China's Intellectual Property Rights: Issues and Strategies

Introduction and Definition of Intellectual Property Rights

Intellectual property (IP) is simply a claim placed on a valuable yet intangible creation. Normally, the standards set for all intellectual properties are established by individuals with high intellectual capability, such as inventors. Every individual has the right to protect a valuable creation, and Intellectual Property Rights (IPR) have become an established global standard through which this right of protection can be exercised. IPR also offers individuals the chance to manage and expand their IP based on their status as the "rights owner" of any IP.

The next question concerns what kinds of creations qualify as part of an individual's IP. All creations that are believed to be completely new inventions — or extensions of a creation that are innovative — plus any aspect of a creation that is believed to further the process of development, are considered IP. The categories of IP also differ based on the field or domain in which an individual chooses to create something. For instance, a new creation in the field of art or literature will be protected by the IPR known as copyright. Similarly, in the field of technology, a new creation will be granted the IPR of a patent that protects both the creator's rights and the rights to what was created. The IPR known as a trademark is usually assigned for the protection of a signature or logo that distinguishes a product, service, or business from others in the industry. Design rights, as highlighted in the IPR framework, are structured for the protection of the appearance, shape, colour, and structure of a product. All these categories provide the same set of rights, based on the criterion that anything created in these fields is not generic but unique, novel, and not previously owned by someone else. All creations must also, in one way or another, be designed for progression or as a representation of progression.

All rights — with the exception of copyrights, which are automatically registered — must be formally registered and approved by the government. All rights follow a specified application structure based on the domain or department to which the right belongs. This registration ensures that the rights to a creation are one's own and will not be exploited by anyone else. One important point to note is that projects an individual completes for a company, or while employed at a company, will constitute the copyrights of the company rather than the individual.

This paper focuses on the Intellectual Property Rights exercised in China. It begins with a discussion of the history and evolution of IPR in China, followed by the current issues that hamper IPR exercise or demand better implementation. The majority of the paper addresses strategic considerations that may be important to implement in the short and long run in order to improve IPR practice in the region, followed by some of the problem-solving techniques already in place. The paper ends with a summarized overview.

History and Evolution of IPR in China

Intellectual property rights first surfaced and penetrated into the People's Republic of China over three decades ago when the Chinese economy first took shape and found a structure in global society. This was the primary reason why many foreign states and governments took an interest in the Chinese economy and worked towards standardizing and implementing IP protection policies within the region at the beginning of the twenty-first century. It must be noted, however, that despite the prominent progression of IPR in China, it has had its fair share of ups, downs, and hurdles — primarily due to its rigid and established social structure. China's social structure, political administrations, economic structures, and historical stances have not always been open to change or to the idea of intellectual property, largely because of the drastic transformations that led to antagonistic environments. Despite these difficulties, IPR in China cannot be sidelined, as it is an integral part of the economic boom the country has experienced over the past three to four decades. Furthermore, if and when China strengthens its IPR, foreign investors would have increased interest in the economy, simultaneously increasing the country's growth rate.

The two primary forms of government structure that dominated ancient Chinese political philosophy are Legalism and Confucianism. The primary foundation of Chinese Legalist philosophy is that it is based on standardized principles, rules, laws, and codes implemented from the government level. Chinese Confucian philosophy, on the other hand, revolves around the rules of human norms and social structures. The one aspect that has been most dominant in Chinese societies is the preference for fulfilling all societal obligations in harmony with personal ones — with the former always taking precedence over the latter. History has shown the Chinese abandoning personal interests to fulfil social and political obligations. This is where IPR emerges as one of the most important phenomena.

When examining the importance of IPR, the state and government of China have played a pivotal role in its development over the years. The very first record of the use of trademarks dates back to 2698 BC when the earliest form of pottery surfaced in the region. Official records of trademarks were also present during the Han Dynasty (206 BC to AD 220), primarily used to offer customers a form of protection on their purchases and investments. The first form of copyright was also found in this era, when the writing and copying of certain texts was restricted by the state — partly to manage the impact and perceptions of literate individuals, but also to protect the authenticity and precision of the writings. Even though these earlier standards do not accurately depict what IPR stands for today, they provide good evidence of the recognition of intellectual rights. The difference was that most of the value for these rights was placed on society rather than on the individual. Copying and sharing of all literary and technological works was also disallowed by the state. There is little to no record of protection of inventors' rights, however, and throughout the 1800s patent laws were designed only to protect Chinese traders. It was only for a brief period during 1923–28 that Americans were also granted patents. The rule of the Guomindang party from 1928 saw the establishment of new copyright, patent, and trademark rights restricted solely to locals.

During the era of disorder that the world knew as World War II, China was heavily influenced by various Japanese occupations and elevated tensions between the Nationalist Chinese government and the Chinese Communists. In this era, under the reign of Mao Zedong, the Communists — who eventually drove out the Nationalists — abolished the established IPRs of the time and implemented the Provisional Regulations on the Protection of Invention Rights and Patent Right of 1950. Here, the rights of inventors were recognized in the form of official certificates and financial reimbursement. The use and copying of inventions and writings was still controlled by the government, however. Foreign investors and traders could also be granted patent protection in this period based on assessment decisions made by the Commission of Finance and Economics, though this did not result in more than a dozen patents being granted to foreigners during that era.

