The blueprint for China’s top-down intellectual property (IP) reforms includes piecing together 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 for the big picture
On the very last day of 2020, a storm surrounding copyright lit up China’s social media. After 15 years, popular 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Four days later, the Guo-directed, big-budget film was withdrawn from cinemas nationwide.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 is 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 of the same 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 Guangdong 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 patent, 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?
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. Chen Jihong, a Beijing-based equity partner at Zhong Lun Law Firm, 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.
It is based on this measure that “the benefits of breaking the law are higher than the costs,” says Chen. “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 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 many companies, and even listed companies,” says Sun.
He adds 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”.
To address this elephant in the room, and in line with the Trademark Law and the Anti-Unfair Competition Law amendment of 2019, the newly amended Copyright Law and the Patent Law have included provisions on punitive damages, i.e., after determining the base infringing amount (e.g., the actual loss of the right holder and the illegal profit of the infringer), the amount of compensation shall be determined at a rate of not less than one and a maximum of five times the infringing amount.
Punitive damages for all types of IP have been generally provided for in article 1185 of the Civil Code: If an infringement of another’s intellectual property rights is intentional, and the circumstances are serious, the infringer is entitled to claim punitive damages.
At the same time, the amount of statutory damages has increased. Specifically, the new Copyright Law raises the upper limit of statutory damages for copyright infringement to RMB5 million, and sets a lower limit at RMB500. The new Patent Law also adjusts the thresholds of statutory damages, from “more than RMB10,000 to less than RMB1 million” to “more than RMB30,000 to less than RMB5 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.
Liu expects this will result in an increasing number of parties participating in litigation, which will have a huge impact on the litigation environment faced by technology companies, especially small and medium-sized ones.
For the infringer, copyright infringement will lead to more serious legal consequences. “The infringing companies concerned must pay greater attention to this,” adds Sun.
For companies that have relied on patent infringement to gain an unfair competitive advantage, Jiang Xiangwei, director of IP at Siemens (China), points out that higher compensation will be a significant blow. “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 (FTO) analysis, etc.,” suggests Tang Huadong, a Beijing-based partner at Merits & Tree Law Offices.
Lowered 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 the infringement at source.
In proving that an IP right has been damaged, the holder of the evidence is often not the right 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 right 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 right 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 new Copyright Law also further clarifies the serious consequences of obstruction of evidence. The court may order the destruction of infringing tools, or even ban them in commercial channels, at the request of the right holder. “The amendment reflects China’s aspiration to increase both the protection of intellectual property 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.”
Chen believes that, in conjunction with recent judicial interpretations issued by the SPC – such as the Opinions of the Supreme People’s Court on Strengthening the Protection of Copyright and Copyright-Related Rights, and the Opinions of the Supreme People’s Court on Increasing the Punishment of Intellectual Property Rights Infringement in accordance with the Law – it has become very clear that China now is serious about cracking down on IP rights infringement.
“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,” he cautions.
The many changes that have taken place in China in recent years, against the backdrop of continual economic reform, have created significant challenges for legislation that has lagged behind business practice. The current amendments to the copyright and patent laws will bring about subtle but 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 new 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 new law’s amendments 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.
At the same time, broadcasting rights have 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, the broadcasting right has 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 right,” says Guo.
WeChat’s legal director, Vivi Huang, adds: “Clarifying the boundary between broadcasting right and right to network dissemination of information will promote an orderly and benign 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 new 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, to have a clearer legal basis for the disposal of their patent application rights and patent rights,” says Allen Jiang, general manager of Sinochem International’s legal department.
The new Patent Law also extends the duration of protection for designs, introduces a domestic priority system for the same, 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.
For the industrial manufacturing industry, Jiao Yuheng, a Beijing-based partner at Liu Shen & Associates, says this amendment will bring material influences. “The addition of ‘partial designs’ should effectively curb the copying of partial industrial designs and enhance their protection,” says Jiao.
Keeping up with the times
As the basic law to protect the development of an industry that is heavily associated with content, and maintain order within the copyright market, 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 new 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, among all the amendments. 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”.
According to Huang, these updates in legislation are based on new demand in the internet and big data industries. 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 new 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 KWM, believes that this amendment is crucial for the gaming industry. At present, many judicial decisions see games as “film-like works” under copyright law, however not all game genres can be included in that category. Usually, those 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 current 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 arena of pharmaceutical 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 to assist.
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 new 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.”
The new round of revisions to the legislation, however, is not without holes. The new Copyright Law still does not provide an answer to the long-awaited copyright protection for the 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.”
Chen suggests that 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.
In the field of patents, due to the high degree of specialisation, companies tend to overlook issues of a common nature when managing related legal affairs. As for the protection of copyright, some companies are lax because they feel it is not relevant to them.
