Positive Developments on IP in JCCT Outcomes

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The 24th bilateral Joint Commission on Commerce and Trade concluded on December 20, 2013 at Diaoyutai State Guest House.  The US “Fact Sheet” on this year’s JCCT is attached here

The JCCT was jointly chaired by the US Department of Commerce, the US Trade Representative and the US Department of Agriculture at the ministerial (Secretary) level on the US side, and by Vice Premier Wang Yang on the Chinese side.  It is a key bilateral mechanism for raising trade-related bilateral intellectual property concerns.

This year there were several outcomes that were IP-related.  These outcomes included: a commitment by China to include trade secrets protection as a priority item in the interagency IPR leading group for 2014, as well as a commitment to work on trade secret legislative reform matters in China.  A prior commitment by China to insure that patent applicants in pharmaceutical patents can supplement their data was expanded to specify that this commitment applied to examination, re-examination and SIPO’s representation before the courts, as well as to work together to resolve specific cases. 

China also committed to work with the US on civil IPR enforcement matters, to continue to work on trademark squatting issues, cooperate on enforcement efforts to realize increases in sales of legitimate, non-infringing goods and services, and to undertake enforcement efforts involving substandard and infringing semiconductors.  

There was a also a recognition of SIPO’s efforts to date to provide design patent protection for graphical user interfaces, and a signing ceremony for a bilateral MOU with the U.S. Trade And Development Agency to provide IPR-related technical assistance with MofCOM as a coordinating agency (that is the picture above).  The various signings are attached here.   A Chinese summary of the outcomes from the concluding ceremony also includes improved bilateral criminal justice enforcement cooperation on IP matters.

The JCCT is sometimes used to break new ground (such as on trade secrets, or SIPO’s representations before the courts on pharma patents).  It is also used to reinforce existing commitments (such as on GUI’s and sales of legitimate goods), and to expand areas of technical assistance and cooperation (such as in civil enforcement of IP and the signing of the TDA MOU).

I personally believe the outcome statement shows a good balance among the role of administrative enforcement agencies, resolution of technical IP issues, and the importance that the civil and criminal systems should play in the development of a mature IP system.

 

Photographs above and below by Mark Cohen.

Diaoyutai scenery

Diaoyutai Scenery 

SAMR’s Draft Trade Secret Rule: An Unchartered Step Forward?

As previously discussed, SAMR released a draft trade secret protection rule for public comments on September 4 (the “Rule”).  Comments are due October 18, 2020.  I have attached here a draft translation of the Rule. 

The Rule supersedes prior SAIC rules on trade secrets enacted in 1995 and amended in 1998. Like the earlier rules, this Rule is primarily directed towards administrative enforcement of trade secrets.   The Rule does drift into the jurisdiction of many other agencies and laws, many of which are not within the jurisdiction of SAMR.

A noticeable element of the Phase 1 Trade Agreement with China of January 15, 2020 is that it failed to require China to take any administrative measures or campaigns against trade secret infringement, although it did request administrative measures in other areas.  This omission may not have been an oversight.  My hope is that the negotiators may have recognized that a JCCT commitment made between the US and China in 2013 which obligated China to take administrative enforcement measures including “adopt[ing] and publish[ing] an Action Program on trade secrets protection and enforcement” accomplished little due to the inherent weaknesses at that time in trade secret administrative enforcement and the unwillingness of foreign companies to come forward with administrative trade secret complaints. It is unclear to me whether SAMR can address these institutional challenges due to the inherent sensitivity of most trade secret cases.

Broadly speaking, the Rule seeks to further expand and legitimize administrative enforcement as a viable vehicle for trade secret enforcement.  However, ambiguities in the Rule, uncertainties over jurisdictional issues, as well as uncertainty around SAMR’s available resources may limit its effectiveness.  The ambiguities begin with the title to this document: it is nominally a “rule” (gui’ding) rather than a State Council enacted regulation (fagui). Under the Law on Legislation, this will limit the effectiveness of the Rule in governing other agencies’ actions or directing judicial actions.  Another overarching concern is how the Rule aligns with judicial interpretations and other guidance from the courts on trade secret infringement.  These documents were previously discussed here.

The earlier rules overtly discriminated against foreign natural persons by only providing protection for Chinese citizens.  This draft Rule does not significantly improve on that discriminatory provision.  It only offers protection for Chinese trade secrets (Art. 3).    

Foreign companies who have generally preferred civil or criminal remedies for trade secret infringement may consider initiating administrative cases as an alternative or precursor to such lawsuits owing to such factors as their greater speed, their ability to gather and preserve evidence, available of administrative injunctions and the support that may be given by local authorities.  However, I believe that China’s IP courts have the greater capacity to handle technologically complex issues, have not been burdened by a record of statutory discrimination against foreigners, and may continue to be the preferred destination for resolution of most cases. 

