The importance of IP strategy

China Law & Practice's Annual Review was released at the Awards Ceremony in Beijing this month. Part of the Annual Review comprises insights from leading lawyers. It also includes analysis of the most important news stories of the year. Please click here to view the Annual Review on issuu.

1. What were the key legislative and market developments affecting IP over the past year? How have these affected your work?

The State Council revised two sets of regulations relating to copyrights, namely, the Implementing Regulations for the PRC Copyright Law and the Regulations for Protection of the Right of Communication Through Information Networks. Both sets of regulations came into effect on March 1. The newly revised versions of the regulations have imposed more severe punishment on infringement of copyright, especially online infringement.

Recently, with the rapid development of China's information technology industry, there have been an increasing number of cases involving the protection of intellectual property on the internet. For example, the conflict between trademark and domain name holders, weak protection on works distributed online and unfair competition involving complex network technology. As there are technical facts involved in cyber infringement cases, an understanding of advanced and complex technology is crucial in solving IP disputes relating to the internet. It is important to use litigators who have both law degrees and an understanding of advanced technology, as an understanding of the technical issues enables litigators to provide smarter and more effective representation. It is also vital to explore the full range of strategies before embarking on litigation, giving particular consideration to alternative dispute resolution methods such as arbitration and mediation.

2. What are some of the biggest challenges foreign companies experience when it comes to IP enforcement?

IP law gives a company or an individual the right to own IP and protect it from infringement and misuse. Enforcement of IP is fundamental to IP protection; it gives reality and meaning to IP laws. But foreign companies in China face some serious challenges in IP enforcement.

Foreign companies are far more critical of IP enforcement than they are of legislation. Although the central government has taken various measures to strengthen enforcement, some factors including local interest protectionism, insufficiency of qualified IP officials and judges and imbalance of economic development still reduce the effectiveness of enforcement efforts. In addition, foreign companies need to realise one fact – the enforcement of IP law in different areas is very different. In commercial, central cities like Beijing and Shanghai, judges are very experienced and capable of hearing very complicated IP cases, and local interest protectionism is minimal, while on the contrary, in other areas the courts may lack experience in hearing IP cases. The venue for your IP case is also critical. Fortunately, the legal system of China allows for a limited amount of what is called venue shopping.

In terms of trademark cross-border protection, due to the principle of territoriality of a trademark, Chinese courts sometimes require a trademark to be well-known in China and deny protection even if a foreign company, the true owner of the trademark, can prove that the mark is internationally well-known in a considerable number of other countries.

Many technology transfer/licensing agreements are entered into by and between the foreign licensor and the Chinese licensee. In the context of dispute resolution, this may raise a difficulty for international enforcement. A court judgment obtained in the jurisdiction of the foreign licensor may be difficult to enforce in China, due to the complexity of procedure or absence of an international treaty that is mutually recognised. This problem can be overcome by initiating proceedings in China, but foreign companies are reluctant to do so, possibly because they are less familiar with the law, legal culture, courts and languages of China.

3. How important is IP strategy? To what extent do you help provide an IP strategy for your clients?

Intellectual property has become widely perceived as an important economic asset, the value of which can be enhanced by a proactive strategy. Intellectual property in the forms of patents, trademarks, copyrighted works, industrial designs, trade secrets, geographical indications, like other types of property, can be developed, owned, managed and commercialised to generate an economic return.

Both the government and companies are realising the importance of an IP strategy for enterprises. SIPO, the Standardisation Administration and AQSIQ jointly issued the first Guidelines on Enterprise Intellectual Property Management (企業知識產權管理規範) in form of national standards, which came into force on March 1 2013. These Guidelines will set up guidance for Chinese enterprises to design IP strategy and IP management rules. To help businesses do this, we have established a unique IP Strategy Evaluation System that helps companies to efficiently develop and IP strategy and IP management system.

4. What were some of the biggest and most legally challenging IP cases you were involved with this year?

We have successfully handled a large number of patent, trademark, copyright, trade secret and unfair competition cases – some of them setting Chinese legal precedents.

