Category Archives: Legislation

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An Update on Data-Driven Reports on China’s IP Enforcement Environment

Several useful empirical reports on China’s IP environment have been released in the past few weeks.  I summarize four of them:

Trademark Litigation

Jerry Xia and his colleagues at the Anjie firm have written ”Trademark litigation Forum Shopping in China – What the Data Tells Us” (the “Trademark Report”) (July 8, 2020).

The Report looks at over 11,000 court judgments from 2019.  Only two of the top ten cities for hearing trademark matters were “Tier 1” jurisdictions, namely Shanghai and Shenzhen.  The authors argue that the experience of less well-known courts, including basic courts, is underestimated by many lawyers.  In some jurisdictions, such as in Zhejiang and Jiangsu, win rates for plaintiffs are as high as 100%.  These courts were also among the most efficient courts in adjudicating trademark disputes.   By comparison, the Beijing IP Court awarded fewer favorable decisions to plaintiffs and was slower, but it also awarded higher damages.

The Trademark Report argues that concerns about local protectionism in IP cases for foreign plaintiffs may be exaggerated.  The authors note that the probability of winning based on the available data is generally higher for foreign parties than domestic parties.  A similar argument is advanced in the Software Copyright Litigation Report (discussed below), as well as in other empirical studies.

The Trademark Report is available to subscribers of the World Trademark Review (issue 84).  It is behind a paywall for the next two months.  Registered non-subscribers may view two articles free per month.

SEP Litigation

LexField Law offices released a report by Zhao Qishan and Lu Zhen “Statistics of Chinese SEP Cases in 2011-2019” (the “SEP Report”).  The report is available here.

The SEP Report notes that from 2011 to December 2019, Chinese courts accepted 160 cases related to SEPs.  Not surprisingly, most of the cases involve foreign entities and relate to the telecommunication industry (96.25%).  Most of the cases were filed with the courts in Beijing, Guangdong, Shanghai, and Jiangsu.  Both practicing and non-practicing entities were plaintiffs.  Ten companies were responsible for 125 of the 160 cases reported, with practicing entities as the primary defendants.   Foreigners are the principal plaintiffs, but only by a slight margin.  The cases largely involved patent infringement disputes.  Cases asking the court to determine FRAND terms during license negotiations are also on the rise.  About 72% of the cases were withdrawn before final judgment.  The Huawei/Samsung settlement alone was responsible for the withdrawal of 28 cases.

The SEP Report provides a useful overview of the amount of litigation occurring over the past 9 years on SEPs, including understanding the role of foreign plaintiffs including NPE’s and China’s increasing importance in global SEP litigation.  As many SEP cases are not published, a major contribution of this article is in the description of various cases, as well as a collection of the docket numbers and case summaries.   A useful counterpart article on the foreign experience of SEP litigation in China is Gaetan de Rasenfosse’s article from 2017 on “Discrimination against foreigners in the patent system: Evidence from standard-essential patents on patent validity.”

 Software Copyright Litigation

Rouse published a China Software Litigation Report  (the “Software Report”) on July 7, 2020. The Software Report is based upon its proprietary CIELA database in conjunction with its network firm Lusheng and is available for free upon completion of this request form.  The Software Report aims to demonstrate how foreign litigants have fared in civil software piracy litigation in China and helps to delineate useful strategies in light of evolving judicial practices, the Phase 1 Trade Agreement commitments on software piracy as well as anticipated changes in the Copyright Law.

The Software Report reveals that out of 1,303 first instance cases reported in CIELA from 2006-2019, first instance cases brought by foreign plaintiffs numbered 285. In the authors’ view the key to success in software copyright infringement cases is proof of infringement.  In particular,  plaintiffs who secured evidence preservation orders were more likely to be successful.  The authors also suggest on-line usage tracking data as proof of copyright infringement.

One long-standing issue in software copyright enforcement has been concerns that governmental entities may have de facto immunity from successful lawsuits.  The data also does not support the assumption that State-Owned Enterprises may be immune to a successful lawsuit.  While the sample size of cases brought against SOEs is small, the win rate by foreign plaintiffs against different SOE’s is high as 85.7% (14 cases).  No data is presented on success rates in suing the government itself.   This issue also arose in a recent Berkeley Law webinar on copyright reform in China in response.  The panel observed that while there were successful cases against SOE’s in China for software copyright infringement, foreign companies are generally reluctant to sue foreign governments anywhere in the world.

