Welcome to the intellectual property blog by CHINABRAND CONSULTING. Follow us for the latest news in the area of intellectual property and other economical relevant topics in regard to China. CHINABRAND CONSULTING is a Master Service Provider specialized in intellectual property, holistic premium-quality market and competitor analysis, and advanced business development.
Tailwind for China’s entrepreneurs: The Supreme People’s Court has released a document that protects the property rights of entrepreneurs and strengthens their autonomy concerning management issues. The Circular on Creating a Favorable Legal Landscape to Facilitate Innovation and the Start-Up of Entrepreneurs by Leveraging the Adjudicatory Function of the Court also includes the protection of IP and raises awareness among entrepreneurs about legal issues.
The protection of intellectual property facilitates the provision of evidence in IP litigation and increases its efficiency. The so-called Three-in-One system intends to deal with all three types of IP cases, i.e. civil, administrative and criminal, by a single division of the same court at all levels: the first instance and the appeal. The protection of trade secrets will be extended, with more emphasis on employee rights.
In the case of damages, a mechanism for the judicial determination of reasonable payments will be established and the possibilities of punitive damages by counterfeiters are weighed. On the bottom line, compensation for IP infringement cases shall be increased. The determination of the amounts should be based primarily on the market value of intellectual property. This should compensate the right holder, penalize the counterfeiter and make counterfeiting more expensive in general.
The aim of the Supreme People’s Court is to reduce the gap between the low costs of counterfeiters and the high expenditure of the original manufacturers for the enforcement of their rights. A successful strategy, as our project experience has shown so far. The compensation payments that can be obtained in China have been rising significantly for some time.
Picture: Supreme People’s Court of the People’s Republic of China
Not only the fashion industry experiences a trend of differentiated counterfeiting business. On the one hand, there is a tendency of “fast-fakes”. Counterfeiting cycles are getting shorter and forgers are quickly dumping simple and recognizable copies of low quality seasonal goods on the market. The response of original manufacturers is not very challenging in such a case: most brands limit their measures to the deletion of the counterfeiters’ online offers, because the legal prosecution is too slow. But with the start of the next season, counterfeiters’ business will flourish again.
On the other hand, we observe the growth of what counterfeiters themselves call “super fakes”, “triple-A fakes”, or as in the example in picture, “AAAA+ top high quality replica”. Those are almost unrecognizable as fakes, and often enter the original supply chain and are even sold in the flagship stores of famous luxury brands. Counterfeiters deliver the fake products with correct serial numbers, accurate manuals, original software (hacked, stolen or acquired through social engineering), and ingenious packaging.
Original manufacturers in industries plagued by counterfeiting answer with even more technical protection measures. Latest example: the scientists at the University of Copenhagen have invented a new marking system based on patterns of sand. The system makes use of three rare earth lanthanides, each of which glows under a different wavelength of light: europium, terbium and dysprosium. As it is based on randomness of the pattern, it is impossible to be manipulated. Furthermore, the number of anti-counterfeiting applications using the blockchain technology is growing.
The question is whether the enormous effort required for such protection technologies is still worthwhile. Super-counterfeiters can only be stopped by a holistic approach with investigations, evidence and legal actions with the claim of damages.
Once regarded as the unbeloved child of IP protection, design is now experiencing a coming of age. While patents and trademarks used to be the essential way of IP protection, the number of global registrations has skyrocketed over the past few years, since companies have become aware of the benefits of designs in their own IP portfolio – benefits that patents and trademarks cannot offer. Companies that seek to sustainably protect their innovations and products need to consider a wider scope of protection.
The increase in design applications can be best explained with the globalization of markets, shortened product life cycles and the role of e-Commerce. Being a cheaper and faster (6-9 months of registration period) alternative to patents and trademarks, designs offer both cost advantages and increased flexibility – a decisive aspect especially for SMEs. When it comes to the fight against counterfeiting, designs can turn out to be of great value. For instance, the practices of counterfeiters have reached a new high and become so sophisticated that forgers export their counterfeits and logos separately to then re-join them after arrival to avoid trademark infringements. With a design registration at hand, original manufactures can outsmart counterfeiters and take legal actions against design infringement.