Applying for low-priced and low-quality patents leads to insufficient protection for innovations. Tang, of Merits and Tree, points out that, for the more specialised fields, only through an early intervention of professionals in patent mining and layout can high-quality patents with more thorough protection be obtained.
While it is generally accepted that it is important to apply for a patent quickly in order to seize the first opportunity, Jiao, of Liu Shen & Associates, cautions that there are circumstances that require companies to carefully consider the timing of patent applications. For example, rushing to application for a preliminary or immature idea, or even disclosing it in advance, may have a detrimental effect on subsequent applications for technical improvements.
“It is recommended that enterprises have an assessment and judgment on the development of technology,” says Jiao. “If it is indeed necessary to submit in stages, attention should also be paid to the interconnection between pre-filing and post-filing, and the early disclosure of pre-filing should be used with caution to avoid negative impact on the later application.”
Li, of Hylands, observes that many enterprises do not know how to protect their new achievements, and are reluctant to invest in the legal research on how to protect them. As a direct result, the ownership of intellectual achievements of enterprises remains unclear, lost, and even gives rise to disputes over ownership and infringement liability.
“There is also a lack of experience in monitoring regulations for new business forms,” says Li. “Companies should increase their involvement and follow up with the updates from the regulators. With the law generally lagging behind technological development, seeking a strong legal basis and a model of protection for new products and achievements is a task that needs to be done by companies at the forefront.”
Some enterprises pay insufficient attention to copyright infringement, mistakenly believing that the amount of compensation for infringement is limited, and therefore they often neglect to sort out the chain of rights, according to Li.
“It is a very dangerous sign for companies that are not in the culture and media industries to believe that their business has nothing to do with copyright, or that a promise of non-infringement made by the other party in the contract is sufficient to safeguard themselves,” he says.
Guo, of Tiantai Law Firm, echoes this sentiment and lists the following common mindsets among enterprises:
(1) the belief that the use of publicly available material does not constitute infringement;
(2) the existence of a fluke mentality, that infringement will not be caught;
(3) the belief that copyright protection means not infringing on the rights of others, but not paying attention to protection of one’s own rights; and
(4) the belief that the rights of works created by employees rightfully belong to the enterprise.
Finally, in copyright litigation, many businesses are unaware of the necessity of retaining evidence to prove their rights. As the method of retaining evidence and the specific content that needs to be retained are professional knowledge, “it’s down to in-house counsel and external lawyers to help enterprises establish corresponding protection mechanisms and formulate specific guidelines in the course of specific business development,” says Li.
Protecting your company
“The essence of protecting intellectual property is to protect innovation,” says Liu Wenna, senior director of Kingsoft Cloud’s legal department.
In a world of rapid technological iteration, “only a constant stream of high-quality innovation can make a company invincible in the long run,” adds Allen Jiang, general manager of Sinochem International’s legal department. “The market will severely punish those companies that stick to outdated rules, and are stuck in their own ways. They will be eliminated.”
The new Patent Law specifies that the state encourages entities to which patent rights are granted to implement property right incentives, and enable inventors or designers to rationally share the benefits of innovation in forms such as equities, options and dividends.
“This shows that the state attaches great importance to enabling inventors and designers to reasonably share the benefits of innovation, and affirms on the policy-making level the attempts and explorations made by some state-owned enterprises and government departments in recent years, in terms of rights incentives,” says Jiang, “which is expected to further stimulate the innovation enthusiasm of many scientific researchers out there, thus promoting the implementation and application of patents in China.”
Cheney Xu, chief IP counsel at electronic cigarette maker Smoore Technology, suggests that enterprises should make sure of cultivating a top-down awareness and culture of IP protection, and make every effort to build an atmosphere that encourages invention and creation.
Experiences and recommendations
As a latecomer economy, there are still many aspects of IP rights protection in China that need to be improved, a point shared by both corporate legal and external lawyers.
“Chinese enterprises should strengthen co-operation and exchange with the rest of the world, and learn from those exemplary enterprises in developed countries, with an active and open mind, how to skilfully protect the patents, and absorb and apply them flexibly in their own situation,” says Jiang.
In addition to strengthening their professional skills, corporate patent practitioners should pay attention to expanding of their horizons. “It is important to have strong skills in both practical patent work, such as patent mining and drafting, as well as a strong business sense to deeply understand a company’s operation strategy and business model, and provide support in a targeted manner,” says Xu, who also suggests training R&D staff in patent retrieval skills so that it becomes their daily work habit.
Li, of Hylands, recommends that companies conduct two-pronged training for business departments: Inform non-legal business staff about the new amendments; and strengthen their awareness of the chain of rights. Corresponding business guidelines should be sorted out and formulated so that the business department can be the first line of defence on major legal issues.
For legal documents such as agreements, contracts of employment, corporate management systems, codes of conduct, rights verification processes and standard clauses that are used by companies on a daily basis, especially when they are templates, Li suggests adjusting and updated them regularly.
