This article provides an overview of the key recent developments in the intellectual property regime in China since 2007.
I. Filing statistics
A. Patent filings
In 2007, the State Intellectual Property Office (“SIPO”) received a total of 694,153 patent applications, which represents a year-on-year increase of 21.1 percent. Domestic applicants filed 586,734 applications in total, contributing to 84.5 percent of the total applications received, amounting to an increase of 24.7 percent from the corresponding figure in 2006. Foreign applicants filed 107,419 applications, contributing to 15.5 percent of the total applications received, amounting to an increase of 4.5 percent from the 102,836 foreign applications that were filed in 2006.
For the patent applications filed in 2007, 245,161 applications were for invention patents, amongst which:
- 153,060 applications were filed by Chinese applicants;
- 92,101 applications were filed by foreign applicants;
- 181,324 applications were filed for utility models; and
- 267,668 applications were filed for design patents.
In 2007, 351,782 applications were granted in total, which represents a yearly increase of 31.3 percent. Amongst these grants, 301,632 patents were granted to domestic applicants (representing a yearly increase of 34.7 percent) and 50,150 foreign patents were granted (representing a yearly increase of 13.6 percent).
B. Trademark filings
In 2007, the Trademark Office (“TMO”) handled 708,000 trademark applications; 605,000 of which were domestic applications, with the remaining 103,000 applications being foreign applications. The TMO examined 405,000 trademark applications in 2007 (an increase of 29.3 percent compared with the previous year) and approved 263,000 registered trademarks in the same year.
II. Enforcement statistics
A. Administrative enforcement
In 2007, offices of the Administration of Industry and Commerce at all levels across China investigated and prosecuted 50,318 cases of trademark violations, wherein 10,320 cases involved foreign parties (a yearly increase of 7.9 percent). In these administrative operations, a total of RMB28.17 million illegal trademarks were detected and removed, and fines totaling RMB417.63 million were imposed. Furthermore, 229 cases and 228 suspect offenders were transferred to judicial authorities for criminal investigation.
In respect of administrative enforcement against copyright infringement, the National Copyright Administration and its branches across the country inspected 548,646 business units, banned 13,170 illegal business units, uncovered 1,224 hidden illegal units, imposed 9,816 administrative penalties and transferred 268 cases to judicial authorities for criminal investigation. The seized pirated products amounted to RMB52.49 million in value, which include some 11.21 million pirated books, some 18.43 million copies of pirated magazines, over 52.49 million pirated audiovisual products, over 2.07 million pirated e-publications, over three million pirated software discs and more than 5.05 million other pirated products.
B. Judicial enforcement
In 2007, People’s Courts of all levels across China heard and decided on 17,877 and 17,395 first instance civil IP cases respectively, which represents an increase of 25.7 percent and 23.8 percent respectively over the previous year. The People’s Courts also heard and decided on 2,865 and 2,870 second instance civil IP cases respectively, representing a year-on-year increase of 6.7 percent and 8.2 percent respectively. The People’s Courts also accepted 39 retrial IP cases, three cases less than that accepted in 2006, and decided on 45 such cases.
In respect of criminal cases, the People’s Courts heard and decided on a total of 2,684 criminal IP cases, and 4,322 persons were found guilty in these cases.
III. Legislative update
A. Trademarks: Draft third amendment to the Trademark Law
A draft of the third amendment to the Trademark Law of the PRC (the “Proposed Amendments”) was released to the public for comments and feedback in August 2007. The Proposed Amendments seek to address many of the frustrations faced by brand owners in China today, including the inefficient trademark registration and review system, bad faith trademark registrations and rampant trademark infringement. These Proposed Amendments are still subject to change at the present stage. Whether and which of these amendments will be incorporated in the amended Trademark Law still remains to be seen. The enactment of an amended Trademark Law is scheduled to take place by the end of 2008. Key proposals in the Proposed Amendments include:
1.Widened definition of a trademark
The current Trademark Law defines a trademark as any visually perceptible sign, including words, devices, letters, numbers, three-dimensional signs and combinations of colours as well as any combination of such signs, capable of distinguishing the goods of one from those of others. The word “visually perceptible” in the definition above is removed in the Proposed Amendments, which effectively widens the scope of registrable trademarks to include non-visual signs such as sounds and scents as well as marks such as hologram marks, motion marks and single colour marks.