The darkest and slowest period of IPR growth in China was observed during the Great Leap Forward in 1958, as well as the Cultural Revolution of 1966–67. All previously established IPRs were completely abolished, and prior patent regulations were replaced by the "Regulations to Encourage Inventions" and the "Regulations to Encourage Improvements in Technology," under both of which the state owned the rights to all inventions. The Cultural Revolution was perhaps the biggest setback for intellectuals in China. The 1963 IPR laws were abolished, and scientists, inventors, lawyers, and members of the judiciary were condemned for not following Communist ideals. The Cultural Revolution ended with the arrest and destruction of the influence of the "Gang of Four" in 1976. From that point onwards — especially since 1978 — the Chinese were able to implement drastic reforms in their economic laws, IPR laws, and foreign relations under Deng Xiaoping. China soon began to participate in IPR ventures with international organizations, leading to three decades of complete revolutionizing of the IPRs implemented in the region from both legal and social perspectives (Gulbransen). These last three decades form the background upon which the discussion of current issues is based.

Current Issues in China's IPR Enforcement

Stopping Abuse and Attaining Redress

There have been growing incidents in recent years of foreign investors claiming that many local Chinese companies have deliberately registered similar trademarks and other IPRs in order to bargain for profitable transfer costs. The most troubling claim by these locals has been that the original product or service infringes or breaches a prior-registered IPR — a tactic that has also proven effective for blocking foreign investment in the industry. The problem for foreign entities thus becomes that they are ultimately engaged in costly and prolonged registration and cancellation activities. For all foreign entities, the current recommended course of action is to formally register and protect an IPR with China before initiating new brands or services in the region. One of the most popular protection mechanisms for foreign investors is the use of licence agreements that specify the consequences when a case of cessation arises. These agreements are typically designed under foreign law with definite considerations for some obligatory prerequisites of Chinese law, such as appropriate cross-border royalty payments. Another measure adopted by the Chinese state to stop abuse has been to send warning notices to local infringers, though these are not foolproof, as possible retaliatory raid activities may follow.

The Involvement of Appropriate IPR Authorities

Counterfeiting is one of the infringements that quite a few private and state-owned authorities in China are designed to combat. This encompassing input from the private sector, the judicial sector, and the state has grown to be a trait of all IPR rulings in China — an encouraging contrast to the region's historical treatment of IPR. Some of the state-owned or government-supported authorities operating in China include the following:

Public Security Bureau (PSB): criminal enforcement
General Administration of Customs: cross-border protection
National Copyright Administration (NCA): copyrights
State Intellectual Property Office (SIPO): patents
State Food & Drug Administration (SFDA): pharmaceuticals
State Administration for Industry and Commerce (SAIC): trademarks, anti-unfair competition, anti-counterfeiting
Ministry of Information Industry (MII): layout designs of integrated circuits
Ministry of Agriculture and State Administration of Forestry: plant varieties
Ministry of Commerce (MofCom): a useful source of IPR advice and guidance on which other authorities to contact
Administration for Quality Supervision Inspection & Quarantine (AQSIQ): product quality and anti-counterfeiting

The majority of managerial enforcement is typically handled by designated national organizations that are either directly listed with the government or affiliated with one of the central authorities listed above.

Courts

"The significant legislative reforms after China's accession to the WTO have brought increasing powers to China's courts. The Supreme People's Court has also issued detailed opinions designating specialised IPR courts and their competencies. The courts are expressly permitted to order interim injunctions and preservation measures against counterfeiters, which can be obtained in the absence of the counterfeiter" (Moynihan et al., 2004).

The courts are a good option for most foreign investors, as the results attained are definite and long-term. In practice, however, most foreigners still choose to work with executive or state-owned establishments, such as those listed above, because procedures there are far quicker and more cost-effective than court proceedings. Court involvement is most commonly found in cases involving patent infringements, where legally guaranteed reimbursement is required from infringers — something the state can compel. Usually the executive establishments rule in favour of short-term fines, which do not significantly dent the infringer financially and leave them still capable of further infringements. Furthermore, executive establishments publicly identify infringers at the state level, tarnishing whatever credibility and reputation they previously enjoyed.

Executive Establishments

Executive establishments are a necessary and popular avenue for foreigners to attain IPR protection in China. Moynihan and colleagues (2004) assert that "the burden of collecting evidence prior to a successful raid application is usually with the IPR owner. The authorities often lack the manpower to carry out investigations on their own initiative. If sufficient evidence is available and the authority cooperates, a raid action can be planned and carried out in days or sometimes within hours. One of the key issues is the sufficient prior preparation of evidence (including carrying out relevant investigations of the target entities). The protection of IPR at trade fairs, such as the biannual Canton Fair, requires prior coordination with the relevant authorities and the establishment of contacts. Such contacts, or 'guanxi', are a pre-requisite for raising official awareness and permitting speedy action once an infringing product is discovered during a trade fair. It may sometimes be necessary for evidence to be collected by or in the presence of a Chinese notary, which must also be arranged beforehand."

