Evolution of intellectual property laws in China following WTO accession

¶ … accession to the World Trade Organization in 2001, China's laws regarding intellectual property rights were largely weak and ineffective, even though there were some laws on the books that were designed to protect these rights. Much of this ineffectiveness is attributed to the state-controlled economy that was in place that made observation and respect for domestic and international intellectual property rights dispensable. In its efforts to accede to the World Trade Organization and in response to pressure from the international community in general and the United States and European Union in particular, China has undertaken a number of significant reforms of its domestic and international regulatory framework that have been intended to harmonize its laws with those of the international community. While some observers continue to maintain that these efforts fall short of complete reform, most authorities agree that China has made significant strides in its efforts to make meaningful reforms to its intellectual property rights framework. This study examines China's intellectual property laws prior to and following its accession to the World Trade Organization in 2001, and important findings and a summary of the research are presented in the conclusion.

An Analysis of the Evolution of Intellectual Property Laws in China following Accession to the World Trade Organization

Introduction

The 21st century has been called the "Century of Asia," and most authorities agree that China will lead the way in terms of economic growth and political influence. China's economic performance in recent years appears to bear these predictions out, but a number of challenges remain that must be resolved if China is to completely achieve its economic development goals. Among these challenges is the need to ensure intellectual property rights are protected by the nation's legal system. Although a number of significant reforms have been implemented following China's accession to the World Trade Organization in 2001, infringements of intellectual property rights are still commonplace and these infringements continue to hamper foreign investment and domestic research and development efforts. To gain additional insights into what has been done and what remains to be done in this area, this study provides a review of the relevant peer-reviewed, scholarly as well as nongovernmental organizational literature concerning intellectual property rights in China and how these have changed since the nation's accession to the World Trade Organization. A summary of the research and important findings are presented in the conclusion.

Review and Discussion

Background and Overview

By most accounts, things are changing for the better in China, but many observers suggest the government still has a long way to go in harmonizing its intellectual property laws. Nevertheless, the main consensus that emerges from the research is reflected in Long's observation that, "The People's Republic of China has made considerable progress in developing a strong intellectual property rights regime since the early 1970s. The leadership of the Chinese Communist Party has publicly acknowledged the need to develop a "knowledge economy" based on a strong system of intellectual property rights" (2000, p. 11). The impressive economic development that has taken place in China in recent years is also well documented (Bhalla, 2008; Lo & Everett, 2001; Chang, 2004; Leppman, 2005; Li, 2003; Gamer, 2005). A great deal of this economic development has been fueled in large part by growing investments from the West, especially the United States and the European Union (Chua, 2006). Generally speaking, though, China remains in a state of transition from its previous state-controlled system of administration to one that embraces respect for the rule of law (Ghadar, 2006; Liao, 1999; Kennedy, 2000).

To facilitate the transition from state-controlled economy to one that is more characteristic of a Western-style free market version, the Chinese judicial system has undergone a series of reforms (An, 2009), but the process has been slow and foreign investors frequently turn to alternative dispute resolution procedures to resolve disputes concerning intellectual property rights as a result (Chua, 2006). Since the early 1990s, China has implemented a broad array of initiative to reform its judicial system as well as to increase the transparency of its judicial proceedings. According to Chua, "Many foreign investors bring valuable trademarks, designs, or business processes into China with the hope of applying the same in conjunction with a lower-cost business proposition. Nevertheless, the protection of intellectual property rights is an issue that remains to be resolved satisfactorily, particularly as infringements continue to be widespread" (2006, p. 134). Other authorities are more optimistic about China's efforts to reform its intellectual property laws, some even verging on the Panglossian in their glowing reports and descriptions concerning the significant steps that have been taken by the Chinese government in recent years, while others are more reserved in their assessments, and these issues are discussed further below.

Intellectual Property Laws in China Prior to 2001

During the 1980s, there was an initial move taking place in China that revised its former views about intellectual property as being social goods there were subject to state control to a limited acceptance that intellectual creations were the property of their creators in line with Western-based views (Economy & Oksenberg, 1999). This initial move was followed by more significant legal reforms that were largely focused on facilitating China's accession to the World Trade Organization. To this end, according to Ostry, Alexandroff and Gomez, in an effort to gain membership in the World Trade Organization, China implemented a number of initiatives concerning its intellectual property laws. These authorities report that, "A key element in China's accession to the WTO relates to the transparency of laws, regulations and other rules related to trade and investment" (Ostry et al., 2003, p. 131).