2. Multi-class applications
The Trademark Law as it currently stands requires that one application be made for the registration of a trademark in each class. Under the Proposed Amendments, multi-class applications would be allowed. Should this become law, this will facilitate the administration of trademark applications by trademark applicants and help reduce the heavy workload currently faced by the examiners of the TMO.
3. Official time limit for examining trademark applications
The average length of time it currently takes for the TMO to examine trademark applications is approximately three years. This has been a constant cause for complaint amongst brand owners interested in the Chinese market. The length of time is apparently due to the backlog of applications currently pending in the TMO, as a result of the ever-increasing number of trademark applications filed in China. The authorities look set to confront this problem by suggesting in the Proposed Amendments that examination of any trademark application must be completed by the TMO within 12 months of the filing date of the application.
4. Relative grounds for refusing trademark applications abolished
Under the current Trademark Law, the TMO is required to substantively examine a trademark application for refusal on the bases of both absolute and relative grounds. It is believed that the time-consuming examination process in respect of relative grounds has been contributing to the backlog at the TMO. The Proposed Amendments seek to address this by removing the requirement on the part of the TMO to consider relative grounds.
5. Measures to prevent the abuse of opposition and invalidation procedures
In an attempt to reduce the number of vexatious and frivolous requests for opposition and invalidation, the Proposed Amendments stipulate that only parties holding rights in respect of prior trademarks or geographical indications may file trademark oppositions/invalidations (contrary to the current law under which any person may initiate proceedings). Furthermore, it is also proposed that the permissible grounds for opposition/invalidation be restricted. In addition, the Proposed Amendments provide that the unsuccessful party in an opposition or invalidation must pay the successful party’s reasonable legal costs. In opposition cases, where the unsuccessful party is held to have filed proceedings in bad faith, he will also be required to indemnify the successful party for any losses suffered which resulted from the untenable opposition. These proposed costs sanctions should help reduce abuses of the trademark opposition and invalidation procedures.
6. Increased damages for trademark infringement
In the Proposed Amendments, the maximum fines for trademark infringement at both statutory and administrative levels will be increased. The quantum of statutory damages for infringement is proposed to be raised from a maximum of RMB500,000 (approximately US$70,000) to a maximum of RMB1,000,000 (approximately US$140,000). The maximum administrative fines are proposed to be increased from
RMB100,000 (approximately US$14,000) to RMB1,000,000 (approximately US$140,000).
B. Trademarks: New judicial interpretation on registered trademarks, enterprise names and prior civil rights
The Interpretation on Several Issues Concerning the Hearing of Civil Disputes Cases over Registered Trademarks, Enterprise Names and Prior Civil Rights (the “Interpretation”) was promulgated by the Supreme People’s Court of the PRC on February 18, 2008. The Interpretation came into force on March 1, 2008. The Interpretation consists of four Articles, which provide guidance in resolving civil disputes relating to conflicts between registered trademarks, enterprise names and prior civil rights. The Interpretation was issued pursuant to the provisions of the key relevant PRC statutes, including the Civil Procedure Law, the General Principles of the Civil Law, the Trademark Law as well as the Anti-Unfair Competition Law to reflect established judicial practices.
1. Registered trademark
Article 1 of the Interpretation states that the People’s Court should accept a case filed by a plaintiff, subject to Article 108 of the PRC Civil Procedure Law, on the ground that the defendant’s use of word(s) or design in the defendant’s registered trademark infringes the plaintiff’s existing copyright, design patent right and/or right in enterprise name. If the plaintiff brings a lawsuit to the People’s Court on the basis that the defendant’s registered trademark in the approved categories of goods/services is similar or identical to the plaintiff’s mark, the People’s Court should refer the plaintiff to the relevant administrative authority for resolution in accordance with Article 111(3) of the Civil Procedure Law. However, a People’s Court should assume jurisdiction where the plaintiff files a lawsuit on the grounds that the defendant’s use of the registered trademark is beyond the categories of goods or services for which it is registered, or where the defendant has used the mark by altering its distinctive character or disassembling or re-configuring the registered trademark, which is identical or similar to the plaintiff’s registered trademark.
