CASRIP Newsletter - Fall 2005, Volume 12, Issue 2
Current Intellectual Property Developments in China
By William "Skip" Fisher
I. Patent News
A Rising Tide of Patent Filings and Grants
The State Intellectual Property Office (SIPO) of China has released patent statistics for the year 2004. The statistics show increases from 2003 in nearly every category, from applications filed to patents granted.
In 2004, SIPO received 353,807 patent applications, which was a 14.7% increase over 2003. Of the 353,807 applications, 130,133 were invention applications; 112,825 were utility model applications; and 110,849 were design applications. All three types of applications saw an increase in filings over 2003, with invention applications having the highest increase of 23.6% and utility model applications having the lowest increase of 3.4%. This is consistent with the trend since at least 2000 of an increasing proportion of invention applications (from 30.3% in 2000 to 36.8% in 2004) and a corresponding decreasing proportion of utility model applications (from 40.3% in 2000 to 31.9% in 2004). It is also consistent with the trend of domestic applicants filing an increasingly higher proportion of invention applications (from 18.1% in 2000 to 23.6% in 2004).
In 2004, SIPO granted 190,238 patents, which was a 4.4% increase over 2003. Of the 190,238 patents, 49,360 were invention patents; 70,623 were utility model patents; and 70,255 were design patents. Invention patent grants saw a steep increase of 32.9% over 2003, while design patent grants saw a decrease of 7.8%. This is consistent with the trend since at least 2000 of invention patents increasing their proportionate share of total grants (from only 12.0% in 2000 to 25.9% in 2004).
SIPO recently released patent statistics for the first ten months of 2005. In this period, SIPO received 368,757 patent applications, which exceeded the number of applications received in all of 2004. Applications for invention patents accounted for 36.9% of total applications, which is approximately the same as in 2004. The number of patents granted in this period was 178,111. Invention patents accounted for 24.2%, while utility model and design patents each accounted for 37.9%. This reflects a 1.7% decrease in invention patents' proportionate share of total grants through October 2005.
China's Patent Law to Undergo Third Round of Amendments
The process for amending China's Patent Law is currently underway. SIPO initiated studies on various patent topics in mid-2005 and has begun preparing draft amendments. The amendments will address issues raised since China joined the World Trade Organization and are expected to focus on the following areas:
- Patent Application and Examination Procedures. The amendments are expected to simplify the application and examination process, including payment of official fees and handling applications for invention and utility model patents that have the same subject matter. The amendments are also expected to implement the Patent Law Treaty.
- Substantive Requirements for Patents. Discussion in this area focuses on whether to adopt international standards in granting patents, including with respect to the novelty standard, non-prejudicial disclosures, patentable subject matter, disclosure of genetic resources, and design protection for article parts.
- Patent Protection and Enforcement. The amendments are expected to clarify the law with respect to issues such as the doctrine of equivalence, prosecution history estoppel, and indirect infringement.
- Miscellaneous Provisions. Other amendments under discussion involve issues such as patent ownership, assignment procedures (including from a Chinese party to a foreign party), compulsory licensing, and parallel imports.
Proposed amendments are currently being reviewed by SIPO. SIPO is hoping to present draft amendments to the National People's Congress in 2006, though it could take several years for any amendments to come into force. A recent China Daily Report quoted Lipu Tian, the commissioner of SIPO, as saying "I hope the amendments can be completed by 2008." 
II. Trademark News
Rules for Trademark Review and Adjudication are Amended
On September 26, 2005, the State Administration for Industry and Commerce (SAIC) promulgated new Rules for Trademark Review and Adjudication ("Trademark Rules"). The new Trademark Rules went into effect on October 26, 2005.
The Trademark Rules govern proceedings before the Trademark Review and Adjudication Board (TRAB). The TRAB is an administrative trademark authority under the SAIC and independent of the Trademark Office. Its powers include hearing appeals from Trademark Office decisions on trademark applications, oppositions to registration, and cancellations of certain registrations, as well as reviewing applications for cancellation of certain registrations. The recent amendments have changed TRAB practice in several significant respects, including the following:
- The petitioner for a trademark review has only one opportunity to submit supplemental materials, which must be done within three months from the date of filing the review application. Under the prior rules, there was no restriction on the number of times a petitioner could submit supplemental materials as long as they were submitted within the three month period.
