With this entry today I am introducing a new theme, namely protection of Intellectual Property Right, in fact when doing business in China the first concern should be protecting your IPRs.
Despite the fact that China has made some significant progress on Intellectual Property Rights enforcement, concerns about infringement and counterfeiting, which have a broad impact on company operations, remain a major problem when investing in China. The Chinese government has always attached great importance to the protection of IPR and considers it as integral to reform and opening policies as well as the effort to build-up of a socialist legal system. The Chinese government is of the view that the system of IPR protection is of great significance to the promotion of technological advancement, cultural flourish and economic development. However, many foreign companies fear about protection of IPR in China because the violation of IPR rights translates into a wide range of consequences for companies investing in the “Middle Kingdom.” (A very useful web-site to help the foreign investor understanding IPR in China is the following:
http://www.chinaipr.gov.cn/
).
In the age of globalization, the world is involved in a process of creating a global market economy, where the competitors are always concerned about the protection of their products (especially if patented) and trade secrets. In the competitive global marketplace, the winners are not only those who are able to just introduce into the stream of commerce new products and technologies, but are also able to properly protect them. Because of this, intellectual property rights protection has become a complex issue for legislatures, judges, lawyers and scholars. Industrialized countries have joined treaties in order to guarantee, as much as possible, a uniform protection of those rights. During this time, China has made great strides in upgrading and improving its systems of intellectual property rights protection, but it seems some more efforts are needed to put the Chinese system more in line with international standards. Overall, many analysts say that in order for China to attract more investment and move more towards a market economy, it needs to create a more concrete and predictable system of IPR to assure foreign companies intellectual property is fully respected.
The scope of this entry and of the next ones, is to highlight the current Chinese system on the protection of IPRs and to address some issues which direct influence an investment in China. (Only a few weeks ago in Shenzhen has been held a Congress about IPR, see:
http://www.ipcounselcongress.com/2013shenzhen/
).
Defining the Potential Problems: Introduction to the Legal Framework on IPRs
Establishing a business in China usually implies the usage of certain IPR which the owner wishes to protect in order to maintain their competitive advantage over competitors. Virtually all businesses, both Chinese and foreign, are at risk from piracy, industrial espionage or some other forms of IPR infringement. The Chinese market is booming, and unfortunately this also means that a variety of forms of IPR abuse are also flourishing. Therefore, it is also necessary to take into consideration the legal framework regulating all these rights in order to have a better idea and to formulate the best approach to the Chinese market.
The evolution of the legal framework regulating IPRs is evident, and it is not only a consequence of the commitments China took when entering the WTO, but also of the developments of the market conditions considered that FDI implies the import of such
Rights.
The framework regulating IPRs in China is considerably complex and vast; this section will examine the main characteristics of the most important pieces of legislation addressing the exploitation of these rights in China providing some basic information.
Before analyzing in more details the specific laws regulating IPRs, it is necessary to highlight China’s membership in international IPR related organizations:
Berne Convention (copyright)—since 1992;
Madrid Protocol (trademarks)—since 1995; (Madrid Agreement—since 1989)
Paris Convention (priority rights)—since 1985;
Patent Cooperation Treaty (patents)—since 1994;
WTO/TRIPS (IPR in general)—since 2001.
As in many other countries, most forms of IPRs require registration. Without proper registration it would be difficult, if not impossible, to sue for damages regarding IPRs infringement. Before starting a business in China, especially with a Chinese counterpart, it is essential to identify the IPR to be protected. IPR do not only touch upon trademarks, but also patents, model, designs, copyrights and trade secrets; therefore in order to assure a smooth operation of the business, it is always preferable to have these rights well guarded.
It is also necessary to stress that in accordance with the Agreement on Trade-related Aspect of Intellectual Property Rights (TRIPS) administrated by the WTO, China revised its laws and regulations and judicial interpretations related to IPRs, and thereby constructed a complete legal system that conforms to China’s actual conditions and international practices.
China’s membership in international IPR related organizations:
1) Berne Convention (copyright)—since 1992:
China signed up to the Berne Convention in 1992. Copyright legislation is based on China’s Copyright Law as amended, and the Copyright Implementing Regulations (2002).
2) Madrid Protocol (trademarks)—since 1995:
China’s membership of the Madrid Protocol provides a unitary method of reciprocal trademark registration.
3) Paris Convention (priority rights)—since 1985:
The most important provision of this long-standing intellectual property treaty, dating from 1883 and now administrated by WIPO, is the establishment of “priority rights” for patent, design and trademark applicants in respective signatory States. The system allows applicants in one country to gain protection for their IPRs in another country.
4) Patent Cooperation Treaty (patents)—since 1994:
China has been a signatory to the Patent Cooperation Treaty since 1994. This means that foreign patent-holders can assess the possibility of obtaining a patent (but not a design patent) before embarking on the ‘national phase’ of the application within China—at the end of which, if the patent is granted, they will have the same protection as any other patentee in China.
5) WTO/TRIPS (IPR in general)—since 2001:
China adhered to the
World Intellectual Property Organization
(WIPO) in 1980, and it is a signatories of the TRIPS (Agreement on Trade-Related Aspects of Intellectual Property Rights).
This was just to introduce the theme of IPR in China. In the next entry we will examine more in details trademarks and the others Intellectual Property rights.
(Some of these articles are extracted from my work titled M&A and Takeovers in China, so if you are interested in this topic, please visit:
http://www.kluwerlaw.com/Catalogue/titleinfo.htm?ProdID=9041140484
).
Cristiano Rizzi