2. Enterprise name
Article 2 of the Interpretation provides that a plaintiff may file a lawsuit with the People’s Court if an enterprise name is identical or similar to its pre-existing enterprise name, which is likely to cause confusion on the part of the public as to the origin of the plaintiff’s goods or services in breach of Article 5(3) of the Anti-Unfair Competition Law.
3. Cause of action
Under Article 3 of the Interpretation, a People’s Court should, on the bases of the plaintiff’s claim and the nature of the disputed legal relationship under civil law, and in accordance with the Provisional Regulations on Civil Causes of Action, determine the cause of action and apply the applicable law in any civil dispute arising from the conflict between registered trademarks or enterprise names and pre-existing civil rights.
4. Civil liability
Under Article 4 of the Interpretation, where the defendant’s use of its enterprise name infringes the plaintiff’s registered trademark or constitutes an act of unfair competition, the People’s Court may, according to the plaintiff’s claim and the circumstances of the case, impose civil liabilities on the defendant, such as prohibiting the defendant from using such enterprise name or to restrict such use.
C. Patents: Third amendment to the Patent Law to be promulgated in 2008
On January 5, 2008, the General Office of State Council promulgated its Legislation Plan for the Year 2008, in which the third amendment to the Patent Law was listed as one of the 62 key pieces of legislation scheduled to be promulgated within 2008.
By way of background, the SIPO submitted a draft of the third amendment to the Patent Law to the State Council for review on December 27, 2006. In the draft third amendment to the Patent Law, many of the existing provisions are subject to revision. In summary, the draft amendment seeks to clarify co-ownership rights, define “current technology” for invention patents and utility models, and provides additional guidance to the People’s Courts regarding compensation for patent infringement. The draft amendment also introduces certain significant changes to the existing regime, including the imposing of a set of stricter qualification criteria for design patents and the regulation of parallel import of patented products.
D. Franchising: New regulations for franchises
The Regulations on the Administration of Commercial Franchises (the “Regulations”), promulgated by the Ministry of Commerce, became effective as of May 1, 2007. The Regulations are supplemented by the Measures on the Administration of Filing of Commercial Franchises (the “Filing Measures”) and the Measures on the Administration of Information Disclosure of Commercial Franchises (the “Information Disclosure Measures”).
1. Definition of franchising
The Regulations govern the activities of any “commercial franchise”, which is defined to mean a business operation whereby an enterprise owning a registered trademark, enterprise mark, patent, know-how and/or any other business resource (i.e. the franchisor) grants a bundle of these rights to another business operator (i.e. the franchisee) to use the said business resources by way of contract. The franchisee would need to operate under a uniform business model and pay franchising fees to the franchisor pursuant to a franchising contract. Presumably this definition of commercial franchise covers both domestic and foreign invested franchises, therefore implicitly enabling cross-border franchising.
2. Franchisor requirements
Only enterprises are allowed to engage in activities of franchise operations as a franchisor, as the Regulations expressly exclude other entities and individuals from doing so. There is no similar qualification criterion in respect of a franchisee. When engaging in activities of franchise operations, a franchisor should possess a mature mode of operation and the ability to provide continuing business guidance, technical support and operational training to its franchisees. In respect of the required scale of operation on the part of the franchisor, it shall own and run at least two directly operated businesses for more than one year.
3. Written franchising contract required
The Regulations also require that a written franchising contract be drawn up between the franchisor and franchisee. As a measure to give franchisees further protection, both parties shall agree in the contract that the franchisee may unilaterally terminate the contract within a certain time period after entering into the contract. In addition, the duration of the franchise period shall not be less than three years unless the franchisee accepts otherwise. To facilitate the effective regulation of franchise operations, the Regulations and the Filing Measures require that the franchisor shall file, inter alia, a copy of the franchising contract with the relevant authority within 15 days of the execution of the first contract.
