Simon Cheetham and Sarah Turner IPR Matters in China Simon Cheetham and Sarah Turner

The Helpdesk Initiative Practical business focused advice Protection Strategy Enforcement Advice ‘Know before you go’ 2

Significant EU – China Trade 118 million suspect goods detained at EU borders in 2009, ⅔ originated from China Does not include damages reported by European companies due to Chinese counterfeit goods put on the Chinese market Or Chinese counterfeit goods on other non-European markets

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The Helpdesk Initiative Prevention Strategies Plush Toys Trademark, sourcing and manufacturing contracts, record keeping re creation, advertising/packaging Design of drainage machines IPR as part business strategy. Not just design patents but trademark and copyright Wastewater Treatment Trademark, trade secrets, non-disclosure agreements, first to register Enforcement Strategies Olive Oil Opposition to local trademark application Umbrella IP protection in China, sale in HK – steps on hiring a lawyer Lighting Group Design patent infringement – received legal advice ‘not sufficiently the same’, business strategy 10

The landscape China – too big to ignore IP protection relatively new concept BUT legal system improved Chinese companies becoming substantial competitors Foreign companies developing R&D presences in China Chinese government stressed importance of R&D and IP

Doing business in China Understand the Chinese legal environment Know to what extent patents, trade marks and trade secrets are protectable and enforceable Understand the rules relating to technology transfer and how to limit the risks from such transfer Understand the legal provisions in relation to IP created by employees or third party suppliers (JV partners, consultants etc) Maintain the security of your technology and confidential information

Patent protection Third amendment to Patent Law (1 October 2009) Monopoly right for a new design or invention or improvement to product or process National right – Chinese patent only grants rights in China European patents have no effect in China Chinese patent law covers Invention patents (20 years) – new technical solutions Utility models (10 years) – technical but degree of invention not as high as for invention patents Design patents (10 years) – new designs – shape, pattern or colour First to file system (not first to invent) Timescales for grant vary

Requirements for patent protection For invention patents and utility models Invention must be new absolute novelty test do not market or make invention publicly available anywhere in the world before filing application watch out for unpublished pending applications Inventive over prior art Of practical application NB inventions made in China – confidentiality examination required before foreign application can be filed – failure →non patentability in China

Design patents New over the "prior design". Not new if identical to prior design Prior design is any design known to public in China or abroad before filing date Must be obviously different from prior design or combination of features of prior design i.e. creative No conflict with other IPR Not available for 2D trade marks

What rights do I get? Once granted third parties stopped from making, using, importing or selling invention or design without permission For a process patent third party cannot use process or use, import or sell products directly obtained from process without permission Claims govern scope of protection Application must be in Chinese so need careful translation (especially claims) Consider parallel filing of utility model

Employee inventions Chinese employees invention law Service inventions – employer must pay employee a "reward" and a "reasonable remuneration" on exploitation Can deal with remuneration in company rules BUT recommend terms in R&D personnel employment contracts setting out manner and amount of award and remuneration In R&D agreements with Chinese companies consider who will pay possible rewards and remuneration

Joint ownership Many agreements between foreign companies and Chinese partners state resulting inventions will be "jointly owned" If no agreement otherwise, law provides each co-owner may use invention each co-owner may grant non-exclusive licences (but royalties shared) all other exploitation subject to other co-owner's consent

Assignments and licences Applications and patents may be assigned Must register transfer Assignment only takes effect on registration Assignments from PRC company to a foreign party subject to authority approval May also license patents Record licence within 3 months (but no penalty for failure)

Confidential information What is protectable? Contractual protection employment contracts NDA before information disclosed to third party Statutory protection – must be a trade secret not publicly known has economic and practical value owner taken reasonable measures to maintain secrecy Practical tips for protection Carefully mark "Confidential" Keep in secure place Consider splitting into parts

Technology transfer Most technology freely transferable Some restricted and prohibited categories Cannot limit Chinese party from using improvements Ownership of new rights and improvements General rule – person who makes improvement owns it Otherwise agree (in writing) who will own any improvements

Technology transfer Risk of technology/information leakage is real Enforcement of rights after leakage difficult Put in place systems to limit disclosure Track and monitor use of know how by employees and partners Have an IP filing strategy to capture R&D generated