- Notarization and legalization of evidence are not required unless the opposing party challenges the evidence's authenticity with supporting evidence or the TRAB considers it necessary. Under the prior rules, evidence originating from outside China had to be notarized and legalized, which can be an extremely time-consuming process.
- There are no provisions for public hearings. The prior rules dedicated an entire section to procedures for conducting public TRAB hearings. Because the provisions for public hearings were seldom used and contrary to international practice, the amended rules deleted the entire section.
- When reviewing a decision by the Trademark Office, the TRAB is not limited to the issues decided by the Trademark Office. The TRAB may consider, sua sponte, the registrability of a mark under any absolute grounds for refusal. Under the prior rules, the TRAB only examined the specific issues decided by the Trademark Office.
- Parties may settle their trademark disputes privately and authorize the TRAB to act as mediator. The TRAB must consider the public interest and the rights of third parties; therefore, it is questionable whether the amendments change the current practice of not allowing consent or co-existence agreements to overcome a refusal. The new rules do not specify how the mediation will work in practice.
- A party that is dissatisfied with a TRAB decision and brings a lawsuit against the TRAB in the People's Court must notify the TRAB within fifteen days of filing the suit. If the TRAB has not received notice of a lawsuit within sixty days of its decision, the parties are deemed not to have filed a suit and the TRAB's decision will be sent to the Trademark Office for execution. Under the prior rules, there was no stated time limit for notifying the TRAB of a lawsuit challenging its decision, which caused uncertainty over whether and when to execute the decision.
Beijing Court Grants Preliminary Injunction for First Time
Under China's Trademark Law and the Supreme People's Court Interpretation on Issues Concerning Application of Law to Pre-Trial Suspension of Trademark Infringement and Preservation of Evidence ("SPC Interpretation"), the owner of a registered trademark or other "interested parties" may petition the court for a preliminary injunction to stop alleged infringement prior to initiating a lawsuit. The court must rule on the petition within forty-eight hours. If the court grants the petition, the petitioner must file suit within fifteen days; otherwise, the injunction will be dissolved.
On August 15, 2005, the Beijing No. 2 Intermediate People's Court granted a pre-suit injunction against an alleged trademark infringer. The plaintiff, Beijing Red Lion Coatings Co., Ltd. ("Red Lion Coatings"), owned a number of registered "Red Lion" marks, which had been recognized as famous by the relevant administrative authority. After discovering that defendant, Beijing Red Lion Jingqi Trading Co., Ltd. ("Red Lion Trading"), was using a similar mark on similar products, Red Lion Coatings petitioned the court for a preliminary injunction prior to bringing suit. The court found that Red Lion Coatings presented sufficient evidence to show that (1) Red Lion Trading was infringing its registered mark, and (2) it would suffer irreparable harm if the infringing activities did not cease immediately, and therefore granted the injunction.
This was the first preliminary injunction granted by a Beijing court under the current version of the Trademark Law and SPC Interpretation.
First-to-File or First-to-Use?
As a general rule, China grants trademark protection only to those who have registered their trademark with the Trademark Office. The Trademark Office usually issues a registration to the party that files an application first. Thus, in most cases the first-to-file will prevail over the first-to-use, and those seeking trademark protection in China are well advised to "win the race" to the Trademark Office.
Is there a remedy for those parties who do not "win the race," but have prior use of the mark? The TRAB and at least one Chinese court believe there is. In a recent case, the Beijing No. 1 Intermediate People's Court affirmed a TRAB decision to cancel a party's registration for a mark that had been in prior use by another party.
