Foreign IP Rights Protection in China - Assignment Example

Foreign IP Rights Protection in China Name Tutor Unit Code Date Introduction Globalisation has brought together the many and diverse economies of the world together. This has heightened cross-border business relations between and among countries. Besides, there has been increased competitiveness that has made the business environment quite involving. Intellectual property (IP) is now at the centre stage of global interactions as different companies and ideas are formed every day. IP is a very important strategic resource for both business and national competitiveness (Lubman, 2011). Protection of IP rights is as such very much needed in today’s business environment. IP rights protection normally unfolds through several steps as a country moves from a manufacturing-based economy to an economy propelled by knowledge, innovation and technology. When a country is in the early stages of development, protection of IP rights is quite limited given that the country usually has limited capacity and resources to enable appropriate research and development. Characteristically, the domestic industry manifests high levels of imitation rather than innovation. Imitation occurs given that it requires low costs and the goods and services are sold at very low prices. Besides, it stimulates employment and consumption. At this stages of development, the weak IP system may well prop up technological growth and development (Bai and Guoping Da, 2008). As a country moves to higher stages of development, the weak IP system also develops. The economy grows to be propelled by innovation and technological development. In the end, the economy transforms into knowledge-based production grounded on domestic innovation that is usually supported with well-made and sufficiently enforced laws on IP rights protection. In this paper, I look at the IP rights protection in China. The country has attracted great interest given that the Chinese economy has grown in leaps and bounds with record economic growth rates of between 7 to 15 per cent rates in the past two decades. Through this time, China’s economy has transformed to become the second largest economy in the world. The issue of IP rights in China is mainly pegged on the foreign business interests in China. As such, two key cases of IP infringement involving foreign companies will be considered. First I describe the IP regime in China. Then I describe the IP rights issues in China. The research is conducted using both primary and secondary methods. The findings are presented in the last section of the paper followed by before the conclusion. IP Rights Protection Developments in China In the past few decades, China has made great strides in enhancing its place in the global economic and business environment. In 1979 the Chinese government introduced an ‘open-door’ policy. The policy was aimed at opening up China to foreign investment and to end the economic isolation that had existed since 1949 when the People’s Republic of China (PRC) was founded. The administration introduced economic as well as legislative inducements to pull in foreign investment. Since then, through a collaborative effort between the executive, the political party, and the legislature, China has enacted more than 300 laws aimed at spurring economic growth and development through attracting foreign direct investment. Today, China is a big player in international trade and investment. Foreign investors have also flew in to China to ‘chase the dragon’ (Lubman, 2011). However, the appetite for industrial development and more foreign investment invited concerns regarding China’s protection of intellectual property rights. As soon as the foreign investment set into the country, intellectual property concerns cropped up. This has created the desire to put in place a complete regulatory framework for protection of IP rights. Western countries, which have invested dearly in China, have raised their voices as they lobbied for more effective IP protection in China. This awakened the Chinese leaders in realising that the protection IP rights is a fundamental legal requirement needed in order to pull off the economic reforms and integration into the international market (Bai and Guoping Da, 2008). Consequently, China has moved great strides in reinforcing its legal framework by instituting domestic legislation and by adopting relevant international agreements. In 1980, China joined the World Intellectual Property Organization (WIPO). In 1985, the country approved the Paris Convention for the Protection of Industrial Property. In 1989, China signed and endorsed the Madrid Agreement Concerning the International Registration of Trademarks. In 1992, China ratified the Berne Convention for the Protection of Literary and Artistic Works, as well as the Patent Cooperation Treaty (PCT) (Lubman, 2011). More importantly, China joined the World Trade Organization (WTO) in 2001. This underscored China’s vow to grow to be a key player in international trade. China integrated the issue of IP rights into its political system as the machine for its rebuilding. As a result, China has heavily legislated on matters concerning IP rights. On paper, this offers vital safeguards to local as well as foreign IP holders. From the time when China joined the WTO, the country’s IP regulatory framework has been more developed and modified to make sure that they are suitable at an international level. In fact, China’s IP laws are, at present, at par with those in developed countries such as Australia. The laws should certainly offer local along with overseas owners of IP with actual protection. Indeed, according to the WIPO, China today has one of the best patent office globally, and has the world’s biggest trademark office. China publicised its national intellectual property strategy in 2008. In 2011 the National People’s Congress (NPC) sanctioned China’s 12th Five-Year Plan (2011–15) that focused, among other things, on enhancing efforts