Guangdong and Shanghai are the top venues for foreign and domestic litigants of software copyright disputes.  Forum shopping does not appear to be a useful strategy as software piracy choices are limited to suing where the infringing act is occurring. Unless the defendant has more than one location where piracy is taking place, action will need to be taken in the defendant’s home jurisdiction

The writers also note a high win rate for foreign plaintiffs in their sector (85.3%).  This average for foreigners is brought down by two of the most prolific plaintiffs in the dataset, who filed “bulk lawsuits” and received a markedly lower win rate.  Microsoft had an exemplary win rate according to the CIELA data – 63 cases filed and 63 wins.  The authors make out convincing arguments for greater use of civil remedies in the foreign software owners’ toolbox to address claims of rampant piracy.

Note that IAM did a short analysis of the Software Report, as did AsiaIP.

Trade Secret Cases         

Jerry Xia and Yulu Wang’s ”Analysis of Guiding Trade Secret Cases in China Published during the World IP Day in 2020” (the “Trade Secret Report”)  is available here in Chinese and machine translation.

Jerry Xia presented The Trade Secret Report at a recent Berkeley webinar on trade secret developments in China. According to the authors, of the more than 600 typical cases published in 2020, there were only 47 trade secret cases, accounting for less than 7.8% of the total.  By comparison, according to a Beijing Higher People’s Court study, from 2013 to 2017, a total of 338 cases of unfair competition involving trade secrets were concluded by judgment in the courts.  The typical case numbers may seem small; however, trade secret cases are a small cohort of China’s IP litigation docket. Earlier data, reported by CIELA also showed a low volume of trade secret litigation. I have also noted elsewhere on this blog that trade secrets are a small part of the criminal IP docket and of the AUCL docket.  The Trade Secret Report does not compare the data on typical trade secret cases with prior years’ reporting on typical cases, which could be a further indication of the interest of China’s courts in establishing clear rules regarding adjudication of trade secret disputes.

The Trade Secret Report notes that the number of cases in which trade secrets where plaintiffs won was 113, or about 35 percent of all cases.  Relatively low win rates have also been reported previously on this blog.  The cases equally involved both business information or technical information.  Zhejiang Province (10), Guangdong Province (9) and Shandong Province (7) announced the most cases. Of the 47 typical cases, there were no cases involving foreign parties and only one case involving Taiwan.

The authors additionally searched the public database for cases involving trade secrets from 2016 to the present.  The number of reported cases involving foreign parties was rare.  Only nine cases were retrieved, involving parties such as the United States, Japan, Germany and Australia, four of which were foreign vs. local, three cases were local vs. foreign, and two were foreign vs. foreign.  The relatively high percentage of local vs foreign cases in a limited cohort may nonetheless be concerning, particularly in light of proposed judicial interpretations regarding enhanced punishment when trade secrets are misappropriated on behalf of foreign actors.   Of the six cases in which foreign entities were plaintiffs, two were dismissed, two were voluntarily withdrawn and the results of the remaining two were not made public. Of the five cases in which foreign entities were defendants, the plaintiffs’ claims were rejected in four cases, and the outcome of the other case was not made public.

Among the published cases in 2020, there were two cases of punitive damages involving trade secrets.   These two typical cases do not give any clear criteria for the determination of “malice”. However, in determining the base and multiples of punitive damages, one typical case provides some guidance:  In a criminal case, a lost licensing fee was used as a calculation for assessing the severity of the punishment.  This is consistent with the proposed judicial interpretation of Criminal Cases Involving Trade Secrets, noted above.  The Trade Report also notes that although a shifting of the burden of proof is contemplated by the revised AUCL, there was no typical case on point.  However, there are two cases on point that came into effect after the new AUCL came into force

These typical cases help the public to understand how the courts are handling trade secret matters.  The relatively large cohort of trade secret typical cases so soon after legislation has been revised may also be seen as a political statement regarding judicial determination to handle these trade secret cases in accordance with the law.   As Susan Finder has noted in her article China’s Evolving Case Law System in Practice, these cases along with SPC guiding cases and other published instructional cases, may be important guides to the courts in determining how to rule on newly emerging issues.  In addition, at least in the case of IP issues, they may also provide assurances to foreign partners of the willingness of Chinese courts to comprehensively implement legislative reforms.