The case involved the mark "FRESH HOUSE," which International Paper Company (IPC) began using in China in the 1990s in connection with gable-top paper packaging for beverage products. The "FRESH HOUSE"-branded packaging quickly became popular and was used by more than 78 Chinese companies for their beverage products. Before IPC obtained any trademark registrations, a Chinese pesticide manufacturer received a registration for "FRESH HOUSE" (with a slightly different design element) covering beverage products and sold the registered trademark to a Chinese dairy company. The dairy company claimed that IPC and its customers infringed its trademark rights and took administrative enforcement action against IPC's subsidiary in China. IPC responded by seeking cancellation of the "FRESH HOUSE" registration with the TRAB. The TRAB ruled in favor of IPC, and the dairy company appealed the decision to the Beijing court.
In August 2005, the court ruled against the dairy company, holding that a trademark application shall not be for the purpose of racing to register a mark already in use by another, especially when the prior use has resulted in brand-recognition among ordinary consumers. The Beijing court's holding parallels Article 31 of the Trademark Law, which states in part that "unfair means [shall not] be used to preemptively register the trademark of some reputation another person has used."
Trademark Rights vs. Domain Name Rights
The issue over who has superior rights in China - the owner of a registered trademark or the owner of a domain name - was clarified in a recent case before the Beijing No. 1 Intermediate People's Court. The case pitted the cosmetics giant, L'Oreal Group, against Beijing Cinet Information Co., Ltd. L'Oreal owned a registration in China for the mark "MATRIX" for use in connection with hair products since 1990. Cinet registered the domain names "matrix.com.cn" and "matrix.cn" for use in connection with e-mail and communications systems in 1999.
In early 2005, L'Oreal filed a complaint with the Domain Name Dispute Resolution Centre (DNDRC) of the China International Economic and Trade Arbitration Commission (CIETAC) requesting transfer of the domain names. The DNDRC ruled in favor of L'Oreal and its prior trademark rights. Cinet then sued L'Oreal in the Beijing court for infringement of its domain name rights.
The Beijing Court rejected Cinet's claim. It found that L'Oreal had a prior legal right to the word "matrix", that Cinet's use of the word "matrix" as the main part of its domain names was sufficient to cause confusion, and that Cinet's registration and use of the domain names were in bad faith. The Beijing Court also held that Cinet's actions violated the Trademark Law.
The court's finding of bad faith is not surprising given that Cinet had been involved in a number of domain name disputes in the Beijing courts. Cinet and L'Oreal previously battled over Cinet's registration of the domain name "loreal.com.cn." In that case, the Beijing No. 2 Intermediate People's Court ordered cancellation of the domain name and Cinet to pay $1,700 (U.S.) in compensation. Cinet was also involved in a dispute with Viacom, Inc. over the domain names "mtv.com.cn," "mtv.cn," "nick.com.com," and "nick.cn," and a dispute with 20th Century Fox over the domain names "fox.com.cn" and "fox.cn."
CISCO Makes the "Top 10"
One of China's "Top 10" IP cases in 2004 came to an end recently when a court found the four Chinese defendants guilty of criminal trademark infringement. The case involved infringement of Cisco Systems, Inc.'s registered trademark for CISCO on network equipment. The individual defendants were accused of running an illegal operation involving the manufacture and sale of counterfeit network products, the production of packaging and other materials bearing the CISCO mark, and the provision of repair and processing services. The court sentenced two of the defendants to four and a half years imprisonment and fined them $6,053 (U.S) for the unauthorized use of the CISCO mark on network equipment, and sentenced the other two defendants to one year imprisonment and fined them $605 (U.S.) for forging the CISCO mark.
III. Copyright News
New Procedures for Administrative Copyright Protection on the Internet
There have been several significant developments in the area of copyright protection in 2005. On January 11, 2005, the Beijing Higher People's Court issued guidelines for determining damages in copyright infringement cases. More recently, the National Copyright Administration (NCA) and Ministry of Information Industry (MII) jointly promulgated Procedures for Administrative Protection of Copyright on the Internet ("Copyright Procedures"), which became effective on May 30, 2005. The Copyright Procedures consist of nineteen articles and deal primarily with the administrative liability of Internet information service providers ("ISPs") for content provided to others (Internet content providers or "ICPs"). The procedures are summarized below.
