Category Archives: Trade Secrets

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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.

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January 16 – 29, 2018 Update

Jan 16 – 29, 2018 

Here are some updates on IP developments in China from past two weeks.

  1. China criticizes US moves on intellectual property 商务部:缺少确凿证据无可信度 China on Thursday criticized recent moves by the U.S. targeting the sale of fake goods and Chinese telecoms equipment, saying Washington lacked “objectivity” in its approach to Chinese businesses. Commerce Ministry spokesman Gao Feng told reporters the U.S. Trade Representative lacked direct conclusive evidence and supporting data in listing three Chinese online commerce platforms and six physical bazaars within China as “notorious markets” engaging in commercial-scale copyright piracy and trademark counterfeiting. Meanwhile, Alibaba Group recently released a series of initiatives to strengthen its intellectual property rights protection. The event happened days after Taobao was put listed as notorious market. The ecommerce giant intends to gather as much information as they can and use the expertise of both brands and rights holder to create a much stronger database. It should effectively improve the algorithm that Alibaba uses to counteract the fakes and even gather evidence for offline investigations. Moreover, Preempting the 2017 USTR report’s publication by one day, the company has released the 2017 Alibaba Intellectual Property Protection Annual Report (in Chinese).
  2. Google announces patent agreement with Tencent amid China push Alphabet Inc’s Google has agreed to a patent licensing deal with Tencent Holdings Ltd as it looks for ways to expand in China where many of its products, such as app store, search engine and email service, are blocked by regulators. The agreement with the Chinese social media and gaming firm Tencent covers a broad range of products and paves the way for collaboration on technology in the future, Google said on Friday, without disclosing any financial terms of the deal. Additional articles are available here and here.
  3. China Publishes More Scientific Articles Than the U.S. For the first time, China has overtaken the United States in terms of the total number of science publications, according to statistics compiled by the US National Science Foundation (NSF). According to the report, China published more than 426,000 studies in 2016, or 18.6% of the total documented in Elsevier’s Scopus database. That compares with nearly 409,000 by the United States. India surpassed Japan, and the rest of the developing world continued its upward trend.
  4. SIPO Released Statistics Data on Major Work for 2017国家知识产权局公布2017年主要工作统计数据 SIPO recently released detailed breakdown of statistics on its work for 2017. Government data show that the number of annual applications for invention patents filed in the country topped 1.38 million in 2017, a 14.2 percent rise on the previous year. Beijing, Shanghai and Jiangsu are the top 3 provinces for number of patents per 10,000 people. State Grid Corporation of China, Huawei, and Sinopec are top companies with most patents granted.
  5. China’s trademark applications hit record high in 2017 China’s trademark applications exceeded 5.7 million last year, up 55.7 percent year on year, both setting record highs. At the end of 2017, China had 14.92 million qualified registered trademarks, the most of any country worldwide.
  6. “Jianwang [Swordnet] 2017” closed 2554 Pirated Websites“剑网2017”关闭侵权盗版网站2554个National Copyright Administration, State Internet Information Office, MIIT and Ministry of Public Security jointly held a conference on “Jianwang” special campaign recently. Since this special act being implemented in July 2017, 63,000 websites have been investigated and 2554 infringing websites have been closed. According to officer from National Copyright Administration, this special act had a focus on videos, news, mobile Internet applications (APP) and e-commerce platform.