Among other laws passed during this period, the Chinese Administrative Litigation Law (ALL) of 1990 assigned power to the courts to review the legality of administrative acts such as the imposition of fines; the denial of business licenses; and the restriction of property rights; in addition, the ALL provisions allowed challenges against individual Chinese officials who were suspected of abusing their power to elicit bribes; however, other provisions of ALL did not permit rule-making, the setting of relevant standards or other administrative activities that would facilitate most procedural activities in the country (Ostry et al. 2003). Notwithstanding these limitations, other reforms followed by ALL initiative include a wide range of administrative statutes enacted during the 1990s (Ostry et al. 2003). Here again, though, this plethora of regulatory guidance was well-intentioned but did little to contribute to the transparency of the Chinese legal system (Ostry et al. 2003). According to these authorities, "While opening up an increasing number of channels for complaint, none of these statutes deals with the heart of the transparency conditions which are based on full information and a uniform administrative procedures regime grounded in the right of an individual to challenge a government official" (Ostry et al. 2003, p. 132).

By and large, though, the overwhelming majority of these efforts were directed at facilitating China's accession to the World Trade Organization, a step deemed essential by the Chinese leadership to furthering the country's economic development goals for the 21st century. In this regard, Alford describes the contentious nature of the fundamental constraints involved in protecting intellectual property rights in China during this period:

If the purpose of U.S. policy towards the Peoples Republic of China concerning intellectual property is to secure meaningful protection for American property interests, it is necessary, therefore, first to understand why such protection is no more readily available for the Chinese & #8230; [T]he most important factor in explaining the late appearance and relative insignificance of the idea of intellectual property in the Chinese world lies in what, for lack of a better term, we might describe as its political culture, and especially in the central importance of the state, for purposes of legitimation and power, of controlling the flow of ideas. A system of state determination of which ideas may or may not be disseminated is fundamentally incompatible with one of strong intellectual property rights in which individuals have the authority to determine how expressions of their ideas may be used and ready access to private legal remedies to vindicate such rights. (Alford, 1993, p. 97)

The winds of political change have swept through the Chinese leadership in recent years, though, and the Long March veterans have been increasingly being replaced with forward-thinking leaders who recognize that in order to join the international community in meaningful ways, China's legal system must protect intellectual property in ways that conform to international standards (Ostry et al. 2003). In this regard, Ostrey and his colleagues note that, "Of course, political cultures change and the process of economic reform in China has already affected the pace and direction of that change. So, of course, will full and effective integration into the global economy through membership in international institutions such as the WTO" (2003, p. 132).

Pursuant to these goals, beginning in 1993, China started establishing separate courts within the People's Court system to deal with intellectual property rights cases. Consequently, by the late 1990s, the Chinese government had established 20 intellectual property rights tribunals in intermediate and higher courts (Ostry et al., 2003). These efforts represented a fundamental sea change for the Chinese political leadership as well as the Chinese people themselves. In the years preceding the introduction of economic reforms, the majority of Chinese firms were unwilling to respect intellectual property rights based on the paucity of market competition that was a concomitant of a state-controlled, centralized economy that made the protection of intellectual property relatively unimportant.

Even in this environment, though, the Chinese did in fact have regulations in place concerning trademark and patent protections even if they were largely unheeded; however, following the introduction of widespread economic reforms and the internationalization of the Chinese economy during the late 1970s, the Chinese leadership was compelled to enact more substantive intellectual property laws and regulations (Ostry et al., 2003). For instance, according to Orts (2001), "The Chinese government has strongly embraced the perspective that economic markets require strong laws. As a result, a huge number of national statutes relating to commercial regulation have been adopted in the last few decades" (p. 43). Although it is reasonable to suggest that not all of these statutes have been equally effective in promoting the transparency and harmonization that is required to bring China's regulatory system in line with international standards, it is also reasonable to suggest that these efforts represent a step in the right direction to this end. Indeed, the pattern involved is clear for all to see. For instance, Orts adds that, "The legislature adopted contract laws governing domestic and foreign transactions in the early 1980s. Patent and Trademark Laws were also adopted. A Copyright Law, introduced in 1979, was finally passed in 1990. A Company Law to govern private, collective, and state enterprises was passed in the 1990s. The national legislature then revised the patent and other intellectual property laws, partly in response to diplomatic pressure from the United States" (2001, p. 43).