- Purpose. The stated purpose of the new procedures is "to strengthen the administrative protection of the right of distribution over information networks in the course of Internet information service activities and regulate administrative law enforcement."
- Scope. The procedures apply to activities involving (1) the uploading, storing, linking, and searching (and other related functions) of content, (2) where the content is provided automatically as instructed by the content provider, (3) without any editions, revisions, or selections. The act of directly providing Internet content remains governed by the Copyright Law.
- Jurisdiction. The copyright administrative authority of the place where an infringement occurs has jurisdiction. Infringement is deemed to occur in the location where the server or other equipment used to provide the Internet information services is located.
- Notification and counter-notification. If a copyright holder discovers content on the Internet that infringes its copyright, it may notify the ISP in writing of the infringement. The notice must include proof of copyright ownership, proof of identity and contact information, location of the allegedly infringing content, evidence of infringement, and a declaration attesting to the truthfulness of the notice. Upon receiving a notice, the ISP must promptly remove the offending content and preserve the notice for six months. If the ISP removes content based on a notice from a copyright holder, the ICP may issue a counter-notice to the ISP and copyright holder that the content does not infringe. The counter-notice must include proof of identity and contact information, evidence of non-infringement, location of the removed content, and a declaration of truthfulness. If the notice or counter-notice does not contain the required information, it will be deemed not to have been issued.
- Liability. If an ISP fails to remove allegedly infringing content after receiving the copyright holder's notice, or has knowledge that an ICP is committing copyright infringement on the Internet, the copyright administrative authority may order the ISP to stop the infringing activities, confiscate its illegal profits, and impose a fine of not more than three times its illegal revenues (or, if illegal revenues are difficult to calculate, not more than $12,330 (U.S.)).
- Safe Harbors. The Copyright Procedures provide ISPs have several "safe harbors." An ISP will not be liable if it (1) removes the allegedly infringing content promptly after receiving a notice from the copyright holder, (2) restores the content after receiving a counter-notice, or (3) is not aware of the alleged infringement.
Baidu.com Feels Grokster's Pain
China's largest Internet search engine, Baidu.com (dubbed the "Google of China"), has had its share of trouble in court this year. On September 16, 2005, in a case reminiscent of the recent battle between MGM and Grokster, the Beijing Haidian District People's Court ordered Baidu.com to stop providing Internet users with MP3 download links to songs owned by the plaintiff, Shanghai-based music company Push Sound (with links to EMI), and to pay Push Sound $8,400 (U.S) in damages. Baidu.com's hugely popular MP3 search service allows users to locate files on the Web and provides direct links to the URLs where the files are stored. Baidu.com contends it is providing the same service offered by all search engines and is not violating copyright law. It has appealed the court's decision.
On September 27, 2005, just eleven days after the decision by the Haidian District People's Court, Baidu.com was in the Beijing No. 1 Intermediate People's Court defending itself against a similar lawsuit brought by the world's largest music companies - Universal, EMI, Warner, Sony BMG, and Bertelsmann - and three of their local subsidiaries. During the hearing, the plaintiffs argued that Baidu.com infringes their copyright on hundreds of songs by allowing users to download the songs without their authorization. Baidu.com argued that it merely provides a neutral search engine service and does not upload or download music or provide download services to its users, and therefore it does not infringe. The parties did not resolve the dispute during the hearing, and so the case is ongoing.
American Learns Crime Doesn't Pay in China
One of China's highest-profile IP cases concluded on September 29, 2005, when American Randolph Hobson Guthrie III was released from Chinese prison and deported back to the United States. The Shanghai No. 2 Intermediate People's Court convicted Guthrie, fellow American Cody Thrush, and two Chinese nationals on April 19, 2005 for illegally selling counterfeit DVDs over the Internet. A joint U.S.-China criminal investigation uncovered the illegal operation and revealed that from November 3, 2003 to July 1, 2004 the defendants sold approximately 133,000 counterfeit DVDs worth over $393,000 (U.S) in more than 20 countries. They were arrested in July 2004 on charges of running an illegal business without proper licenses, but were convicted and sentenced under provisions of the Criminal Law relating to IP violations. Guthrie was sentenced to 30 months imprisonment and fined $60,459 (U.S.). His accomplices were sentenced to various prison terms and fined.
