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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
by GUO Shoukang and Anna M. HAN
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The concept of industrial property was introduced to China from the West. Law students in China in the early 1940s would not have heard of the term “industrial property”, or the more popular term used today, “intellectual property”. Since the founding of the People’s Republic of China (PRC) in 1949, laws on industrial property such as patents have been enacted, but the term was not actually introduced into Chinese law until 1979.
After China embarked upon a course of economic reform, one of the first laws enacted recognized the concept of industrial property. The Sino-Foreign Equity Joint Ventures Law (the EJV Law) was adopted by the National People’s Congress (the NPC) and promulgated on July 1, 1979. Under this law, parties to joint ventures could contribute industrial property rights as a part of their investment. This was the first time that the term industrial property was used in Chinese law. Interestingly, while recognizing industrial property as a concept, there were no laws that defined the rights or scope of such property.
As part of the effort in the early 1980s to understand intellectual property rights, a Chinese delegation was sent to Geneva to attend the First Session of the Diplomatic Conference for the Revision of the Paris Convention for the Protection of Industrial Property (the Paris Convention). Careful review of the Paris Convention, the Basic Proposals for Revision and other related documents, including the works of Bodenhausen, were conducted by the delegation. Familiarity with the Paris Convention was very helpful when China drafted its own patent legislation.
According to the Paris Convention, the objects of protection are patents, utility models, industrial designs, trademarks, service marks, trade names, indications of source or names of origin; a further objective of the Convention is to restrain unfair competition.
In China, inventions, utility models and designs are protected by the Patent Law adopted in 1984, which was amended in 1992 and again in 2000.1 Trademarks and service marks are protected by the Trademark Law adopted in 1982, which was amended in 2001.2
Since the 1980s, the recognition and enforcement of intellectual property has been a major issue in China’s domestic and foreign trade agenda. Increased attention to the importance of intellectual property is reflected in China’s continuing efforts to revise its laws to conform to international standards and to increase enforcement of the rights of both domestic and foreign owners of intellectual property. However, much remains to be done in this area.
During the period between 1980 and 2001, China subscribed to a number of multilateral treaties. China joined the World Intellectual Property Organization (1980), the Paris Convention (1985), the Madrid Agreement for the International Registration of Trademarks (1989), the Berne Convention (1992), the Universal Copyright Convention (1992), the Geneva Convention for the Protection of Producers of Phonograms (1993), the Patent Cooperation Treaty (1994), and finally the World Trade Organization (WTO) on November 11, 2001 in Doha.
Formerly called the China Patent Office, the State Intellectual Property Office (SIPO) is under the direct authority of the State Council and is generally responsible for the overall coordination of foreign-related affairs in the field of intellectual property and more particularly for regulating patents within China.
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On March 19, 1474, Venice adopted the world’s first patent law. The Statute of Monopolies, enacted in England in 1623, constituted the foundation of modern patent law. J. Kohler, a world-renowned jurist from Germany, has referred to this Statute as the Magna Carta of inventors’ rights and free trade.3
Since the end of the 18th century, more and more Western countries have adopted patent laws: the United States in 1790, France in 1791, Prussia in 1815, Bavaria in 1825, Spain in 1826, Brazil in 1830, Chile in 1840, and Germany in 1877. Japan did so in 1885, and many other countries have since followed.
Hong Reng’an, the premier of the Tai Ping Heavenly Kingdom (1851–64) and a cousin of the Kingdom’s leader, Hong Xiuchuan, was the first person to recommend that China adopt a patent system similar to those in Western countries. In his famous book, New Writings on the Administration of the State, he wrote that if a person, as in other countries, manufactures locomotives, which can run seven thousand to eight thousand li4 in 24 hours, he should be permitted to have a patent (and to monopolize its benefits). The same should apply to steamships, machines and other techniques.
He also wrote that “simple inventions should enjoy five-year-terms, complex ones ten year-terms, with the advantages inherent in such longer terms. After expiration of the term, anyone should be able to imitate the patent.”5
In 1881, a reformist Zheng Guanying, established a mechanized weaving mill in Shanghai. He wrote a letter to Li Hongzhang, the Chief Minister of the Emperor Guangxu of the Qing dynasty, asking for a ten-year-patent.
The following year, Li Hongzhang wrote in his petition to the Emperor:
According to precedents in Western countries, any newly established industry hitherto non-existent in any country should, as a rule, be granted a monopoly over its exploitation (zhuanli6) for a term of some years. The mill in question used machines for weaving. For its time, this is a pioneering undertaking. It must be remembered that, for the next ten years, only those joining the mill as partners will be allowed to carry on this activity and no new establishments of this kind will be permitted.7
A year later, the petition was approved by Emperor Guangxu. This was the first patent issued in modern China.8
After the Opium War (1839–1840), the British extracted numerous concessions from the Qing Imperial government in the form of treaties. Among these concessions were requirements that Chinese merchants recognize and uphold Western notions of copyright and trademarks. However, these were never fully enforced due to the inherent weakness of the Chinese Imperial government.
The first patent norms in China were enacted by Emperor Guangxu in 1898.9
According to the regulations on rewards for promotion of technology, inventions of new processes for manufacturing ships, guns, cannons, etc., or inventions of new methods for realizing major projects, like the Suez Canal, could be granted a 50-year patent. Also, patents with terms of ten to 30 years were granted over other innovative methods of manufacturing new products or imitations of Western products.10
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After the Revolution of 1911, led by Sun Yat-sen, the Ministry of Industry and Trade of the Republic of China promulgated, in 1912, the provisional articles with respect to rewards for manufactured products, which stipulated that, excluding foods and pharmaceuticals, patents could be granted for periods of up to five years for any invented or improved product. In 1923, the Ministry of Agriculture and Commerce under the Northern Warlords Government in Beijing enacted the Provisional Regulations with respect to Rewards for Manufactured Products, which also protected inventions of processes or their improvement.
After the establishment of the Guomindang Government in Nanjing, similar regulations – the provisional regulations with respect to rewards for handicrafts and the provisional regulations with respect to rewards for industrial techniques – were promulgated respectively in June 1928 and September 1932.11 The 1932 regulations were amended in April 1939, with the addition of patents covering new models (utility models) and patents for new designs (industrial designs).
In modern Chinese history, the first patent law was promulgated in 1944, during the War of Resistance against Japan, by the Guomindang Government in Chongqing.12
From the inception of the patent system in 1912 up to promulgation of the 1944 Patent Law, only 692 patents and 175 rewards were granted.13 These statistics illustrate that, prior to 1949, the patent system did not play an important role in Chinese industrial and technological progress.
Soon after the founding of the PRC, the Central People’s Government promulgated the provisional regulations for the protection of invention rights and patent rights.14 Under these regulations, two categories of certificate could be obtained: invention certificates and patent certificates. Invention certificates were granted for inventions discovered by staff of State organizations while on the job, for inventions relating to national defense, for those affecting the welfare of the great majority of the people,15 and for inventions made in the performance of a commission.
Invention certificates and patent certificates could be obtained for inventions discovered during off hours by staff of State organizations, for inventions developed in private enterprises and for inventions developed by foreign residents in China on a voluntary basis.
New methods for manufacturing chemical substances could be protected by invention certificates or patent certificates. However, no certificates were granted for substances obtained by chemical methods. When an invention right was recognized, and an invention certificate granted, and provided that the government had no intention of using it, the authorities would grant a patent or a patent certificate. On the other hand, when the government intended to use it, an invention certificate would be granted, instead of a patent certificate. The term of invention rights and patent rights ranged from three to 15 years, as decided by the competent authorities.