Improving Approaches to Using the Right Data

These reports all offer strategic guidance for companies and rightsholders and are part of a growing trend to use empirical tools in evaluating China’s IP environment.  The reports also effectively leverage recent or proposed changes in Chinese IP laws and judicial interpretations to provide a useful window into developing judicial practices.  While their utility for business strategic and policy purposes is easily recognized, concerns over case publication practices by the Chinese courts do limit their comprehensiveness.  The Software Report notes that most major jurisdictions are now publishing all their cases and it also notes that “the sample size of CIELA data is sufficient to be able to draw statistically valid conclusions.”  However, a consistent issue in looking at Chinese IP empirical studies is in determining how many cases are not being published throughout the country, particularly in less frequently utilized jurisdictions.

When cases are not published, some instructive messages can also be derived from the types of cases that are being published or actively promoted, such as the cases discussed in the Trade Secret Report.   Data on what is missing can be highly valuable data unto itself. One approach that is used in these reports is to rely upon a plurality of data sources to ensure that key judicial databases are comprehensive.  The SEP Report, for example, is based on “official announcements by the involved parties, information disclosed by the courts, and relevant news reports.”  Using a plurality of data sources may be necessary in analyzing trends in SEP cases as these cases are often not publicly available due to confidentiality concerns.  A pluralistic approach is also taken in the Trade Secret Report, which compares data and cases other than these typical cases in order to better help the reader to understand the nature of trade secret litigation in China as well as the role of the small cohort of typical cases in analyzing China’s developing IP jurisprudence.

A useful benchmark on the adequacy of a database of published cases is the SPC annual report on IP litigation, which generally reports on overall numbers of cases accepted or decided, rather than numbers of published cases.   In recent years, however, data on foreign-related cases has sometimes been missing or less comprehensively reported on in recent years. This may have been due to the trade war.  In the criminal IP context, comparisons among administrative referrals to police prosecution, police investigation data, procuratorate prosecution data, SPC case and conviction data and case publications (when they are available) can provide useful comparisons to evaluate trends.  For  examples of  typical SPC/published case discrepancies, the CIELA database includes 54,000 infringement cases of all types over a relatively longer period of time than the SPC database and the Trademark Report relies upon 11,056 judgments in 2019.  By comparison, the Supreme People’s Court reported that there were 65,209 trademark cases alone in 2019.   These discrepancies may be attributable in some part to delays between case publication, case decisions and case acceptance, lack of finality about the nature of reported cases (infringement/ownership/royalty or other disputes), the impact of settlement or preliminary relief in case publication, the confidentiality of decisions that may block publication, collection methodology used in supporting the analyses, and other factors.  These discrepancies and factors often make a selection of earlier years for analysis more attractive to scholars in reaching fully-informed decisions about judicial behavior, even if they may have less value for immediate strategic business purposes.

While I agree that the IP litigation environment for foreigners has been improving, foreigners nonetheless continue to underutilize China’s litigation system.  The Reports help underscore the importance of carefully crafted strategies which might help improve overall utilization and success rate.  In the future, I hope that reports will include such factors as the quality of the underlying right and the quality of the law firm representing the rightsholder. The relatively low level of foreign utilization of the Chinese judicial IP systems suggests that foreigners may also be selecting their strongest cases to litigate, which makes it difficult to compare with the more active docket of Chinese domestic rightsholders.  My guess is that assessing the impact of the law firm upon success rates will also show that the authors of these reports have contributed to a higher success rate for their clients.  In any event, legal analytics are becoming increasingly important tools for law firm and client success.

Interested in hearing more about Chinese legal analytics? Join us on Wednesday, July 15 4:30 Pacific Time for the final Berkeley China IP webinar, where we bring together David Kappos, Don Rosenberg, Mark Wu, Alex Capri, and Dan Prud’homme to discuss the future development of  China’s IP regime and its interactions with the United States.  The topic is certain to come up!

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New Draft JI on Enforcement on Criminal IP Laws, Especially Trade Secrets

China’s judicial organs (the Supreme People’s Court [“SPC”] and Supreme People’s Procuratorate [“SPP”]) continue to work on trade secret related judicial developments, with the release on June 17, 2020 of the “Interpretation on Several Issues Concerning the Specific Application of Law in Handling Criminal Cases of Infringement of Intellectual Property (3) (Draft for Comment)《关于办理侵犯知识产权刑事案件具体应用法律若干问题的解释（三）（征求意见稿）》.

