Is China Winning the Battle Against IP Violations?

Broadly, complaints over protecting IP rights of foreign firms have centered on four issues: effective action under the law is stymied by local judicial protectionism; there are challenges in obtaining evidence; insufficient damages are awarded; and there is a bias against foreign firms.

Over the past decade, however, China has taken significant practical steps to build a more effective IP protection regime. This has been driven as much by the country's objective to become a global leader in technological innovation as to encourage foreign investment. Chinese companies are now pushing just as hard for improvements in IP protection as their foreign counterparts.

To combat local judicial protectionism, the Supreme People's Court set up its Intellectual Property Division to oversee national cases in October 1995. Beijing, Shanghai and Guangzhou set up their own intellectual property courts, followed by Nanjing, Suzhou, Chengdu and Wuhan introducing specialized intellectual property tribunals. Last year, a new IP tribunal was set up at the Supreme Court level to handle appeals relating to civil and administrative IP issues such as trademarks, patents, trade secrets and unfair competition.

These specialized courts and tribunals are increasingly removing cases from local jurisdictions, and are also helping judges and technical investigators develop their expertise to better appraise the complex nature of cases.

Another problem often cited is that in Chinese law no formal process of discovery exists, so IP infringers cannot be compelled to release documentary evidence that would show infringement, making it difficult for plaintiffs to provide sufficient evidence to support their arguments. According to a research by William Weightman, a 2017-18 Fulbright Fellow who studied China's IP law, enforcement and technology policy, matters improved in 2015 when the Supreme People's Court promulgated a new interpretation of the Civil Procedure Law.

Article 112 of the interpretation, allows one party to request that the court order the opposing party to produce specific documentary evidence that is under the other party's control, and, significantly, to “encourage requests for the production of accounts, records, and books, as the judges were having difficulty with properly assessing damages.”

Furthermore, there has been a trend in recent years to award substantially more damages. In 2016, the Beijing IP Court found in favor of plaintiff Watchdata System Co., Ltd. and ordered defendant Hengbao Co. Ltd. to pay Rmb49 million in damages for a patent infringement and Rmb1 million in legal fees, a total of $7.2 million. Average damages awarded for patent infringement by the Beijing IP Court tripled from Rmb450,000, or $70,000, in 2015 to Rmb1.4 million in 2016, according to Weightman. Trademark infringement cases now result in average damages of about Rmb1.7 million, and copyright cases get awards that average Rmb458,000.

Moreover, foreign companies fare just as well in enforcing IP rights as privately-owned Chinese companies, according to Weightman. A separate 2016 study by researchers at Santa Clara University and University of Nottingham found that between 2006 and 2011, foreign companies brought over 10 percent of patent infringement cases in China and won over 70 percent of those cases.

In a speech at the recent Two Sessions, Supreme Court Chief Justice Zhou Qiang said IP-related cases have been exploding over the past two years, with more than 40 percent year-on-year growth for two years in a row. In 2017, Chinese courts handled 213,480 such cases; in 2018 that had risen to 288,000. Last year, 15,000 civil and commercial IP first instance cases involved foreign parties.

There are also plans to add 19 additional IP courts, said Zhou. More IP courts will contribute to the consistency of judicial decisions, according to a report by the South China Morning Post. The increase in the number of cases also indicates greater awareness of protecting intellectual property rights.