Trade marks What is a trade mark? Indication of origin Registration foundation for protection What can be registered? words devices 3D shapes colours must be "seen" First to file system Translation or transliteration of foreign brands Over 2 million trade marks registered Developing and clearing a new Chinese trade mark can be time consuming

Requirements for TM registration National (only in Chinese) or international procedure (may cover more than one country) List products or services for which trade mark protected Formal requirements Substantive requirements Legality Non- functionality Distinctiveness No conflict with prior rights

Maintenance and exploitation of trade marks If registered, due for renewal every 10 years Can be invalidated after registration Use it, don't lose it! Can license to third parties exclusive sole non exclusive Licensors should impose controls on quality in licences File licence with CTMO Can assign registration or application. Assignment must be recorded at CTMO

Copyright What is protectable? ORIGINAL creative works, software, drawings etc Arises as soon as an original work is created No registration required but recordal can be used as evidence of ownership Creator or employer of creator first owner Author will own commissioned works unless contract states otherwise

Enforcement Options Total 30,626 new IPR cases in 2009 New Foreign Related IPR Cases = 4.5% of total Rapid growth in IP civil litigation

Navigating the legal system Mixture of laws Civil proceedings People's Courts Supreme People's Court (Beijing) Specialist IP panels (within courts in major municipalities) Usually 3 judge panel – rely on judicial interpretations No rule of binding precedent Inquisitional system (but in practice rely on evidence submitted) Hear cases which have a connection with the Court's geographical jurisdiction Strong burden of proof on party asserting a fact

Patent enforcement options 3 main options Administrative by local IPO (for all types but generally for designs) Order to stop acts No damages Judicial Usually Intermediate People's Courts Damages – 4 methods for calculation: Loss suffered Profits earned Multiple of licence fee Lump sum Customs For complex technical questions → judicial

Strategies for enforcing patents Statute of limitations – 2 years Before starting proceedings – be prepared Fact finding ”Test" purchases (supported by documentary evidence) Procedural formalities/requirements Obtaining "sufficient and admissible" evidence Oral evidence rarely used Use of private investigators/notaries Orders to preserve evidence/documents and inspect premises Consider taking action in Hong Kong or overseas to obtain evidence

Confidential information How is confidential information misappropriated? Industrial espionage Taken by employees Inadvertently disclosed Misuse by licensees or subcontractors Digital information harder to protect

Enforcing rights in confidential information Actions available: Administrative Judicial Criminal Criminal action may be only effective remedy – difficult to prove a civil case

Practical tips Build in protection and supervisory measures Physical access controls Terms in contracts acknowledging confidentiality Remove copy functions Deliver to named individuals who have signed NDAs Limit and track disclosure of technology Find the right partner – due diligence before agreement/disclosure

Enforcing trade mark rights Exclusive right to use identical or similar trade mark on same or similar goods or services Lodging a complaint – Administration of Industry and Commerce - where infringement occurred Include: Letter of complaint Registration certificate Certificate of identity of trade mark owner Evidence of infringement Successful AIC raid – order to stop, destruction and/or fine Administrative action common as simple procedure BUT Court action also available – useful for injunction and damages and for small quantities

Copyright infringement Reproduction of substantial part of work or distributing copies without permission Unauthorised use of software Unauthorised translation Judicial or administrative (NCAC) enforcement Court action has the advantages of: injunctions preservation of evidence damages

Customs enforcement Border protection of rights Registration with customs optional If IPR registered with GACC customs can temporarily suspend release of suspected infringing shipment and notify rights holder Rights holder makes bond payment and applies for detention of goods For patents shipper can pay counterbond for release of goods Customs investigates if determined to infringe →penalty and formal confiscation if unable to determine – rights holder has 50 days to apply for injunction. If injunction granted shipment transferred to court

Recent trends Move away from strong enforcement of IP driven by desire to balance enforcement and economic development Reflected in new legislation or proposed legislation Rise in counterfeiting Automatic licence for technology incorporated in a standard – draft rules

Practical measures Have an IP strategy Pre-emptive action best Consistent control over confidential information Educate staff and partners on value of IP Restrict access to information/technology Police rights and partners – remember to include rights of inspection and controls in contracts Consider Customs registrations to detect counterfeits

In Summary: You don’t have to be an expert – there are plenty out there Register rights – if you don’t own it you can’t protect it You need to be the first to file IPR in China Use a layered defence – don’t rely on one IPR Use contracts & good business practices Prevention better than cure Be proactive

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