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…

Chinese Customs’ Annual Report and What It Suggest for Corporate IP Strategies

Chinese Customs published its 2014 Report on the Situation for IP Protection last month. The report summarizes the current situation for Customs protection of IP in China as follows:

  1. The vast majority of seizures were initiated on an ex officio basis by customs (98% or higher)
  2. Nearly 97% of the seizures by quantity involved infringement of trademark rights. Chinese Customs can also seize goods that infringe copyright and patents. The low level of copyright seizures likely reflects the increased incidence of on-line infringement.
  1. About 96.5% of the product seizures were on exports.
  2. Consumer Goods Dominate Seizures. Amongst suspected infringing goods, tobacco products, light industry, cosmetics, clothing, etc. dominated. There was also an adjustment in product mix compared to last year, with a decline in hardware goods, pharmaceutical, hats, telecommunication equipment, toys, and food products. Note that 44 percent of the seizures were tobacco related. The next largest single category was cosmetics and personal care products. Less than one percent was pharma products.
  3. Postal and sea shipments are principal channels. Postal shipments accounted for 80.2% of seizures, with an increase of 33% from past year. 96.3 percent of the seizures were made involving shipments by sea.
  4. Greater Diversity in Destinations of Seizures. Chinese Customs seized goods involving 153 countries and territories. Amongst these, the Middle East and Latin American had significant increases.   By value the US was the second largest destination of seizures after Hong Kong. However many third world countries in Africa and elsewhere were in the top ten by value, quantity of products, and/or numbers of shipments. Brazil for example was number one for seized shipments.
  5. Seizure Activities Are Dispersed, but also Concentrated in Several Ports.  Shenzhen, Shanghai, Ningbo and Hangzhou regions dominate by value of seized shipments.

Based on this report, here’s my takeaway of steps US rights holders can take to improve cooperation with Chinese Customs:

A) Train Chinese Customs on product identification. As most of Chinese customs seizures are ex officio, the report underscores the importance of advising Chinese customs on how to identify infringing products. Of course, the prerequisite to these activities is recording your rights with Chinese Customs.

B)  Work with on-line e-tailers. There are an increasing number of seizures coming from inland ports, where goods are likely being booked on line. Moreover, goods are being shipped to a diverse number of ports. The report suggests the importance of working with on-line e-tailers, like Alibaba, to take down shipments.

C) Leverage cooperative agreements. Chinese Customs has numerous agreements with foreign countries, and has also been involved in several agreements to improve domestic enforcement, such as between Chinese customs and public security (police) authorities. Leveraging these cooperative agreements may help facilitate enforcement activity.

D) Use enforcement resources strategically. Clearly some Chinese ports are more active than others. In addition, some products seem to be attracting more attention than others. Although seizures of counterfeit pharmaceuticals, auto parts and other health and safety items are relatively low, I believe there is still room to encourage Customs to focus on items where public health or safety are affected.

Huawei/InterDigital Appeal Affirms Shenzhen Lower Court on Standards Essential Patent

One of the hot on-going disputes on IP in China and the world is the relationship between standardization and intellectual property, particularly the role of standards essential patents (SEP’s) when a licensor has undertaken an obligation to license its patents on a fair, reasonable and non-discriminatory (FRAND) basis.  Chinese courts have played an important part in this debate.  The most recent skirmish in this area is the case between Huawei and InterDigital Corporation (IDC), which was the subject of a decision of the Shenzhen Intermediate Court and has just now been decided on appeal by the Guangdong High Court.  Continue reading

Traveling the IP Road: What Are the Top China IP Destinations and Curiosities? (Part I)

Every year, around “ IP Week”  (April 26) Chinese officials and organizations of various kinds publish their “top 10” list, typically of best cases, most important developments, or leading officials.   Since it’s near the end of summer in the northern hemisphere, with Europe and North America just returning from vacation – it seems like a perfect formula for another top 10 list of most significant, unusual or historical destinations related to China IP and its history .  This is a personal list – I welcome hearing back from readers about what their top ten might be. Continue reading

The Proview and Apple Controversy – An Increasingly Tangled Web

The ongoing trademark dispute between Proview and Apple, which has now reached Apple’s home state of California, continues to draw attention around the world.  A court in Pudong, Shanghai refused to grant the injunction against sales of iPads, while Huizhou intermediate court has granted such an injunction. An appeal from the first judicial decision from the Shenzhen Intermediate People’s Court, which was adverse to Apple, to the Higher People’s Court of Guangzhou has just been heard, a ruling at this level is usually final in China. The Chinese central government has, thus far, properly abstained from declaring a position in this dispute and it is too early to tell whether Supreme People’s Court will hear a further appeal.

Continue reading