Shenzhen.  In addition, 10 provinces or autonomous cities established a system of combining civil, criminal and administrative jurisdiction over IP cases in their IP tribunals in the first half of 2017.  As noted however, despite this change in judicial structure, there was a decline in criminal enforcement and in some administrative appeals in 2017 overall (p.11).

The Report also notes that the SPC is actively supporting research on establishing a national specialized appellate IP Court (p. 10).   The SPC also actively participated in the providing comments on other draft laws, and devoted some effort to the revisions of the Anti-Unfair Competition law, including meeting three times with the legal affairs committee of the NPC, as well as numerous phone calls   According to the Report, the “majority of the opinions proposed were adopted into law” which leaves the question of what was not adopted.  One possibility may be the removal of a specific provision treating employees as “undertakings” under the revised AUCL.  In fact, I have heard that some NPC legislators are continuing to push for a stand-alone trade secret to further improve upon the revised AUCL.

The Report also points to several research projects undertaken by provincial courts.  Amongst those of interest are: a research project on disclosure of trade secret information in litigation in Jiangsu; a report on using market guidance for damages compensation of Guangdong Province; a report on standards essential patents in Hubei; and a research project of the Beijing IP Court on judicial protection of IP in international competition.

Regarding transparency, the Report notes that the SPC has published all of its cases on the Internet, however similar data is not provided for other sub-SPC courts (p. 16).

In international affairs, the Report notes that the SPC has participated in the discussions on the proposed treaty on recognition and enforcement of foreign civil judgments (p. 17), in the China-European IP dialogue, and has sent people to the annual meeting of INTA, amongst other activities.  No mention is made of US government engagements (p. 17).  This omission may be due to current political sensitivities.  Nonetheless, due to the increasing number of cross-border disputes and the need for better understanding of both our judicial systems, I believe judicial engagement with Chinese courts would continue to be a fruitful enterprise.  Indeed, Berkeley hopes to host a program on cross-border IP litigation with Tsinghua University Law School later this year.

Finally, while we are on the subject of the courts, I commend Susan Finder’s recent blog on how to translate court terminology.   I hope I have not departed too far here from her excellent suggestions!

April 3 – 9, 2018 Updates

1.China pushes generics over brands with another round of new pharma policies. The General Office of the State Council on April 3rd, 2018 issued “The Opinion on Reforming and Improving Supply and Use of Generic Drugs” (国务院办公厅关于改革完善仿制药供应保障及使用政策的意见 国办发〔2018〕20号), to promote China’s generic pharmaceutical industry. The State Council said it would draw up new incentives aimed at encouraging the development and production of generic drugs, a move it said would help safeguard public health, reduce medical bills and spur innovation.

According to the document, CFDA and the National Health Commission will compile and actively update a drug list that encourages companies to produce generic versions. That list will include medications for rare diseases, major infectious diseases and pediatric treatments, as well as important drugs that are short in supply. Certain qualified generics makers are allowed to be designated as High and New Technology Enterprises (HNTE) with commensurate income tax reductions (see more about China’s practice of providing tax incentives to high tech enterprises here).

The State Council also said that with regard to IP protections, China will “strike a balance between the interests of patent holders and the public,” and would strengthen anti-monopoly enforcement. (Note that the recent combination of agencies involved with antitrust enforcement, IP with CFDA may offer increased opportunities for such antitrust enforcement). An “early warning” mechanism to prevent generic drug producers from infringing patents will be established. The policy also restates that China considers compulsory patent licensing (CPL) a bona fide option during public health emergencies or shortages of key drugs; however China has not explicitly implemented a CPL to date.

China is a major branded generics market and innovative pharma companies are heavily dependent on this market in the absence of a robust market and incentives for innovative pharmaceuticals. The Opinion also states that when there is a bioequivalence determination, the generic drug should be marked as a substitute for the innovative drug and release such information to the public. In the absence of special circumstances, no brand name could be written on the prescription.

With regard to intellectual property, the Opinion further states:

“…In accordance with the principle of encouraging the creation of new drugs and the development of generic drugs, research and enhance a system of pharmaceutical intellectual property protection that is compatible with China’s economic and social development level and industrial development stage, and fully balance the interests of drug patent holder and the public. Implement the patent quality improvement project and cultivate more core, original and high-value intellectual property. Strengthen the enforcement of anti-monopoly law in the field of intellectual property rights, prevent the abuse of intellectual property rights and promote the listing of generic drugs while fully protecting innovations in the pharmaceutical field. Establish and improve the patent early-warning mechanism in the pharmaceutical field to reduce the risks of patent infringement of generic pharmaceutical companies.”

按照鼓励新药创制和鼓励仿制药研发并重的原则,研究完善与我国经济社会发展水平和产业发展阶段相适应的药品知识产权保护制度,充分平衡药品专利权人与社会公众的利益。实施专利质量提升工程,培育更多的药品核心知识产权、原始知识产权、高价值知识产权。加强知识产权领域反垄断执法,在充分保护药品创新的同时,防止知识产权滥用,促进仿制药上市。建立完善药品领域专利预警机制,降低仿制药企业专利侵权风险.”

2. SIPO releases the 2017 China Patent Survey Report.  The State Intellectual Property Office (SIPO) recently released the 2017 China Patent Survey Report, which is the third time that the national patent-related survey results are publicized.

