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Berkeley Webinar Recap

China Daily just published an article on June 23 on our June 17, 2020 webinar on patent eligibility. The publication also coincided with a blog by Prof. Adam Mossoff on opposition to Section 101 reform in the United States.  The webinar provided a counter-intuitive insight into important areas of patent law where China has been developing a more protective regime for patent-eligible innovations than the United States.

The next webinar on June 24, 2020, is on abusive trademark registrations.  This was a topic covered in the Phase 1 Trade Agreement and in Chinese legislative reforms of early 2019.  In my estimation, it is probably the IP issue most commonly encountered involving China’s IP regime by large and small US companies  – whether or not they have actually entered the Chinese market.  The program will be moderated by Prof. Eric Priest of the University of Oregon, with participation from the Chinese and US IP offices, as well as in-house and outside counsel.  Issues to be discussed include the successes in the Jordan/Qiaodan trademark dispute.  Registration information is here.

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The Darlie Trademark And BLM

In light of the social activism in the United States, including Black Lives Matter (BLM), Hawley & Hazel, and its joint venture partner, Colgate Palmolive has recently decided to “review and evolve” their branding strategy for their famous-in-Asia Darlie trademark and logo for toothpaste and related products.  This long-established mark was originally called “Darkie” and the logo was modeled after Al Jolson in blackface. although the English name has since changed from Darkie to Darlie,and the logo is now of a man in a tophat,  In the Chinese language the brand is still called  黑人牙膏, literally “Black man toothpaste.” Wikipedia has a good summary of the origins of this nearly 90-year-old brand in Shanghai,  I will not post the imagery here.

Ironically, the decision to change the mark comes shortly after Hawley and Hazel had been granted a new registration for the Darlie mark in the United States (March 2020).  The application for that mark is dated July 5, 2018, just one year after the US Supreme Court decided Matal v. Tam, (June 2017), which invalidated, on first amendment grounds  Section 2(a) of the Lanham Act that prohibited registration of trademarks that “disparage . . . or bring . . . into contemp[t] or disrepute” any “persons, living or dead.” Based on the timing, one wonders whether the decision of Hawley and Hazel to pursue registration of the mark in the United States was based in part on door-opening provided by the precedent of Matal v. Tam,

The Darlie mark may now be viewed as a unique example of Sino-US trademark karma.  In only a few short months since that registration, due to the BLM movement, there has emerged ”a dramatically shifting landscape for racialized brands in the future,” as noted by my colleagues Angela Riley and Sonia Katyal in a recent op-ed published in the New York Times.

However, changing the mark is not fully in control of the owners.  Even if the mark were abandoned by its original owners, trademarks like these may yet survive in the hands of China’s large community of trademark squatters. According to press reports, Hawley & Hazel has been in litigation with “Guangzhou Heiren” (Canton Black Man) in China over trademark squatting (without intent to use) and copyright infringement for use of its Darlie logo and mark for pesticides, insect traps, refrigerator deodorant and toilet paper.

Darlie clearly faces several branding challenges that require “review” and “evolution.” The mark and brand have long been considered unacceptable by many.  It may now, however, be difficult for its original owners to control the various rights that have developed around it by squatters: trademark, copyright, and even an enterprise name (Guangzhou Heiren).  If it were to abandon these rights, these squatters may be able to continue to use these rights with impunity.

China, unlike the United States, has at least one added weapon in addressing these issues.  Its Trademark Law prohibits registration of marks “having the nature of discrimination against any nationality” or that are “detrimental to socialist ethics or customs, or have other unwholesome influences.” (Art. 10).  Lacking the restrictions of a Matal v. Tam, China might also consider how to appropriately support the aspirations of its owners to move away from a racialized brand by also stopping their continuing use by squatters.

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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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More Encouraging News of Trade Secret Reform… But Is It Always Good for the Foreign Community?

