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When it comes to the use of digital technology, China is clearly a pioneer and a global champion in today’s international court practice. Famous examples are the country‘s recently introduced cyber courts (link to article) and its new Cyber Security Law (link to article). However, it is still relatively unknown that China is also the first country to officially accept evidence that is saved in a blockchain.

This was first announced by a cyberspace court in Hangzhou in June and later on confirmed by the Supreme People’s Court (SPC) in September. Blockchain evidence has already been successfully used in China in several cases this year.

E-discovery – i.e. collection and use of digital evidence – is still viewed critically by many experts. One reason is that its authenticity is often hard to prove. Blockchain technology can be a solution to this problem. The state of Vermont (US) started accepting blockchain-based evidence as early as 2016 (however only on a state-level).

It was not surprising to see China allowing blockchain-based evidence (link to article). China’s cyberspace courts handle tons of Internet-related cases every day as the number of digital business models is growing fast. Most of the evidence being filed is digital. Thus, the SPC’s approval of blockchain evidence was urgently needed.

Western companies should welcome the chance to use blockchain evidence in China. It can be helpful for IPR-holders in many ways: from documenting cyberspace attacks to conducting online investigations. To benefit from blockchain evidence, companies should now acquire the necessary legal and technological know-how.

Source: The Supreme People’s Court (PR China), Picture: Xinhua News

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With a new regulation on the Cybersecurity Law enforcement, China enables the state police, Public Security Bureaus (PSB), to inspect companies in regard to their cybersecurity compliance. The regulation comes into force on November 1, 2018 and aims at Internet providers and “network using companies”. The definition of network using companies however is extremely vague and gives PSB strong power to gain insight into companies’ most sensitive data.

According to the “Regulation on the Cybersecurity Supervision and Inspection by Public Security Authorities” the PSB can scrutinize the duties imposed on companies in the Cybersecurity Law. Subjects of inspection are, for example, the appointment of a data protection officer, the implementation of appropriate technical measures for data protection or the existence of illegal trade in data. The inspection can be conducted in person or remotely (i.e. via the Internet).

During inspections, the PSB is allowed to enter a company’s buildings, conserve documents and also interview executives. Remote inspections need to be announced by the PSB in advance. However, the regulation does not say how long in advance. If a company refuses to cooperate, the PSB can impose penalties and fines.

The new regulation is another step towards more clarification of last year’s Cybersecurity Law. However, it does not introduce new obligations but only codifies the process of inspection. Because Chinese legislation now uses the term “network using entities” instead of the former “network operators” (Cybersecurity Law), it is expected that almost any company will fall under the regulation – and thus can be subject of inspections.

Once again, China finds a way to enlarge its access to data. Especially Western companies should be alarmed by the new regulation and prepare for possible inspections. We recommend companies with subsidiaries in China to prove and strengthen their compliance and cybersecurity measures.

External link to the full regulation (English)

Source: Ministry of Public Security (PRC), Picture: Intermediate People’s Court Huainan

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Referring to the article “Patentes Märchen” (“patent fairy tale”) in the WirtschaftsWoche magazine No. 42 of October 12, 2018:

It is common knowledge that complex issues can only be understood through differentiated analysis. This especially applies to the international patent system. To the German industry, it is well-known that China subsidies Chinese patent applications and thus is responsible for a mass-production of bad-quality patents. The strategy pursued by the Chinese is to occupy terrain – like in the Chinese game Weiqi. But it is careless to conclude that China is an “illusionary giant” and that all of this is a “patent fairy tale” without innovative strength.

Actually, practice shows another picture. Recent analysis of Chinese patents in Chinese language proves that Chinese companies meanwhile play a leading role in many areas. These are not only so called digital patents, i.e. process patents on algorithms, but also patents on railway technology, alternative powertrains or new materials. Meanwhile, there are high-quality invention patents by Chinese institutes and companies in each of the ten areas which “Made in China 2025” focuses on. These are not quoted in the West simply because they are not known here.

Dr. Hans Joachim Fuchs

Picture: CRRC via Weibo

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China’s Patent Office has issued a plan for using the ever growing volumes of available data and intelligent algorithms for IP protection. SIPO aims at building a centralized smart system for recognition of infringements till 2020.

The system is expected to support the persecution of piracy and counterfeiting by means of online fake identification, permanent internet monitoring and tracing the fake products to the source.

For this, SIPO will set up extensive databases such as a database for patent abstracts, for recognition of infringements, for information on IP transfers and licenses as well as a database with some key products of key manufacturers in selected industries that are copied most often.