China plays a leading role in filing designs, at home and abroad. Chinese companies have started to acknowledge the benefits of designs as part of the IP portfolio, resulting in a wave of filings at the Chinese Patent Office (SIPO). Non-Chinese companies, with or without having entered the Chinese market, need to register the designs of their products in China because such protection rights will be a helpful weapon when fighting counterfeiters. For example, if counterfeiters on online shopping platforms such as Alibaba, Taobao and Co. deliberately present fake goods without the respective trademark, the original manufacturers can still defend their intellectual property right if they have registered the design for their products. However, when filing designs in China, Western manufacturers will be confronted with major differences in the filing process. Contact CHINABRAND CONSULTING on how you can protect your IP in China.
Design application by Huawei Technologies Co., LTD; Source: WIPO
This February, the First Global Cross-Border E-Commerce Conference was held in Beijing, organized by the World Customs Organization (WCO) and the General Administration of China Customs. Beijing was an obvious choice of location given the fact that 40 percent of global e-commerce is carried on in China – not to mention the country’s leading position in electronic payment systems.
Alibaba founder and CEO Jack Ma sees the future of the global economic development in cross-border e-commerce: “Made in China” or “Made in the USA” shall be replaced by “Made in the Internet” – and B2C should become C2B, Consumer to Business.
Alibaba is already implementing powerful tools in order to realize this vision. The Digital Free Trade Zone between China and Malaysia is already functioning – the first one outside of Chinese borders. The e-World Trade Platform is aimed to become the global trade basis along the New Silk Road. Further administrative and technical developments such as speeding up the processes of packaging or customs control, or deliveries by drones, are expected to further promote the cross-border e-commerce.
Although the concept of barrier-free global trade is innovative and provides a lot of opportunities for SMEs worldwide, it also raises concerns about anti-counterfeiting and IP rights protection. The growth of e-commerce especially in those countries along the Belt-and-Road-Initiative that have a weak legal framework for the protection of IP rights is likely to further aggregate the problems of global counterfeiting.
Western businesses have to monitor the developments of cross-border e-commerce closely in order to benefit from growing global trade, while ensuring gapless protection and successful enforcement of their own IP rights.
Not only do Chinese companies register property rights for their intellectual property on a massive scale, but also have their measures of enforcement become more aggressive. The majority of cases brought to Chinese IP courts do not involve, as one might assume, Western companies that defend their IP rights against Chinese forgers, but litigations between Chinese companies. Furthermore, the number of Chinese companies suing Western competitors for IP right infringements is growing.
Two current cases: The Chinese clothing brand KON sued Apple for infringing upon the copyright of their logo in China, while Hangzhou Chic Intelligent sued the US company Razor for patent infringement – in the U.S.
In the wake of China’s Go Global strategy, a growing number of Chinese businesses are registering its trademarks and patents in Europe and the US. Within the past few years, Chinese brands have joined the higher ranks of the Brand Finance Global 500, the global ranking of the most valuable brands.
Brussels plans a watch list for marketplaces outside the EU that continuously offer platforms for the infringement on intellectual property, counterfeiting, or any forms of trademark and product piracy. This watch list is part of the Commission’s complex strategy for the IP enforcement, announced in 2017.
The focus will lie primarily on online platforms and marketplaces. The commission also plans to monitor the anti-counterfeiting actions of the responsible local authorities.
Brussels will not directly take action to enforce the IP rights of European brands on the foreign marketplaces. The function of the watch list is rather to educate consumers and raise awareness on the problem of counterfeiting and piracy. Furthermore, the list is supposed to encourage the operators of these marketplaces to take action against continuous counterfeiting.
Currently, the initiative is open for public commenting, which can be submitted online until the end of March, 2018. Even though raising the awareness on the damage that counterfeiting and piracy cause to the European innovative strength, economy, employment, and consumers is important, IP right owners cannot expect any immediate effect from this initiative.
It is still first of all the responsibility of brand owners to enforce their IP rights worldwide. In order to sustainably fight counterfeiting and piracy, the sole monitoring of online marketplaces is not enough. The factories where counterfeit goods are actually produced have to be identified, supply chains have to be made transparent –counterfeiting can only be combatted successfully by fighting on the ground. The final goal is always to “close down the factory”.
In the wake of its multi-billion Belt and Road Initiative, China will set up three international courts to settle disputes among those companies participating in the project. International courts will be located in Beijing, Shenzhen and Xi’an, established by the Chinese Supreme People’s Court. China’s current judiciary, arbitration, and mediation agencies shall provide the basis for a dispute settlement mechanism.
The Chinese government claims the aim of the new Courts to protect both Chinese and foreign parties’ legal rights and interests. China directly and openly challenges the status quo by arguing that many countries along the New Silk Road do not adapt well to the current way of dispute settlement, which is often based on US and European common law and in English language.