  7. China Will Take the Lead in Promoting IP Protection Mechanism in Pilot Area我国将在全面创新改革试验区域推进知识产权保护改革率先突破 NDRC recently issued a notice to promote reform on IP protection mechanism in eight pilot areas, including Jing Jin Ji, Shanghai, Guangdong, Anhui, Sichuan, Wuhan, Xi’an, Shenyang. The government intends to promote integrated management of IP rights, explore new mechanism of IP protection, and establish a new mechanism to link administrative and criminal enforcement.
  8. U.S.-China IP Scholar Dialogue was Held中美知识产权学者对话举行 The Fourth U.S.-China IP Scholar Dialogue was held in Shanghai, China from January 17 to 18. Intellectual property is a key issue in the development of U.S.-China economic and trade relations. To increase cooperation and understanding, IP experts from both countries created this dialogue mechanism since 2013. This year’s dialogue emphasized on AI, biomedical innovation, technology licensing, trade secret law reform, IP judiciary protection and dispute settlement mechanism.
  9. US Commerce Secretary Ross says Beijing’s technology strategy is a “direct threat”; China demurs.  US trade authorities are investigating whether there is a case for taking action over China’s infringements of intellectual property, Commerce Secretary Wilbur Ross said. China responds that it did not expect more trade disputes.
  10. China Customs reports seizing infringing goods worth 552 mln yuan in past three years.   China has seized infringing goods worth 552 million yuan (86.06 million U.S. dollars) in the past three years driven by a special act called “Qingfeng” (“Clear Breeze”), according to the General Administration of Customs of China (GACC). The three-year crackdown on intellectual property rights infringement discovered about 120 million infringing items, according to the General Administration of Customs.  Compare prior discussion on previous reports of GACC hereand here.
  11. Beijing to set up IPR center to better serve high-tech firms.  Beijing will establish a center this year dedicated to providing services to high-tech companies on intellectual property rights (IPR), officials said. The center will offer fast-track services for patent applications to companies in information technology and high-end equipment production, two areas with the highest demand.  This is part of an existing SIPO effort to fast track areas of concern to industrial development.  Compare, however, article 27 of TRIPS Agreement – patents shall be available and patent rights enjoyable without discrimination as to the place of invention, the field of technology and whether products are imported or locally produced.
  12. SIPO released a directory of industries that need IP support.  SIPO recently released the 2018 Intellectual Property Supporting Industries Directory (知识产权重点支持产业目录（2018年本）), which identified 10 industries where IP will be key. The government asked for efficient allocation of IP resources within these industries to promote industrial restructuring and upgrading.
  13. China’s Sinovel Convicted in U.S. of Stealing Trade Secrets.  A Chinese wind turbine maker, Sinovel Wind Group Co. was found guilty of orchestrating the theft in a rare trial in Wisconsin that continues to raises doubts over China’s commitment to fighting infringement of intellectual property and corporate espionage.  The case is U.S. v. Sinovel Wind Group Co. Ltd., 13-cr-00084, U.S. District Court, Western District of Wisconsin (Madison). The conviction was against Sinovel Wind Group.  Previously a former employee of the victim had been found guilty of theft of trade secrets in a criminal case in Austria. In addition, there are in total five civil cases in China between Sinovel and AMSC, with one closed and four pending. AMSC filed one separate trade secret case in China plus two copyright cases and an arbitration.
  14.   Five New Guiding Cases (English translation available).  Of the five newly released GCs, four are administrative cases and one centers on a dispute over the infringement of rights related to a new plant variety (Case No. 92). English translation of those guiding cases are made available by the China Guiding Case Project of Stanford Law School. More information about previous guiding cases available here and here.