to craft an advanced and knowledge-based economy. Out of the political as well as legislative efforts. By and large, a lot of progress and enactment of China’s IP laws was as a result of pressure from different quarters and the desire for China to attract foreign investment. The United States has also exerted pressure on China to increase its IP defence capability. Besides, as part of its WTO membership agreement, China was mandated to put in place legal safeguards that are internationally accepted and can be depended upon by foreign parties. The Sino-United States agreement provided more support for China. In this agreement, China accepted to bring its IP rights laws into total conformity with the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement. Types of IP in China The country’s legislation on copyrights is based on China’s 1990 Copyright Law (last amended in 2010), and the Copyright Implementing Regulations of 2002. The Chinese copyright law provides protection for oral, written, dramatic, musical, cinematographic, photographic, choreographed, and works of fine art, architecture as well as computer software. However, the law does not protect published or unpublished artistic, literary, and scientific works, resolutions, decisions and orders of State organizations, news on current affairs, numerical tables, calendars, databases and formulas. The law states that works of Chinese citizens and foreign entities that are first published within China enjoy copyright protection under Chinese law for a term of 50 years, or the life of the author plus 50 years in the case of an individual author. The term for moral or personal rights, such as the right of accreditation, is perpetual. In addition, a publisher enjoys a 10-year term of protection for original designs of a publication. China generally does not require an individual to register copyright, but, individuals are advised to do in order to corroborate ownership in any clash or litigation. Individuals can register at National Copyright Administration, which is the authority mandated to oversee the supervision and execution of copyright plus other related issues in China. Individuals have to apply and pay a fee. Copyrights are also protected in accordance to the Berne and Paris Conventions and WIPO (Lubman, 2011). Patents in China are protected under the Paris Convention, Patent Cooperation Treaty, and TRIPS. The patent system in China is classified as first-to-file. The Chinese law recognises three types of patent registration: (1) design patents (valid for 10 years), (2) utility model patents (valid for 10 years), and (3) invention patents (valid for 20 years). The protection of patents covers products and methods containing innovative, practical, and new technological innovation. Infringement of patents generally occurs when a company or an individual produces or sells products that have been patented or uses patented processes without the patentee’s authorisation. China’s trademark system provides for the protection of symbols, designs, colours or other devices used in identifying a company’s products or services. By and large, the trademarks are generated to promote the desire for a product, with the mark showing the quality in the specific product. The direct registration of trademarks in China may take between two and a half to four years. Trademarks have a validity period of up to ten years, and can be renewed indeterminately for periods of ten years each. The Chinese legal framework does not provide sufficient protection of IP rights involving trade secrets. Besides, this area of law is largely underdeveloped. Trade secrets are covered under the anti-unfair competition law. Trade secrets refer to information or technology not known to the public, have public utility and has the potential to generate economic benefits to the owner. Also, the owner has to adopt measures aimed at keeping the secret. Trade secrets are also protected under the Chinese company law, contract law, and labour law (Lubman, 2011). Issues China has set up an IP rights regime whose standard and scope is in sync with the country’s level of economic development. The process of establishing its IP regime has, as discussed above, been rather gradual. As the country effected the requisite restructuring, the economy posted high growth rates in the range of 7 per cent to 15 per cent. Today, China is the second largest economy in the world having overtaken Japan and Germany. The remarkable progress of IP is weighty for China’s national competitiveness and is crucial in supporting the growth and development of China’s social economy (Bai and Guoping Da, 2008). However, China’s commitment to the IP rights is mainly due to the foreign influence. Foreign powers have exerted demands and expectations in their trade with China, given that China has largely sought for foreign direct investment to boost its economy. Consequently, China has been moving its IP rights system to match that established by most of the more advanced economies. Thus, many of the commercial agreements and treaties China entered into with bigger economies, such as the US, Britain and Japan covered a number of issues connected to the protection of IP rights. As China attracted more foreign investment, its economy expanded and transitioned from an economy based on manufacturing to a knowledge-based economy. During this time, a lot of laws and more consideration was focused on increasing and settling the number of IP rights violation cases being brought before the courts or taken up through China’s governmental procedures. This has to some extent allowed IP owners to pull through their economic damages from infringers, which is a fundamental factor in a system for protecting IP rights. The proper determination and award of damages can effectively deter violations to IP rights and at the same time shelter the spur to innovate. Indeed, one of the key findings of studies of foreign companies operating in China show that the companies do face weak and