Although China already has a trade dispute body, the China International Economic and Trade Arbitration Commission (CIETAC), the organization is not always considered to be transparent and had issues related to political influence. Designed to challenge currently accepted international arbitration rules, the set-up of these new courts once more highlights the role of the Belt and Road Initiative as a political tool. Although the project is claimed to be an economic initiative, it is obvious that China’s geopolitical benefits will always be prioritized in an attempt to strengthen its global influence.
Export-oriented businesses should closely monitor the current development of Chinese projects and companies related to the initiative in order to adequately respond to the challenge. You can find further information on our services on innovation and competition protection under https://www.chinabrand.de/en/.
China’s NITSSTC (National Information Security Standardization Technical Committee) published new standards on Cybersecurity Law as draft for the solicitation of public opinion.
The new standards cover some topics that many international companies with operations in China were wrestling with in the last couple of months. As the Cybersecurity Law contains a lot of vague expressions and not clearly defined wording, it was expected that more clarification will come in 2018 in form of multiple standards, guidelines, and directives.
Once enforced, these standards will provide guidance for the risk assessment specification for information security, types of special cybersecurity products, requirements for bodies providing audit and certification of information security management systems, as well as other issues. They are open for public commenting until March 5, 2018.
The requirements for compliance with China’s Cybersecurity Law will be further clarified due to these regulations and implementation of the law in the next months. However, many Western companies are still not sure to what extent they are affected by this new law and what measures they must have implemented by today.
We recommend conducting a cyber security impact analysis and developing necessary compliance measures to all companies with operations in China.
The European Commission is sounding out the potential of the blockchain technology in order to fight against infringements on intellectual property in supply chains.
The blockchain technology, e.g. through the application of smart contracts, gives better insights into supply chains. By monitoring supply chains via blockchain, every physical product can be clearly identified, its origin, transportation and deliveries can be exactly tracked. In the future, such transparent supply chains will be a huge support in fighting child labor, modern slavery, or product piracy and counterfeiting. The blockchain technology has already been called into action in today’s global markets: for example, by Walmart for the real time monitoring of its supply chains in China, or by some e-commerce platforms in their war on piracy.
In the area of intellectual property, the blockchain technology unfolds its potential first of all in IP registration and licensing through smart contracts. In the course of IP registration, the application of blockchain can disclose authors or inventors, owners, or users of the IP rights. Each transaction with a work registered through blockchain is evident and unchangeable, since blockchain cannot be corrupted or manipulated. Thus, forgery-proof evidence of intellectual authorship exists. Theoretically, everyone can also see the complete track of transactions including all previous owners, licenses, sub-licenses or transfers. Binded and Ascribe are examples of websites that use the blockchain technology this way, and thus, enable the authors to grant licenses and track the use of their works in the internet.
Blockchain is also used for securing the novelty of IP-related inventions. Novelty is a crucial factor when applying for a patent. If an invention is not novel, the patent cannot be registered. Since a record via blockchain cannot be manipulated, such publication ensures much more security and transparency than the traditional way of publishing inventions in scientific journals. A patent registration by a third party is then impossible, the original author or inventor can be evidently proven. In this way, IP protection is decentralized and less bureaucratic.
It is to be expected that governments and international IP organizations will explore various ways of application of this technology. For example, in 2015 China has already included it in its Thirteenth Five-Year National Informatization Plan – the blockchain technology is intended to be used for taxation and electronic invoicing.
Chinese brand and product piracy continues to increase. This is demonstrated not only by our project experience, but also by the new IP statistics issued by the Chinese State Intellectual Property Office (SIPO) and the State Administration for Industry and Commerce (SAIC) in the first half of 2017. According to the data, about 25,000 cases were investigated against counterfeiters between January and June, of which 22,000 were closed. Half were cases of trademark infringement and included goods valued at around EUR 16.5 million. Note: The number of investigations conducted in the first 6 months of 2017 is the same as the total number of counterfeiting cases in the previous year.
The Chinese government is now reacting with a much tighter policy. The Action Plan for the Protection of Intellectual Property Rights owned by Foreign-invested Enterprises was implemented in September 2017 for a four-month period. This regulation provides stricter sanctions for a number of violations and offenses. Intellectual property is becoming increasingly vital in China. The country is now paying EUR 12.5 billion for the use of foreign IP, and this expenditure has increased by 23% compared to the same period of last year.
Find out more about efficient and sustainable combatting of Chinese counterfeiting and piracy in our videos (in German language):