James Pooley posted a great blog on IPwatchdog on the recently released draft judicial interpretation on trade secrets (the “Trade Secrets JI”).  In his blog, “Has China Finally Embraced Trade Secret Protection ”,  Mr. Pooley discusses aspects of the draft JI that embrace or expand upon US practices including: “combination secrets”, “reasonable efforts”, “indirect misappropriation”, “head start injunction” and apportionment of damages based on fault.   Mr. Pooley also notes that “this most recent pronouncement seems in some respects to go beyond what was required [from the Phase 1 Trade Agreement], and in those respects also seems to reflect an imprint of U.S. practices.“  I agree.

Individuals who expect all of China’s recent IP reforms to be in response to US pressure are, for the most part, likely to be pleasantly disappointed — for the most part.   As an example, the Trade Secrets JI also reflect China’s own evolving practices in trade secrets and other areas, including the availability of punitive damages, the emergence of a limited discovery regime, and implied obligations of confidentiality notwithstanding the non-existence of an NDA (see Contract law, Art. 43, now amended by the Civil Code).  Moreover, the evolving system in China for trade secrets will likely also benefit by the increasing competence of the IP tribunals and courts, including the “three in one” courts which combine civil, criminal and administrative IP jurisdiction.  As noted in another recent blog, China is also seeking to improve its criminal IP enforcement regime through more further development of the three-in-one system, and further development of evidentiary standards in criminal cases, as well as more active roles for prosecutors and police, among other measures.

While the ink is hardly dry on this Trade Secrets JI, China has since announced two other draft JI’s for public comment:  “Some Provisions on Evidence in Intellectual Property Litigation (Consultation Draft)” (the “Evidence JI”)  and the “Opinions on Increasing the Level of Sanctions for Intellectual Property Infringement (Consultation Draft)”(the “Sanctions JI”)《关于知识产权民事诉讼证据的若干规定（征求意见稿）》《关于加大知识产权侵权行为制裁力度的意见（征求意见稿）》(June 15, 2020)。 Comments are due by July 31, 2020.

Here is a quick summary of the trade-secret related provisions in the Evidence  JI:

Article 19 addresses granting protective order for evidence preservation purposes and provides that if a party is a subject of an evidence protection order and claims that a trade secret is involved, the party that requests the evidence protection order cannot participate in on-site evidence preservation procedures，but can engage an attorney, patent agent or another person with specialized IP knowledge (collectively “authorized representatives”) to sign the protective order.

Article 23 authorizes the appointment of expert appraisers to determine if a claimed trade secret consists of information in the public domain, or to determine the differences between the claimed trade secret and the alleged infringing technological information.

The third chapter of this JI regulates the exchange of evidence and includes several provisions regarding protective orders.  Article 31 grants the court authority to structure a protective order to limit access to authorized representatives.  Disclosure of information subject to protective orders shall be limited to the proceeding where the protective order was issued.  Sanctions may be imposed for unauthorized disclosure (Art. 32).  Consent to a protective order once given cannot be withdrawn.  The parties are also free not to engage in an exchange of information  (Art. 34).  Procedures are also established for challenging the secrecy of evidence, including providing rebuttal evidence and cross-examination of witnesses.  If a party succeeds in having the information considered as non-secret, it shall be considered as such during the proceeding (Art. 35).

Here are some provisions in the Sanctions JI:

Expedited proceedings are provided for serial infringers.  In addition, punitive damages should be imposed on serial infringers (Arts. 9, 20, 21). If actual damages are proven, they should be provided to the rights-holder (Art. 10).  Punitive damages should be imposed for their deterrent effect (Art. 13). Reasonable attorneys’ fees may be provided if there is a willful infringement and in a complex case (Art. 17). Attorneys’ fees and other expenses shall be compensated for in the case of malicious litigation where the right is unjustly obtained or there is not a substantial basis for its exercise (Art. 19).

Of particular note is Article 20: Serial infringers of IP rights, as well as those  who steal commercial secrets for foreign agencies, organizations or individuals, shall be subject to severe penalties according to law and generally no probation shall be applied 为境外的机构、组织、人员侵犯商业秘密的情形，依法从重处罚，一般不得适用缓刑.

