IPR Matters in China Simon Cheetham and Sarah

IPR Matters in China Simon Cheetham and Sarah Turner

The Helpdesk Initiative • Practical business focused advice • Protection Strategy • Enforcement Advice • ‘Know before you go’

Significant EU – China Trade • 118 million suspect goods detained at EU borders in 2009, ⅔ originated from China • Does not include damages reported by European companies due to Chinese counterfeit goods put on the Chinese market • Or Chinese counterfeit goods on other non. European markets

The Helpdesk Initiative T 2 314, 573 in 2009 229, 096 in 2009 85, 477 in 2009

The Helpdesk Initiative 830, 500 in 2009 88, 714 in 2009

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The Helpdesk Initiative Prevention Strategies Plush Toys Trademark, sourcing and manufacturing contracts, record keeping re creation, advertising/packaging Design of drainage machines IPR as part business strategy. Not just design patents but trademark and copyright Wastewater Treatment Trademark, trade secrets, non-disclosure agreements, first to register Enforcement Strategies Olive Oil Opposition to local trademark application Umbrella IP protection in China, sale in HK – steps on hiring a lawyer Lighting Group Design patent infringement – received legal advice ‘not sufficiently the same’, business strategy

The landscape China – too big to ignore IP protection relatively new concept BUT legal system improved Chinese companies becoming substantial competitors • Foreign companies developing R&D presences in China • Chinese government stressed importance of R&D and IP • •

Doing business in China • Understand the Chinese legal environment • Know to what extent patents, trade marks and trade secrets are protectable and enforceable • Understand the rules relating to technology transfer and how to limit the risks from such transfer • Understand the legal provisions in relation to IP created by employees or third party suppliers (JV partners, consultants etc) • Maintain the security of your technology and confidential information

Patent protection • Third amendment to Patent Law (1 October 2009) • Monopoly right for a new design or invention or improvement to product or process • National right – Chinese patent only grants rights in China • European patents have no effect in China • Chinese patent law covers – Invention patents (20 years) – new technical solutions – Utility models (10 years) – technical but degree of invention not as high as for invention patents – Design patents (10 years) – new designs – shape, pattern or colour • First to file system (not first to invent) • Timescales for grant vary

Requirements for patent protection • For invention patents and utility models • Invention must be new – absolute novelty test – do not market or make invention publicly available anywhere in the world before filing application – watch out for unpublished pending applications • Inventive over prior art • Of practical application • NB inventions made in China – confidentiality examination required beforeign application can be filed – failure →non patentability in China

Design patents • New over the "prior design". Not new if identical to prior design • Prior design is any design known to public in China or abroad before filing date • Must be obviously different from prior design or combination of features of prior design i. e. creative • No conflict with other IPR • Not available for 2 D trade marks

What rights do I get? • Once granted third parties stopped from making, using, importing or selling invention or design without permission • For a process patent third party cannot use process or use, import or sell products directly obtained from process without permission • Claims govern scope of protection • Application must be in Chinese so need careful translation (especially claims) • Consider parallel filing of utility model

Employee inventions • Chinese employees invention law • Service inventions – employer must pay employee a "reward" and a "reasonable remuneration" on exploitation • Can deal with remuneration in company rules • BUT recommend terms in R&D personnel employment contracts setting out manner and amount of award and remuneration • In R&D agreements with Chinese companies consider who will pay possible rewards and remuneration

Joint ownership • Many agreements between foreign companies and Chinese partners state resulting inventions will be "jointly owned" • If no agreement otherwise, law provides – each co-owner may use invention – each co-owner may grant non-exclusive licences (but royalties shared) – all other exploitation subject to other co-owner's consent

Assignments and licences • Applications and patents may be assigned • Must register transfer • Assignment only takes effect on registration • Assignments from PRC company to a foreign party subject to authority approval • May also license patents

Confidential information • What is protectable? • Contractual protection – employment contracts – NDA before information disclosed to third party • Statutory protection – must be a trade secret – not publicly known – has economic and practical value – owner taken reasonable measures to maintain secrecy • Practical tips for protection – Carefully mark "Confidential" – Keep in secure place – Consider splitting into parts

Technology transfer • Most technology freely transferable • Some restricted and prohibited categories • Cannot limit Chinese party from using improvements • Ownership of new rights and improvements – General rule – person who makes improvement owns it – Otherwise agree (in writing) who will own any improvements

Technology transfer Risk of technology/information leakage is real Enforcement of rights after leakage difficult Put in place systems to limit disclosure Track and monitor use of know how by employees and partners • Have an IP filing strategy to capture R&D generated • •