crooked enforcement of laws and regulations on IP rights. Yes the central administration has shown the resolve to deal with the problem of infringement on IP rights. However, the measures put in place to prevent infringements are not adequate in avoiding huge IP rights infringements successfully. Indeed many experts hold that due to its insufficient legal enforcement, the issue of IP rights protection is the single major difficulty a lot of foreign companies desiring to enter the Chinese market have to overcome as they think about entering the market (Bai and Guoping Da, 2008). Even as issues involving the infringement of IP rights are pervasive in many parts of the world, in China both the local and foreign observers still state that more ought to be done to discourage counterfeiting. Many of these observers state that many owners of IP are usually remunerated for just a small part of their losses under the current legal framework. Going by these arguments, it is expected that such petite damages depress the filing of worthy litigations. Even in the face of stout legislative protection of IP rights, China is still a leading harbour for forgers and bandits. Piracy in China accounts for over 90 per cent globally. Companies, particularly from the United States lose billions of dollars in genuine business every year to piracy. Besides, the Chinese market is crowded with fake consumer products. A product sold in China is highly expected to be duplicated. This affects both foreign as well as local companies. Method The research work on protection of IP rights in China was conducted through obtaining first-hand information and from secondary sources. Primary data was collected through interviews and questionnaires. Secondary data was obtained from the internet, books and journals. The data was analysed through descriptive means. This is to give a clear depiction of the problem under study and for easy analysis and interpretation. Analysis The findings indicate that China has sufficient IP rights protection laws and regulations including the Paris Convention, WIPO and the Berne Convention. Infringements on IP rights in China are addressed under both the administrative and the judicial systems. Under the administrative system, the IP rights holder is required to file a complaint at a local administrative office. This procedure is, however, unusual in dealing with IP rights issues and could be unique to China. The administrative agencies cannot award damages to an IP rights holder, but can impose costs on the violator for its infringement actions. The agencies may well fine copyright violators and those involved in passing off a patent owned by another organisation. The agencies are also allowed to seize goods/equipment used in the production of commodities that infringe trademarks. Under the judicial system, infringements are filed through the court system. The country has set up dedicated IP boards in its civil court system all over. China’s judicial system to infringements on copyrights is analogous to the system in advanced jurisdictions such as the United States and European countries. However, the two-track system makes it quite confusing in determining which IP agency should preside over an act of infringement. The administrative system works through different government agencies and offices, where each is in charge for the protection gave by one statute or a particular legal provision on infringements on IP rights. Even though measures have been put in place to avoid geographical limits or conflicts posed by one administrative agency taking a case involving piracy or fabrication that also occurs in another region, the measures are considered insufficient (Bai and Guoping Da, 2008). The exact course of action on an infringement of IP rights in China varies depending on the type of IP right that has been infringed. In general, an owner of IP on suspicion that an infringement has occurred is allowed to collect evidence to prove the claim. Besides, the individual should indicate the location of the facilities in which the supposed infraction is occurring though the help of private investigators. All in all China is prone to infringements on IP rights. For instance, in 2002, losses of over 1.8 billion dollars were reported involving infringements on copyrights in video games, business software, motion pictures, recordings and books. Piracy rates in China are reported to account for around 90 to 96 per cent across all copyright industries. China’s Socialist and Confucian viewpoint could be a probable cause of the problems. By and large, Chinese customs allow for the sharing and open usage of people’s ideas by the community, rather than being possessed by an individual. The Chinese people consider that an idea, if good enough, ought to be communal. And so, every person would use that an idea, rather than one individual taking home all the gains (Canadian Chamber of Commerce, 2012). This case of Microsoft versus Chengdu Share-Software, Xianzhong, Zhang Tianping, Hong Lei, Liang Chaoyong involves a criminal copyright infringement. The case involved a modification of Windows XP software without authorisation from Microsoft. Chengdu Share-Software worked in collaboration with individuals to create Tomato Garden software. This software was a replica of the Windows XP software. Users were allowed free downloads online through which they would get free access to certain Microsoft software and get technical support. The company was fined RMB 9 million. Besides, the court declared that the company forfeits RMB 2.9 million of revenue accrued from online advertising. The company’s president Sun Xianzhong, and Hong Lei (the producer) of the Totato software were sentenced to three and a half years jail term and fined RMB 1 million. The company’s Director Zhang Tianping, and Liang Zhuoyong (a participant) were sentenced to two years in jail and were also fined RMB 1 million and RMB 100,000 respectively. The case shows China’s impetus to treat copyright infringement as