Here are some other concerns:

Art. 5: The rule encompasses technical information, business information and other commercial information.  This may reflect a commitment made by China in the Phase 1, footnote 1 defining trade secrets.  The Phase 1 Agreement also includes “electronic intrusions” within the scope of trade secrets.  To me, an electronic intrusion is an act, not a type of information.  See Article 9 of the Anti-Unfair Competition Law revisions (AUCL), which defines electronic intrusion as an infringing act.

Art. 7: Defines “commercial value” as arising when an intruder tries to obtain a trade secret by “improper means.”  To me this is a method of conduct, not something that defines a value.  Perhaps this language is intended to address a situation where a “luckless infringer” mistakenly believes a trade secret has significant value, as was the case in T-Mobile v. Huawei dispute over the “Tappy” robot, where no damages had been found by the jury.  As in the criminal investigation of Huawei in the United States, the impact of this provision may be to permit a public remedy (administrative enforcement) where a private civil remedy was lacking due to no damages.

Article 8: Lists confidentiality measures, any of which may be held to be sufficient to protect confidential information.  This seems too lax to me: the adequacy of the protective measures should be based on the type of information and how it is used, not on whether there is one adequate measure in a range of possible measures to address some of the risks of misappropriation.

Article 10: Sets the criteria for determining ownership of a trade secret.  Trade secrets are a subject of the civil law (Article 123 of the General Provisions of the Civil Law, 中华人民共和国民法总则).  Questions about employee ownership of IP rights have been hotly debated in China  I believe it is inappropriate to try and resolve such questions in a administrative rule making.  SIPO had previously attempted such an effort involving all IP rights, which involved extensive interagency coordination.  Given the complexity of the issue, and the close relationship between trade secrets and other IP rights,  a high level agency or party effort, or a coordinated inter-agency process involving the courts is the appropriate way to address these issues. 

The Rule also does not fully contemplate the impact of other statutes and regulations on determining what constitutes reasonable efforts to protect a trade secret, including cybersecurity laws, company laws, labor laws, contract law, technology licensing regulations and other national interests.  See also Article 14(3), Article 18 (regarding privacy laws) and Article 32 (regarding compulsory licensing of trade secrets) and Article 37 (state secrets).

Article 12: Refers to business “operators” rather than rightsholders.  This addresses Phase 1 Agreement concerns (Art. 1.3) that all natural and legal persons should be considered business operators.  The change first appeared in Article 2 of the AUCL.  It would ultimately be simpler if references to “business operators” were eliminated entirely, as it leaves open the question of under what circumstances an individual is a business operator and unnecessarily underscores the lineage of the AUCL as an unfair competition law rather than an IP law.

Article.13: The definition of what constitutes “disclosure” of a trade secret leaves open a catch-all “etc.”  The draft would benefit by specifically enumerating the unauthorized publication of a patent as constituting an unauthorized use of a trade secret.  Allegations that individuals have misappropriated trade secrets from the United States and used the underlying information to file patents have been made in US litigation.

Articles 18:  Trade secret complaints are lodged with the county government.  There are over 2,800 county level administrations in China. This process was dictated by the AUCL revisions (Art. 4) and may ultimately represent a huge expansion in administrative enforcement of trade secrets, similar to the expansion of administrative patent enforcement and the contemplated expansion in administrative copyright enforcement in proposed copyright law revisions. The expansion could pose risks of abuse by well connected local companies suing their competitors for trade secret theft.

An exception regarding filing of trade secret complains exists if the complaint involves a foreigner.  The complaint must then be filed at the provincial government level (Art. 38). 

Article 19: Potentially broad exceptions to trade secret protection are established by the Rule, including for reverse engineering, shareholders accessing company information, and disclosing information in the public interest.  The Rule does not limit these exemptions by requiring that any confidential information that is obtained is appropriately protected or limited.

Art. 24: The Phase 1 Trade Agreement requires a burden of proof reversal in civil trade secret proceedings (Art. 1.5) as does the AUCL (Art. 32).  This Article contemplates a similar mechanism for administrative enforcement proceedings.   

Art. 29: SAMR may mediate trade secret disputes and arrange for compensation.  This provision, along with other provisions on referring matters to civil or criminal litigation, raises issues about the type of coordination that will be instituted among civil, criminal and administrative enforcement.  As SAMR fines are a means of punishing infringement, a better approach might be to let judicial institutions mediate disputes, as they are often engaged in mediation in the context of on-going litigation.    

Art. 31: Another issue of enforcement coordination involves high civil fines.  Such fines may be used to substitute for criminal enforcement or could reduce the availability of civil compensation, and should be avoided in such circumstances.

Art. 33: A good faith infringement defense is provided where the infringer can show that it has paid reasonable compensation. This may open up a window for fictitious or under-valued contracts to minimize trade secret litigation exposure.

Article 36: This Article requires that state organs not reveal trade secrets.  This is also required by Article 1.9 of the Phase 1 Agreement.  However, it is questionable whether SAMR has jurisdiction over the behavior of other agencies. This provision is welcome, but may also be another legislative overreach.

Please send your comments or corrections on this blog and my draft translation

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.

 
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.