IP Protection in China

INTRODUCTION TO INTELLECTUAL PROPERTY IN THE PEOPLE'S REPUBLIC OF CHINA

Generally speaking, property rights obtained through patents, trade secrets, trademarks, copyrights, and the law of unfair competition have come to be known, collectively, as "intellectual property." Derived and revised from the already existing regulations and international conventions, the latest versions of the Patent Law, Trademark Law, and Copyright Law have come into effect in 2001. As with the rest of the countries in the world, most types of IP can be registered and protected in the People’s Republic of China. Furthermore, developing along with new technology and the Internet, domain names are now considered as a supplementary type of intellectual property.

The below is applicable generally to IP protection and may be used for a number of different operations in China, whether it be trade, distribution, provision of services, solely within China or for goods which will be fully exported and sold in foreign markets.
A. TRADEMARK
1) General Information

Mainland China employs a centralized trademark registration system, the “first-to-file” and single-class system for trademark registrations. This means that the owner of a trademark in a foreign jurisdiction has no priority in China unless and until it has filed its marks. The exception is “well-known” foreign trademarks, such as Coca-Cola or McDonalds, though, the applicability of this category is limited to only the largest and most famous of marks. Therefore, even though a trademark is registered outside China, in almost all cases it will not be protected in China (unless in the case of well-known marks). The same trademark, if used for different products, should be registered in a number of appropriate classes.

The Trademark Office of the P.R.C. is responsible for the registration and overall administration of trademarks in China. If the application proceeds smoothly without any office intervention, it will take about a year and a half to fully register the trademark.

2) Trademark Filing
Filing Requirements

a. Name and address of the applicant, and a Chinese translation for the name and address;
b. 10 reproductions of the trademark (not beyond 10cm x 10cm, but no less than 5cm x 5cm). If color is claimed, two reproductions in black&white are required in addition to the 10 colored ones;
c. A list of goods/services to be covered by the filing (if priority is to be claimed, the goods/services should be the same as those which are shown on the priority documents); and
d. Power of Attorney duly executed by the applicant.
3) Trademark Registration and Use
Upon approval of registration, the term of validity for a trademark will be ten years from the registration date. However, the registrant is obligated to use their registration during this ten-year period for at least three consecutive years. (Failure to do so may result in cancellation.)

The exclusive right to use of a registered trademark is limited to the classes in which the trademark is registered. When using the registered mark, the registrant should not alter its appearance nor its details without authorization of the Trademark Office. A new application must be made whenever there is an alteration of the registered trademark, or an extension of the goods designated. Where a registered trademark is used, the characters “registered trademark” may be indicated on goods, packages of goods, description of goods or other ancillary items. The registered mark may also use the ® symbol which should be placed on the upper- or lower- right hand corner.

Renewal must be filed before expiration of validity. The Trademark Office permits an extension of six months for late filing. However, extra official fees must be paid.

4) Trademark Protection

In China, when discussing trademark protection, we usually refer to the protection of registered trademarks or unregistered, but well-known or famous trademarks. Little protection is granted to unregistered marks. Therefore, registration is the first step to protect your IP.

Trademark Law and the Implementation of the Trademark Law of the P. R. C. are the basis and main regulations for the protection of a trademark. Members of the Paris Convention provide broader protection to well-known marks. If your mark is proved to be a well-known mark under the Convention, you may seek protection under this Convention when an infringement occurs.

There are a number of options available when one suspects infringement of their product:

a. Administrative action: Issued by the local Administration of Industry and Commence, this will be a prompt action, much as the name indicates, to force cessation of infringement. However, very little compensation or indemnity may be collected.
b. Courts: If the registrant, as the victim of infringement, has collected sufficient evidence, it may bring an action directly in court. Civil courts can order the infringer to cease the infringing activity, eliminate the negative effects caused by the infringement, and further award compensation for losses.
c. Customs: Customs may also stop the import or export of products with suspicious trademarks, under the requirement that the registrant provides the necessary evidence or documents. (To be clear, the trademark owner must make a filing with Chinese customs.)
d. Criminal: Serious acts of trademark infringement may be punished by criminal courts, rather than administrative bodies. The Public Security Bureau and Prosecutors are the authorities in charge of investigation and prosecution in criminal tribunals..

5) Trademark’s Function

The basic function of a trademark is to distinguish the goods or services of one natural person, legal person or any other organization from those of another. However, as a type of intellectual property, trade activity in commercial society endows the trademark holder with a potentially valuable asset.

The trademark’s value may be increased by the registrant’s direct and indirect use. The registrant may also collect profits through the sale of their products/services with their trademark. To some degree, the price of products/services are determined by recognition of the trademark attached. Correspondingly, the registrant may collect funds through indirect use, such as licensing, or franchising.