In 2017, the patent survey covered 23 provinces nationwide and was carried out concerning the valid patents and the patent holders who owned such valid patents at the end of 2016. The survey was launched in March 2017 and was completed at the end of 2017. 15,000 questionnaires about patent holders and 43,000 questionnaires about patent information were released. Over 85% of the questionnaires were returned.

According to the report, China’s overall environment of patent protection has been significantly enhanced, but still not to a level that is satisfied. More than 88% of patent holders believe that patent protection needs to be further improved in China. The report also notes that the emerging industries with strategic significance rely more on patents to gain their competitive edge and have better utilization of patents. Chinese universities have strong innovation capabilities, but their utilization rate of patents in 2016 (12.7%) was much lower than enterprises (59%). The lack of professional technology transfer team was considered to be the biggest obstacle for Chinese universities. The continuing focus on Chinese universities is odd, since universities should have a primary goal of information dissemination, not patent acquisition, but this is not necessarily a bad thing.

3. Chinese national convicted in US for stealing a valuable U.S. trade secret: Kansas rice seeds.  A scientist from China has been sentenced to 10 years in prison in the United States for stealing seeds of genetically modified American rice, the Department of Justice announced Wednesday.  The Chinese scientist Weiqiang Zhang is a U.S. legal permanent resident residing in Manhattan, Kansas. Zhang was convicted on Feb. 15, 2017 of one count of conspiracy to steal trade secrets, one count of conspiracy to commit interstate transportation of stolen property and one count of interstate transportation of stolen property. Zhang was working as a rice breeder at Ventria Bioscience, a biopharmaceutical company that creates genetically modified rice. According to trial evidence, Zhang stole hundreds of rice seeds from the company that had cost millions of dollars and taken years of research to develop and kept at home. In the summer of 2013, personnel from a crop research institute in China visited Zhang at his home in Manhattan.  On Aug. 7, 2013, U.S. Customs and Border Protection officers found seeds belonging to Ventria in the luggage of Zhang’s visitors as they prepared to leave the United States for China.

Should the NPC also consider Criminal Copyright Reform when it considers Copyright Reform?

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At this month’s National People’s Congress, an NPC spokesman noted that this year the NPC intends to address reform of the copyright law, which has been long delayed. However, reform of the substantive copyright law will not typically address the need to reform the criminal copyright law and to address the relationship between civil and criminal copyright law. This point was raised in the Weixin platform Zhichanli (知产力), which addressed the key issues of criminal copyright law reform in a lively “cartoon” format (see above):

The four issues from the perspectives of the author of that blog are:

1.       Article 217 of the criminal code, mandates having a “profit motivation” in order for criminality to attach.Should the “profit motivation” requirement be removed from the criminal code?

2.       Whether to criminalize the Internet related right of “communication over information networks”?

3.       How to address secondary and principal liability of internet platforms?

4.       Three separate specific issues, including:

a)       How to criminalize destruction of technological protection measures?

b)      How to criminalize commercial scale use of piratical software?

c)       What are the thresholds to deal with online criminal enforcement?

In my view, these are all important issues, which should be considered in the context of copyright reform.    Many of these  issues were raised in DS/362, the WTO enforcement case which the United States brought against China.    Of particular note was that the United States raised the history of  amending US laws to address willful copyright infringement that caused large scale harm without necessarily causing commercial gain (the LaMacchia case, in the cartoon above).  In addition, the United States also recognized that thresholds based on the numbers of copies would not capture the harm caused by technological changes which permitted large digital quantities to be distributed on line or in compressed formats.   One of the current thresholds involves 500 “flat articles”  ( 500 ) (typically used for CD’s or flat pieces of paper), which the WTO panel called “copies, for the sake of simplicity” and is an awkward determinant for infringement in rapidly moving technologies.

Also of note is that criminal IP enforcement has become more important in China. This was brought to my attention by a Chinese judge who mentioned that while China opposed the WTO case, it was now widely recognized that criminal IP is an important part of an IP enforcement system. In a sense, the US may have lost the 2007 battle over criminal IP at the WTO, but clearly won the war. The data bears this out. When the WTO was filed against China, there were only about 904 criminal IP  infringement cases in China (2007).   In 2013, by comparison there were 7,804 infringement cases – an increase of about 8 times, not including increases in other provisions of the criminal code that also can address IP infringement, such as crimes involving illegal business operations or fake and shoddy goods.

While China recognizes that criminal IP is enforcement it an important part of its enforcement system,  an equally important question concerns the role of the relatively small criminal IP enforcement system in light of China’s civil, administrative and customs enforcement (see chart below).  In addition to the increasing number of criminal IP prosecutions,  the increasing numbers of referrals from China’s administrative copyright enforcement to criminal copyright enforcement is an encouraging trend in this regard.  An even more encouraging sign would be consideration by the NPC of criminal copyright law reform at the same time as it considers substantive copyright law reform.  As criminal law reform goes through different procedures at the NPC, working on both issues simultaneously may entail some coordination, but would help ensure that any changes to China’s copyright regime is comprehensive and would set a good precedent for other IP legislative reforms coming up, such as in reform of the trade secret regime in the Antiunfair Competition Law.

 

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