The system will include separate modules for recognition and monitoring of infringements of not only invention patents, but also other IP rights such as trademarks, designs, or utility models.

This plan should enable the integration of online search and monitoring and offline persecution of IPR infringements for the authorities. It should also allow IP right holders to find and preserve the evidences online. Furthermore, China is planning to establish cooperation with foreign authorities and integrate their IP data in the system.

Picture: Solaripedia

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When a foreign company decides to register its trademark in China, it is not uncommon that the application is rejected by the authorities. The reason: a Chinese company or an individual has already registered the trademark before, with an objective to capitalize on it later. This tactic is known as trademark hijacking, when a Chinese applicant stocks up with multiple trademark registrations and later forces legitimate right owners to purchase the IP rights at a high price. The right owner would then mostly try to file an opposition against the trademark application rejection and at the same time a non-use-cancellation against the hostile trademark – often without success.

Now, China’s Trademark Review and Adjudication Board (TRAB) has signaled better protection possibilities against such bad-faith applications. In certain cases TRAB will give IP right owners more time to take action against blocking registrations by suspending the review of the rejected trademark and opposition. The condition is that filing of the non-use-cancellation pre-dates the application of the original trademark.

Hence, it is crucial for foreign brand owners to conduct a precise research for possible blocking registrations and to eliminate existing obstacles early on. At the same time, Chinese examiners often decide in favor of partial invalidations, when the colliding trademark is attacked only in part of products or product groups and not as the whole registration. This strategy is acceptable in cases where the own trademark is only blocked for some important product groups. In clear cases of infringement and piracy it is of course necessary to try to invalidate the whole trademark.

Picture: “Trump Toilets” – another example of trademark hijacking, Source: South China Morning Post

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The GDPR is supposed to make data protection easier and to provide extra protection for EU citizens. In some aspects the GDPR has fulfilled its purpose; in other areas the GDPR makes the protection of those same EU citizens as customers much more difficult.

With the GDPR it is a lot more difficult to fight cybercrime including online trade with counterfeit goods. This is due to the blackout of the domain owners’ information in the WHOIS database. It is not compliant with GDPR if personal information, e.g. e-mail addresses or names are publicly displayed.

Not being able to access the information of domain owners hampers efforts to stop cybercrime, for example identifying an individual behind the website selling infringing products. It allows criminals to hide behind their websites.

For purposes of brand protection, it is in most cases still possible to find relevant information on the infringing websites and then conduct investigations in order to get further information. However, that means a lot more manual work and not every brand owner might be able to afford that.

Picture: bgr

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In January we have reported about China’s plans to establish own International Commercial Courts, in particular for settling disputes alongside the New Silk Road: https://en.blog.chinabrand.de/2018/01/30/china-establishes-its-own-international-courts-along-the-new-silk-road/.

Less than half a year later, the first International Commercial Courts (CICC) have already been launched in Shenzhen and Xi’an. This is another example of the breathtaking speed of the new Silk Road developments showing that this multi-billion project of the Chinese government will change not only the infrastructural, but also the legal and social landscape along the Road.

The Supreme People’s Court has already issued “Provisions on Several Issues regarding the Establishment of International Commercial Courts”, that will govern the scope of responsibilities and the operations of the new courts.

The CICC is placed at the same level as the Supreme People’s Court in China’s judicial system. Its first instance judgements are final and not subject to appeal. The Courts will primarily handle international commercial cases with claims over 300 Mio RMB as well as cases of “nationwide significance”. Cases with no actual connection to China will not fall within the scope of CICC operations.

Eight SPC judges were named for the CICC disputes. The judges will not be permanently based in Shenzhen or Xi’an but rather travel for hearings. A Committee of International Business Experts will consult the judges on applicable foreign laws. The hearings can be held in Chinese or English language.

These new courts will be further supported by a comprehensive electronic system, e.g. for evidence submissions, payment of fees or even online hearings. A notable development here is that foreign evidences do not require notarization or translation into Chinese – they will be examined directly at hearings. Another interesting feature is that the Commercial Courts will unite mediation, arbitration and litigation within one court. By now it is not clear whether foreign arbitration institutions will be included in this system, which would be a big change for the legal practice in China.

Many questions and issues regarding the practical effects of these changes are still open. What is clear is that China has taken a new huge step in shaping an international economic and social system. Western companies that plan to take part in and benefit from the giant New Silk Road projects should definitely invest some time to understand its implications.

Picture: Ambassador Zhangqian’s Visit to the Western Regions, year 138 BC; Source: Chinadiscovery

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