In November 1963, the Provisional Regulations for the Protection of Invention Rights and Patent Rights were abrogated by the State Council. During the 13 years from 1950 to 1963, four patents and six invention rights had been granted. In 1963, the regulations with respect to awards for inventions were promulgated, stipulating that all inventions that obtained prizes belonged to the State and any State or collectively owned entities could use them free of charge. Thus, inventions were not protected as property in the legal sense.
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Prior to the period of reform and openness, the authorities had begun to reflect upon the necessity of establishing a patent system. In approving a report in July, 1978, the Central Committee of the Communist Party stated that “China should establish a patent system”. During the second half of 1978, the State Commission of Science and Technology (SCST) began to investigate and study the establishment of a patent system. When the reform and openness policies were approved at the 3rd Session of the 11th Central Committee of the Communist Party at the end of 1978, preparations for the establishment of a patent system were in full swing.
Mr Wu Heng, the first Deputy Minister of the SCST, was entrusted with the organization of the preliminary drafting work on a patent law. On March 19, 1979, a patent law drafting group was set up.16 After a series of studies and investigations, the SCST submitted a report to the State Council entitled, “Report on the Establishment of a Patent System in the People’s Republic of China”. The Report concluded that the establishment of a patent system was a necessary aspect of the movements of reform and openness and that it would be significant in the promotion of China’s science and technology as well as for developing the country’s economy within a global context. The Report was approved in January 1980 by the State Council, and by May 1980 the Patent Office had been established.
As soon as the preliminary draft of the Patent Law was distributed for comment and review, a vigorous debate emerged, especially among several governmental organizations.
The patent system had emerged in capitalist countries. On the other hand, in the PRC, most enterprises, companies, scientific institutions and other organizations belonged to the State, to the people as a whole. Consequently, the exclusive rights of patents did not suit the socialist nature of the PRC. Furthermore, as China was a developing country and a technological gap existed between it and developed countries, a patent law would have served essentially to protect the patent rights of foreigners, especially since foreign patents were expected to dominate the technological landscape.17
The establishing of a patent system in China was approved by the Standing Conference of the State Council in September 1982. Soon after, the Report on the Sixth Five-year Plan, approved at the Fifth Session of the Fifth NPC, proclaimed that “a patent law should be enacted and implemented”.
In August 1983, a new draft patent law, the product of more than 20 revisions, was approved by the State Council and sent to the Standing Committee of the NPC for review and approval. Finally, it was approved on March 12, 1984 at the closing meeting of the Fourth Session of the Sixth NPC. The Patent Law entered into force on April 1, 1985.
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1.2.1. The Constitution of 1982
Under the 1982 Constitution, article 20, the State is responsible for promoting the development of the natural and social sciences and the dissemination of scientific and technical knowledge as well as for commending and rewarding achievements in scientific research and technological discoveries and inventions.
1.2.2. International conventions and agreements
Among the important international conventions and treaties relating to patents, China has acceded to the Paris Convention and the Patent Cooperation Treaty. The Memorandum of Understanding of January 1992 with respect to intellectual property signed by the United States and China (the US-China MOU)18 was an important bilateral agreement in the field of patents.
With its accession to the WTO in 2001, China subscribed to the General Agreement on Trade and Tariffs as well as the Trade Related Intellectual Property Rights (TRIPs) Agreement.
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1.2.3. The Patent Law and its Implementation Rules
The Patent law is the most important statute in the field of patent protection. It contains 69 articles, which are divided into 8 chapters:
The first set of implementing regulations under the Patent Law was approved by the State Council on January 19, 1985 and amended on December 12, 1992 with effect on January 1, 1993. In 2001, these regulations were superseded by the currently applicable Implementing Regulations of the Patent Law (Implementation Regulations) adopted by the SIPO on July 1, 2001.19 These were amended and reissued by the State Council on December 28, 2002. The new Implementation Regulations contain 122 articles, which are divided into 11 chapters:
1.2.4. The General Principles of the Civil Law
Article 95 of the General Principles of Civil Law provides that patent rights obtained by citizens and legal persons in accordance with the law are protected by the law. Article 118 provides that, when patent rights of citizens or legal persons have been infringed, they have the right to demand that the infringements cease, that their effects be eliminated and that their losses be compensated.
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1.2.5. The Criminal Law
The Criminal Law21 contains sanctions specific to “serious” violations of patents, which are graduated as a function of the gravity of the offence. Those found guilty may be sentenced to a maximum of three years’ imprisonment and, in especially serious cases, up to seven years’ imprisonment, in addition to fines.22
When the crimes are committed by units and legal persons, the individuals responsible in fact for the infringements are subject to prosecution.23
1.2.6. The laws on enterprises
Article 24 of the Company Law provides that industrial property rights may be contributed as capital.24
Article 5 of the EJV Law25 provides that each party to a joint venture may make its investment in cash, in kind or in industrial property rights.
The income tax law with respect to sino-foreign equity joint ventures was adopted by the Standing Committee of the NPC on September 10, 1980, and its implementation rules (the Tax Rules) were approved by the State Council on December 10, 1980. Article 1 of the law provides that income tax is paid by sino-foreign equity joint ventures established in China on all of their income from production and business operations and on other income. Other income, as provided in article 2 of the Tax Rules, includes that from patent rights. This is the first instance after adoption of the reform and openness policies that the term patent is used in a legal rule. This law has since been replaced by the Foreign Enterprise Income Tax Law, covering all forms of foreign investment in China, not just equity joint ventures. Effective in 2008, the new Enterprise Income Tax Law will replace all prior rules but, as per its article 6, income derived from exploiting patents remains taxable.26
Patents in China are given for inventions, for utility models and for designs.27
In essence, both inventions and utility models refer to any solution to a specific problem in a technological field. What differentiates them is that inventions refer to any new technical solution relating to a product, process or improvement thereof, and utility models refer to a new technical solution that involves the shape, the structure or a combination thereof, of any product, and that is fit for practical use.28 Design means any new configuration of the shape, pattern, color or some combination thereof, in relation to a product, that creates an aesthetic feeling and is fit for industrial application.29
A patent may be granted for new technical solutions, to the exclusion of scientific discoveries, rules and methods for mental activities and methods for the diagnosis or for the treatment of diseases and substances obtained by means of nuclear transformation. While animal and plant varieties are excluded from patent protection by virtue of paragraph 4 of article 25 of the Patent Law, patents are granted to inventions of new biological material30 and new plant varieties have been given sui generis protection as described below.
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The technological fields protected in the revised Patent Law of 1993 are much wider than those in the 1984 version. In the Patent Law of 1984, no patent right could be granted for foods, beverages, flavorings, pharmaceuticals or substances obtained by means of chemical processes. This was so because China, as a developing country, had remained backward in terms of technology and lacked experience in this field.
During the revision of the Patent Law in 1992, most experts had sought to enlarge the scope of patent protection and to grant patents for food, beverages and flavorings. But opinions differed as to the protection of pharmaceuticals and substances obtained by means of chemical processes. After heated debate and in conformity with the demands of socialist market economy as well as the Uruguay Round TRIPs Agreement, the Chinese authorities decided to grant patents for pharmaceuticals and substances obtained by means of chemical processes. The decision first expressed in the US-China MOU of 1992 was subsequently incorporated into the 1993 revision of the Patent Law. The amendments in 2000 bring Chinese patent law into substantial compliance with international standards.