Trade marks • What is a trade mark? Indication of origin • Registration foundation for protection • What can be registered? – – – • • words devices 3 D shapes colours must be "seen" First to file system Translation or transliteration of foreign brands Over 2 million trade marks registered Developing and clearing a new Chinese trade mark can be time consuming

Requirements for TM registration • National (only in Chinese) or international procedure (may cover more than one country) • List products or services for which trade mark protected • Formal requirements • Substantive requirements – – Legality Non- functionality Distinctiveness No conflict with prior rights

Maintenance and exploitation of trade marks • • If registered, due for renewal every 10 years Can be invalidated after registration Use it, don't lose it! Can license to third parties – exclusive – sole – non exclusive • Licensors should impose controls on quality in licences • File licence with CTMO • Can assign registration or application. Assignment must be recorded at CTMO

Copyright • What is protectable? – ORIGINAL creative works, software, drawings etc • Arises as soon as an original work is created • No registration required but recordal can be used as evidence of ownership • Creator or employer of creator first owner • Author will own commissioned works unless contract states otherwise

Enforcement Options • Total 30, 626 new IPR cases in 2009 • New Foreign Related IPR Cases = 4. 5% of total • Rapid growth in IP civil litigation

Navigating the legal system • Mixture of laws • Civil proceedings – People's Courts – Supreme People's Court (Beijing) – Specialist IP panels (within courts in major municipalities) • Usually 3 judge panel – rely on judicial interpretations • No rule of binding precedent • Inquisitional system (but in practice rely on evidence submitted) • Hear cases which have a connection with the Court's geographical jurisdiction • Strong burden of proof on party asserting a fact

Patent enforcement options • 3 main options – Administrative by local IPO (for all types but generally for designs) • Order to stop acts • No damages – Judicial • Usually Intermediate People's Courts • Damages – 4 methods for calculation: – – Loss suffered Profits earned Multiple of licence fee Lump sum – Customs • For complex technical questions → judicial

Strategies for enforcing patents • Statute of limitations – 2 years • Before starting proceedings – be prepared – Fact finding – ”Test" purchases (supported by documentary evidence) – Procedural formalities/requirements • Obtaining "sufficient and admissible" evidence – Oral evidence rarely used – Use of private investigators/notaries – Orders to preserve evidence/documents and inspect premises • Consider taking action in Hong Kong or overseas to obtain evidence

Confidential information • How is confidential information misappropriated? – Industrial espionage – Taken by employees – Inadvertently disclosed – Misuse by licensees or subcontractors • Digital information harder to protect

Enforcing rights in confidential information • Actions available: – Administrative – Judicial – Criminal • Criminal action may be only effective remedy – difficult to prove a civil case

Practical tips • Build in protection and supervisory measures – Physical access controls – Terms in contracts acknowledging confidentiality – Remove copy functions – Deliver to named individuals who have signed NDAs – Limit and track disclosure of technology • Find the right partner – due diligence before agreement/disclosure

Enforcing trade mark rights • Exclusive right to use identical or similar trade mark on same or similar goods or services • Lodging a complaint – Administration of Industry and Commerce - where infringement occurred • Include: – – Letter of complaint Registration certificate Certificate of identity of trade mark owner Evidence of infringement • Successful AIC raid – order to stop, destruction and/or fine • Administrative action common as simple procedure • BUT Court action also available – useful for injunction and damages and for small quantities

Copyright infringement • Reproduction of substantial part of work or distributing copies without permission • Unauthorised use of software • Unauthorised translation • Judicial or administrative (NCAC) enforcement • Court action has the advantages of: – injunctions – preservation of evidence – damages

Customs enforcement • Border protection of rights • Registration with customs optional • If IPR registered with GACC customs can temporarily suspend release of suspected infringing shipment and notify rights holder • Rights holder makes bond payment and applies for detention of goods • For patents shipper can pay counterbond for release of goods • Customs investigates – if determined to infringe →penalty and formal confiscation – if unable to determine – rights holder has 50 days to apply for injunction. If injunction granted shipment transferred to court

Recent trends • Move away from strong enforcement of IP driven by desire to balance enforcement and economic development • Reflected in new legislation or proposed legislation • Rise in counterfeiting • Automatic licence for technology incorporated in a standard – draft rules

Practical measures Have an IP strategy Pre-emptive action best Consistent control over confidential information Educate staff and partners on value of IP Restrict access to information/technology Police rights and partners – remember to include rights of inspection and controls in contracts • Consider Customs registrations to detect counterfeits • • •

In Summary: • You don’t have to be an expert – there are plenty out there • Register rights – if you don’t own it you can’t protect it • You need to be the first to file IPR in China • Use a layered defence – don’t rely on one IPR • Use contracts & good business practices • Prevention better than cure • Be proactive

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