In sum, in its efforts to gain accession to the World Trade Organization and in response to international pressures, China has enacted its Trademark Law in 1982, Patent Law in 1984, and Copyright Law in 1990 (Ostry et al., 2003). Beyond its enactment of various domestic laws for intellectual property right protections, China also became a signatory to a number of international conventions and joined several international organizations that are designed to protect intellectual property or to establish standardized guidelines concerning intellectual property rights (Ostry et al. 2003). For instance, in 1980, China became a member of the World Intellectual Property Organization, signed on to the Paris Convention for the Protection of Industrial Property in 1985, and became a signatory to the Madrid Agreement on the Registration of International Trademarks in 1989 (Ostry et al., 2003). An interesting point made by Lampton (2001) concerning the atmosphere regarding intellectual property right laws in China pre-WTO accession was that, "The Chinese population has a limited understanding of the concept of intellectual property, and, as in other developing nations, such awareness takes considerable time to develop" (p. 122). This point is echoed by Massey (2006) who reports:

Chinese domestic companies must come to recognize that the enforcement of China's intellectual property right laws serves their interests as well as those of their foreign rivals. That recognition seems to be gradually emerging, as an increasing number of Chinese firms develop their own technologies and, thus, seek protection against piracy under China's intellectual property right laws or redress against infringers in Chinese courts. (p. 232).

In support of this assertion, Lampton relates an anecdotal account of the prevailing atmosphere in the domestic Chinese marketplace during this period: "In late February 1995 when China and the United States signed an intellectual property rights agreement concerning CD piracy, I went to a kiosk in the city of Harbin and asked whether a CD I wanted to purchase was pirated. Thinking my only concern was quality, the salesperson unabashedly replied, 'Yes! But, it is a high quality fake!'" (quoted in Lampton, 2001 at p. 122).

Prior to China's WTO accession, the U.S. government employed a "carrot-and-stick" approach to address the intellectual property rights problem in China by:

1. Providing Chinese officials a sense of urgency by threatening trade sanctions on a scale comparable to claimed losses; and,

2. Working cooperatively with the Chinese to further develop adequate legal and implementation structures.

This two-phased approach was not entirely effective in resolving the constraints that were in place prior to China's accession to the World Trade Organization, but it is apparent that these efforts contributed to the overall process in ways that avoided potentially more severe problems down the road. Indeed, in some ways, the dearth of intellectual property right protections that characterized the Chinese domestic market prior to China's WTO accession actually operated in ways that contributed to increasing demand for foreign-made products, especially those from the United States. In this regard, Lampton adds that:

It also is interesting to note that some American brand-name firms have concluded that the unauthorized use of their brand can have an upside -- it promotes their product in a country where consumers are not yet wealthy enough to buy the genuine article, thereby retarding the development of competing, indigenous Chinese brands. In a perverse way, piracy of U.S. products retards the development of vigorous Chinese competitors and brand names. (emphasis added) (2001, p. 122)

To its credit, China enacted a wide range of laws and regulations addressing the major issues involved on protecting intellectual property rights in the years leading up to its WTO accession, but the well entrenched mindset described above was not easily swept aside with the wave of a regulatory hand. By and large, the laws and regulations concerning intellectual property rights were not comprehensive and integrated, and continued to mirror the longstanding effects of a state-controlled economy (Lo & Tian 2005). Furthermore, despite having joined a number of international conventions concerning intellectual property rights, it remained noticeably absent from the most important ones. As a result, some aspects of China's intellectual property laws remained unaligned with relevant international standards in place at the time or enacted thereafter (Lo & Tian 2005).

The impetus for substantive change was provided by the top Chinese leaders during the early 1990s when Deng Xiaoping emphasized the importance of complying with international standards concerning intellectual property during his tour of the southern regions of the country. According to Lo and Tian, "During his tour, Deng Xiaoping visited a high-technology company. When the chairman of the board of directors talked about the annual production of foreign-film laser discs, Deng inquired how the copyrights were handled. The chairman answered that the company obtained licenses from foreign-film producers pursuant to international standards. Deng expressed satisfaction and said: 'It should be like that. [You] should observe relevant international regulations on intellectual property rights'" (quoted in Lo & Tian, 2005 at p. 203). The upshot of this visit and the ongoing efforts to accede to the World Trade Organization combined to compel the Chinese leadership at all levels to reevaluate their intellectual property laws as an essential step to joining the international community and realizing its economic development goals for the 21st century (Lo & Tian 2005).

