Top-down intellectual property reforms include major judicial and legislative change, solving problems that have affected enterprises for decades. But do the changes go far enough? Luna Jin spoke to senior in-house counsel and practitioners in China for their observations

On the very last day of 2020, a storm surrounding copyright lit up China’s social media. After 15 years, popular Chinese novelist Guo Jingming finally made his first public apology to another novelist, Zhuang Yu, on Weibo, China’s twitter equivalent, for his past conviction for plagiarism, which became the No. 1 trending topic on the platform.

Four days later, a Guo-directed, big-budget film, The YinYang Master: Dream of Eternity, was withdrawn from cinemas nationwide. Although the reason for this is unknown, industry insiders believe it was a backlash against Guo’s plagiarism exploits as a creator. Earlier, 156 screenwriters, novelists, directors and other industry professionals issued a joint letter calling on the public to boycott Guo and others for their plagiarism acts in the film and television industry.

Even though the court ordered Guo to apologise as early as 2006, the difficulty in enforcing civil judgments has been a longstanding problem. In December last year, the Supreme People’s Court (SPC) issued its Guidelines for the Enforcement of Intellectual Property Judgments to facilitate parties to apply to the courts for enforcement of judgments.

Recently, there have been numerous judicial developments related to IP rights. On 19 November 2020, in the electronic map infringement dispute of NavInfo v Baidu, Beijing Intellectual Property Court ordered the defendant, Baidu, to make compensation of RMB64.5 million (US$10 million). In December last year, the court confirmed the invalidity of the “Green Lantern” trademark, registered by a lamp factory in Beijing, for damaging the name and title of the Green Lantern film.

Meanwhile, reaching a finale of the prolonged trademark disputes between US basketball player Michael Jordan and the Chinese sportswear company Qiaodan Sports, where the superstar sued the Chinese shoe manufacturer and its sales firm in 2012, Shanghai No. 2 Intermediate People’s Court ruled, on 30 December 2020, that Qiaodan Sports should stop using the trade name “Qiao dan” (which is also the phonetic Chinese translation for “Jordan”) in its company name, and on 12 January 2021, the Chinese company changed its name to “Zhongqiao Sports”.

In early January, Hangzhou Intermediate People’s Court ordered Guangzhou Wyeth to pay RMB30.55 million in damages to American pharmaceutical company Wyeth, which is also the first case in Zhejiang province where the highest award of punitive damages was applied, since the products involved are related to the health and safety of infants and children.

And recently, the market supervision administration of Fujian, Putian, China’s fake sneaker city, published its top 10 cases of trademark infringement, all related to shoes, in an endeavour to rectify counterfeit production in the city.

On the law-making side, the National People’s Congress (NPC) passed amendments to the Patent Law on 17 October 2020, and on 11 November amendments to the Copyright Law were also passed. Both will take effect on 1 June this year. The newly amended laws are considered to be the last two pieces of China’s current legal protection system for intellectual property (IP). Previously, protection of trademarks and trade secrets were covered respectively by the Trademark Law and Anti-Unfair Competition Law (amended in 2019).

In the arena of copyright and patents, major legislative amendments will have a significant impact on enterprises’ daily operations and legal affairs, but are these enterprises ready to embrace the new protection regime?

Higher compensation

In the past few years, judicial practice in disputes involving copyright in cyberspace has been plagued by problems such as high costs for copyright owners to defend their rights, and difficulties in proving their claims.

“The benefits of breaking the law are higher than the costs,” says Chen Jihong, a Beijing-based equity partner at Zhong Lun Law Firm.

Chen points out that although rights holders take the initiative to make high claims, the amount of compensation ultimately awarded by the court is often too low, while the actual profit made by the infringer is considerable.

“Many internet companies are willing to bear the legal risks of infringement and continue to commit illegal acts, which directly leads to the chaotic situation of a lack of copyright protection in cyberspace,” he says.

Sun Mingfei, a Guangzhou-based partner at King & Wood Mallesons (KWM), also observes this phenomenon. “The problem of using pirated software, for example, still exists in some companies and even listed companies,” says Sun.

The problem “lies in the insufficient attention paid to copyright protection, and that a universal social consensus of honouring copyright has not yet been reached, on the whole”, he adds.

Intellectual propertyTo address this elephant in the room, the newly amended copyright and patent laws require that the amount of compensation shall be determined at a rate of not less than one and a maximum of five times the actual loss of the rights holder and the illegal profit of the infringer, the base infringing amount.

While the Copyright Law has raised the upper limit of statutory damages for infringement to RMB5 million, and set the lower limit at RMB500, the Patent Law raised the thresholds of statutory damages to “more than RMB30,000 to less than RMB5 million” from “more than RMB10,000 to less than RMB1 million”.