This JI covers trademark, copyright, and trade secret-related crimes. Comments are due by August 2 2020 at the SPC (Third Civil or IP Division) and SPP. The focus on trade secrets is self-evident from this document.  The Chinese characters for “secret” 机密appear 36 times, trademarks 商标18 times, and a copyrighted “work”著作 8 times.

Among the major provisions that implicate trade secrets are: (a) clarification of how to satisfy criminal thresholds for trade secret enforcement, including use of illegal losses, gains and causing bankruptcy or major operational difficulties (Art. 4); how to calculate losses, including lost profits, lost sales, revenue and other benefits from the misappropriated trade secret (Art. 5); calculating the proportional value of a trade secret in combination with another  product or technology (Art. 6); use of research and development costs if the secret is lost to satisfy criminal thresholds (Art. 7); other compensatory remedial expenses (Art. 8); sanctions for violating protective orders (Art. 9); increases in penalties for entities that are mainly engaged in IP infringement or in the case of “infringement of commercial secrets for foreign institutions, organizations and personnel” (Art. 10, see my earlier blog); a reduction of penalty when the trade secret is disclosed to obtain an IP right, such as a patent, and the right is vested in the trade secret owner (Art. 11); and prohibition against engaging in certain occupations may be imposed for a period of time as a condition of a sentence (Art. 12).

Comment: trade secrets have often proven to be the subject of intense trade pressure.  However, the pressure is often not persistent, and the issues may therefore also receive inconsistent attention over long periods of time.  Recent trade pressure has contributed to such laudable developments as the revised trade secret law (AUCL), the Phase 1 Trade Agreement, the recent increase in legislative and policy work from the courts on trade secrets including work on JI’s and recent plans by SAMR to revise trade secret related rules.

If you are interested in learning more about how inconsistent trade pressure may have prolonged consideration of trade secret issues such as the definition of a “business operator”, limitations of protection to Chinese “citizens”, the availability of preliminary injunctions, and concerns over requiring “practical applicability” for trade secret protection for as long as 25 years, here is a pdf of a presentation that I gave last week at a Berkeley webinar.

July 4 update: Here is a translation of the draft JI.

Updated: June 30, 2020, July 4, 2020.

 

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Public Interest and Private Rights in the Copyright Law Amendments

June 13 is the last day for submitting comments to China’s National People’s Congress on proposed revisions to China’s Copyright Law.   In this blog,  I discuss draft provisions in the Copyright Law that reflect vague concepts of “public interest” and could thereby grant excessive discretion to China’s copyright enforcers, which are worthy of comments to the NPC.

There are two newly introduced provisions that are of significant concern: Art. 4 and a newly introduced Art. 50.  A long-standing restraint on administrative enforcement that is not in the public interest is also discussed, below:

4. 著作权人和与著作权 有关的权利人行使著作权或者与著 作权有关的权利,不得违反宪法和法 律,不得损害公共利益,不得滥用权 利影响作品的正常传播。国家对作 品的出版、传播依法进行监督管理。

Copyright owners and owners of rights related to copyright shall not violate the Constitution or laws, or jeopardize public interests, or affect normal communications of works by abusing their rights when exercising their copyright and rights related to copyright. The State shall supervise and administrate the publication and dissemination of works in accordance with the law. [emphasis supplied]

50. 滥用著作权或者与著作权有关的权利.，扰乱传播秩序的，由著作权主管部门责令改正，予以警告，没收违法所得，非法经营额五万元以上的，可以并处非法经营额一倍以上五倍以下的罚款，没有非法经营额、非法经营额难以计算或者不足五万元的，可以并处二十五万以下的罚款.

