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TRIPs drives China to amend patent laws and policies

Posted: 02 Feb 2004 ?? ?Print Version ?Bookmark and Share

Keywords:wto? trip? ipr? world trade organization? inteelctual property right?

When China first bid for WTO membership, its intellectual property-related laws were one of the main obstacles to joining the organization. Every member of WTO is required to comply with the Agreement on Trade-Related Intellectual Property Rights (TRIPs). The Chinese government realizes that weak intellectual property rights (IPR) protection deters foreign investments into their economy. As a result, the Chinese government revised many existing laws and regulations to conform to TRIPs' requirements.

The amendments made to the Chinese Patent Law in 2001 included making an unauthorized "offering for sale" a violation of patent holder's rights as required by TRIPs. It also addressed compulsory license issues, clarifying how the relative value of the license is determined for the purposes of compensation and what types of patents are subject to compulsory licensing. The new amendments to the Patent Law provide that final decisions on validity and ownership of utility models and industrial designs will be made by the People's Court.

China amended its Trademark Law in 2001 and its Implementing Rules, in late 2002. Under these amendments, "Geographic Indicators" or "indicators of origin" are now entitled to protection. In order to implement corresponding TRIP requirement, protection of prior rights has been added to the Chinese Law. This amendment also extended the right of judicial review to the final decisions of the Trademark Review and Adjudication Board.

Recent changes to Chinese copyright law included extending protection to mask works and models. The owner's rights were also extended to include the right to limit on-line transmission of the copyrighted material.

Before and after

Before 2001 all technology import contracts in China had to be approved by the central government. After their accession to WTO, the situation changed. Important contracts now require registration rather than approval. However, this requirement engulfs all kinds of documents: shrink wrap licenses, assignments of patent and patent application rights, patent licenses, assignment of technical secrets, computer software licenses and even technical services and cooperative design contracts. In order to be protected, patents licensed to Chinese users must be registered under Technology Import Regulations. The same applies to IC mask works and trademarks.

Additionally, all softwares to be sold in China must also be registered with the Ministry of Information Industries. Under the newly enacted Regulations on Computer Software Protection, computer software companies can be certified as software enterprises and enjoy preferential government policies.

However, some IP standards are still not compliant with TRIPs. There are some gaps between the compulsory license regime of TRIPS and Chinese Patent Law dedicated to this subject. For instance, Chinese law does not specify that the use of the product under compulsory license should be "predominantly for the supply of the domestic market" as required by TRIPs. TRIPs Agreement also requires that "the rightholder shall be paid adequate remuneration." Corresponding Chinese provision states that the licensor shall receive "reasonable exploitation fee, the amount of which shall be fixed by both parties in consultations. Where the parties fail to reach an agreement, the patent administrative organ under the State Council shall adjudicate."

China's Regulations on Computer Software Protection provides that "a piece of software may be copied in small quantities to serve such non-commercial purposes as education, scientific research, or government business without the consent of, or remuneration to, the copyright owner of the software or his lawful assignee." This provision seems to be inconsistent with TRIPs, which authorizes exceptions to exclusive rights of the copyright owner only "in certain special cases."

Cases of selling design specifications and technical data are especially rampant in the area of sophisticated technologies. Many companies complained that they have lost valuable technologies in China through unfair means, such as theft by employees.

But having a set of laws in compliance with TRIPs does not guarantee their efficient implementation. Chinese officials recognize the shortcomings of the existing system. "China will shift from its previous focus on IPR legislation to law enforcement and supervision," said Ma Lianyuan, vice-director of the State Intellectual Property Office.

China recently adopted a number of homegrown standards in high technology, such as 3G mobile phone technology and digital TV. These standards incorporate Chinese-developed patented technologies and are aimed to avoid the use of U.S. and Japan-owned technology. By making these standards mandatory for the products sold in China, the central government is trying to promote domestic innovations and avoid licensing from the foreign entities. These actions demonstrate that the government is very serious about creating strong Chinese IPRs. The experience of enforcing Chinese-developed intellectual property in standard-setting environment will help strengthen the over-all IPR enforcement system for all participants, foreign and domestic. The ten common intellectual property rights mistakes during venture capital due diligence can be read here.

In a global economy, technology transfer goes in both directions. At the time when many enterprises are bringing their products and know-how to China, the number of companies is being created in the U.S. based on Chinese-originated innovations. This trend of commercialization of foreign IP has gained recent popularity. Since most Chinese companies do not have sufficient economic basis for R&D programs, technologies worth importing are usually originated in the universities. The official policy of Chinese government is to promote commercialization of university-developed inventions. However, government-owned research institutions face the usual structural difficulties in commercializing the results of their research. Also the question of ownership of the intellectual property developed in a government-owned facility remains ambiguous even under the newest amendments to the Chinese Patent Law.

- By Dennis Fernandez

Fernandez & Associates LLP

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