“One of the most significant guidances of the new Patent Law is to make the cost of infringement significantly higher, which will promote and encourage technology enterprises to transform from the original responding passively in litigation to taking a proactive rights defence,” says Liu Wenna, senior director of cloud computing company Kingsoft Cloud’s legal department.

For the infringer, copyright infringement will lead to more serious legal consequences. “The infringing companies must pay greater attention to this,” adds Sun.

Higher compensation will be a significant blow for companies that have relied on patent infringement to gain an unfair competitive advantage, points out Jiang Xiangwei, director of IP at Siemens (China). “This amendment also conveys to the outside world the government’s firm determination to protect intellectual property rights,” says Jiang.

So, how should patent applications be laid out after the introduction of the punitive damages system? “Companies should pay more attention to the enforceability of patents, freedom to operate analysis, etc.,” suggests Tang Huadong, a Beijing-based partner at Merits & Tree Law Offices.

China intellectual property IPLighter burden of proof

In current judicial practice, determining damages in IP disputes is a major difficulty. Companies wishing to adequately defend their IP rights often have to carry a heavy burden of proof. This has emboldened many infringers, which in turn has exacerbated infringement at source.

In proving that an IP right has been damaged, the holder of the evidence is often not the rights holder. The new Copyright Law and Patent Law formally provide for the reversal of the burden of proof in determining the amount of compensation, in line with legislative updates involving trademarks and trade secrets.

All four above-mentioned laws have added a rule on obstruction of evidence in determining damages: If the rights holder has made every effort to adduce evidence, the court shall order the infringers to bear the burden of proof, and if they do not provide, the court may determine the amount of compensation in accordance with the rights holder’s claims and the evidence provided.

“For the technology industry, especially the software industry, it solves the problem of difficulty in proving the infringement through providing back-end data, and makes it relatively easy to define the infringing amount, so that the rights holder no longer needs to be evasive,” says Liu.

The Copyright Law also further clarifies the consequences of obstruction of evidence, including allowing courts to order the destruction of infringing tools, or even ban them in commercial channels, at the request of the rights holder.

“The amendment reflects China’s aspiration to increase both protection for IP rights and penalties,” says Sun. “Enterprises should thoroughly investigate potential infringement to avoid the possible increase in infringement risks and legal liabilities after the official application of the new law.”

“Internet companies should be aware of and pay attention to online infringements under the new Copyright Law, and not test the law at their own cost ever again,” Chen cautions.

Enhanced protection

Legislation has often lagged behind business practices and China’s continual economic reforms. The current amendments to the IP laws will bring about substantial changes to various industries in terms of the strength and scope of legal protection.

For the culture, media and internet industries, Li Zhengning, a partner at Hylands Law Firm in Beijing, says the greatest impact of the new Copyright Law is the increased protection of intellectual labour.

The Copyright Law also expands the scope of rights for producers of recordings by adding the right to be paid for broadcasting, and extends the protection period for photographic works.

“There will be more rights holders, stronger motivation, and a more appropriate input-output ratio for the cost of defending rights, driving the emergence of a greater number of disputes,” Li predicts.

The amendments to the law also “further increase the protection of music copyright at the legislative level, making the relevant rights more specific and perfect,” says Cherry Guo, a senior partner at Tiantai Law Firm in Beijing. For example, the new law gives recording rights holders the right to be paid for publicly playing and performing their work.

Broadcasting rights have also been expanded. In the internet industry, there has long been a debate on whether webcasting is included in the “right to network dissemination of information”. In the new law, broadcasting rights have been expanded by adding the technical means of “wired” to cover all acts of “non-interactive dissemination”, including non-interactive dissemination over the internet, which means that “live singing or playing background music [in live broadcasts], scheduled dissemination on the website, and real-time broadcast of concerts and TV variety shows will fall under the protection of broadcasting rights,” says Guo.

China intellectual property IPChinese messaging app WeChat’s legal director, Huang Jiahui, adds: “Clarifying the boundary between broadcasting rights and the right to network dissemination of information will promote an orderly development of the industry and bring far-reaching impact to the internet industry.”

There have also been encouraging changes in the area of patents. The Patent Law specifies in article 6 that an entity may dispose of its right to apply for patents and patent rights for inventions and creations that are determined as “service inventions” made by employees, in accordance with the law. Directly addressing the ambiguity of the patent ownership, the root cause of many current disputes between employers and employees, will eventually promote the implementation and application of the relevant inventions and creations.

“This will help entities containing state capital, such as research institutes and universities, have a clearer legal basis for the disposal of their patent application rights and patent rights,” says Allen Jiang, general manager of Chinese chemicals company Sinochem International’s legal department.

The Patent Law also extends the duration of protection for designs, introduces a domestic priority system, and specifies the protection of partial designs. “This will facilitate the protection of product designs and effectively protect creative product designs,” says Cheney Xu, chief IP counsel at electronic cigarette maker Smoore Technology.