Where anyone abuses copyright or rights related to copyright and disrupts the order of communication, the copyright administration may order  correction, issue a warning, confiscate unlawful gains, and, in the cases of an unlawful turnover exceeding 50,000 yuan, impose a fine of one to five times of the unlawful turnover; or, in the cases of no unlawful turnover or an unlawful turnover that is difficult to calculate or less than 50,000 yuan, impose a fine of up to 250,000 yuan. [emphasis supplied]

Article 4 has had a controversial history.  It was previously the subject of a WTO dispute (DS362).  It originally provided that “Works the publication or distribution of which is prohibited by law shall not be protected by this Law”, thereby denying copyright protection to works that had not yet  been approved by censors.    As I recall, the original inclusion of that language in the Copyright Law had been opposed by many Chinese academics.  After China’s loss in that case, this language was removed, and additional language was added that “The State implements supervision and management over publishing and dissemination according to the law.” The amendment was discussed in a blog of Danny Friedmann of March 10, 2010 (citing Rogier Creemers). 

Article 4 is now proposed to be expanded again.  The new changes require that rightsholders not exercise their copyrights in a manner that affects “normal communication of works.”  What constitutes “normal” communication is unclear from the text.  In addition, Article 50 provides an administrative remedy against anyone who disrupts “the normal order of communication.”  “Normal communication” is also not otherwise defined and may not be the same concept as set forth in Article 4.   One concern may be that this is a “back door” mechanism for copyright authorities to regain the exemption from copyright protection for works that have not obtained censorship approval.  Such governmental “mission creep”  may also be reinforced by the relocation of China’s National Copyright Administration to the CPC Central Propaganda Bureau in the governmental reorganization of March 2018.  This standard of “normal order” of communication or “normal communication of works” is also not found in other IPR or quasi-IPR laws, such as China’s recently enacted E-Commerce Law (2018), which also contains an antitrust provision that  addresses conduct constituting an “abuse of dominance” that “excludes or restricts competition” (See Art. 23).

Xiong Wencong 熊文聪 discusses these two provisions in an exhaustive article 对新增“著作权滥用”条款的几点思考(“Some thoughts on the newly added ‘abuse of copyright’ provisions”) (Chinese language only).  Xiong points to a number of issues of concern, including that  “abuse of rights” should be based on motivations to harm another through exercise of rights, but also need to be constrained by other rules.  As set forth in the draft law, these concepts of abuse of rights are also not be easy for enforcement officials to enforce.  The “public interests” that may be implicated in an “abuse of rights” are difficult to understand except through other established mechanisms, such as antitrust law, and should be not be based on simply harming one individuals’ profitability.

In a possibly related development to the above, Art. 52 of the proposed revision of the Copyright Law expands the requirement of current Art. 48, and thereby perpetuates – and possibly expands –  an existing ambiguity under the Chinese Copyright Law regarding what constitutes “public interest.”

Current Art. 48 provides:

有下列侵权行 为的,应当根据情况,承担停止侵 害、消除影响、赔礼道歉、赔偿损失 等民 事 责 任;同 时 损 害 公 共 利 益 的,可以由著作权行政管理部门责 令停止侵权行为,没收违法所得, 没收、销毁侵权复制品并可处以 罚款

Anyone who commits any of the following acts of infringement shall, depending on the circumstances, bear civil liabilities such as ceasing the infringement, eliminating the bad effects of the act, making an apology or paying compensation for damages; where public interests are impaired, the administrative department for copyright may order the person to discontinue the infringement, confiscate his unlawful gains, confiscate or destroy the copies produced through infringement, and may also impose a fine… [emphasis supplied]

Proposed Article 52 provides:

 有下列侵权行 为,损害公共利益的,除承担本法 第五十一条规定的民事责任外,由 著作权主管部门责令停止侵权行 为,予 以 警 告,没 收 违 法 所 得,没 收、销毁侵权复制品,没收主要用 于制作侵权复制品的材料、工具、 设备 等,

Anyone who commits any of the following acts of infringement and impairs public interests  shall bear civil liabilities in accordance with Article 51 of this Law; besides, the copyright administration shall  order the person to discontinue the infringement, issue a warning, confiscate his unlawful gains, confiscate or destroy the copies produced through infringement, and may also impose a fine; where the circumstances are serious, the said department may, in addition, confiscate the material, tools and instruments mainly used to produce copies through infringement, etc. [emphasis supplied]

Proposed Article 52 maintains the limitation in Art. 48 of the current Copyright Law on administrative enforcement to instances where there is an adverse impact on “public interests”.  In the past there was already a concern that this could undermine the commitments China made in the earlier WTO case (DS362) to provide copyright protection to works not otherwise approved by censors notwithstanding that administrative agencies as well as law enforcement generally should look to focus their resources primarily on areas that invoke strong public interests, notwithstanding previous amendments to Art. 4.   The “public interest” test has also long been viewed as a limitation on certain types of content-neutral copyright administrative enforcement, particularly in dealing with software end-user piracy.  In order to address these concerns China agreed in a 2005 JCCT outcome to announce that software copyright infringement was in fact against the public interest. 