We hope to be providing more updates in the year ahead from UC Berkeley.  As usual, the information herein does not necessarily represent the opinion of any government agency, company, individual or the University of California.

Updated: February 13, 2018

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December 2017 Update

 

Here are some updates on IP developments in China from this past December 2017:

1.  Xi Jinping: China must accelerate implementation of big data strategy (English) 习近平：实施国家大数据战略加快建设数字中国 (Chinese).  Xi Jinping, during a collective study session of the Politburo on December 8th, has urged the country to accelerate implementation of its big data strategy to better serve social and economic development and improve people’s lives. Xi said efforts should be made to advance national big data strategy, improve digital infrastructure, promote integration and sharing of digital resources, and safeguard data security.

2.  Legal Daily on December 5, 2017 notes that leakage of private data from government  websites is getting attention, all local governments start rectification and protection mechanism  政府网站泄露隐私问题受关注，各地整改升级保护机制 (Chinese)

3.  Ministry of Education, Department of Human Resources and Social Security, and Ministry of Finance regulated information disclosure of private information 教育部人社部财政部三部委规范信息公开 保隐私信息安全自查工作要不留死角(Chinese).  This appears to be related to the developments described in the Legal Daily article described above.  Note that unauthorized disclosure of confidential information of foreigners had been a concern during prior meetings of the bilateral Joint Commission on Commerce and Trade.   Compare 2014 and 2016 U.S.-China Joint Commission on Commerce and Trade (JCCT).   From 2014 JCTT: The United States and China confirm that trade secrets submitted to the government in administrative or regulatory proceedings are to be protected from improper disclosure to the public and only disclosed to government officials in connection with their official duties in accordance with law.  Each side will further study how to optimize its respective relevant administrative and regulatory procedures within its legal system, where appropriate, including by strengthening confidentiality protection measures, limiting the scope of government personnel having access to trade secrets, limiting the information required from companies to include only information reasonably necessary for satisfying regulatory purposes, and stipulating that any requirements on government agencies to publicly disclose information appropriately allow for the withholding of trade secrets.  Government officials who illegally disclose companies’ trade secrets are to be subject to administrative or legal liability according to law.  The United States and China agree to exchange information on the scope of protection of trade secrets and confidential business information under their respective legal systems.  China acknowledges that it is to conduct a legislative study of a revised law on trade secrets.  The United States acknowledges that draft legislation proposing a Federal civil cause of action for trade secrets misappropriation has been introduced in the U.S. Congress.  From 2016 JCCT: Both sides confirm that, in those cases in which a judicial or administrative enforcement authority requests the submission of confidential information in conjunction with a trade secret enforcement matter, such requests will be narrowly tailored to avoid putting at risk sensitive business information and will be subject to appropriate protective orders to control additional disclosure and ensure that information is not further misappropriated and that any decision that is made publicly available in conjunction with a trade secret enforcement matter will have all confidential information appropriately redacted. The United States and China confirm that trade secret investigations are conducted in a prudent and cautious manner.

4.  Overview of China’s intellectual property protection: 32000 suspected criminal cases have been transferred since 2011.  中国知识产权保护状况全景式展示  2011年以来移送涉嫌犯罪案件3.2万起(Chinese).  Note: This is data on referrals from administrative to criminal enforcement. The transfer from admin to criminal seems like part of overall efforts that China took to improve IP protection. The article mentioned that three agencies: National Copyright Administration, SAIC and SIPO, all enhanced IP protection enforcement. For instance, National Copyright Administration, through “Jian Wang” (Swordnet) project, investigated 5560 infringement cases over the past 13 years; SAIC investigated 19,400 trademark infringement cases from Jan to Oct 2017; and SIPO and other IP protection agencies investigated 189,000 all kinds of infringement and counterfeiting cases in 2016.Related background information: State Council Opinion on Improving Administrative/Criminal IPR Enforcement Coordination.

5.  China Intellectual Property Development Alliance was established  中国知识产权发展联盟成立 (Chinese).   The focus of this alliance is to create a good environment for IP application and protection and to build an ecosystem for IP operation.

6.  Notice on establishing national intellectual property pilot parks.  关于确定国家知识产权试点园区的通知 (Chinese).  2017 new list of national intellectual property pilot parks 2017年新一批国家知识产权试点园区名单 (Chinese).  These pilot parks are established by local governments.  They will provide IP services, information sharing services, help incubate IP intensive industries, and provide supporting infrastructure. SIPO approves them, and will monitor pilot parks’ work progress and review document for renewal.

7.  The story behind of independent development of C919 (English); C919背后的自主研制之路 (Chinese).  The Chinese article describes the patents involved in the C919 aircraft project.

8.  China implemented the first national military standards of intellectual property management in the field of equipment construction 我国首部装备建设领域知识产权管理国家军用标准实施 (Chinese).

