Transforming IP in China and Taiwan

 
Professor Ruth Taplin
November 2007

Internal domestic requirements have inspired plans for a third round of amendments to China's patent laws — in certain areas such as industrial design these could advance intellectual property (IP) law even further than in some developed countries. Meanwhile Taiwan is emphasizing product differentiation among electronics, materials and chemicals, metals and machinery — and focusing on cutting edge nanotechnology.

Patent law amendments in China
China seems resolved to join the international IP community by carrying out a third round of amendments to its relatively new patent law that was consolidated in 2001 (when China met the requirements of TRIPS to join the World Trade Organization). According to the website of the State Intellectual Property Office of China (SIPO)1, 2008 has been designated as the year to begin these amendments. Pressure from the outside world instigated the first two tranches of amendments, but this third round has been inspired by internal domestic requirements.

In certain areas such as industrial design, the planned amendments could advance IP law even further than in some developed countries. However, as a counter-balance to such Chinese-driven reform, the United States has requested that the World Trade Organisation (WTO) assists in resolving infringement and counterfeiting concerns in three key areas of trade2 — outlined in more detail below.

Supporting public interest and strengthening patentee protection
The main legal concern of the third draft of amendments will be:

  • supporting public interest by forbidding certain types of patent rights abuse
  • strengthening administrative powers to protect patents and patentees in China

According to the draft law, local governments will be given administrative powers to hand out punishments such as penalties against intentional infringers, and to investigate and penalise those involved in the counterfeiting of patents.

Industrial design as a specific problem
As China has recently become the world leader in industrial design application, SIPO is making a concerted effort to solve the problems of protecting industrial design adequately. This receives prominence in the draft laws, to help with issues including:

  • judging the differences between industrial design and commercial marks or logos, and
  • whether the inventive step should be considered as one of the requirements of industrial design.

Until now China has made little differentiation between industrial design and business logos: visual differences have shaped the standard in industrial design, rather than attention being given to the creative invention aspect of this process. SIPO research3 has led to suggestions for methods to deal with these problems which include.

  1. The requirement of being granted an industrial design right will be fixed strictly with creative points for design characteristics being added in the qualifications for a grant. These design characteristics are to be marked on a comparison basis with prior designs or combinations thereof. Examiners will be required to be skilled in industrial design, and a description file of the creative points for design will be expected as part of the application document. When the application is approved, this description may be used to explain the parameters of the protection granted.
  2. Industrial designs that are similar will all allowed to be filed as one application. This is in juxtaposition to current patent law which states that if two or more similar designs are applied for, only one can be approved
  3. Search reports will be required for industrial designs when the third draft becomes law. Currently, search reports are not required for industrial design in relation to demonstrating inventive step or practical applicability, for example. This new requirement will help to protect the interests of the public and the rights of patentees.

Changes to patent applications by foreign companies
A large number of foreign companies, when not allowed to apply for a patent in China , tend to avoid the law completely if possible — especially when no reason is given as to why they cannot apply. The procedure for filing an application by foreign companies in China is to be amended to protect China 's domestic interests, and to address some defects in the current law which can result in the leaking of confidential information concerning patent applications. The new draft law stipulates that anyone wishing to apply for a foreign patent should seek approval from SIPO. This new draft legislation not only involved consultation with foreign companies, but is also in keeping with American law.

Another provision of the new draft laws affecting foreigners will be the repeal of the article which demands that foreigners must use patent agencies appointed by SIPO, and that Chinese applicants who wish to file for a patent abroad must use special agencies. The new law would allow both foreigners and Chinese nationals to use any patent agent of their choice.

Establishing novelty
The draft laws also stipulate that an international standard of novelty will be adopted. This change is needed because in China , unlike the rest of the world, any means of publicising or usage of the invention — including on the internet — suffices as a disclosure. The new law will bring China in line with the rest of world whereby public disclosure in established publication forms is used for patents4.

The US and China using the WTO as mediator
In April 20072 US Trade Representative Susan Schwab noted that while the US and China have been working pragmatically and cooperatively on a number of IP rights issues, the billions lost to US industry due to Chinese counterfeiting required the use of the WTO dispute resolution mechanisms.

The US has focused on three key problem areas:

  1. Eliminating structural barriers which provide Chinese counterfeiters with a ‘safe harbor' to avoid criminal liability: Chinese law includes thresholds that must be reached before criminal prosecutions against copyright and trademark infringers can begin. Although the Chinese have lowered some of these quantitative thresholds recently, wholesalers and distributors will be able to continue to operate under relatively high thresholds (safe harbors) without any criminal liability.
  2. Reducing the volume of counterfeit goods crossing the border into China: After the removal of fake labels or other infringing features, Chinese customs authorities appear to allow infringed goods to re-enter the marketplace. The WTO dictates that such infringed goods must be kept out of commerce altogether.
  3. Giving copyright owners more tools to prevent unauthorised copies being promulgated in China: Chinese copyright laws deny copyright protection for those works entering the market before Chinese censorship approval is granted. So in the crucial period when new products enter the market, the copyright holders have no grounds for complaints about infringement, whether in the form of unauthorised translations, or illegal/infringing copies of the work. This denial of rights does not seem to apply to Chinese works, which receive immediate copyright protection before censorship approval.