The continued presence of this language should raise concerns about China’s willingness to address software end user piracy through administrative enforcement actions, including controlling government use of pirated software, as required by  Article 1.23 of the Phase 1 Agreement.  Moreover by placing the “public interest” test at the beginning of this article to govern both administrative and potentially civil cases, it might be read to require that civil cases also reflect “public interests”, or at best to authorize government agencies to intervene in private civil matters through ex-officio administrative enforcement.  The restriction might further limit the availability of copyright remedies to uncensored works, thereby violating the WTO decision in DS362.  Additionally, the language might be linked to efforts by NCAC or its parent agency, the Central Propaganda Bureau, to restrict enforcement options for works that might not be consistent with current public interests.  Although no examples are provided in this draft legislation, one wonders whether a popular video game that may be distracting students from other activities or civil cases brought against the government for copyright infringement, including (but not limited to) business software could be perceived as against public interests.

Vague notions of public interest/public harm/abuse of IP interests that are not tied to clear legal concepts such as abuse of dominance under the Antimonopoly Law have not generally brought welcome improvements to other aspects of China’s IP environment.   Thankfully, a long-standing provision in China’s contract law regarding invalidity of provisions that “impair technological progress” was recently removed from China’s civil code.  A similar problem has appeared with respect to enforcing “under-performing” concepts of “good faith” in China’s trademark law and other IP laws.

Vagueness in safe harbors have also not provided ample guidance in the proper exercise of rights, such as in Article 55 of China’s Antimonpoly Law.  The recently proposed revisions to the AML do not propose changes to Art. 55.   Article 55’s ambiguous concept of what conduct constitutes proper exercise of IP rights which might otherwise violate the AML is drawn from similarly vague language in TRIPS Art. 40.   As Prof. Hao Yuan has noted elsewhere in this blog “the IP immunity approach [of this article] has largely been ignored in practice. “   

It is not only the vague language of these provisions that is worrisome.  The expansion of administrative discretion embodied in these three provisions of China’s Copyright Law is also accompanied by an extensive expansion of administrative enforcement capacity contemplated by the draft Copyright Law (Art. 7), which would vest county-level governments with extensive authority over copyright matters.  Efforts to expand administrative authority are a “new normal” for Chinese IP agencies, which is being accomplished through draft IP legislation, expansive interagency cooperation, or even (I would argue) as a vehicle for “deliverables” in the Phase 1 Agreement.  One additional factor in this proposed legislation is the reorganization of the copyright administration under the umbrella of the powerful CPC propaganda bureau, now called in English the Publicity Department.  This agency may legitimately want to further expand its influence over content or practices deemed inappropriate for non-copyright related reasons. Expansion of authority of administrative agencies that are frequently used for enforcement can, of course, be a helpful development for rightsholders.  However, I believe that non-copyright concerns may be best addressed in non-copyright legislation.  If left unchecked, introduction of non-IP concerns that are enforced by administrative agencies could also transform IP from a private right to a regulatory tool and constrain the development of the judiciary as an expert and transparent enforcement vehicle independent from the administrative agencies to enforce these IP rights.

Here is an unofficial translation of the proposed amendments to the Copyright Law prepared by Prof. Jiarui Liu that may be a helpful reference in preparing comments to this draft law.Download
 
Update of July 8, 2020: Here is an article from the July 6, 2020 South China Morning Post expressing concerns about the “public interest” and administrative enforcement aspects of the proposed draft copyright law.
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An Unwelcome Addition and A Welcome Subtraction in the Technology Transfer Provisions of the New Civil Code

The Civil Code of China has now been enacted by the National People’s Congress (eff. January 1, 2021).  As previously discussed in this blog, the Civil Code now incorporates the technology contract provisions of the former Contract Law, with certain revisions.   

There are two significant changes in the enacted technology contract provisions from the prior public draft.  One constitutes an unwelcome addition, while the other is a welcome removal.