9.  China’s R&D investment hits a new high.  我国研发投入再创新高 (Chinese).   China’s total GDP in 2016 was $11 trillion and R&D investment is around $230 billion, which is about 2.15% of GDP. For US, R&D investment is estimated to be around 2.8% of GDP in 2016.

10. China’s invention patent applications exceed one million from Jan. to Oct. (English); 前10个月发明专利申请量超百万件 (Chinese).

11.WIPO Stats on Patent Application Filings Shows China Continuing to Lead the World (English);  China Tops Patent, Trademark, Design Filings in 2016 (English).

12,  “China Big Data Rule of Law Development Report 2017” released.   《中国大数据法治发展报告（2017）》发布 (Chinese).  Related:  Presentation on 2017 China Big Data Rule of Law Development Report 2017中国大数据法治发展报告（实录与PPT）(Chinese)

13.  China to boost competitiveness in AI (English) 产业三年行动计划提出在八大领域率先取得突破——人工智能服务渐入千家万户(Chinese).  The Ministry of Industry and Information Technology (MIIT) recently released an action plan to substantially improve the development of the AI industry. This plan set to make breakthroughs in eight areas, including smart cars, service robot, drone, AI medical diagnosis, facial recognition, voice recognition, smart translation and smart home product. The MIIT promised more policy support, including special funds, talent cultivation and a better business environment. Measures will also be rolled out to build industry clusters, set up key laboratories and encourage data sharing.

14.  Encourage indigenous innovation and build strong brands.  鼓励自主创新 聚力品牌经济 (Chinese).  The China Council for Brand Development is working with the National Development and Reform Commission to formulate “China’s Brand Development Strategy.” This program aims to cultivate 1000 well-known international brands in five years.

15.  More than 2000 clues have been received for the “Suyuan” campaign against trademark infringement.  打击商标侵权“溯源”行动已收到2000余条案件线索 (Chinese)  SAIC started a campaign called “Suyuan” against trademark infringement in September 2017. Until the end of November, more than 2000 clues on cases have been reported.

16.  Shenzhen IP court and Shenzhen Finance court were established 深圳知识产权法庭和深圳金融法庭同时揭牌办公 (Chinese).   A new Shenzhen IP court was opened on December 26, 2017. This court will handle intellectual property cases which were under the jurisdiction of the Shenzhen Intermediate People’s Court.

17,. Wang Jinshan was appointed as the Chief Judge of Beijing IP Court.  王金山被任命为为北京知识产权法院院长 (Chinese).  Wang replaces Chief Judge Su Chi, who has guided the court since it was first launched and implemented numerous reform projects. We wish him well. Judge Wang graduated from Peking University with a major in Law. He was the party secretary of Beijing IP Court since May 2017. Judge Wang also previously worked at Beijing Intermediate People’s Court.

18.  China’s software copyright registration exceeds 700,000 in 2017.  2017年我国软件著作权登记量突破70万件  http://www.nipso.cn/onews.asp?id=39313 (Chinese).

We hope to be providing more updates in the year ahead from the Berkeley Center for Law and Technology.

As usual the information contained herein does not necessarily represent the opinion of any government agency, company, individual or the University of California.

By Berkeley staff.

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Three Laws/Policies Up For Public Comment

patentlinkageThree IP-related laws and policies have been released for public comment in the past week, at two different stages in the legislative process.

The first and perhaps most significant is the revisions to the Law Against Unfair Competition (AUCL), now at its second reading in the National People’s Congress.  The announcement is found here, and this is a Weixin posting from Lexis of the actual changes, while the full explanation is on the NPC website.  As translations or comments become available, please send them to me for posting.