6) Trademark License

Among the methods of indirect use of a trademark, the license is a very important and effective method for the registrant. Licensing means the registrant enters into an agreement with another party, in which registrant allows them to commercially use or develop the trademark for a period of time. In return, the registrant receives money- either a one-time payment or continuous payments called royalties. The power to make this agreement is based on the premise of entitlement to intellectual property rights. Licenses can rapidly increase the fame of a trademark without much investment. Further, the registrant can collect extra royalties as an additional source of income.

License Agreements must be prudently executed in writing and enforced with particular concern. When a trade secret is involved, a nondisclosure agreement must be signed as a necessary supplementary agreement. When a registered trademark is involved, recording of the license agreement with the Chinese Trademark Office is required. Currently, only license agreements for registered trademarks can be recorded with the Trademark Office, which further entitles the licensee to remit royalties out of China.

B. PATENT PROTECTION
In China, patents are divided into three types: invention, utility model, and design. The Patent Law of China defines the three types of patents as follows:

a. An “Invention” patent is defined as any new technical solution relating to a product, a process or improvement thereof;
b. A “Utility model” is any new technical solution relating to shape, structure, or a combination of a product, which is fit for practical use;
c. A “Design” patent is defined as any new design in the shape, pattern, color, or combination thereof, of a product, which creates an aesthetic feeling and is fit for industrial application.

An invention patent refers to “the new technical solution relating to a product, a process or improvement thereof”, which may include inventions or innovative processes. The requirements for invention patents are more stringent than in other categories. Correspondingly, protection for an invention patent, once obtained, is the most extensive among the three types of patents. The process may take 4-6 years for an applicant to obtain a patent after filing; this period may be lengthened if the applicant is a foreign entity.

Utility model patents focus on the specific use of the end product and design patents on the physical features of the product. Compared to invention patents, utility model and design patents are relatively easy to obtain. Since no substantive examination is conducted during the filing procedure, these patents are granted within 8-14 months from the filing date. However, utility model and design patents can also be revoked easily when subjected to the scrutiny of a revocation petition. One reason for this is the requirement that a product must be “novel”. If products were put on the market several years prior to the application, the “novelty” of the products would be lost, an opening that an opposing company may exploit during revocation proceedings.

In addition, as China is a contracting party to the Patent Cooperation Treaty, it is a good practice to file any patents under this regime in order to enable a company to take advantage of the PCT priority date (though it must be made clear that the patent must enter the national phase for each country independently in the sense that there has to be individual registration in each country designated).
C. COPYRIGHTS
In China, copyright protection arises in an “original” work of authorship “fixed” in a tangible medium of expression. Registration with the China Copyright Office is recommended, especially if you wish to file an infringement suit. The copyright owner has five exclusive rights in a copyrighted work, these being the right of reproduction, modification, distribution, public display, and public performance. This is a measure that can proactively prohibit competitors from using a company’s promotional materials/text on packaging to promote their own product.
To be clear, in China, copyright works are automatically protected upon their creation, under the law. However, they may be recorded at the Copyright Bureau, which will issue the owner a certificate of ownership. Armed with this document, the owner will have a significant advantage in the event of future disputes involving the ownership of materials. Pictures, technical blueprints or drawings, designs, written materials, electronic materials such as web pages and computer software can all be recorded at the Copyright Bureau.
D. TRADE SECRETS AND CONFIDENTIAL INFORMATION
In China, a trade secret is defined as information of any sort that is
a. valuable to its owner,
b. not generally known; and
c. that has been kept secret by its owner.
It includes information, formulae, patterns, compilations, programs, devices, methods, techniques, databases, or processes that derive independent economic value from not being generally known or readily ascertainable and is subject to reasonable efforts to maintain its secrecy.
A trade secret owner has the right to keep others from misappropriating and using the trade secret. In China, many trade secret cases involve former employees who steal employer’s trade secrets and Foreign Invested Enterprise partners. Discovery of protected information through independent research, or reverse engineering (taking a product apart to see how it works) is not considered misappropriation.

Trade secret protection endures so long as the requirements for protection (generally, value to the owner and secrecy) continue to be met. Protection is lost, however, if the owner fails to take reasonable steps to maintain secrecy.

Confidential information is information not known to third parties, or the general public, and is deemed and defined by the individual entity as confidential by certain means, usually in writing.

Typically, prudent companies enter into stringent employment, non- disclosure, non-compete, trade secret, conflict of interest, and related agreements in order to avoid later problems.
E. CONCLUSION

As you may see from the above, protection/registration of IP is an essential aspect to protect your company in China. Further, given the lead times for registration, it is advisable to file applications as early as possible. At a minimum, prior to entering the Chinese market in any way other than for simple exploratory visits, it is recommended to file your marks so that you will have priority of registration when the rights are actually granted.