Patents are granted for inventions, utility models or designs that fulfill the conditions of patentability provided in the Patent Law, namely:31
A patent application should be rejected and an extant patent right should be invalidated, if any of the first three substantive requirements is not fulfilled. A patent may be revoked when it does not fulfill the fourth requirement.
1.4.1. Novelty
The Patent Law provides that any invention or utility model for which a patent right may be granted must be novel. According to article 22, paragraph 2 of the Patent Law, novelty means that, before the date of filing, no identical invention or utility model has either been disclosed in any publication within the country or abroad or been publicly used or made known to the public by any other means within the country, and that no one has previously filed with the Patent Administrative Department an application that described the identical invention or utility model and that was published after the said date of filing.
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Novelty is an objective criterion. For determining novelty, the decisive moment is the filing date or the priority date.
Means of public disclosure include writings, pictures and recordings. The criterion for determining what constitutes publication of an invention or model is whether it has been made available to the public. Even a single copy accessible in a public library constitutes publication for the purposes of determining the current state of the art.
Novelty requires that no identical invention or utility model has been used in public within the country, so public use abroad does not destroy the novelty of a patent application.
If an identical invention or utility model has been made known to the public by means other than public use,32 its novelty will be lost. However, such public disclosure in a foreign country has no effect on novelty for the purposes of a Chinese patent application.
There must be no conflict of applications. This requirement means that no one has previously filed with the Patent Administrative Department an application, which described the identical invention or utility model and which was published after the date of filing. Generally speaking, only publications before the filing or priority date will affect novelty in a patent application. However, the whole contents of an earlier application will be considered as prior art, even though they have not been disclosed to the public, wherever the earlier application is published after the filing or priority date. This is to avoid that the same invention or utility model be protected by two patents.
Article 24 of the Patent Law provides that an invention or creation for which a patent application is pending does not lose its novelty where, within six months before the date of filing, one of the following events has occurred:
The novelty of a design is decided by comparing it with designs which, before the date of filing or of priority, have been disclosed in publications within the country or abroad or which have been used within the country. If a design is not identical or similar to prior designs, it is regarded as novel. To decide whether a design is identical with or similar to any prior design, it is necessary to study the design as a whole. If the essential constituent elements of a design are not identical with or similar to those of any prior design, it is then regarded as novel. In judging whether a design is novel, it is also necessary to consider the class to which the product belongs. If a design is identical with or similar to any prior design incorporated in a product belonging to a different class, its novelty is not affected.33
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1.4.2. Inventiveness
Inventiveness, or non-obviousness, is another fundamental requirement that an invention or utility model must fulfill in order to qualify for a patent. Here, the prior art as a whole must be taken into account to assess the inventive step of an invention.
According to article 22, paragraph 3 of the Patent Law, inventiveness means that, as compared with the technology existing before the date of filing, the invention has prominent substantive features and corresponds to notable progress; for their part, utility models must have substantive features and represent progress.
Prominent substantive features of an invention refer to its technical features, as compared with the state of the art. They must manifest essential differences in comparison with the existing technology. Also, they should not be obvious to a person possessing ordinary skills in the art. For judging inventiveness, the Patent Law uses a test based on the judgment of a person possessing ordinary skills in the art, which in fact means a notional expert with knowledge and skills in the relevant field. He must be neither an ordinary non-professional person, nor a leading expert in this technical field. However, he is presumed to be familiar with everything in the state of the art.
Notable progress is to be evaluated in terms of the objective results of the invention. An invention that, compared with the prior art, produces better technological, economic or social results is considered to constitute notable progress.
1.4.3. Practical applicability
According to article 22, paragraph 4, practical applicability means that the invention or utility model can be made or used and that it can produce effective results. In other words, a product must be capable of being made and a process must be capable of being used in practice. Practical applicability is understood in its broadest sense, including in industry, agriculture, mining, handicraft, fishery, service and so on. Effective results include those in the technical, economic or social fields.
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1.4.4. Subject matter excluded from patent protection
In accordance with the Patent Law, the following inventions or utility models are excluded from patent protection:
1.5.1. Application for patents
The Patent Law provides that, where a patent application is filed for an invention or a utility model, it must include a request, a description and its abstract, and claims.
The request states the title of the invention or utility model, the name of the inventor or designer, the name and the address of the applicant and other related matters.40
The description sets forth the invention or utility model in a manner sufficiently clear and complete so as to enable a person skilled in the relevant field of technology to carry it out; drawings are often required to achieve clarity of explanation. 41
The abstract briefly states the main technical points of the invention or utility model. It indicates the technical field to which the invention or utility model pertains, the technical problems to be solved, the essential technical features and the use(s) of the invention or utility model.
The claims section serves to define the scope of protection of patent rights claimed and forms the basis on which to decide whether any third party has infringed the patent.42 Claims should be drafted with much attention, thought and skill. They should be supported by the description and should state the extent of the patent protection sought.
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The claims clearly and concisely define the matters for which protection is sought in terms of the technical features of the invention or utility model. If there are several claims, they are numbered consecutively in Arabic numerals. The technical terminology used in the claims must be consistent with that used in the description. The claims section may contain chemical or mathematical formulae but no drawings. The technical features mentioned in the claims may, in order to facilitate quicker understanding of the claim, make reference to the drawings in the description section. Such references must follow the corresponding technical features and be placed between parentheses. They are not construed as limiting the claims.
The claims section includes an independent claim, and may include one or more dependent claims. An independent claim outlines the technical solution of the invention or utility model and describes the indispensable technical features necessary for fulfilling the purpose of the invention or utility model. A dependent claim further defines the claim in terms of additional features that are intended to be protected. Each invention or utility model may have only one independent claim, which is to precede all the dependent claims relating to the same invention or utility model. A dependent claim referring to one or more other claims is to refer only to the preceding claim(s). A multiple dependent claim that refers to more than one other claim may not serve as the basis for any other multiple dependent claims.
In applying for a patent for a design, drawings or photographs thereof must be submitted and the product incorporating the design and the class to which that product belongs must be indicated.
The date of filing is the date on which the Patent Administrative Department receives the application. If the application is sent by mail, the date of mailing indicated by the postmark is considered to be the date of filing.43
Within 12 months from the date on which applicants have first filed in a foreign country an application for a patent covering an invention or a utility model or, within six months from the date on which they have first filed in a foreign country an application for a patent covering a design, they may file in China an application for a patent covering the same subject matter, while enjoying a right of priority in accordance with any agreement concluded between such foreign country and China, or in accordance with any international treaty to which both countries are parties, or on the basis of the principle of mutual recognition of the right of priority.
Within 12 months from the date on which any applicant first filed in China an application for a patent covering an invention or a utility model, he or it may file with the Patent Administrative Department an application for a patent extension covering the same subject matter.
Any applicant who claims the right of priority must make a written declaration when the application is filed and submit, within three months, a copy of the patent application document which was first filed; if the applicant fails to make the written declaration or to meet the time limit for submitting the patent application, the claim to the right of priority is deemed not to have been made.44
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An application for a patent covering an invention or a utility model must in principle be limited to one invention or utility model. But two or more inventions or utility models belonging to a single general inventive concept may be filed as one application.
An application for a patent covering a design must be limited to one design incorporated in one product. Two or more designs that are incorporated in products belonging to the same class and that are sold or used in sets may be filed in one application.45
An application may be withdrawn at any time before the patent is granted.
