RIPPLES IN STILL WATER: RECENT DEVELOPMENTS ON IP IN CHINA


Ripple in still water / When there is no pebble tossed / Nor wind to blow  (Robert Hunter)

The Chinese IP environment continues to pursue its own domestic needs-driven agenda.  Criminalization of trade secret matters, while an area of concern to the United States, is also important to China’s development of an innovative economy.  Certain improvements in China’s criminal trade secret regime are also contemplated in the coming year, including a lowering of criminal thresholds, as required  by the Phase 1 Trade Agreement (Art. 1.7) and  the SPC’s judicial interpretation plans for the year.   

It is not surprising, then, that a recent Nanshan (Shenzhen)  criminal trade secret case involving employee misappropriation of 5G-related technology from ZTE has caught the attention of the media, including Aaron Wininger and Jacob  Schindler (behind a paywall), as well as the Chinese press.   As Western reporters have noted, how much is such a case a harbinger of changes to come?

There are three significant concerns with reading this case as an example of criminal trade secret reform in China: (a) it took place in Shenzhen; (b) it involved an SOE as a victim (ZTE); and (c) it involved an important technology to China (5G).

Shenzhen has long been a center of criminal trade secret litigation, with a typical scenario involving a well-connected local Chinese company suing its ex-employees for theft of trade secrets.   I recall a meeting I had with the Shenzhen police department many years ago, where their case statistics suggested that they may have investigated as many as one fourth of the total number of criminal trade secret cases in China that year.  My back of the napkin calculation at that time seems to have been accurate.  For example,  during the period from mid-2013 to -2014, Shenzhen courts heard 23 criminal trade secret cases involving 25 people.  By comparison, in 2017, the total number of criminal trade secret cases handled nationwide by the courts was 26

Whatever the current number, the police department from Shenzhen is proactive in that area.  It has brought several cases on behalf of local companies.  The Shenzhen police even polls companies on how they manage trade secret concerns.  Moreover, as with the recent cases, and  China’s administrative enforcement mechanisms for trade secrets, defendants are typically SME’s or individuals.  

Concerns have also been expressed in the past about excessive criminalization of trade secret cases in China.  If there are high damages where there is adequate proof or other measures to compel evidence (such as under recent revisions to the Anti-Unfair Competition Law), civil cases should also be brought, and might thereafter be referred to criminal prosecution by the civil judge as suggested by Prof. Huang Wushuang 黄武双 . Prof. Huang is a leading Chinese academic in this area;  34 of his recent lectures on trade secretion protection in Chinese are found here.  . 

How much of a “ripple in still water,” without any durable impact, is this recent case? One important test will be whether a foreign victim of trade secret theft involving a priority technology for the Chinese government would have similar access to criminal trade secret enforcement resources, particularly if the defendant is an important local Chinese company. 

 I will discuss a few other potential “ripples in still water” in forthcoming blogs…

Second US-China IPR Cooperation Dialogue Report Released

Dialogue Photo

The 2014-15 US – China IP Cooperation Dialogue report has been just released by the US Chamber of Commerce.  The  Chinese title: 中美知识产权学者对话纪要. Here is a link to last year’s report for comparison.

The report was chaired by former PTO Director Dave Kappos on the US side, and Dean Liu Chuntian of Renmin U. on the Chinese side.  Former judges Rader and Cheng Yongshun were also were part of the team.  At our various meetings we hosted former SIPO Commissioner Tian Lipu, NCA Vice Commissioner Yan Xiaohong, senior judges from the IP courts and Supreme People’s Courts, trademark officials, academics and others.  I was part of the U.S. side for a second year, and was joined by Tony Chen of Jones Day and Eric Priest of the University of Oregon.

The report looks at several issues: IP and innovation in the technical sector; IP and innovation in the pharmaceutical sector;  judicial protection of IP; trade secrets protection; and copyright enforcement.  The following are some of the baskets of proposals agreed to by both sides (more granular detail is found in the report itself):

  • Use quality instead of quantity as the measure of innovation.
  • Explore the possibility that a judicial interpretation be issued to ensure no injunctive threat is available until utility model patents have been substantively examined for validity.
  • Adopt a more balanced and market-driven approach to promote innovation by entrepreneurs, inventors and universities.
  • Improve the patent linkage system, and provide effective protection for clinical data of new chemical entities by using the ongoing effort to amend the Patent Law and the Drug Administration Law as an opportunity for change.
  • Initiate a special study on establishing a single IP appellate court to unify China’s judicial adjudication of IP.
  • Improve the guiding case system with respect to procedures for reviewing, selecting and releasing cases and support better adoption of case law information.
  • Recommend research on the possibility to have a stand-alone and uniform trade secret law, in order to effectively maintain a fair market competition environment.
  • Address new problems created by changing technology and business models; develop a good ecosystem for innovation by the interaction of law and the marketplace; and provide more market opportunities for copyright holders while dealing with piracy.