Reproduction and distribution of copyrighted work
Reproduction and distribution of copyrighted work is another issue the Chinese authorities are now trying to tackle through judicial interpretation — and it may eventually become another of the proposed draft laws currently under scrutiny. As it stands, Chinese IP law seems to grant impunity to those who reproduce copyrighted material without the owners' permission, unless the owner also distributes it as well. Therefore, people who have been copying large quantities of copyright goods may not be criminally liable.

Restricted market access
The US is also contesting restricted market access where all US imports are channelled through state-authorised or state-run companies. For example, Chinese rules severely impede any efficient distribution of non-Chinese publications and home entertainment videos within China .

A recent decision on communication copyright
A judgement on 17 November 2006 by the Beijing No. 1 Intermediate People's Court has potentially long term repercussions for the communications industry. In seven record labels vs. Baidu, Baidu (a major internet service provider in China) was judged to have committed direct infringement of communication copyright on the internet by providing links to songs on other websites, through well organised charts. This ruling has set an unfortunate precedent by making indirect infringement appear as a case of direct infringement, when the two are technically different from one another.

The Case of Taiwan5
Taiwan is managing to stay clear of accusations of infringement, and has a strong focus on nanotechnology. ITRI (Industrial Technology and Research Institute), the state-run research institute of Taiwan, recently launched a 2008 Target emphasizing product differentiation among electronics, materials and chemicals, metals and machinery. To achieve this target, ITRI has been developing outstanding nano technologies in innovative applications including integrated circuits, display, data storage, photonics, electronic packaging, and nano-biomedical.

Taiwanese patents in nanotechnology are highest in the world
The success and predominance of the nanotechnology sector in Taiwan can be seen through evidence of patent records and industrial production. Using the keyword nano , data from patent count records (provided by TIPO, the Intellectual Property Office in Taiwan) reveals that almost 2500 nanotechnology patents were approved in Taiwan during 2000-2006 (updating to January 11, 20075). Domestic applicants including companies, individuals, and research institutes are the most active, owning 60 per cent of these nanotechnology patents (figure 1). Foreign applicants come from 22 countries in total, with US and Japanese applicants coming second and third behind those from Taiwan .

Figure 2 shows the top ten applicants for nanotechnology patents in Taiwan, and the number of nanotechnology patents each has approved by TIPO. TIRI, the number one applicant, owned almost 10 per cent of the nanotechnology patents approved between the years 2000 to 2006. Six out of ten top applicants are from Taiwan.

References

1. State Intellectual Property Office (SIPO) website

2. Press release US Trade representative website 9 April 2007

3. See the online speech (in Chinese) of Mr. Yin Xintian, director-general of the Legal Department State Intellectual Property Office of China on www.sipo.gov.cn

4. www.sipo.gov.cn 7/03/07

5. See Cluster Development and Global Competitiveness: Prospects of the Nano Sector in Hsinchu Science Park by Chyi, Yih-Luan, Department of Economics, College of Technology Management, National Tsing Hua University to appear in forthcoming Journal of Interdisciplinary Economics www.jie.org.uk . Thanks to Prof. Chyi for giving permission to use her figures and data.

About the author

Prof. Ruth Taplin is Director of the Centre for Japanese and East Asian Studies, which won Exporter of the Year in Partnership in Trading/Pathfinder for the UK in the year 2000. She received her doctorate from the London School of Economics and is the author/editor of 14 books and over 200 articles. The most recent are: Exploiting Patent Rights and a New Climate for Innovation in Japan (2003); Valuing Intellectual Property in Japan , Britain and the United States (2004); Risk Management and Innovation in Japan , Britain and the United States (2005); Japanese Telecommunications

Market and Policy in Transition (2006); and Innovation and Business Partnering in Japan , Europe and the United States (2006), all published by Routledge. A book on Outsourcing is forthcoming in 2007 to be published by Routledge which will be followed by a book on Intellectual Property Rights in Japan and the Japanese Economy. Ruth Taplin has been Editor of the Journal of Interdisciplinary Economics for 12 years. Currently she is a Research Fellow at Birkbeck College, University of London and the University of Leicester, and at a number of universities worldwide. She is Visiting Professor at the School of International Business and Management, University of Warsaw, Poland, and was a Visiting Fellow at the University of Mumbai Economics Department for their 150th Anniversary in January 2007.