In the last year, we defended our client MSN in a series of online copyright cases, which are related to copyright infringement of movies on the internet and are controversial due to the new technologies involved and we represented Bayer in an internet defamation case. E-commerce is becoming the import business method for telecom carriers and we advised China Telecom on its e-commerce procedure, contract, and policies. This advice was designed to avoid any legal dispute and ensure the validity and effectiveness of the e-contract.

5. What is your outlook for IP legislation over the next 12 months? What legislation is likely to come out or be issued and how will this affect the market?

The revised Trademark Law is expected to come out in the near future. The revised version of the Trademark Law attempts to address the practical issues in relation to trademark application, trademark administration, protection and enforcement. The trademark law contains three key improvements. First, the procedure for trademark application is facilitated. Secondly, registration in bad faith or free riding is strictly prohibited. Thirdly, more severe punishment is adopted to crack down on trademark infringement. In my opinion, the new Trademark Law is conducive to protecting trademark rights and is more effective in stopping trademark counterfeiting.

6. How can companies effectively deal with trademark squatting?

When combating trademark squatting, confusion is a consideration of enforcement officials. The core of China's Trademark Laws aims to protect against the likelihood of confusion among the relevant sector of the public as to the origin of a product, or as to a certain relationship (for example, an affiliation, connection, association, sponsorship, approval or licence) between different businesses or entities. Establishing confusion is the first step for the company. And, if one company can prove it enjoys prior civil rights including copyright or trade name over the trademark, it shall have an advantage when it attempts to recapture the trademark.

7. If you could offer one piece of practical advice to foreign clients about IP in China – what would it be?

The Internet Corporation for Assigned Names and Numbers (ICANN), launched its New gTLD (generic top level domain) programme on January 12 2012 to enable organisations and individuals to apply to operate their own top level domain name, i.e. the part of an internet address that comes after the dot – for example .com. The response has been enormous, with 1,194 applicants from 60 countries and regions having filed 1,930 applications in various string languages, including English and Chinese. ICANN is expected to issue approval of the first batch of the new gTLDs in August 2013, and fierce competition is likely to arise for the right to register second-level domain names. In anticipation of problems related to cybersquatting and conflicts between or among parties interested in registering the same name as a second-level domain, ICANN has developed a set of rights protection mechanisms (RPMs) for the new gTLDs, including the Trademark Clearinghouse, or TMCH, which enables trademark owners to register their marks and thus qualify for two related RPMs: a so-called “sunrise” registration period and issuance of Trademark Claims notices. During the sunrise period, which is at least the 30-day period before the relevant gTLD is opened to the public, a trademark owner may register a domain name that matches its mark. In addition, if a third party applies to register a domain name that matches the registered mark at least during the 90-day period after the relevant gTLD is opened to the public, ICANN will forward Trademark Claims notices to trademark owners that have registered their marks with the TMCH. Companies should consider these protection mechanisms during this era of information technology.

Author biography

Chen Jihong

Chen Jihong is a partner of Zhong Lun Law Firm. His practice includes IP enforcement and dispute resolution, IP licensing, IP portfolio management, IP due diligence, patent/trademark prosecution, IT/High-tech related legal matters, domain name dispute resolution and TMT matters.

Chen Jihong is now the co-Chair and Secretary General of IT/High-Tech Committee of the All China Lawyers Association, Chairman of the Telecoms Law Committee under Beijing Lawyers Association and IPR Expert to China's National IPR Strategy Office.

Chen has published dozens of professional IP articles and books in Chinese and international journals and newspapers. He is an active IP practitioner and has regularly given lectures in international conferences.

In 2005, he was nominated one of the 10 Best IP/IT Practitioners in China by China Daily newspaper and China e-Commerce Association. In 2011, he was selected as one of the 50 Best Chinese Lawyers by Corporate INTL Magazine. In 2012, Chen was elected one of the National IP Specialists by SIPO, which included only six lawyers nationwide. In 2013, Chen was elected one of the Ten Best IP Lawyers by Beijing Lawyers Association.