Amendments to invention or utility model applications may not go beyond the scope of the disclosure contained in the initial description and claims, and amendments to design applications may not go beyond the scope of the disclosure in the initial drawings or photographs.46
There are time limitations to amendments to Chinese patent applications. Substantive revisions of a patent application may be made within three months of receipt of the notice that the patent application has entered into the substantive examination stage. For utility models and design patents, the amendment period is two months from the date of filing.
1.5.2. Examination of patent applications
After receiving an application for an invention patent, the Patent Administrative Department, upon preliminary examination, verifies that the application complies with the requirements of the Law, and it publishes the application promptly after the expiration of eighteen months from the date of filing. Upon request of the applicant, the Patent Administrative Department may publish the application earlier.
In China, a substantive review is not automatic. Still there is debate about whether substantive review for utility model and design patents should be automatic to avoid the issue of patents that are later invalidated.
Upon request of any invention patent applicant, made at any time within three years from the date of filing, the Patent Administrative Department will proceed to examine the application as to its substance. If, without any justification, the applicant fails to meet the time limit for requesting substantive examination, the application is deemed to have been withdrawn. Whenever it deems necessary to do so, the Patent Administrative Department may examine the substance of any invention patent application.
When an invention patent applicant requests an examination of the substance of the application, pre-filing date reference materials concerning the invention must be furnished. An invention patent applicant that has filed in a foreign country for the same invention must, at the time of requesting examination as to substance, furnish documentation concerning any search made for the purpose of examining that application or concerning the results of any examination made in the foreign country. If, without any justification, the said documents are not furnished, the application is deemed to have been withdrawn.
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If the substantive examination of the invention patent application reveals that it is not in conformity with the provisions of the Law and Implementation Regulations,47 the examiner notifies the applicant and requests submission, within a specified time limit of observations or amendments of the application. If, without any justification, the time limit for responding is not met, the application is deemed to have been withdrawn.48
If the Patent Administrative Department, after the applicant has filed his or its observations or amendments, finds that the application still does not comply with the provisions of the Patent Law, the application is rejected. Where, after substantive examination, it is found that there is no cause for rejection of the application, the Patent Administrative Department will grant the patent, issue the invention patent certificate, register and give public notice of the patent.49
When a preliminary examination turns up no cause for rejection of the application for a patent covering a utility model or design, the Patent Administrative Department grants the patent, issues the relevant patent certificate, registers and gives public notice of the patent.
The Patent Administrative Department is responsible for setting up a Patent Re-examination Board, which consists of experienced technical and legal experts and the Director General of the Patent Administrative Department, who is ex officio the Chairman of the Board. Where any party is not satisfied with the decision of the Patent Administrative Department rejecting an application, or its decisions revoking or upholding a patent, such party may, within three months from the date of receipt of the notification, request that the Patent Re-examination Board undertake a re-examination. After re-examination, the Board renders a decision and notifies the applicant, the patent owner and the person who requested the patent’s revocation. Where invention patent applicants, invention patent owners or invention patent revocation petitioners are not satisfied with the decision of the Patent Re-examination Board, they may, within three months from the date of receipt of the notification, institute legal proceedings in the people’s courts.50
Patent rights that have been revoked are deemed to be void ab initio.51
1.6.1. Ownership of patents
Natural persons and legal persons may apply for patents and become owners of patents upon their registration.52
For inventions, and creations developed by individuals in the course of performing their work within the entities to which they belong, or which they have developed mainly by using material means provided by the entity, the right to apply for a patent belongs to the entity, and the entity is the patentee for any patents issued.53
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For inventions and creations other than those developed in the course of employment, the right to apply for a patent belongs to the inventor or creator. Inventor or creator means any person who has made creative contributions to the substantive features of the invention or creation. Organizational work, offers of facilities or participation in auxiliary functions are not sufficient to qualify a person as an inventor or creator.54
Where two or more applicants file patent applications for identical inventions or creations, the patent is granted to the applicant whose application was filed first.55 For identical inventions or creations, only one patent is granted.56
As regards inventions and creations made in co-operation by two or more entities, or made by an entity in execution of a commission for research or design given to it by another entity, unless otherwise agreed upon, the right to apply for a patent belongs to the entity that made, or to the entities that jointly made, the inventions or creations. After approval of the application, the patent is owned or held by the entity(ies) that applied for it.57
Where any foreigner, foreign enterprise or other foreign organization having no habitual residence or business office in China applies for a patent, the application is governed by the Patent Law and any agreement concluded between the country to which the applicant belongs and China or is treated in accordance with any international treaty to which both countries are parties or on the basis of the principle of reciprocity.58
1.6.2. Assignments of patents
The right to apply for a patent as well as the patent rights themselves may be assigned.
Any assignment of the right to apply for a patent or of the patent itself made by an entity or an individual to a foreigner must be approved by the Patent Administrative Department.59
According to article 10 of the Patent Law, where the right to apply for a patent or patent rights are assigned, the parties must conclude a written contract, which will come into force upon its registration with, and publication by, the Patent Administrative Department.
Any license covering the exploitation of a patent concluded by the patent owner with an entity or individual must, within three months from the date of entry into force of the contract, be submitted to the Patent Administrative Department for registration.60
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1.7.1. Exclusive rights of the patent owner
Article 11 of the Patent Law defines the scope of exclusive rights of patent owners.
After the grant of an invention or utility model patent, and except as otherwise provided by the law, no entity or individual may, without the authorization of the patent owner, exploit the patent, make, use, offer to sell, sell, or import the patented product, or use the patented process, or use, offer to sell, sell or import61 products directly obtained through the patented process for production or business purposes. The inclusion of “offer to sell” as an act of infringement is one of the latest improvements to allow patentees to intervene and stop infringement at an earlier stage.
After the grant of a design patent, no entity or individual may, without the authorization of the patent owner, make, sell or import products incorporating such patented design for production or business purposes.62
In addition to the exclusive rights mentioned above, the patent owner may affix markings of its patent, including their numbers, on patented products and on the packaging of such products.
1.7.2. Obligations of patent owners
After the granting of a patent, the patent owner must pay an annual fee beginning with the year during which the patent was granted.63 As soon as an applicant successfully completes the formalities of patent registration, and the patent certificate is issued, the annual fee must be paid. Subsequent annual fees must be paid in advance within the month before the expiration of the preceding year. Where the annual fee is not paid in due time by the patent owner, or the fee is not paid in full, the Patent Administrative Department summons the patent owner to pay the fee or to make up the insufficiency within six months from the expiration of the time within which the fee was to have been paid, and to pay a surcharge. Non-payment of the maintenance fee can result in premature termination of the patent.64
1.8.1. Compulsory licenses
Three different kinds of compulsory licenses for exploitation of patents have been provided in the Patent Law. These are in conformity with the TRIPs standards.
Where any entity qualified to exploit an invention or utility model has requested from the owner of an invention or utility model patent a license for its exploitation on reasonable terms and such efforts have not been successful within a reasonable period of time, the Patent Administrative Department may, upon application of such entity, impose a compulsory license.65
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In the event of national emergencies or extraordinary states of affairs or when it is in the public interest, the Patent Administrative Department may grant a compulsory license to exploit an invention or utility model.66
If the invention or utility model for which the patent right was granted has undergone great improvement or progress and the exploitation of the later invention or utility model depends on the exploitation of the earlier one, the Patent Administrative Department may, upon the request of the later patent owner, grant it a compulsory license to exploit the earlier invention or utility model and it may, upon the request of the earlier patent owner, also grant it a compulsory license to exploit the later invention or utility model.67
Entities or individuals requesting a compulsory license must furnish proof that they have not been able to conclude with the patent owner a license for exploitation on reasonable terms.68 The decision made by the Patent Administrative Department granting a compulsory license for exploitation must be registered and published.69 Entities or individuals that are granted compulsory licenses do not obtain exclusive exploitation rights and do not enjoy the right to authorize exploitation by any others.70 Entities or individuals that are granted compulsory licenses must pay to the patent owner a reasonable exploitation fee, the amount of which is determined by mutual agreement of the parties.71
Patent owners not satisfied with the decision of the Patent Administrative Department granting a compulsory license and parties that have not reached an agreement concerning the remuneration may, within three months from receipt of the notification, institute legal proceedings in the people’s courts.72
1.8.2. Exploitation according to the State plan
Although generally conforming to international standards, the PRC patent system does reflect its socialist leanings in several provisions of the Patent Law.