The amended Patent Law stipulates that the term “design” refers to any new design of a product’s shape or pattern, or a combination of them, as well as the combination of the colour, shape or pattern of a product, which creates an aesthetic feeling and is fit for industrial application.

Jiao Yuheng, a Beijing-based partner at Liu Shen & Associates, says this amendment will bring material changes to the industrial manufacturing industry. “The addition of ‘partial designs’ should effectively curb the copying of partial industrial designs and enhance their protection,” says Jiao.

china intellectual propertyKeeping up with the times

Huang of WeChat believes that the update of the Copyright Law “echoes the expectations of internet enterprises on matters raised during their development, laying the foundation for the protection of new industries, new technologies and new types of works, as well as reserving buffer space for future development on the institutional level”.

In the past, types of works were listed in a closed format, but the Copyright Law takes an approach of emphasising the characteristics of a work as “original” and “capable of being reproduced in some tangible form”, and by adopting “other intellectual achievements that meet the characteristics of works” as a backing clause. “As a whole it forms an open-ended definition [for the types of works] that expands the scope of protection,” says Huang.

According to Chen, of Zhong Lun Law Firm, this miscellaneous clause is the biggest highlight for the technology, media and telecoms (TMT) industry. With the rise of the TMT industry, there have been intellectual achievements in the past few years that could not be fully included under the scope of types of work stipulated in the law, such as short videos, animated clips, live sports event footage, online game footage, etc.

In the category of protected “works”, the new law replaces the existing term “cinematographic works and works created by methods similar to producing films (film-like works)” with “audio-visual works”, a common international designation. Chen says this change reflects “a shift in the definition of works from a strict rule-based legislative model to a factor-based one”.

In future, new types of works such as live broadcasts of events and online games will fall under the scope of protection of audio-visual works.

“The enactment of the Copyright Law will create significant incentives for copyright-intensive companies in the TMT industry, and leave room for new forms of works to emerge in the future,” says Chen.

Sun, of King & Wood Mallesons, believes that this amendment is crucial for the gaming industry. At present, many judicial decisions see games as “film-like works” under the earlier copyright law, however, not all game genres can be included in that category. Usually, games with more plot elements, such as role-playing games, are more likely to be considered as “film-like works”, while board and card games are mostly excluded from this.

“The amendment has further clarified the issue of identifying the object of protection for games under copyright law, which will be more conducive to achieving judicial protection for games,” says Sun.

The pandemic also echoes in amendments to the Patent Law. Among the exceptions to the loss of novelty is an addition that is particularly potent in the pharmaceuticals industry and drug development, such as with vaccines.

The new law adds, for the first time, that a patent may be protected from loss of novelty before the patent application is completed (by a period of up to six months) if a state of emergency, or any extraordinary circumstance, occurs in the country where the novel innovation may be deployed.

Jiang, of Sinochem, says: “In the future, this provision is expected to help the country to organise the production of newly invented drugs as soon as possible, if we were to face another crisis event like this again.”

Another important change in the Patent Law for the pharmaceutical industry is the introduction of the patent linkage system and the patent term extension system.

“It [patent term extension system] allows the patent protection period for innovative drugs to be further extended from the original 20 years, which is very encouraging for innovative drugs production,” says Tang. “The patent linkage system also gives generic drug companies the opportunity to challenge against the patents of innovative drugs, and the future game between the two will be intensified.”

Some deficiencies

The new round of revisions to the legislation, however, is not without holes. The Copyright Law still does not provide an answer to the long-awaited protection for creative works of artificial intelligence (AI), especially for the TMT industry.

Although in practice, works created by AI have been recognised by some courts for their nature as “works”, Chen, of Zhong Lun, says, “the conflict between the mode of creation for AI and the legislative intent of the Copyright Law is far from being reconciled by one or two judicial decisions”.

The legislative intent of the Copyright Law is to grant natural persons the exclusive right to their intellectual output of originality, thus encouraging creativity and cultural communication. In practice, either considering who created the works (natural person or machine), or determining the originality, it cannot be proved that the output of AI creation constitutes “works”.

“The conflict directly hinders the motivation for TMT companies to fully deploy their resources to the AI creation industry in the new era,” says Chen. “As a fundamental law to adjust China’s information and culture industry, it is necessary for the copyright law to face up to the challenges posed in the AI era, and this amendment fails to resolve the above conflict on a legislative level, which is quite regrettable.”

China intellectual property Chen suggests that enterprises should actively pay attention to updates in judicial practice regarding the nature of AI creations and the way they are protected. “Whether protection is provided in the form of copyright or competing interests in the future, enterprises are advised to actively deploy in industries such as AI and big data, and to reasonably assess the relevant legal costs and benefits,” he says.