The different executive and administrative authorities present in China all function for specific IPR policies and related factors. This allows foreigners to have options if working with one agency does not go in their favour — they can take a different approach and work with another agency or authority. There are also times when a chosen authority will not provide IPR protection due to heightened local protectionism in the area, in which case the array of choices becomes especially valuable. Furthermore, some agencies will be more appropriate to handle certain cases that require peripheral laws — for instance, when a patent case showcases evident quality deficiencies in the counterfeits, consumer protection laws can also be incorporated. The variety of authorities available must not deter foreigners from choosing the right form of protection: while having choices is appreciated, the right form of IPR protection must be identified before choosing an authority in order to obtain the optimum result. For example, when fighting for rights in software, it may be more suitable for a company to pursue copyright infringement rather than a trademark right. All IP owners must be not only vigilant but also creative.

Another issue with many executive establishments is that significant political coordination may be involved — some agencies may coordinate on cases and some may not. Hence, a foreigner choosing to work with an executive establishment must also ensure that the chosen establishment is on good terms with all relevant authorities needed to resolve the case. It must also be noted that infringement mechanisms and counterfeit products are not destroyed after a case is closed, so authority over them must also be obtained.

Data and Evidence Collection

Any legal action taken in a booming economy like China must first be corroborated and proven viable. This can be done through the collection of all relevant data, a history of the specific IPR protection sector, relevant proof of success or failure, and the costs and risks involved in undertaking a specific IPR protection venture. This is especially necessary today, when counterfeiters are more advanced and the advent of technology allows them to create more sophisticated copies. One important point is that in China, most counterfeiters are no longer using the same image as the original manufacturer; tracing these counterfeiters is therefore critical, and the most likely IPR protection sought would be copyright protection. Furthermore, copyright infringement complemented with a "concerted action against as many parts of the manufacturing and distribution chain as possible will lead to long-term success" (Moynihan et al., 2004).

The Local Authorities' Prerequisite Involvement

Another current issue that many foreigners must be prepared for is that many IPR protection cases require the engagement of established local legal counsel, in the form of an agency or a lawyer. This is mostly a legal requirement, and most foreigners do not necessarily disagree with this aspect, since hiring local counsel can provide the necessary insight to resolve the IPR case without complications. Local counsel can serve as a buffer between the foreigner and other local agencies, resulting in an easier and clearer flow of communication and eliminating the issue of language barriers. The key issue is therefore primarily hiring the "right" or "appropriate" local counsel. Meeting with these agencies beforehand and understanding their services, costs, and understanding of your requirements will ensure a strong outcome for future ventures in the region.

Criminal Enforcement

Criminal prosecution is one of the most integral mechanisms for combating counterfeit practices. It deters counterfeiters from engaging in infringements if the state takes strong action with regard to penalties. The biggest issue with current criminal prosecution tactics is that there is no clear definition or explanation of how the value of counterfeited products that are traded will be assessed. This assessment is necessary so that standards and product quality can be determined in order to justify the legal rights and claims. Furthermore, when the value of counterfeited products is not assessed, accurate reimbursements cannot be made, and no record of the counterfeit products exists to provide as evidence in legal proceedings.

Conclusion

In this paper, the main focus was on the Intellectual Property Rights that were — in the past dynasties — and are currently exercised in the People's Republic of China. The paper first discussed the history and evolution of IPR in China, highlighting that IPR was welcomed in the rigid culture of China perhaps far more openly than in many other countries of that era. A number of researchers have highlighted how China had been ahead of many countries in nationally recognizing the rights of IP owners. However, rigid and controlling administrative policies restricted the widespread penetration of IPR protection in the region.

The bulk of the paper focused on the current issues that hamper the exercise or demand better implementation of IPR in China. China has proven to be a very difficult societal structure to break through for foreigners, because there are many hidden barriers and hurdles that must be crossed in order to find IPR protection in the region. The biggest issues when filing for IPR protection in China are the complex penetration of counterfeiters, the high level of corruption, and the intricate language barriers. A good portion of the paper also dealt with strategic considerations that may be important to implement in the short and long run in order to improve IPR practice in the region, followed by some of the problem-solving techniques already in place.

In these two sections, the focus is primarily on the recommendations one should assess before expanding business into China. The most effective strategy and problem-solving technique is the creation of intricate and diverse local networks, as this will allow foreigners to gain necessary and regular insight into the cultural and market trends of China, as well as help them overcome any complications that may arise due to the difficulty of language comprehension. Foreign businesses that invest in understanding China's intellectual property law framework before entering the market are far better positioned to protect their innovations and sustain profitable, long-term operations in the region.

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