The Chinese Patent Law provides that the competent departments of the State Council and the people’s governments of provinces, autonomous regions or municipalities directly under the central government have the power to decide, in accordance with the State plan, that any entity owned by the people as a whole, which is within their system or directly under their administration and which holds patent rights to an important invention or creation, will issue a license to designated entities. The exploiting entity must, according to the prescriptions of the State, pay an exploitation fee to the entity holding the patent right. Any patent owned by a Chinese individual or a State-owned entity or collective, which is of great significance to the interests of the State or to the public interest and that requires dissemination and application may, after approval by the State Council and upon petition of its competent department, be treated in a similar manner.73
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1.9.1 Term of patents
A patent is a form of property right. However, it differs from tangible property rights, which terminate when the tangible object ceases to exist. Patent rights are intangible rights, the objects of which are inventions, utility models or industrial designs, that is, intellectual creations of the human mind.
Chinese Patent Law provides a term of 20 years for inventions and ten years for utility models and designs, commencing on the date of filing.74
However, this does not mean that patent rights are effective from the filing date. A patent right is not effective until the day of its issue. The date of issue of a patent is indicated on the patent certificate.
1.9.2. Cessation of patent rights
In the following situations, patents may cease before the expiration of their term:
Cessation of patent rights must be registered. Public notice is given by the Patent Administrative Department.76
1.9.3. Invalidation of patent rights
Once there is a public announcement of the grant of a patent, any entity or individual may appeal to the Patent Re-examination Board to have the patent declared invalid for non-compliance with the Patent Law and applicable regulations.77
The Patent Re-examination Board must promptly examine the request for invalidation, render a decision and give notice to the person who made the request as well as to the patentee. When a patent is declared invalid, the Patent Administrative Department registers the decision and gives public notice. Where any party is not satisfied with the decision of the Patent Re-examination Board, it may, within three months from receipt of notice of the decision, institute legal proceedings in the people’s court.78
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In principle, any patent that has been declared invalid is deemed to be non-existent from the beginning. The decision of invalidation does not have retroactive effect with respect to:
Damages may be claimed from the putative patent owner for acting in bad faith. Where the fees for the use of patents or the price for the assignment of the patent rights are obviously inequitable, the patent owner or the assignor may be obliged to repay the undue part of the fees or price paid to the licensee or the assignee.79
To determine whether there is an infringement, the most important task is to delineate the scope of protection afforded by the patent. In accordance with the Patent Law, the extent of protection of invention and utility model patents is determined by reference to the claims. The description and the appended drawings are used to interpret the claims. The extent of protection of design patents is defined by reference to the product incorporating the patented design as shown in the drawings or photographs.80
Accurate interpretation of the scope of claims is a very important and difficult task for a judge. On the basis of the description the judge interprets and limits the technical features as stated in the description and then determines the scope of patent protection in accordance with the restricted claims. However, at the same time, the judge interprets the claims according to the doctrine of equivalence. Under this doctrine, claims are to be interpreted as conferring protection not only with respect to those elements that are expressed in a claim, but also with respect to equivalents of such elements.
None of the following is deemed to be an infringement of patent rights:
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If a patent right is violated and the dispute is not settled through negotiation with the infringer or its agent, two types of remedies are available to the patent owner. One of the major changes in the latest amendments is the ability of the patentee to seek judicial resolution of infringement cases. This revision brings the Chinese Patent Law into compliance with article 62 of the TRIPs Agreement.
1.11.1. Administrative recourses
The SIPO has promulgated, as of December 17, 2001, the Administrative Enforcement of Patents Measures (the Patent Enforcement Administrative Measures). The Measures are stated to prevail over conflicting rules and regulations issued by SIPO or its predecessor, the Patent Office.82
Administrative decisions must respect the law and apply the principles of impartiality and promptness. The administrative authorities are available to mediate disputes over the facts or the law. 83
The patent administrative authorities have the powers to conduct investigations and to collect evidence.84
The Measures distinguish between infringement disputes, on the one hand, and disputes over passing off and counterfeiting, on the other. In each case, the administrative authority must render a written and reasoned decision.85
According to article 5 of the Patent Enforcement Administrative Measures, to be admissible an infringement claim must satisfy the following conditions:
If these conditions are fulfilled, the claimant is notified within seven days and appoints at least three staff members to handle the dispute. Otherwise, the administrative authority must communicate the reasons for the inadmissibility within seven days.86 It may organize oral hearings.87
In cases of patent infringement, the authority may order cessation of the illegal activities, including manufacturing, importation and distribution.88
In cases of patent passing off and counterfeiting, the patent administrative authority with jurisdiction is that where the acts allegedly occurred.When there is a disagreement over territorial jurisdiction, the authority at the next higher level may be called upon to designate the appropriate authority.89
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Where passing off or counterfeiting a patent is established, the administrative authority for patent affairs may order remedial measures, including removal of the marking and number of the patent from products and packaging or, where this is impossible, the destruction of goods bearing the infringing references, and cessation of advertisements and promotion using the impugned references.90
In cases of passing off and counterfeiting a patent, the administrative authority orders publication of its decision.91 The illicit income is calculated as the product of the number of units sold times the price of sale.92
The implementation of administrative decisions that are contested before the people’s courts is not suspended pending the outcome of the judicial procedures.93 Where the administrative decision is not implemented by the concerned party, the administrative authority may approach the people’s courts for judicial execution.94
1.11.2. Civil remedies
A wronged patent owner may, without first requesting the administrative authorities to handle the matter, directly institute legal proceedings in the people’s court. In accordance with the relevant provisions of the Civil Procedure Law and the principles with respect to evidence, the patentee should provide evidence proving the infringement, namely that, without authorization of the patent owner or under the terms of the law, the infringer has made, used, sold or imported the patented products.
However, if a process patent is violated, it is unreasonable to require the patent owner to provide evidence for want of being able to enter the infringer’s premises and collect evidence of infringement. Therefore, it is stipulated in the Patent Law that, when any infringement dispute arises over any patented product or product derived directly from a patented process, the burden of proof that the source of the product or process is legitimate rests with the accused infringer.95
In the presence of reasonable evidence of an actual or imminent infringement, and where delay in stopping the infringement is likely to cause irreparable harm to the patent owner’s legitimate rights, injunctions and conservatory measures may be imposed by the people’s courts.96 On June 5, 2001, the Supreme People’s Court issued its Notice on the Patent Rights Before Instituting Legal Proceedings.97 Applicants must provide valid and reasonable pledges or mortgages as guarantees lest their applications be rejected.98 The effects of measures ordered by the courts cannot be avoided by providing counter-guarantees.99
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The people’s courts render written judgments within 48 hours unless they intend to hold hearings or want other information. In any event, their decisions are rendered within five days. Unsatisfied parties may apply for reconsideration of the judgment within ten days from the date of the receipt of the ruling. The execution of rulings is not suspended during the reconsideration. Any injunctions or orders must be executed without delay.100 In addition to the criteria applicable for determination of the original ruling, the reconsideration also takes account of whether stopping the alleged infringement would harm the public interest.101 If legal proceedings are not initiated within l5 days after the order, the people’s courts must abrogate the measures.102
Orders to stop infringements of patents generally remain effective until the definitive legal judgment, though the people’s courts may also set other expiration dates that can be extended, where appropriate, upon the request.