The AUCL is an important law for a variety of IP-related areas, including trade secret protection, but also trade dress. Comments are due by September 24. The draft adds statutory damages to the list of remedies for violation of the law, but at the same time removes a provision from the earlier draft clarifying that employees  are subjects of the law, notwithstanding that the focus of the law is on undertakings (经营者).  However, the NPC reports that at the same time it clarifies the circumstances where an enterprise benefits from misappropriated information.  “删除修订草案第十条的规定；同时，在第九条中进一步明确：第三人明知或者应知商业秘密是权利人的员工、前员工或者其他单位、个人通过非法手段取得，仍获取、披露、使用或者允许他人使用的，视为侵犯商业秘密。(修订草案二次审议稿第九条第二款) .  Here is a link to information regarding the earlier public draft.

The second important law is the Standardization Law, also in its second reading at the NPC.  The announcement is found here, and the text is found here.  Comments are also due by September 24.   One potentially problematic provision involves providing support for standardization to indigenous innovated technologies for important national industries, strategic and emerging industries, and key public interest technologies.( 增加一条规定：国家支持在重要行业、战略性新兴产业、关键共性技术等领域利用自主创新技术制定团体标准、企业标准.)

Finally, the China Food and Drug Administration has released its proposed draft “Orange Book” (《中国上市药品目录集》（征求意见稿） which may implement a patent linkage scheme (see excerpt above which requires reporting of relevant patents and regulatory data).   A proposed linkage system was announced by CFDA on May 12, 2017 in Notice 55, about which I previously blogged.  The draft is available through this  link.  Comments are due by September 15.

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Of Trade Secrets, Section 337, AUCL Reform and Evidence Production

When faced with trade secret misappropriation, the United States International Trade Commission can provide a forum for U.S. companies faced with unfair competition resulting from the misappropriation, even if the “theft” occurs entirely in China and/or a misappropriated process is used in China to manufacture a product imported into the United States.  In Certain Cast Steel Railway Wheels, Certain Processes for Manufacturing Or Relating To Same and Certain Products Containing Same, 337-TA-655, Amsted Industries Inc. which licensed certain confidential manufacturing technology to two Chinese companies, Datong ABC Castings Co. (DACC), and Xinyang Amsted Tonghe Wheels Company Limited (Tonghe), claimed the respondent, TianRui Group Co. Ltd, had poached employees from DACC and Tonghe and stolen from them materials and other proprietary information sufficient to establish an identical, competing manufacturing line.  The ITC found a violation of Section 337 and issued a ten-year exclusion order.  On appeal of this landmark case, the U.S. Court of Appeals for the Federal Circuit held that the ITC has jurisdiction to reach trade secret misappropriation that occurs entirely abroad, so long as there is a nexus between the misappropriated trade secrets and the imported product.  Tianrui Group Co. v. ITC, 661 F.3d 1322, 1337 (Fed. Cir. 2011).  Interestingly, in that instance, the Chinese dometic authorities aligned with the United States.  Because railway wheels must be certified for use in China (as is the case in the U.S.), the Chinese Ministry of Railways declined to certify the Tianrui wheels until the U.S. matter was concluded.  The willingness of the Ministry of Railways to decertify Tianrui’s wheels while an ITC action was pending stands as an important contra-factual that suggests the relationship between trade secret theft in China and Chinese domestic industrial policy may be overstated.

More recently, in Certain Rubber Resins and Processes for Manufacturing Same, 337-TA-849, the ITC found a violation of Section 337 based on trade secret misappropriation that occurred entirely in China.  In that case, the Chinese authorities had ruled that there was no trade secret misappropriation in both civil and criminal proceedings.  In Sino Legend Chemical Co. v. International Trade Commission, 623 F. App’x 1016 (Fed. Cir. 2015), the respondents sought to overturn Tianrui, arguing that the ITC does not have jurisdiction to reach misappropriation taking place entirely abroad and that the ITC should have deferred to the Chinese authorities as a matter of comity.  In a nonprecedential judgment, the Federal Circuit affirmed the Commission’s finding.  On September 30, 2016, the respondent in the ITC case, Sino Legend, filed a petition for certiorari asking the U.S. Supreme Court to overrule TianRui, arguing that Section 337(a)(1)(A) contains no clear indication that it should apply extraterritorially and barring the importation of goods made using trade secrets misappropriated in China constitutes the impermissible regulation of conduct occurring overseas.  As an indication of how important this matter is to the Chinese government, in a rare filing, the Ministry of Commerce submitted an amicus brief supporting certiorari.  On January 9, 2017, the Supreme Court denied the certiorari petition.  Thus, U.S.-based companies can continue to turn to the ITC as a viable alternative for relief from trade secret misappropriation taking place in China.  Equally problematic, however, was the willingness of China’s judiciary to misconstrue the 337 decision as a victory for the Chinese defendants and to deem a lower court case as a model case while a related case was still pending on appeal to the court.  This case has also been an important counter-contra-factual indication regarding the relationship between trade secret theft in China and independence of the cour