As a result, China has unilaterally implemented a number of initiatives to achieve these goals through wide-ranging legislative enactments and reforms in an effort to satisfy the needs of a dynamic marketplace and to bring its domestic laws in harmony with relevant international standards beginning in 1992. For example, preparatory to acceding to the General Agreement on Tariffs and Trade (GATT) membership, China amended its Patent Law in 1992 to extend the duration of an invention patent to 20 years, revised its Trademark Law in 1993 to include service marks, and added to the Criminal Law one section on intellectual property crimes in 1997 (Lo & Tian 2005). The latter initiative was specifically designed to satisfy the requirements of article 61 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) (Lo & Tian, 2005). In addition, the Chinese government introduced judicial review as stipulated by the TRIPs Agreement by incorporating the relevant provisions of TRIPs provisions into the nation's intellectual property rights laws as well as introducing the judicial review process in its previously enacted Patent and Trademark Laws that had denied such reviews in the past (Cass et al., 2003).

Pursuant to TRIPS, intellectual property rights are defined as set forth in Table 1 below (a checklist of WTO-member developed enforcement issues pursuant to TRIPS is provided at Appendix A).

Table 1

Intellectual Property Rights as Defined by the Agreement on Trade-Related Aspects of Intellectual Property Rights

Category

Definition

General definition of intellectual property rights

Intellectual property rights are the rights given to persons over the creations of their minds. They usually give the creator an exclusive right over the use of his/her creation for a certain period of time. Intellectual property rights are customarily divided into two main areas: (a) copyright and (b) industrial property.

Copyright and rights related to copyright

The rights of authors of literary and artistic works (such as books and other writings, musical compositions, paintings, sculpture, computer programs and films) are protected by copyright, for a minimum period of 50 years after the death of the author. Also protected through copyright and related (sometimes referred to as "neighboring") rights are the rights of performers (e.g. actors, singers and musicians), producers of phonograms (sound recordings) and broadcasting organizations. The main social purpose of protection of copyright and related rights is to encourage and reward creative work.

Industrial property

Industrial property can usefully be divided into two main areas:

1. One area can be characterized as the protection of distinctive signs, in particular trademarks (which distinguish the goods or services of one undertaking from those of other undertakings) and geographical indications (which identify a good as originating in a place where a given characteristic of the good is essentially attributable to its geographical origin). The protection of such distinctive signs aims to stimulate and ensure fair competition and to protect consumers, by enabling them to make informed choices between various goods and services. The protection may last indefinitely, provided the sign in question continues to be distinctive.

2. Other types of industrial property are protected primarily to stimulate innovation, design and the creation of technology. In this category fall inventions (protected by patents), industrial designs and trade secrets.

The social purpose is to provide protection for the results of investment in the development of new technology, thus giving the incentive and means to finance research and development activities. A functioning intellectual property regime should also facilitate the transfer of technology in the form of foreign direct investment, joint ventures and licensing. The protection is usually given for a finite term (typically 20 years in the case of patents). While the basic social objectives of intellectual property protection are as outlined above, it should also be noted that the exclusive rights given are generally subject to a number of limitations and exceptions, aimed at fine-tuning the balance that has to be found between the legitimate interests of right holders and of users.

Source: 'What are intellectual property rights?' World Trade Organization (2011) at http://www. wto.org/english/tratop_e/trips_e/intel1_e.htm

In addition, and also preparatory to its accession to the World Trade Organization in 2001, China revised its Patent Law, Trademark Law, and Copyright Law further during 2000 and 2001. Moreover, China also enacted during this period:

1. A new series of Regulations on the Protection of Computer Software;

2. A new set of Measures on the Implementation of Administrative Punishment Regarding Copyright; and,

3. A new set of Regulations on the Protection of Intellectual Property by the Customs (Lo & Tian 2005).

Taken together, these efforts have been intended to harmonize a number of aspects of Chinese intellectual property law with current controlling international standards in anticipation of its accession to the WTO, but these efforts have not completely solved the problem of property rights infringements and the incidence of such infringements remain significant and the Chinese population in general and commercial sector still largely fail to recognize the importance of respecting domestic and international intellectual property rights laws and regulations (Lo & Tian, 2005). The steps and reforms taken since China's accession to the World Trade Organization in 2001 are discussed further below.