In order to consolidate the company’s competition advantage, Liu suggests that companies should actively carry out IP rights deployment. “Our work on patent has extended from the legal level to the risk control level, setting up pre-filing roles such as mining, analysis and strategy-making to prevent risk in advance,” she says.
So, what are the key points for enterprises in deploying their patent strategy? According to Jiang, “Top-level planning is crucial. Enterprises should start patent applications as early as possible for the core, peripheral and supporting technologies of the enterprise, including overseas patent applications.”
However, for applications that can hopefully achieve greater benefits under the new Patent Law, such as applications on partial designs, Jiao Yuheng, a partner at Liu Shen & Associates, recommends that filings be arranged after the new law is official implemented.
Gan Xinyan, general manager of the legal department at Shanghai Pharmaceuticals, suggests that pharmaceutical companies should deploy a combined strategy when protecting their patents. “For example, in the production process of a certain pharmaceutical product, in order to obtain a new compound, during which a variety of compounds are often produced, all these compounds should be considered for inclusion in the scope of patent protection.”
As for copyright, despite the extremely rapid growth of domestic copyright registration in recent years, in practice, enterprises often choose to agree on the ownership of works (e.g., software works) through commission agreements or co-operation agreements.
However, unlike patents and trademarks, the legal nature of copyright ownership is often very complex, involving the determination of originality, the distinction of the creator’s contribution, etc., and therefore these agreements are at the centre of a large number of disputes.
“Especially in cyberspace, the special properties of the carrier of the work lead to the fact that it is often difficult to precisely determine the boundaries of the rights of both parties through the form of agreement between enterprises,” says Chen Jihong, an equity partner at Zhong Lun Law Firm.
The new Copyright Law adds the copyright registration system to article 12, making it clear that copyright owners may register their works with a registration agency recognised by the state copyright authorities.
“A copyright registration certificate is an important preliminary evidence of the ownership of a work,” says Chen. “Before the new Copyright Law comes into force, internet enterprises should fully deploy copyright registration mechanisms to effectively prevent disputes and legal risks.”
Due to the specialised technical knowledge involved, patent-related matters for Chinese pharmaceutical companies are not led by the legal department, but by the R&D and manufacturing departments, with the assistance of the legal department, to achieve patent protection. Similar to the protection of trademarks, there are specialists within the R&D department who monitor the market for patents to see if their pending patent application is innovative, and will not be invalidated.
Therefore, “in pharmaceutical companies, the role of the legal department is often to provide a silent support,” says Gan. “Ideally, whenever other departments encounter any issue, they would think of us and come for advice.”
Jiang, director of IP at Siemens (China), adds: “It was the collaborative efforts of the legal and business departments, and external lawyers, with clear objectives and unity of action, that had enabled Siemens to win huge victories in the most recent patent infringement lawsuits.”
Dare to use the legal weapon. Patents as a tool to maintain fair competition has not received sufficient attention to defend their rights for companies. “For infringement clues found in the market, companies should take the initiative to ‘show their swords’, and actively use patents as a weapon to combat infringement,” says Jiang.
Sun Mingfei, a partner at King & Wood Mallesons, agrees. “For rights holders, it is important to further enhance their awareness and ability to defend their rights, fully take the advantage brought by the amendment, and make full use of the measures and means to defend their rights given by the new law.”
Combined protection of technology and law. In the internet industry, more companies are becoming platforms for users to upload and distribute content. When infringements occur, the question of defining the liability of the platform becomes central to many disputes.
Vivi Huang, legal director of WeChat, says China’s largest social media platform is harbouring a mindset of creating new products when protecting the copyright of both users and the platform, attaching significance to the user and rights holder experience.
With platforms facing massive amounts of data, it seems inevitable that technology and law must work together to protect intellectual property rights.
“For example, there already is a relatively mature and effective automatic keyword blocking mechanism in WeChat’s subscription account function, and name protection on Mini-Program,” says Huang. “Originality declaration, article spinning complaint mechanism, article citation in subscription account function, and code infringement protection system for Mini-Game are some of the areas that WeChat has explored in practice for IP protection,” she says.
“In the future, we will also explore the use of new technologies, such as image recognition, to locate infringement in scenarios where contents are in a dense flow, such as the video subscription account and Mini-Game.”
Pay attention to supporting regulations. Before the implementation of the new Patent Law, Jiao recommends that enterprises pay attention to relevant supporting implementation rules, and amendments to the patent examination guidelines. “The introduction of these more detailed regulations will better reflect the specific implementation of the new Patent Law.”
Physical prevention and control. Awareness of protection alone is not enough to protect the IP rights of the pharmaceutical industry. Gan emphasises physical prevention and control. For example, if a new employee is recruited to the R&D department, even if a confidentiality agreement is signed, there may still be cases where the employee jumps ship with the research results. “It’s time to think about how to physically ensure that they can’t take that information with them,” says Gan.