This case is reported to be the first joint sting operation by U.S. and Chinese law enforcement targeting piracy, and was identified by the State Intellectual Property Office as one of China's "Top 10" IP cases in 2004.
Guthrie is not off the hook yet. He is reported to be facing criminal charges in a U.S. District Court in Mississippi for conspiring to infringe copyrights and trafficking in counterfeit goods.
IV. Miscellaneous IP News
Huge Increase in Civil IP Cases
Are people gaining more confidence in China's judicial system or have they just lost confidence in administrative and other non-judicial remedies? Whatever the case may be, recent statistics show a sharp increase in IP cases filed in the People's Courts. In 2004, a total of 9,329 first-instance civil IP cases were filed in the People's Courts, which represents a 33.5% increase over the prior year. Of these cases, 2,549 involved patents (20.8% increase); 4,264 involved copyrights (71.2% increase); 1,325 involved trademarks (43.1% increase); 630 involved technology contracts (42.1% decrease); and 172 involved new plant varieties (72% increase). If one considers just the core categories of patent, copyright, and trademark, the percentage increase of civil IP cases filed in 2004 over 2003 jumps to more than 45%. While these statistics do not explain the reason behind the increase, more and more parties likely will look to the courts to resolve their IP disputes in the future.
Surveys Show Perception of Weak IP Enforcement Remains High
Most people acknowledge that China has established a system of IP laws that technically comply with its obligations as a member of the World Trade Organization under the Agreement on Trade-Related Aspects of Intellectual Property Rights (commonly referred to as "the TRIPS Agreement"). However, weak enforcement of IP rights (IPR), or at least the perception thereof, remains a serious problem in China, as illustrated by the following survey results:
- In the 2005 U.S.-China Business Council Member Survey, member companies identified inadequate IPR enforcement as the top issue of concern. The majority of respondents indicated the situation had not changed since 2004, 25% of respondents believed there has been progress, and 11% of respondents believed IPR enforcement had deteriorated.
- In the American Chamber of Commerce's annual Business Climate Survey, the results of which are set forth in its 2005 White Paper on American Business in China, 80% of polled member companies indicated that they regard the government's response to IPR issues as "ineffective or totally ineffective."
2008 Olympic Mascots Receive IP Protection
On November 11, 2005, the Beijing Organizing Committee for the 2008 Olympic Games (BOCOG) announced the official mascots for the 2008 Olympic Games. The five mascots, referred to as the "Five Friendlies," symbolize four of China's most popular animals - the fish, the panda bear, the Tibetan antelope, and the swallow - and the Olympic flame. The mascots' colors represent the five Olympic rings.
The Olympic mascots were selected as the result of a worldwide competition begun in August 2004. Each mascot has a repeated two-syllable name, which is a traditional Chinese way of expressing affection for children. The fish is named "Bei Bei." The panda bear is named "Jing Jing." The Olympic flame is named "Huan Huan." The Tibetan antelope is name "Ying Ying." And the swallow is named "Ni Ni." When combined as "Bei Jing Huan Ying Ni," the five mascots' names translate as "Welcome to Beijing!"
The BOCOG has vowed to protect the Olympic mascots and to take action against anyone found using them in their business without authorization. The BOCOG claims to have reserved domain names using the mascots' names and promises to target anyone trying to register similar domain names. The BOCOG also has registered the mascots as trademarks, along with more than 160 other Olympic symbols, and has registered copyright on the mascots with the Beijing Copyright Protection Center. Despite the BOCOG's moves to protect the mascots, infringements have already surfaced. Whether the BOCOG and IP enforcement authorities can stop, or at least control, the inevitable wave of infringements of IP rights in the mascots remains to be seen.