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Home-grown and foreign companies in China are both benefiting from the country’s progressive legislative reforms in intellectual property protection. But they also face new challenges as rapid technological advancements usher in a new era. Sophia Luo reports

The digital economy is developing at a bewildering rate and with it the business landscape is increasingly diversifying. With the rapid emergence of new business models and practices, and the prevalence of infringement issues, the intellectual property (IP) industry in China is facing a plethora of fresh opportunities and challenges.

To this end, the high-profile new round of amendments to the Trademark Law and Anti-Unfair Competition Law not only pave the way for more robust IP protection, but also bring a higher level of uncertainty around enterprises’ IP planning and compliance strategies. In particular, the legislative values conveyed by the proposed revisions deserve close attention and timely action from businesses.

The hot spots in the era of the digital economy also vividly manifest themselves in judicial practice. Relevant cases involving the types of IP, judgments of damages, determinations of jurisdiction, determination standards, trial efficiency and so on offer a wealth of knowledge for enterprises.

Meanwhile, foreign companies in China have benefited from strengthened legislation and judicial practices, resulting in some encouraging changes in IP protection.

Amid the disruptive evolution of artificial intelligence, it is crucial for enterprises to comprehend the associated risks and take necessary precautions with compliance.

Riding high on the trend of IP co-governance, enterprises now are encouraged to be more proactive in joining efforts with e-commerce platforms to deepen co-operation and exploration in onshore and offshore IP protection.

LEGISLATIVE UPDATES ON HORIZON

As a crucial event in the domestic IP field, the Trademark Law welcomed its fifth round of revisions earlier this year since it was introduced back in 1983, as the China National Intellectual Property Administration (CNIPA) issued a draft amendment to the law seeking public opinion in January 2023.

The proposed revisions strengthen the regulation on malicious pre-emption of trademarks. Guo Chunfei, a senior partner of Tiantai Law Firm in Beijing, says that companies should pay particular attention to the legal boundary of “applying for trademark registration in large numbers not for the purpose of use”.

“Disrupting the normal order of trademark registration” is ambiguous to some extent, she says, and the judging standard can be subjective, which may have a certain impact on an enterprise’s application filed to prevent someone else from applying in goods or services unrelated to the mark of the owner, and pre-application of a trademark by a company for a realistic future business.

Meanwhile, the draft amendment reinforces the protection of well-known trademarks. Guo says that companies will no longer be able to use well-known trademarks not registered in China to “piggyback their popularity” on different kinds of goods.

Guo Chunfei, Tiantai Law Firm

The draft further strengthens the obligation to standardise the use of trademarks. For instance, it stipulates that every five years after the registration of a trademark, the registrant should explain how the trademark has been used, or the valid reasons for its non-use, to the IP administrative authorities. Otherwise, it may face the risk of trademark cancellation.

“Although the clause can indeed reduce the occurrence of the old problem involving non-use of trademarks after registration, like defensive trademarks, it will undoubtedly increase the burden on both companies and IP administrative authorities, and this is coupled with a lack of supporting regulations,” says Guo.

“Hence, it remains to be seen how this clause will be structured in the final version. Enterprises should be aware of the legislative value of attaching importance to the actual use of trademarks conveyed by the revised draft.”

Regarding the “principle of prohibition of repeated registration”, which is considered a major breakthrough in the proposed amendments to the Trademark Law, Rong Chao, an IP expert and partner at Boss & Young in Shanghai, says it will make rights holders discard the idea of duplicate registrations and could to some extent tackle the problem regarding entanglements of procedures.

Zhao Gang, Zhong Lun Law Firm

But in practice, Zhao Gang, an equity partner at Zhong Lun Law Firm in Beijing, says the repeated registrations of trademarks by many companies are meant to address procedural idling – where cases may have to go through various departments including patent and trademark offices, and the courts, which may delay final adjudication on matters – facing prior applications or registered trademarks.

“In the absence of an effective solution to the procedural idling issue, the direct introduction of the principle will have a significant impact on the overall arrangements of trademarks for companies and their access to getting trademark registered,” says Zhao.

“Disputes may emerge over the determination of ‘same trademark’ and ‘same goods and services’ according to the draft, and the requirement for applicants to prove the exception of repeated applications increases the burden of proof,” he explains.

In light of many significant adjustments and breakthroughs in the existing Trademark Law from the proposed amendments, and with many enterprises going global and pressing ahead with their overall planning of trademarks, Hatty Cui, the general manager of IP specialist Rouse China in Beijing, says companies “should also evaluate the stability and certainty as to overseas trademark application on the basis of trademark registration or application in China”.

In addition to the Trademark Law, the latest proposed revisions of another piece of legislation will also boost IP protection. The new round of amendments to the Anti-Unfair Competition Law comes as a well-timed response to new unfair competition behaviour, with the State Administration for Market Regulation publishing its draft for comment in November last year.