The people’s court may order measures to preserve property pursuant to articles 92 and 93 of the Civil Procedure Law.
The limitation period applicable to legal proceedings relating to infringements of patent rights is two years from the date on which the patent owner or any interested party knew or should have known of the infringing act.103
1.11.3. Criminal sanctions
In addition to civil penalties and confiscation of illegal gains, violators of patents are also exposed to criminal liability.104
Serious violations of patent rights may give rise to prosecutions under article 216 of the Criminal Law entailing up to seven years imprisonment in especially serious cases.
Article 280 of the Criminal Law prohibits forgery of documents issued by State organs, which includes patent certificates. In especially serious cases, those found guilty might be sentenced to up to ten years in jail.
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The Regulations for the Protection of Layout Designs of Integrated Circuits (IC Layout Design Regulations) were promulgated by Decree No. 300 of the State Council on April 2001, and became effective as of October 1, 2001. Though the terms of protection are similar to those applicable to copyrights, integrated circuit designs are given sui generis protection. For example, the Regulations give foreign-origin products protection either under the terms of bilateral or multilateral treaties covering integrated circuit designs or if the product was introduced onto the Chinese market.105
Article 2 defines integrated circuits as products, in intermediate or final form, which use semiconductor material as their chips, in and/or on which two or more elements, at least one of which is an active element, and some or all of the interconnections, are integrally formed and which are intended to perform certain electronic functions. Layout designs are three-dimensional dispositions thereof prepared for the manufacture of integrated circuits.
To qualify for protection, layout designs must be original in the sense that the layout design is the result of the creator’s own intellectual effort, and the design must not be commonplace among creators of layout designs and manufacturers of integrated circuits at the time of its creation.106 Combinations of commonplace designs may be protected if, taken as a whole, they meet the above requirements. The protection of layout designs does not extend to ideas, procedures, methods of operations or mathematical concepts.107
Holders of layout design rights enjoy the exclusive rights of reproduction and commercial exploitation.108
Article 8 of the Regulations requires registration with the SIPO as a necessary condition for claiming rights to IC layout designs.
Exclusive rights in IC layout designs belong to their creators, whether natural or legal persons. Parties working in cooperation in developing IC layout designs may define by contract their intentions as to their ownership. In the absence of contractual provisions, the designs are either jointly owned or owned by the commissioned party.109
Under article 12, the term of protection of IC layout designs is ten years from the sooner of the date of filing for registration or the date on which they were first commercially exploited anywhere in the world within a limit of 15 years after the date of its creation.
No IC layout design may be registered beyond two years from the date on which it was first commercially exploited anywhere in the world.110
Article 19 provides for an administrative appeal before the SIPO seeking a re-examination of the contested decision, and in the event of dissatisfaction, the applicant may bring a law suit before the people’s court. Holders of IC design layout registrations may contest registrations by other parties before the SIPO and may appeal its decisions to the people’s courts.
Article 22 requires that assignments and licenses of IC layout design rights be in writing and, in the case of assignments, they must also be registered with the SIPO.
Article 23 permits reproductions of protected layout designs for private purposes or for the sole purpose of evaluation, analysis, research or teaching.
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The SIPO may grant a non-voluntary license to exploit layout designs in the following cases:
The scope of the mandatory license must be limited to non-commercial use for public purposes, or tailored to remedy an act of the holder of the IC layout design in conformity with a determination of a people’s court or of the supervision and inspection department against unfair competition. The beneficiary of the mandatory license is expected to pay the IC design layout right holder a reasonable remuneration and, when the parties fail to agree, the SIPO may be called upon to make an adjudication, and in the event that either of the parties were not satisfied, an appeal could be brought before the people’s courts.112
In the event of disputes, holders of IC layout design rights as well as interested parties may bring suit before the people’s courts or refer the matter to the SIPO.
The SIPO may order the cessation of infringements, as well as the confiscation and destruction of infringing products. Appeals from such decisions may be brought before the people’s courts in accordance with the Administrative Procedure Law. If the infringer refuses to stop the infringing act, the SIPO may apply to the people’s court for compulsory enforcement of its orders.113
In the event of a likelihood of irreparable harm due to infringements, the people’s courts may order the suspension of illegal acts as well as measures for the preservation of property.
Article 32 allows infringers to escape liability if they can demonstrate that they did not know and had no reasonable ground to know of the infringement.
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The Chinese Patent Law is in accord with most national laws in excluding patents with respect to animal and plant varieties.114 The list of exclusions from patentability in article 25 of the Patent Law is interpreted to cover all plant and animal varieties including transgenic ones.
On October 1, 1997, the Regulations for the Protection of New Varieties of Plants (Plant Protection Regulations) became effective under the administration of the Ministry of Agriculture and the State Forestry Administration and the forestry and agriculture administrative departments of the people’s governments at the county level.115 The Regulations have been complemented by the Regulations on the Protection of New Varieties of Plants (Agriculture Part), adopted at the Sixth Executive Meeting of the Ministry of Agriculture on April 27, 1999 and by the Rules pursuant to the Regulations on Protection of New Varieties of Plants (Forestry part), promulgated by Decree No. 3 of the State Forestry Administration.
The New Plant Protection Regulations have been very successfully implemented. As of the end of 2004, the number of officially protected families and species of plants is 119 (comprising of 41 agricultural and 78 forestry). By the end of 2004, the Ministry of Agriculture had received 2 046 applications and had granted a total of 503 species right titles. The Forest Administration had received 305 applications (including 64 foreign applications) and had granted 72.116
China is a member of the International Union for the Protection of New Varieties of Plants (UPOV),117 and priority may be claimed if a prior new plant variety rights application has been filed in a UPOV state.118
The categories of plants protected under the Plant Protection Regulations include man-made new species as well as modified wild plants.119
Article 6 of the Plant Protection Regulations provide that the grant of exclusive rights is limited to commercial exploitation of the plant variety by the owner of the right.120
Under article 2 of the Plant Protection Regulations, new plant variety means cultivated plant varieties, as opposed to those developed from a discovered wild plant, which are new, distinct, uniform and stable, and whose denomination is adequately designated.