4. Information to be provided to the franchisee
Another significant feature of the new franchise regulatory framework is the information disclosure requirements. Article 21 of the Regulations provides that the franchisor shall provide the franchisee with certain stipulated information in writing and the text of the franchising contract at least 30 days prior to the execution of the franchising contract. The categories of information subject to compulsory disclosure are set out in the Regulations and the Information Disclosure Measures, which include, among other things, the following:
- Basic information concerning the franchisor, the franchise operation, franchisor’s business resource and franchise fee;
- Price, term and other information concerning the products, services and facilities provided to the franchisee;
- Method and content concerning guidance and supervision in relation to the business of the franchisee; Intellectual property in China
- Information concerning continuing provision of services to the franchisee and the investment budget of the franchise network;
- Related information concerning franchisees within China;
- Abstracts of the franchisors’ financial accounting report and audit report audited by an accounting firm or audit firm within the past two years;
- Information concerning major litigation and arbitration relating to the franchise business within the past five years;
- Information concerning records of major illegal business operations and the records of major illegal business operations of the franchisor and its legal representative; and
- The text of the franchise contract to be entered into.
E. Unfair competition: New Judicial Interpretation of The Anti-Unfair Competition Law
On February 1, 2007, the Judicial Interpretation of the Anti-Unfair Competition Law (the “UCL”) by the Supreme People’s Court (the “SPC”) came into effect. This is the first attempt by the SPC of interpreting the UCL by way of a judicial interpretation since the law was enacted, which was more than a decade ago.
1. Scope of the Interpretation
The UCL consists of 19 Articles covering a broad range of legal issues in relation to the law, including passing off, monopolies, abuses of administrative power, commercial bribes, misleading and false advertisement, trade secrets, anti-dumping, bundled sales, deceitful sales, commercial defamation and tendering. Most significantly, the Interpretation seeks to clarify the scope of application of Article 5 of the UCL, which prohibits (among other things) the unauthorised use of the trade name, packaging or trade dress of a well-known product, and the unauthorised use of an enterprise name or individual name resulting in confusion.
2. Clarification of the meaning of “well-known product” and “trade dress”
Article 5(2) of the UCL provides that the unauthorised use of the name, packaging or trade dress unique to, or similar to, that of a well-known product so as to mislead or confuse customers is an act of unfair competition. However, it was not entirely clear what the terms “well-known product” and “trade dress” in Article 5(2) were intended to mean, as the terms were undefined under the UCL. The Interpretation clarifies that a well-known product is a product which is known and has a certain degree of reputation amongst the relevant public in the territory of China. The Interpretation further provides that in determining whether a certain product qualifies as a “well-known product”, the court has to consider factors such as the duration of the product’s presence in the market, areas where the products are sold, sale revenue, the target market and the duration, intensity and geographical scope of any marketing of the product, etc. Meanwhile, the Interpretation also clarifies that “trade dress” includes matters such as decorations, utensils and staff uniforms of a business enterprise, but does not include matters which are non-distinctive or are purely generic or descriptive. The latter may be overcome by acquired distinctiveness through use, but the shape of a product which is dictated solely by function or technical effect cannot be protected under the UCL.
3. Clarification of the scope of protection in relation to “enterprise names” and “names of individuals”
Article 5(3) of the UCL prohibits the use of the name of another enterprise or individual if such use may cause confusion. According to the Interpretation, in order to qualify for protection under Article 5(3), the enterprise name or individual name must have acquired a certain degree of reputation in the market and be recognised by the relevant public. The Interpretation also makes it clear that “enterprise name” shall include both an enterprise name legally registered in China and a foreign enterprise name which has been used commercially in China, albeit unregistered. In addition, according to the Interpretation, the meaning of an “individual name” extends to include that individual’s stage name or pseudonym.
4. Clarification of the meaning of “confusion”
The Interpretation also deals with the meaning of “confusion” for the purposes of Article 5. “Confusion” means not only to confusion that the defendant’s product is well known, but also that the product is in some way connected or associated with the proprietor of the well-known product. Confusion is presumed if the name, packaging or trade dress in question is identical or very similar to the well-known product.
IV. Concluding remarks
The imminent 2008 Olympic Games in Beijing have no doubt offered the Chinese Government a strong incentive to continue its efforts to step up intellectual property protection in the country. In this regard, China’s commitment to improve its IP protection regime on both the legislative and enforcement fronts is evident from the recent IP developments as outlined above. Important and significant amendments to all facets of the IP law have either been introduced or are in the pipeline. Significantly, the introduction of the third amendments of the Trademark Law and the Patent Law, which are both scheduled to be enacted within 2008, will clarify and strengthen the existing trademark and patent laws, leading to an improved and modernised IP legislative regime in China.