Intellectual Property Laws in China Post-World Trade Organization Accession

It has been a decade since China's accession to the World Trade Organization in 2001 and a number of significant reforms with respect to intellectual property rights law have also been implemented during this period (Chua, 2006). China' accession to the WTO, though, required negotiations that took nearly 15 years to complete. Although a wide range of reforms and agreements were required to successfully complete its accession to the WTO, Cass, Williams and Barker (2003) emphasize that, "In the case of intellectual property the move to positive regulation is more dramatic, since the negotiations covered not only standards for domestic laws but also detailed provisions for procedures to enforce individual (corporate) property rights" (p. 31).

The more recent reforms that have been undertaken by the Chinese government concerning intellectual property laws in China following its accession to the WTO have continued following the aforementioned promulgation of the new Patent, Trademark, and Copyright Laws in early 2000 (Chua, 2006). The implications of these reforms are enormous. For instance, Lo and Tian (2005) emphasize that, "In December 2001, China acceded to the World Trade Organization (WTO). This event is significant not only for the Chinese, but also for foreign investors who want to establish a presence in China. It is expected that China's entry into the WTO will result in trade liberalization, and, thus, increased investment opportunities for foreign investors" (p. 1).

To date, several judicial interpretations, regulations, and initiatives have been introduced in the intervening years since the country's accession to the WTO that have been designed to address intellectual property piracy, counterfeiting and infringement issues (Chua, 2006). I contrast to its pre-accession period, China is also currently a party, member or signature to several of the more important international conventions relating to intellectual property, including the following:

1. The Paris Convention for the Protection of Industrial Property;

2. The Madrid Agreement for the International Registration of Marks;

3. The Protocol Relating to the Madrid Agreement;

4. The Berne Convention for the Protection of Literary and Artistic Works;

5. The Universal Copyright Convention;

6. The Geneva Phonograms Convention;

7. The Patent Cooperation Treaty; and,

8. The Trademark Law Treaty (Chua, 2006).

A description of Chinese laws post-WTO accession with respect to trademarks, patents, and copyrights are set forth in Table 2 below.

Table 2

Post-World Trade Organization Accession Chinese Laws for Trademarks, Patents and Copyrights

IP Type

Description

Trademarks

The basic legal framework for the protection of trademarks in China is set out in the Trademark Law and its implementing regulations. Trademark registrations are valid for ten years and may be renewed for further ten-year periods. China has adopted a "first to file" trademark system: in the event of a conflict between competing applications for registration for similar or identical marks, the person who filed the first application will generally be entitled to register the mark. A registered mark may be cancelled on various grounds, including that the mark has not been used for three consecutive years, that registration was obtained through deceptive or improper means, or that the mark is non-distinctive.' For trademarks that have not been registered in China (because registration is not available), the Trademark Law also gives protection to well-known trademarks. A mark is not registrable if it is indistinctive or is descriptive of the products or services in an existing application, or if it is the same or confusingly similar to a prior trademark application or registration or a well-known trademark. A mark which contains the name, the national flag and emblem of a country is also not registrable.

The trademark owner's exclusive right to use the mark is infringed by anyone who uses the mark or a similar mark without the owner's permission on the same or similar goods or services for which the infringed mark is registered, who sells goods bearing an infringing mark, or who actually replaces the original trademark on a product with his or her own. Those who sell without knowledge of the infringement, who can prove that their goods were acquired legally, and also reveal the source of the infringing goods, may be exempted from liability to pay damages

Patents

The Patent Law and its implementing regulations govern the protection of inventions, utility models, and designs. An invention or utility model must be novel, inventive, and of practical applicability to be registrable as a patent. In this context, novelty means that no identical invention or utility model has been disclosed in China or anywhere in the world or publicly used or made known to the public in the country before the filing date. For registrability of designs, only the novelty requirement applies. China has a "first-to-file" rather than a "first-to-use" system of entidement to patent protection. The term of inventive patent protection lasts for a period of twenty years, whereas the protection period for utility model and design patents is ten years. The patentee must pay an annual fee beginning with the year in which the patent right was granted, failing which the patent right will cease before the expiration of its duration. Following the grant of a patent for an invention, generally, and except in the case of compulsory licensing, no one else may make, use, or sell the patented product, or use the patented process, or use or sell the product of that process, without the patentee's permission. Similarly, without the design patentee's authority no one may make or sell a product incorporating the patented design for production or business purposes. The patentee also has the right to prevent unauthorized imports of infringing products and to prohibit unauthorized offering for sale; however, a person who uses or sells a product without knowledge that the product is patented and who can prove that the product comes from a lawful source will not be liable for damages. Compulsory licenses will be granted only in situations such as national emergencies. To date, China has never granted a compulsory license.