Novelty requires that the plant variety for which protection is sought must not have been sold prior to the filing of the application nor have been sold, with the consent of the owner, for more than a year within China. For the propagating material of vines, forest trees, fruit trees and ornamental plants, it must not have been for sale for more than six years outside of China. For other plant varieties, the rule is four years outside of China.121
Distinctness means that the protected plant must be noticeably different from other plant varieties known prior to the filing of the application.122
After propagation, the plant variety must remain uniform, subject to predicted variations.123
After repeated propagation or at the end of a particular cycle of propagation, the plant variety’s relevant features and characteristics must have remained stable.124
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The term of the exclusive rights is 20 years from the date of the grant for vines, forest trees, fruit trees and ornamental plants. Other plant varieties receive a term of 15 years from the date of the grant.125 In order to maintain exclusive rights, the owner of the right must pay an annual fee and furnish propagating material as required by the approving authorities.126
In a manner similar to copyright fair use, two exceptions to the exclusivity of protection are included in the Plant Protection Regulations. Use of the protected variety for breeding and other scientific research activities does not require permission from the right holder, nor are royalty payments imposed. Similarly, use by farmers on their own land for the purpose of propagating the protected variety can also be carried on without consent or royalty payment.127
Compulsory licenses may also be granted in the national or public interest, with royalties as agreed between the owner and the grantee.128 If an agreement cannot be reached, the examining authority may set the amount of the royalty.129 An unsatisfied right owner may initiate a suit within three months to challenge any grant of a compulsory license or its terms.130
Applications for exclusive rights to plant varieties are filed with the administrative department of agriculture and forestry under the State Council.131 The application must be in Chinese and a photo is required.132 The examining and approving authorities are expected to complete a preliminary examination within six months of receipt of the application. Where the preliminary examination indicates that the application complies with the Plant Protection Regulations, the acceptance is published and notice is given to the applicant to pay the examination fee within three months.133 If the application is found to be non-compliant, the applicant has the opportunity, within the time provided, to make amendments.134
The examining and approving authorities may then carry-out a substantive examination and, if granted, a variety rights title will be issued and subsequently registered and published.135
Applications that are not approved may be appealed to a Re-Examination Board.136 A final decision must be rendered within six months from the date of the appeal.137 Decisions from the Re-Examination Board may be appealed by filing suit with the people’s courts within 15 days from the date of the notice.138
Foreign applications are handled in the same manner as domestic applications unless there are separate international agreements to the contrary.139
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Protection of trade secrets in China is provided in the Law against Unfair Competition, which was promulgated on September 2, 1993 and became effective on December 1 of the same year (the Unfair Competition Law).
Article 10 of the Unfair Competition Law specifically lists, among other acts, the theft, disclosure and use of other’s trade secrets as anti-competitive acts and subject to sanction.140 To reveal, use or allow others to use secrets obtained in an unfair manner also constitutes infringement. When trade secrets are learned pursuant to a confidentiality agreement or reservations of their owner, it is an infringement to reveal, use or allow a third party to use them.141 Third parties who knowingly use trade secrets obtained in an anti-competitive manner are also in violation of the law.142
A trade secret is any technical or management information that is treated as confidential by its owner, is non-public, practical and produces economic benefits.143
The definition of trade secrets was further clarified in Certain Regulations Relating to Stopping Violation of Trade Secret issued by the SAIC on November 23, 1995 (the Trade Secret Regulations).144 Article 2 of the Trade Secret Regulations defines trade secrets as non-public technical and operational information that the owner has taken steps to keep confidential and that is practical and possesses economic value.
Technical and operational information includes designs, programs, product formulas, manufacturing process, manufacturing methods, management know-how, customer lists, supply information, production and marketing strategies, bidding limits and contents of the bids.145 Steps to keep the trade secret confidential can include entering into confidentiality agreements, setting up security measures and other reasonable steps.146 The article further defines non-public as information that cannot be obtained directly from a public forum. Economic benefit means actual value, potential economic benefits or competitive advantages.147 Owners of trade secrets refer to those in possession of the confidential material including citizens, legal persons or other organizations.148
Article 3 of the Trade Secret Regulations prohibits the obtaining of trade secrets by theft, promises of gain, coercion or other illegal means.
In the event of violations of the Unfair Competition Law or of the Trade Secret Regulations, the affected party may apply for injunctive relief to the SAIC which may also impose fines.149 The owner of the trade secrets must provide evidence of infringement.150
In the event of serious misappropriations of trade secrets, criminal pursuits may be brought before the people’s courts that may impose fines and sentences of up to three years’ imprisonment and seven years in especially serious cases.151
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The Contract Law152 contains specific provisions relating to contracts for development and transfer of technology, and for technical consulting and services.153
The parties’ freedom to contract, including as regards the modalities of remuneration, is consecrated by articles 324 and 325 of the Contract Law, providing that technology contracts may not, lest they be invalid, give rise to monopolies of technology, impair technological progress or infringe on the technology of a third person.154
Where royalty payments are stipulated, then a method for inspection of relevant accounting records must be provided in the contract.155
The rights to use and transfer technology belong in principle to its individual developer.156 But where the technology arises from an employment relationship such that the rights to use and to transfer it belong to a legal person or an organization, the employer must remunerate the employee(s) who developed the technology with a percentage of its benefits. They must be identified as developers in documentation relating to the technology.157 Also, the employee-developers enjoy a right of first refusal on transfers of the concerned technology.158
5.1.1. Technology development contracts
Technology development contracts are those concluded for the development of new technologies, products, techniques or materials and their associated system. They include commissioned development and cooperative development contracts. Technology development contracts must be concluded in writing.159
If the technology that is the subject matter of a technology development contract becomes public and performance of the technology development contract becomes pointless, the parties may terminate the contract.160
If, in the course of implementing a technology development contract, the project fails in whole or in part due to any insurmountable technical difficulty, losses are allocated according to the parties’ agreement, in the absence of which they are shared in a reasonable manner.161
Unless otherwise agreed by the parties, the right to apply for a patent on any invention or innovation resulting from commissioned developments belongs to the developers. Where developers are granted patents, the commissioning party may exploit them free of charge. Where the developer agrees to assign the right to apply for a patent on the invention or innovation to a third party, the commissioning party has the right of first refusal under the same conditions.162
Unless otherwise agreed by the parties, the right to apply for patent on the invention/innovation resulting from a cooperative development belongs to the parties jointly. Where a party agrees to assign its rights, the other developers enjoy a right of first refusal. If a party in the cooperative development does not consent to the patent application, the others may not apply.163
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Where the parties to technology development contracts do not stipulate a method for allocating benefits accrued therefrom to be prescribed by the parties, then each is entitled to use and transfer the technology, provided that the developer in a commissioned development does not transfer the technology to a third person before it delivers the technology to the commissioning party.164
5.1.2. Technology transfer contracts
The laws and administrative regulations relating specifically to international technology trade prevail over the Contract Law.165
Technology transfer contracts are those for assignments of patents or patent application rights, for transfers of technical secrets and patent licensing. They must be in writing.166 They may not restrict technological competition and technological development.167
Patent licenses may only be given for valid patents and their duration may not exceed the term of the patent.168
Patent licensors must deliver the technical materials related to the exploitation of the patent, and provide the necessary technical guidance.169
Transferors of technology warrant that they are its lawful owners170 and that it is complete, free from error, effective, and capable of achieving the prescribed goals.171 Transferors of technical secrets warrant the practical applicability and reliability of the technology.172
Except as provided in a contract, patent licensees may not license the patent to any third party.173
Except as otherwise agreed by the parties, where the exploitation of the patent or the use of the technical secret by the transferee in accordance with the contract infringes on the lawful interests of any other person, the liability is borne by the transferor.174
Where the parties to a technology transfer contract do not stipulate a method for sharing any subsequent improvements resulting from the exploitation of patents or technical secret, if such method was not clearly prescribed, neither party is entitled to share any subsequent improvement made by the other party.175
5.1.3. Technical consulting and technical services contracts
Technical consulting contracts include those for the provision of feasibility studies, technical forecasts, specialized technical investigations, analyses and evaluations, etc. in relation with a particular technical project. Technical service contracts mean contracts whereby one party solves a particular technical problem for the other party by utilizing its technical knowledge.176
Except otherwise agreed by the parties, clients under technical consulting contracts bear any losses resulting from their decisions based on opinions provided by consultants.177
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Service providers under technical service contracts warrant the quality of their work and must communicate the knowledge used to solve the technical problem.178
Unless otherwise agreed by the parties, any new technology developed by consultants or service providers belongs to them and that developed by the client utilizing the work product provided by the consultant or service provider belongs to the client.179
During the reform and opening movement after 1978 and leading up the China’s accession to the WTO, the most important regulations governing transfers of technology were:
In connection with the country’s entry into the WTO, reforms were undertaken to integrate its required standards. New Regulations on Technology Import and Export Administration were adopted at the 46th Executive Meeting of the State Council on October 31, 2001, which entered into force on January 1, 2002. The amendments to the Foreign Trade Law came into effect on July 1, 2004, which by virtue of its article 2 applies to the protection of trade-related aspects of intellectual property rights.