Zhao, of Zhong Lun, says the draft expands and perfects the categories of regulated unfair competition in the digital economy and other fields. This includes webpage designs, self-media names, application/software names or icons, and commercial marks that hold a certain level of influence.

The particular emphasis of the draft amendment on the issue of administrative protection of trade secrets sends a meaningful signal that is worthy of companies’ attention.

Zou Wen, Fangda Partners

Zou Wen, a partner at Fangda Partners in Shenzhen, says that the industry previously focused more on civil protection, criminal protection and problems at the intersection of criminal and civil affairs.

Stronger administrative protection of trade secrets is a benefit, but on the other side of the coin, she says, “Companies may be caught in civil, criminal and administrative risks of infringing others’ trade secrets due to the introduction of talent, technology or improper behaviour of employees, so there is a need to build compliance in advance to mitigate relevant risks”.

In accordance with legislative procedure, it may take three to five years for the revised draft to become a formal law, during which time the relevant provisions may still be subject to changes. However, Guo, of Tiantai, stresses that the revisions themselves often reflect practical issues of concern to the legislative authorities, and even if they end up not passing in their entirety, enterprises should closely watch, comprehend and strengthen the management of relevant compliance.

NOTABLE JUDICIAL WINDS

In line with reforms in IP legislation, a good many new trends in various aspects of judicial practice are worth noting.

Guo cites statistics from the latest annual report of the Intellectual Property Court of the Supreme People’s Court (SPC) for 2022, which finds that 53.5% of the newly accepted second-instance substantive civil disputes in 2022 were invention and utility model patent infringement cases.

Disputes relating to new industries and fields – such as new-generation information technology, biomedicine, high-end equipment manufacturing, standard essential patents (SEPs), drug patent linkage, layout design of integrated circuits, and new plant varieties – have all increased significantly.

When it comes to court jurisdiction, Zhao, of Zhong Lun, suggests that companies should be aware that the current understanding of the courts on “information network infringement” has changed, so they can choose the right court to hear their cases.

In a trademark infringement dispute recently handled by Zhao and his team, the plaintiff they represented – a tech company based in Zhejiang province – filed a lawsuit against the defendant, a consulting service firm in Shaanxi province, for using the same or similar logo to the plaintiff’s registered trademark in the defendant’s WeChat official account.

In this case, the defendant’s infringing acts were committed on the internet and the damage was also related to the internet. However, when determining jurisdiction of the case, the court of the plaintiff’s residence held that such infringement fell into the category of “information network infringement” and could not be under its jurisdiction.

In a further demonstration of the judiciary’s clear attitude toward jurisdictional rule reform, Guo cites the SPC Civil Ruling No. 42, in August last year, as an example of the controversies and considerations surrounding the jurisdiction of IP litigation.

In this copyright-related information network infringement case, the defendant’s jurisdictional objection has been handled through a dramatic process. Guo says that “the SPC ruling has changed the years-long situation of judicial practice where the court of both the plaintiff’s domicile and the defendant’s domiciles had jurisdiction over information network disputes. It makes clear that for disputes over the right of domestic information network communication, where the defendant’s domicile can be confirmed, the court where the plaintiff is located has no jurisdiction.” The significance of such a case as a role model also makes it listed in the 50 typical IP cases of Chinese courts in 2022.

In terms of granting compensation, courts have been proactively exploring the “dual-track compensation system”, which applies both punitive and statutory damages.

Guo, of Tiantai, says when determining the amount of compensation in JUKI Corporation v Zhejiang Jukai Sewing Sci-Tech (2022), based on the defendant’s subjective intention of infringement and the circumstances of infringement, the Shanghai Intellectual Property Court applied punitive damages set at three times the compensatory damages to the ascertainable part of overseas exports, and statutory damages to the unascertainable part.

The past year has seen an increase in the number of new objects protected as trade secrets.

Zou, of Fangda, cites three cases concluded by the Shenzhen Intermediate People’s Court, the Hangzhou Intermediate People’s Court and the SPC in 2022 to deduct that algorithms, real-time backend data on livestreaming platforms, and parents of hybrid varieties can all be protected by law as trade secrets. “This trend, and related cases, have important implications for companies to determine the scope of protection for their trade secrets,” she says.

Not only is the number of trade secret cases on the rise, but the difficulty of infringement determination is on the decline. Zhao Ye, a partner at Jingtian & Gongcheng in Beijing, says that courts at all levels have actively explored rules for determining the infringement of trade secrets, especially for weak links in the protection of technical secrets, and made the most of various means to reduce the burden of proof for rights holders.

Zhao says an example was a case concluded by the SPC in 2021, where the court held that the rights holder could claim that the whole set of, as well as one or some of, the technical information recorded in the drawings belonged to the technical secret.

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