The Unwelcome Addition

The unwelcome addition is the underlined text below:

第八百四十七条   职务技术成果的使用权、转让权属于法人或者非法人组织的,法人或者非法人组织可以就该项职务技术成果订立技术合同。法人或者非法人组织订立技术合同转让职务技术成果时,职务技术成果的完成人享有以同等条件优先受让的权利。 职务技术成果是执行法人或者非法人组织的工作任务,或者主要是利用法人或者非法人组织的物质技术条件所完成的技术成果。

Article 847 Where the right to use or transfer a service technical achievement belongs to a legal person or an unincorporated organization, the legal person or unincorporated organization may conclude a technical contract for the service technical achievement. When a legal person or an unincorporated organization concludes a technology contract to transfer service technology achievements, the person who completed the service technology achievements has the right to receive priority transfer on equal terms. The service technical results are the technical results of performing the work tasks of a legal person or an unincorporated organization or mainly using the material and technical conditions of a legal person or an unincorporated organization.

This provision is like Article 29 of SIPO’s draft service invention remuneration regulations which provided:

第二十九条 单位拟转让职务发明的知识产权的，发明人享有在同等条件下优先受让 的权利。

29. Where an entity intends to assign intellectual property rights of a service invention, the inventor is entitled to priority transfer on equal terms.

This provision is similar to Articles 339 and 340 of the Contract Law (1999), which had however established that this right was subject to other terms separately negotiated (除当事人另有约定的以外), however it is now non-negotiable.  The IP and International Law Sections of the American Bar Association had commented on the non-negotiable draft regulation (April 20, 2015).  It noted that such language was “contrary to international norms”, but also was contrary to the ownership rights of the acquiring company.  Moreover, such a right may be in conflict with the employee’s labor contract with her company.  As drafted this language may also entail an additional layer of approvals from the inventor and could impede subsequent commercialization through sublicensing or assignment to third parties by the owner by establishing a non-waivable first right of first refusal which is also not limited by time.  It may thereby weaken China’s ability to commercialize higher value service invention patents at precisely the time when its technology markets appear poised to take-off.  I hope that subsequent laws, regulations and court practice will limit its potentially expansive scope.

The Welcome Removal:

Article 850 addresses appears to address a long-standing contract in the technology contract law, namely its overlapping jurisdiction with China’s Antimonopoly Law.   As I noted in my prior blog, an added level of ambiguity is interposed because the Civil Law is more recent that the revisions to China’s Technology Import/Export Regulations, and is at higher level of legislation than these regulations.  Moreover, it is considered major legislation,  as it is enacted by the NPC as a whole and therefor might be considered as having significant persuasive weight.  Vague language in the technology transfer contract provisions of the Civil Code such as “mutual benefit”, “monopolize technology”,  “hindering technology progress”, ‘infringing technological achievements”, create unpredictability in China’s burgeoning technology markets.  The the removal of “hindering technology progress” as a basis for invalidating technology contracts (Art. 850) is therefor welcome:

第八百五十条　非法垄断技术、妨碍技术进步或者侵害他人技术成果的技术合同无效。

Article 850 A technology contract that illegally monopolizes technology, hinders technological progress, or infringes on the technological achievements of others is invalid.

The removal of this phrase  may serve to limit discretion of courts or administrative agencies in invalidating contracts to circumstances more clearly defined by third parties.  Contractual provisions that are determined to be anti-competitive under China’s Antimonopoly law or are determined in a court or administrative proceeding to infringe on the rights of third parties are now more clearly within the scope of Article 850.   Moreover, the Antimonopoly Law already contains eight separate references to technology development and thus may be said to adequately reflect concerns over contracts that seek to monopolize technology.  Contrariwise, there is no separate agency specifically tasked to determine what constitutes “technological progress” in a contract, so its removal makes clear that invalidity determinations may depend on separate antimonopoly or infringement proceedings.  

Article 850 was originally promulgated in Article 329 of the Contract Law  (1999).  Its adoption occurred eight years before China enacted its Antimonopoly Law.  With the passage of the Antimonopoly Law, it created an unnecessary ambiguity over its scope and role. this Civil Code revision is a welcome rejoinder to the concerns I had previously raised in a book I coauthored on the AML (2011), and in testimony before the US-China Economic and  Security Review Commission (2015). At that time I expressed concern about China’s desire to pursue antimonopoly regulation in licensing contracts in the absence of an antimonopoly law. Those concerns now appear to have been addressed.