a criminal act and strictly implement its international obligations under the agreements it has signed (MWE China Law Offices, 2010). Even as laws and regulations for the protection of IP rights exist in China, violation remains common. Trademarks, which protect brands, are important to virtually all businesses operating in China. However, trademarks are also extensively infringed by counterfeiters hoping to exploit the reputes of well-known brands so as to increase sales of their own commodities. As illustrated in the case of BMW vs Shenzhen Century Baoma Apparel Co Ltd. In this case, clothes were found a shopping mall in Hong Kong (Changsha shopping mall) having a similar logo (MBWL) to that of BMW clothing line. BMW engaged Shenzhen along with Changsha in a 50 million yuan lawsuit for trademark infringement and unfair competition. BMW is largely known as a luxury car maker, but it had launched an apparel line with the same logo in Hong Kong. The court established that Shenzhen had changed the MBWL design to make it look more like the BMW design. Therefore, the court ordered Shenzhen to cease the sale of clothes with the infringing logo. Besides, the court awarded BMW 500,000 yuan, the maximum damage award permissible by law. Nonetheless, this amount was considered inadequate even if the profits made by infringers were unknown. The findings indicate that, by and large, the current framework of the administrative systems in China, including fines and penalties for IP rights violations do not give provide adequate deterrence to would-be infringers. Fines are so low that they appear to allow infringers to earn an adequate profit, even if caught and fined. Consequently, most studies suggest that fines represent only a tiny fraction of the estimated sales revenue lost to IPR holders (MWE China Law Offices, 2010). China has made some improvements to its IP regime. Indeed China has some of the best Chinese legal counsel and experts. Some companies have even stated that it is easier to take legal action in China. However, all these efforts are washed back by local attitudes toward IP rights that may not essentially compare to improved circumstances for foreign investors. The legal system is also unevenly developed given that IP protection is more advanced in cases involving copyrights, patents and trademarks than in laws protecting trade secrets and unfair competition. Nonetheless, foreign companies can be able to survive through legal and non-legal strategies to defend their IP (The US-China Business Council, 2011). However, Bai and Guoping (2008) points out, the ‘excellent laws on the books’ have not translated to a fruitful enforcement. Several factors thought to undercut the enforcement measures, include lack of sufficient resources and limited training offered to enforcement officials, China’s dependence on governmental instead of criminal procedures to fight IP rights infringements, bribery and domestic protection, and limited public education regarding the economic and social impact of counterfeiting and piracy. However, all is not gloom. In 2011, China became the world’s top patent filer overtaking the U.S and Japan. This is a manifestation of the measures the government has initiated to strengthen its IP rights track record. The report said that the country’s goal was to transform itself from a “made in China” to a “designed in China” market, as the government advocates for more innovation in sectors such as pharmaceuticals, automobiles and technology. In 2015 it was expected that patent applications from China would reach 500,000 in 2015, followed by the U.S with 400,000 and Japan with 300,000. Published applications from China’s patent office have gone up by close to 16.7 per cent yearly from 171,000 in 2006 to about 314,000 in 2010. On the other hand, the volume of patents filed remains lower compared to the U.S, Japan and European countries. Besides, even as 535,313 resident patent fillings were made in 2012, less than 27 per cent were granted whereas over 62 per cent of non-resident patent fillings were granted (Canadian Chamber of Commerce, 2012). Conclusion In the long run, China’s future course of action depends of the administration’s desire to keep on reforming the IP regime and implement the required reforms. Besides, the domestic firms ought to change their attitude and behaviour in line with the changes in China’s IP regime. In fact as more and more Chinese companies come to be patent holders, they will definitely be interested in safeguarding their technology, just like other foreign companies. This is largely expected to drive the future of IP rights protection in China. References Bai, J. B. and Guoping Da, (2008). “Strategies for Trade Secrets Protection,” 372–374; Liu Rong, “Focus on Trade Secret – GE vs. Jiuxiang (I),” China IP Magazine 24, (June 2008), accessed January 16, 2015, http://www.chinaipmagazine.com/en/journalshow.asp?id=388. China and Intellectual Property,” New York Times, December 24, 2010, accessed January 16, 2015, http://www.nytimes.com/2010/12/24/opinion/24fri1.html. Canadian Chamber of Commerce, (2012). “Advancing our Economic Ties with China: Three Priorities for Canadian Businesses,” 34. MWE China Law Offices, (2010). “Top Ten Chinese Intellectual Property Cases of 2009,” accessed January 17, 2015, http://www.mwe.com/info/news/wp_c0810a.pdf. Seamus Grimes and Debin Du, “Foreign and Indigenous Innovation in China: Some Evidence from Shanghai,” European Planning Studies 21, no. 9, (2013), 1357–1373. Lubman, S. (2011). Changes to China’s Indigenous Innovation Policy: Don’t Get Too Excited, Wall Street Journal: China Realtime Report, accessed January 17, 2015, http://blogs.wsj.com/chinarealtime/2011/07/22/changes-to-chinas-indigenous-innovation-policy-dont-get-too-excited/. The US-China Business Council, (2011). Issues Brief: China’s Domestic Innovation and Government Procurement Policies, accessed January 17, 2015, https://www.uschina.org/public/documents/2011/innovation_procurement_brief.pdf. Read More