How does this relate to legislative reform of the Anti-Unfair Competition Law in China?

China is currently revising its AntiUnfair Competition Law, which is the foundational law for trade secrets.  An important first step in addressing trade secret theft in China was the recognition that trade secret protection is a proper subject of the civil code in recent amendments to the civil code; i.e., that is not simply a matter of market regulation but of theft of a private property right.  The inclusion of trade secrets in the revisions to China’s general principles of the civil code was advocated in this blog, and also noted as appearing in an earlier draft.  The SPC, including Madame Tao Kaiyuan, were also involved in providing expert opinions on the draft.  The NPC comments on  the recent proposed revisions of the AUCL specifically calls out the important role of the SPC in revising the most recent draft of the AUCL, and note that civil compensation should assume a primary role in enforcing the anti-unfair competition law generally (善民事赔偿责任优先、与行政处罚并行的法律责任体系。不正当竞争违法行为首先损害了其他经营者的合法权益，需要民事赔偿优先，调动其他经营者制止不正当竞争行为的积极性。)  The primacy of civil enforcement is also found in Article 20 of the draft law itself with a clarification that a business operator who violates the law shall “bear civil liability” and that civil liability shall take priority over fines (Article 30).  I believe these efforts reflect some of the momentum generated by the SPC’s highly useful report, focusing on civil enforcement of trade secret.  Also of note is that at about the same time as that report, the US China Business Council outlined a number of the evidentiary problems in trade secret cases in its proposals for Chinese trade secret reform (2013), including burdensome notarization procedures, procedures which risk further disclosure of confidential information, difficulties in cooperation with the police, etc

The inclusion of trade secrets as a civil right was accomplished with civil code revisions adopted on March 15, 2017, with an implementation date of October 1, 2017.  (中华人民共和国民法总则)。  Article 63(5) includes trade secrets as a subject of intellectual property rights protection:

第一百二十三条　民事主体依法享有知识产权。知识产权是权利人依法就下列客体享有的专有的权利：    （一）作品；    （二）发明、实用新型、外观设计；    （三）商标；    （四）地理标志；    （五）商业秘密；    （六）集成电路布图设计；    （七）植物新品种；    （八）法律规定的其他客体。

Section 337 and the New Trade Secret Regime?

How do these reforms in trade secret litigation interact with US Section 337 procedures? Issues involving production of evidence between the US and China can be at the heart of many IP cases, but are especially critical in trade secret cases.   While some reforms have already been made in China, such as availability of preliminary evidence preservation measures in trade secret cases, the removal in the recent draft of the AUCL of a provision in an earlier draft that would have provided for a modest burden of proof reversal in trade secret matters is also troubling:

“Where the rights holders of trade secrets can prove that information used by others is substantially the same as their trade secrets and that those others had the capacity to obtain their trade secrets, those others shall bear the burden of proof to show that the information they used came from lawful sources.” (proposed Art. 22)