I have strongly supported the Dialogue since its inception, when I was at Fordham Law School, in order to provide a de-politicized, expert and wide ranging engagement on Chinese IP issues.  If last year’s report is an indication of how this year’s report will be received, it will likely be widely circulated inside and outside the Chinese government.

open dialogue meeting with Amb. Baucus, US and Chinese colleagues in Beijing in early 2016.

Photos above by Mark Cohen.  Top photo at Hainan Island meeting, bottom photo in Beijing at public meeting with U.S. Amb. Max Baucus, US and Chinese guests and dialogue experts (both photos early 2015).

Tudou Encounters a “Hot Potato” In Distributing A “Bite of China”

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From April this year, the Supreme Court launched started releasing “model cases” (典型案例) in order to assist the courts and public to better interpret the law.

On June 23, 2014 the Supreme People’s Court released five “model cases” decided by the lower courts, which for the first time included an IP-related case, CCTV International [央视国际网络有限公司] vs. Shanghai TuDou Network Technology Co., Ltd. [上海全土豆文化传播有限公司]. These model cases, as I have previously blogged are an effort to instruct the lower courts and the public on how IP cases are adjudicated, and are an effort to establish a kind of “case law with Chinese characteristics.”  The case has been briefly discussed by Jerry Fang at the Supreme People’s Court Observer website.

 “A Bite of China” is a food documentary.  It was filmed by CCTV. It was first broadcast in May 2012. One week after broadcast Tudou.com offered a link to watch the video on-line. CCTV thereafter sued Tudou for damages and reasonable costs.

The Shanghai Minhang District People’s Court determined that the action of the defendant constituted infringement of the right of communication through information networks (the “making available right” in other jurisdictions).   In particular, the court relied on Article 3 of the 2012  Judicial Interpretation on on-line infringement [The Provisions of the Supreme People’s Court on Several Issues concerning the Application of Law in Hearing Civil Dispute Cases Involving Infringement of the Right of Dissemination on Information Networks]. In this case, the defendant provided the online on-demand service of the infringed work to the public and allowed users to watch the asserted work in their personal selected time.

Tudou (which means potato in Chinese) argued that it only provided space storage services and that the asserted work were uploaded by the network users.  However, it was not able to provide evidence to illustrate who was the actual person to upload the videos, so the court did not find this argument to be credible. In regard to the economic loss claimed by the plaintiff, since the plaintiff couldn’t submit the evidence about benefits from the infringement of the actual loss suffered by the defendant, the court considered the popularity of the asserted work, that the defendant directly provided the asserted work to view online, that the subjective fault of the defendant was large, and the infringement was occurred during the “hot” [热播] broadcast period for the TV show. The court also looked to Tudou’s business size, business model, and the nature of the its website to demonstrate the effect of the infringement.

According to the judgment of the first instance CCTV International filed a lawsuit after it obtained notarized evidence of the infringement. Thereafter, Tudou deleted the asserted video on its website. It appears that CCTV International did not give an opportunity to give Tudou time to take down the video before filing the lawsuit.  The court instead relied upon the fact that Tudou, a sophisticated company, uploaded the content itself, and that the content was “hot”. Under Article 10 of the 2012 Judicial Interpretation on on-line liability, where there is such “hot” content, knowledge of infringement can be imputed:

Article 10    Where a web service provider, when providing web services, by establishing charts, catalogues, indexes, descriptive paragraphs or brief introductions or other ways, recommends hot movie and television programs which can be downloaded or browsed or are otherwise accessible by the public on its webpage, the people’s court may decide that it should have know that its web users are infringing upon the right of dissemination through information networks.

第十条网络服务提供者在提供网络服务时,对热播影视作品等以设置榜单、目录、索引、描述性段落、内容简介等方式进行推荐,且公众可以在其网页上直接以下载、浏览或者其他方式获得的,人民法院可以认定其应知网络用户侵害信息网络传播权。

This case appears to be directed to the application of what constitutes “hot” content according to the 2012 Judicial interpretation, as well as related issues involving application of the JI.  It may also be timed to coincide with the current comment period for the recently released draft of the State Council Legislative Affairs Office of the proposed revisions of the Copyright Law.  Article 73 of that draft outlines addresses “actual” or “constructive” knowledge of infringement which can result in liability for an ISP, without specific reference to any “hot” content.

After some searching, it appears that this case is not yet available on line in its second instance decision.   This blog has therefore relied on the press release and first instance decision.  If a reader has a copy, please post it or email me at chinaipr@yahoo.com. 

These cases show that China is laudably utilizing its extensive IP case adjudication experience to guide the judiciary and is therefore evolving its own approach towards case law.  However, if the cases are to have an  even greater impact, it is also important for the case to be published or made readily available at least by the time it is listed as a model case.