Companies should attach importance to IP compliance

Not long ago, a used car website was fined RMB12.5 million (US$1.8 million) by the law enforcement department of the Administration for Industry and Commerce (AIC) for its untrue advertising slogan “Far ahead of peers”, which could also be called “a single word is worth a thousand pieces of gold!”

Cases have been increasing in recent years where companies were punished by the AIC for improper advertising slogans involving fraudulent or misleading words, or the utilization of absolute terms such as “first” and “highest”, which go against relevant laws and regulations.

Obviously, in the current mobile internet era, companies focus more on how to attract consumers’ attention in commercial promotion instead of compliance review and risk management. Their legal departments may also put more energy into intellectual property (IP) acquisition and enforcement. The compliance risks associated with IP involve all aspects of corporate business activities, without limitation to the field of the Advertisement Law.

Q: What are the types of IP compliance?

A: Compliance refers to conformity with certain mandatory provisions of laws and regulations, or otherwise incurring penalties, lawsuits or loss of certain legal rights. The following provides a summary of various common issues regarding corporate IP compliance.

Contents and behaviour compliance. This type of IP compliance mainly means that what companies “say and do” shall conform to relevant laws and regulations. First, with respect to content, various information issued by the companies (such as advertisements, press releases, statements, product manuals and other promotional materials), and various types of identifications (such as product packaging and labels, trademarks, patent labels, various certification marks for quality, safety and places of origin, etc.), shall be consistent with the facts and not mislead the public or cause adverse social impact.

Second, the contents must comply with relevant mandatory regulations (e.g., the “®” symbol cannot be used for unregistered trademarks, or a fine of 20% of illegal business revenue may be imposed) and avoid infringement on the legitimate rights and interests of others (such as copyrights of others’ articles, fonts, pictures, music, videos, software and other works, as well as others’ portrait rights and privacy rights).

Third, behaviour compliance means that companies should take or refrain from certain acts in accordance with laws, such as those specified in the Provisions on Prohibition of Abuse of Intellectual Property Rights to Exclude and Restrict Competition, promulgated by the former AIC.

Legal procedure compliance. This type of compliance means that companies, in certain circumstances prescribed by law, must conduct activities related to the acquisition, transfer, implementation or maintenance of IP rights through government procedures such as: the process of confidentiality review application before applying for a patent abroad; the registration of import and export contracts for free technologies; the review and approval of import and export of restricted technologies; relevant review on transfer of IP rights by the State Council; internet protocol communications platform (ICP) filing or internet service provider (ISP) licensing of websites; the concentration of undertakings involving IP property rights; and the application for and review of new high-tech titles for companies.

According to the latest memorandum signed by 38 relevant state ministries and commissions, applicants involved in abnormal patent prosecutions or providing falsified documents in the patent prosecution process may be put on a negative list of dishonest people or companies.

Rules and regulations compliance. This type of compliance requires companies to establish certain internal rules, regulations and procedures related to IP rights such as award and remuneration policy for service inventions, IP rights protection rules for e-commerce platforms, cybersecurity and data privacy protection systems, and research and development data management systems in accordance with relevant laws and regulations. Any company that fails to do so may bear corresponding legal risks.

The above classification may not be perfect, and some compliance issues may also involve different categories. The authors’ main aim is to remind company executives and legal personnel of the existence of such IP compliance issues, and to do well in compliance work according to their companies’ own situations.

Q: Could you illustrate how legal personnel can do a good job in IP-related compliance?

A: Due to limited space, the authors only take the compliance issues in corporate advertising as an example, to illustrate the importance of compliance and to give our advice on how to cope with them. Not long ago, an internet company encountered hundreds of civil lawsuits against it for using others’ copyrighted pictures without authorization.

The company was in the process of series C financing, and the investors immediately suspended their investments after learning about these lawsuits that may result in the loss of an opportunity for rapid development of the company. Marketing personnel in many companies are used to using images downloaded from the internet in advertising. Although the target amount in a single case is not much, it may add up to incur serious consequences, or at least stain the company’s reputation.

In the internet era, companies are publishing a large amount of information quickly every day, and it may be impossible to require a review of each piece of information by legal personnel in advance. While establishing relevant compliance policies and training the marketing department, the legal department can also create a self-checklist including major review points for advertising compliance, which should be carefully and honestly double-checked and signed by marketing personnel before the release of marketing articles. When marketing personnel encounter an uncertain situation, they can seek legal advice from the legal department. This can be a good way of ensuring efficiency and also improving the sense of responsibility of the marketing personnel.

However, different legal provisions may be inconsistent on some compliance issues. For example, the Advertising Law states that pending patent applications cannot be used in advertising before being granted, but the Measures of Marking Patent Identification of the State Intellectual Property Office allows the labelling of “pending patent not yet granted”.

Issues of this kind must be subject to a corporate legal department’s professional judgment according to the actual situation of the company. If necessary, the legal department should consult external lawyers instead of leaving the problem to the marketing department’s discretion.

Jerry Xia is a partner-level senior counsel and Simon Du is a senior associate at AnJie Law Firm