As the coauthor of this blog, Jay Reiziss, points out in his attached presentation to my recent class at Fordham, difficulties in gathering evidence have often been critical to use of Section 337 proceedings.  US Administrative Law Judges have granted motions to use the Hague Convention, such as where a foreign government formally weighs in (Switzerland indicated that it would cooperate with such a request (Certain Sintered Rare Earth Magnets, Inv. No. 337-TA855, Order No. 8). However other cases have determined that Hague Convention procedures would not be timely due to compressed ITC schedules (Certain Hardware Logic Emulation Systems, Inv. No. 337TA-383, Order No. 65).  Because of the threat of adverse inferences, there have also been several instances where Chinese respondents have reluctantly permitted plant tours to accommodate discovery requests (Certain R-134a Coolant, Inv. No. 337-TA-623.  FlexsysAmerica v. KumhoTire U.S.A., 5:05-cv-156 (N.D. Ohio)  Issues involving obtaining timely production of evidence have also appeared in other cases, notably the Gucci/Tiffany cases in the Second Circuit.

Even if the AUCL may not provide enough support for evidence production in China, the SPC has identified several bottlenecks in cross-border adjudication of disputes, including “hearing cross-border cases–service of process to overseas parties; obtaining evidence crossborder; determining facts that have occurred abroad; determining and applying foreign law”, which suggest that future cooperation with US courts may also improve.   Hopefully, as China improves its mechanisms to obtain foreign evidence and if it takes more proactive stances towards cross border cases, towards allowing production of evidence China, and as it improves its civil system, foreigners will be less reluctant to bring IP cases, especially trade secret cases, in China. In the meantime, it appears that the ITC and U.S. civil actions will continue to play a very important role in driving evidence based decisions on trade secret infringement involving China

 

Coauthored by Mark A. Cohen and Jay Reiziss.  This blog represents the authors’ personal views only and should not be attributable to any client, employer or any third party.

 

 

 

 

 

 

 

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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 张 ) (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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Stealing IP from the Steel Sector?

Michael Komesaroff, a Sinologist and mining engineer based in Australia, has published an interesting article on the website of the Center for Strategic and International Studies on “Make the Foreign Serve China: How Foreign Science and Technology Helped China Dominate Global Metallurgical Industries.”

According to Mr. Komesaroff, China is now the world leader in metallurgical technologies as it has the largest and technically most efficient plants in the world. This was achieved through a number of strategies commencing with the purchase of obsolete western plants and extending to reverse engineering including the infringement of IP rights.  As Michael notes at p. 11, Chinese practices “do not discriminate in their lack of respect for intellectual property; Chinese companies will infringe the proprietary technology of national champions as readily as they do to foreign competitors and the absence of an enforced intellectual property law accelerates diffusion of any new technology.”  Furthermore, “with an endless supply of smart engineers and scientists, why pay for technology, something that you cannot touch, see, taste, or smell.”  Michael’s points are especially interesting because they link innovation with  capital intensive industries and state support, China’s past practices of acquiring obsolete Western plants and China’s  IP practices and policies.

IP issues in the steel sector have also become more of a focus point with the institution in May of 2016 of a 337 litigation by US Steel against several Chinese steel companies, which alleges that Chinese steel companies have engaged in the “the misappropriation and use of U.S. Steel’s trade secrets” as well as “the false designation of origin or manufacturer, in violation of the Lanham Act, 15 U.S.C. § 1125(a).”  This is not the first such trade secret related action involving steel and China.  Two years prior to this 337 action, several PLA agents were indicted in a US court in Pittsburgh for cyber-espionage related activities, including trade secret theft, in several industries.  US Steel and other iron and steel industries, as well as Alcoa, were alleged to be victims of these efforts.

There have also been numerous trade-related concerns expressed concerning China’s metallurgical industries over the decades since 1979, including a “Section 406” investigation that I was briefly involved in before China’s WTO accession (1987), that involved tungsten, and, more recently, trade discussions on Chinese excess capacity in the steel industry.  A WTO case had also been brought by the United States against China regarding its export restrictions involving rare earth metals, including  tungsten and molybdenum in 2012 .  While the metallurgical industries have been a trade-sensitive area for some time, it now appears that IP-related issues have become of significant concern.