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»26/02/2010 [Independent reports]
Protecting and Policing IPRs in China

China has emerged as an important economy that enhances registration and enforcement of intellectual property rights (IPRs). China is renowned as the world’s factory, with the emergence of an affluent and growing middle-class.

Johnson Lam China has emerged as an important economy that enhances registration and enforcement of intellectual property rights (IPRs). China is renowned as the world’s factory, with the emergence of an affluent and growing middle-class. The Chinese government has worked assiduously to develop and implement modern and streamlined IP legislation. The filing, examination and registration system for patents, trade marks, and registered designs in China, work well in comparison to IP offices in other countries. Of the significant world economies, China is also unique in offering two avenues—administrative and judicial—for the enforcement of IPRs. A major issue facing the judicial enforcement system is the quantum of damages awarded to successful IP owners. At present, judicially awarded damages do not provide a sufficient deterrent to third party infringement. The comparatively low levels of damages awarded have been argued to be sufficiently small to tempt would-be infringers to take on an infringement lawsuit risk. Nevertheless, this is slowly changing, as more advanced mechanisms for calculating damages have become available, and actual damages awarded have increased. Another important IP issue, especially for brand and copyright owners, is the seemingly entrenched custom of low cost copying driven by the pull of the local Chinese market. It cannot be denied that brand and copyright owners continue to face significant problems in China. To effect cultural change to improve this situation we need further concerted efforts at all levels of Chinese society—it will take generations. The situation for patentees has, at least, improved in the last decade, and continues to improve. Some Chinese provinces have also introduced further IP protection measures like policing IPRs at trade shows and exhibitions. Notwithstanding the persisting difficulties, it is imperative that, in any given infringement situation, IP owners work closely with experienced local counsel to develop an enforcement strategy that is most likely to prove effective. In particular, owners should determine whether damages or an injunction is the desired outcome. If an injunction only is required, the administrative (as opposed to the judiciary) enforcement procedure may be more suitable and cost-effective. Owners should also determine whether other means of enforcement might prove effective. Chinese Enforcement System In 2007, thousands of IPR infringement cases were decided in the Chinese courts and by administrative procedures. Foreign IPR holders alone proceeded within the vicinity of 2,000 lawsuits. These are staggering numbers, even when compared to the US. Economic analysis suggests that foreign companies actually fare better in the Chinese IP courts, as opposed to China based companies. Law enforcement courts in major cities such as Beijing and Shanghai are gaining experience in IP-related activities. In addition, a special IP court has now been proposed to accept and hear civil, administrative and criminal cases related to IPRs. However, in 2007, average damages awarded by the Chinese courts amounted only to $13,100 (only 15 percent of the actual damages sought). There is anecdotal evidence to suggest that IP owners under-claim damages, so as to avoid prejudicing the court’s inclination to injunct an infringer. Thus, until the quantum of damages that make would-be infringers to seriously reconsider copying or counterfeiting, certain IPR infringement will continue to be rife in China. Chinese law does not have the provisions for common law-style discovery, leading to IPR owners experiencing difficulties in establishing losses. Also, because of the low margins infringers make account for profits that does not provide an adequate remedy or deterrent. In cases where the amount of damages cannot be ascertained, the People’s Court may make an order for damages not exceeding a modest $73,000 based on the factual matrix of individual cases, subject to the latest amendment of patent laws where the maximum amount of damages is doubled. Though the case is seen as an anomaly, the largest ever successful damages claim was $44.3 million awarded to Chint Group in 2007. The trend in Chinese court is to award greater damages in IPR infringement matters, and this will get strengthened as more transparent accounting procedures and systems are adopted by the Chinese legislature. Administrative Procedures Compared to the Chinese court procedure, various administrative enforcement procedures available in China are fast, simple and cost-effective. The procedures are mainly employed to secure an injunction at a low-cost and within a short time frame. Decisions can be issued 3-6 months after case receipt, but can be as fast as five days, when accompanied by a raid action. The procedure can also be used to secure delivery, and destruction of goods and collateral materials. Occasionally, it is possible to track down the source of infringed products using such administrative measures. It is also possible to request severe punishment for infringers, but more often modest fines are applicable. Sometimes the administrative action can provide a referral for a subsequent criminal action. The administrative procedure cannot be used to secure damages, and administrative fines are typically quite small and thus ineffective to stop serious or repeat infringers. Judicial Procedure When compared to Western common law court procedures, the Chinese court procedure is still relatively fast and cost-effective. However, final hearings and decisions are not issued within the year (especially for cases where foreign parties are involved), and hotly contested cases can become protracted. Chinese judges are working assiduously to ensure fair and open trials. In addition, in the absence of discovery procedures, plaintiffs must employ pre-litigation investigation to try and uncover, develop and trap evidence. This can prove to be a risky and uncertain process and can result in destruction of valuable evidence. Care also needs to be taken to ensure jurisdictional control. IP system in China After 30 years of its ‘open door policy’, China has started to move from a manufacturing based to a knowledge-based economy and, in the process, has adopted improved IP laws, judicial processes and enforcement procedures. There have also been significant cultural shifts within Chinese society in the perception and recognition of intellectual property rights (IPRs). Whilst Western governments and respected commentators continue to highlight remaining deficiencies in the Chinese IP system. The general improvement in the IP system is noteworthy and is moving in the right direction. Quantum of damages and a culturally-driven practice of counterfeiting well-known brands and copyright works remain as significant issues. Mr Johnson Lam was appointed as a solicitor of the High Court of Hong Kong SAR in September 2005. He primarily assists in intellectual property matters. He has a special interest in China matters. He completed Master of Laws in China Laws, co-hosted by the City University of Hong Kong and the Remin University of China. He also assists in general litigation matters. © BioSpectrum Bureau

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