Conclusion:

I hope you will considering joining me and several other great speakers when we discuss these and other issues in a timely webinar on Licensing and Antitrust in China, Wednesday June 3, 2020 at 4:30 PM PST.

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Draft Copyright Law Up for Public Comment

The National People’s Congress released a draft of the Copyright Law for public comment.  Comments are due by June 13, 2020.  The NPC comments on the draft are found here.  The NPC Observer’s concise summary of the legislative history is here.   I had discussed the earlier draft, along with the NPC observer predictions regarding consideration in late 2019, here.  The draft will likely be reviewed again near the end of this year and could pass in late 2020 or 2021.

There have already been some reactions to this draft.  Aaron Wininger pointed out in a recent article the provisions regarding quintuple damages, increased statutory damages, shifting of the burden of proof, and improvement in digital rights management.  He also briefly discusses some other changes, such as the change from “audiovisual works” to “cinematographic works.”  On first glance, the draft does appear to have expanded provisions on technological protection measures and anti-circumvention of technological protection measures, although further study is necessary to determine their consistency with prior laws, regulations, China’s commitments under the WIPO Internet Treaties, etc. (See Art. 48).

“Quintuple damages” and burden-shifting appear to be the “new normal” in revisions to Chinese IP laws. These changes predate the current trade war and are part of a mounting effort to increase civil deterrence.  It remains to be seen how they will be implemented in judicial interpretations and how observable they will be in judicial practice through the publishing of relevant cases.

Prof. Liu Chuntian, a friend and colleague from Renmin University, has written an insightful quick response article regarding the draft on weixin (Chinese language only).  Prof. Liu participated in the drafting of the PRC’s first copyright law.  His principle concerns with the draft include:

  1. The concept of “audiovisual works” replaces the expression “movies and works obtained by methods similar to filming.” This change in definition will provide protection for video games regardless of the technology that employed.   It may also have implications for expanded protection of live webcasting of sporting events, which has been a continual problem under Chinese copyright law, which were often thought be in sufficiently creative to be protected as a cinematographic work.  Prof. Liu suggested that China’s drafters consider borrowing from the practice of other countries, notably Brazil, which expanded copyright protection using the concept of “audiovisual works” regardless of the technology.  This can mitigate the possibility of continuing the conflict in Chinese IP law (and the law of other jurisdictions) between “cinematographic works” and “audiovisual works” which have provided uncertain protections depending on the technology employed.  At the same time, according to Prof. Liu, as the new law stipulates that the right owner in an AV work belongs to the producer, it will also be important to clarify the rights of authors and composers whose works are incorporated into AV works. He suggests that the new law should clearly stipulate that the rights in these works should be controlled by the copyright holder.
  2. Prof. Liu agrees on the importance of the improvements to the civil system, including increased damages and rights to demand production of evidence.
  3. Prof. Liu generally opposes the expansion of copyright administrative authorities to the county (xian) level, noting that it would lead to the creation of over 3,000 copyright offices in China – more than the rest of the world combined. He also takes issue, as do I, with the expansion of administrative enforcement power in the copyright law, and notes that as a private property right the civil system should be the principal vehicle for enforcement. This also appears to be a “new normal” in Chinese IP legislation, which has also been urged on in recent years by US demands for enforcement campaigns and increased punishment, including increased online enforcement for copyright in the Phase 1 Trade Agreement (Arts. 1.13, 1.14).
  4. Prof. Liu also notes that it is important that copyright is considered an aspect of civil law, and that it is guided by civil law principles, including tort and contract law, as well as the on-going drafting of the Civil Code. He notes that currently there is no IP chapter in the Civil Code and it is therefore even more important for the civil law and the copyright law to be integrated.  Consistent with China’s civil law tradition and his desire to ensure that copyright is protected as a private civil right, Prof. Liu places the primacy of the creator of the work as the first subject of protection. He notes “[t]he rights of other people are all rights that come from, are obtained through legal acts, through contracts or authorization mechanisms, and regulate the rights of the acts passed on.  This is the task of other laws.”

I hope to be able to post a translation of the draft soon.  Once a translation is available, Berkeley Law hopes to convene a round table discussion on the amendments to exchange views and assist in providing informed comments.  Please also post your comments or corrections to this posting and send us any translation you have prepared or comments you have submitted so that I may include them in a future blog.