One may ask: why is theft of trade secrets for foreigners being singled out? Article 20 may be China’s response to cases brought against foreigners under the US Economic Espionage Act or similar foreign laws.   However, the EEA requires action “benefit[ing] a foreign government, instrumentality or agent” in 18 USC Sec. 1831.  Article 20 does not, however, single out these security concerns arising from state-drive trade secret misappropriation.

Fairness suggests that those engaged in IP theft on behalf of foreigners should also be afforded the opportunity to avail themselves of defenses otherwise available if a Chinese party were the beneficiary of the trade secret misappropriation. This is also consistent with the requirement under the TRIPS Agreement that punishment is proportionate to crimes “of a corresponding gravity” (Art. 61), and that judicial procedures are “fair and equitable” (Arts. 41 and 42).  The TRIPS obligations to afford national treatment (Art. 1) should also equally apply to a defendant in a proceeding – that he or she should not be singled out because of having worked for a foreigner.  A similar logic applies to the cases brought against the United States involving national treatment under our Section 337 remedy; a heavier defense burden had been placed on foreign entities compared to domestic entities. The provision could also lead to a de facto denial of national treatment for a foreign investor in China who finds that police or prosecutors may be less likely to initiate a case unless there is a trade secret theft that benefits an overseas entity where a heavier sentence could be imposed.  Moreover, this provisions flips US concerns on their head: it does nothing to address the concerns that the United States has expressed regarding trade secret theft in China of US-origin trade secrets, since this law addresses  thefts that were undertaken on behalf of a US entity, not from the overseas entity.

Once any country advocates for more deterrent penalties, it should consider that such penalties may also be applied to non-Chinese defendants, including one’s own nationals, which this provision could easily encompass through its focus on actions on behalf of foreign entities.  To the extent this provision is used to target foreign actors as well as actors for foreign entities, the TRIPS Agreement provides little in the way of guard rails to ensure equality of treatment in IP enforcement proceedings.  Many foreigners are already concerned, as they fear being denied authorization to leave China arising from allegations of civil violations.  In addition, there have also been several precedential IP cases over the years where foreign parties may have served as “guinea pigs” for more deterrent sanctions,  including such cases as Chint v. Schneider Electric [utility model patent damages award]; Qualcomm AML investigation [high antitrust penalty]  Veeco and Micron [preliminary injunctions involving semiconductor patents and unpublished judicial opinions as well as unpublished Customs seizure decision], and PRC v. Guthrie [criminal copyright cases brought against foreigners].

I believe that this draft of Article 20 may be sending the wrong signal.  Actions undertaken for foreigners and Chinese should be treated equally, with equivalent penalties and opportunities for probation.  Moreover, the concept of equality generally applies equally to any right.  If there are concerns regarding national security or difficulties in apprehending a party engaged in trade secret theft on behalf of a foreigners, those can be addressed through other measures such as through bilateral criminal justice cooperation, including mutual extradition arrangements and cooperation in gathering evidence. Such measures would also help restore trust between participating countries.  By providing harsher penalties for trade secret infringement benefiting foreigners, a potential precedent might also be established for any other case benefiting an overseas actor, notwithstanding that the principal concerns appear to be infringement occuring within China.

Note: this post was revised June 30, 2020 to address a reader’s concerns that Article 20 is directed to actions on behalf of foreigners and not simply by foreigners.

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China IP Position at the Department of Commerce

The International Trade Administration (ITA) at the US Department of Commerce is seeking to recruit a Senior International Trade Specialist to serve as its intellectual property (IP) policy Team Lead. The announcement, at the GS-14 level, and is now posted to USAJOBS.gov.  It is open now through June 23.  Here are the links: https://lnkd.in/dpxQseD (open to the public)  and https://lnkd.in/d6qcRgW
(open to federal employees).

In addition to international IP expertise across relevant disciplines, candidates should have experience in team management and engagement with senior-level public and private sector leadership. Although the position does not indicate that it is China-oriented, I understand that the new hire could serve as the Department of Commerce lead on China-related IP issues.