5.2.1. The Foreign Trade Law provisions regarding international trade in technology
China seeks to encourage the importation of advanced and otherwise specifically desired technologies.180
By virtue of article 14 of the Foreign Trade Law, imports and exports of technologies are free unless otherwise provided. But article 15 stipulates that the MOFCOM may subject international trade in certain technologies to licensing procedures.
International trade in technologies must in any case be registered with MOFCOM. Under articles 16 and 17, justifications for the establishment of licensing regimes include the safeguarding of State security, public interests or public morals and the promotion of the establishment of a particular domestic industry.181 Article 18 of the Law provides that a list of technologies, the international trade in which is subject to restrictions, will be published. According to article 19, restricted technologies are regulated by licensing regimes.
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Those engaged in the international trade of technology must register with MOFCOM’s competent bureau.182
Chapter 5 of the Foreign Trade Law specifically addresses issues relating to intellectual property. Under article 29 of the Foreign Trade Law, MOFCOM may prohibit the import of infringing goods.
MOFCOM is also expressly authorized to take measures necessary to eliminate from international technology contracts provisions that prevent the Chinese licensee from challenging the validity of the intellectual property rights in the licensing contract, that impose tying agreements or exclusive grant-backs of intellectual property developments, or that impair fair competition in foreign trade.183 The Foreign Trade Law entitles the government to impose trade sanctions on countries that do not or cannot effectively guarantee Chinese parties national treatment with respect to the protection of their intellectual property rights.184
5.2.2. Scope of application of Chinese law
Technology imports and exports cover all acts of transferring technology from outside into the territory of the PRC or vice versa, whether by way of trade, investment, or economic and technical cooperation, such as assignments of patent rights, patent licenses, assignments of technical secrets or the provision of technical services.185
All aspects of a technology transfer not regulated by Chinese law are subject to ordinary rules of private international law and contract law. For instance, the capacity of an incorporated foreign transferor of technology to conclude or perform the contract is not covered in Chinese regulations and thus, under private international law, would usually be decided under the law of the country where the company was constituted.
5.2.3. Definitions of technology
The concept of technology introduction under Chinese law is defined in a broad sense as all introductions or transfers of technology by means of trade or economic and technical co-operation, involving:
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5.2.4. Definitions of transfers of technology
The most common ways of transferring technology into China are the following:
5.2.5. Conditions applicable to technology transfer contracts
Imports of technologies covered by articles 16 or 17 of the Foreign Trade Law as mentioned above are prohibited or restricted. MOFCOM sets down and publishes lists of such classifications.186
Prohibited technologies may not be imported at all, and restricted technologies may only be imported subject to grant by MOFCOM of licenses.187 MOFCOM grants such licenses upon applications by the importers, including any specific authorizations that may be required in connection with particular activities.188
With respect to restricted technologies, two alternative procedures are provided by the Technology Import and Export Regulations.
First, under articles 12–14, an application may be filed with MOFCOM to obtain a letter of intent to approve the importation. MOFCOM must reply within 30 days of receipt of an application. Upon receipt of a letter from MOFCOM confirming its intent to approve the license, the importer may proceed to sign the relevant contract, and then reapply to MOFCOM to obtain the actual license to import. MOFCM at that point verifies the “authenticity” of the contract and must issue its ultimate decision to approve or disapprove the importation within ten days.189
Or, under article 15, the technology importer may include in the original application to MOFCOM a copy of the concluded contract, in which case MOFCOM must reply within 40 days either granting or refusing the license.
Article 16 requires that the MOFCOM issue the license once the importation has been approved. Only after the license has been issued can the relevant contract enter into effect.
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Even technologies that may be freely imported must be registered with MOFCOM, though the accomplishment of the procedure is not a precondition of entry into effect of the agreement.190 The declaration of importation includes a copy of the contract and proof of the legal parties’ status.191 The MOFCOM then must issue a certificate of registration within three days, which entitles its owner to make the relevant foreign exchange movements.192 When the “main contents” of a technology import contract are amended, the licensing or registration procedures, as the case may be, must be renewed.193
Under article 22 of the Technology Import and Export Regulations, imports of technology may be contributed as capital to Chinese companies or legal entities, provided they are approved under the foreign investment regulations.
MOFCOM officials are bound to respect the confidentiality of information they receive in the performance of their duties.194
The foreign technology exporter warrants that it either owns the technology or has the right to assign or license it. In the event of a challenge by a third party with respect to the foreign transferor’s rights, the importer must inform the exporter, which must cooperate in “removing the impediment”.195 Where an infringement of the third party’s rights has occurred, the exporter must bear the liability.
Under article 25 of the Technology Import and Export Regulations, the foreign technology supplier warrants that the technology is “complete, accurate, effective and capable of achieving the agreed technical object”.
Each of the parties is required to keep confidential the undisclosed part of the contracted technology, unless it becomes disclosed through no fault of the importer.
Article 27 of the Regulations imposes that developments of the imported technology during the term of the import contract belong to the party that made the improvements.
When technology contracts expire, the parties “may negotiate on the continued use of the technology according to the principles of justice and equity”.196
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Article 29 prohibits that technology import contracts:
5.2.6. Violations and sanctions
According to article 47 of the Technology Import and Export Regulations, imports of prohibited or restricted technologies that do not respect the above procedures, or that do so outside the scope of the importer’s business, may be treated as the criminal offences of smuggling, or carrying on business without a license or, in the case of exports, as violations of national secrecy laws. In less serious cases, MOFCOM may issue warnings, confiscate illegal income and impose fines up to five times the illicit gains, or revoke the foreign trade license.
Import and export licenses may not be falsified,197 nor may they be obtained by fraudulent means.198 Civil servants of MOFCOM may be subject to criminal sanctions for violating their duties of confidentiality.199 Nor, under article 52 of the Regulations, may civil servants of MOFCOM “abuse their official power, ignore their duties, or take advantage of their official positions to seek or seize financial and property gains”.
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Major amendments to the Patent Law are announced for 2008. For over a year, drafts of the amendments have been available for comment from observers both inside and outside of China, which represents a significant improvement compared with previous methods of legislation and illustrates China’s greater transparency in complying with its WTO commitments. Among the proposed amendments, the list of events that may trigger compulsory licensing would be expanded to include epidemics and unavailability of drugs in China. In addition, the proposed amendments may expand the categories of inventions that are not patentable. The amendments are also intended to clarify and expand the powers of the patent administrative authorities.
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1 The Law was adopted at the Fourth Session of the Standing Committee of the Sixth NPC on March 12, 1984; it was amended by the Decision Regarding the Revision of the Patent Law adopted at the 27th Session of the Standing Committee of the Seventh NPC on September 4, 1992; and it was amended for the second time by the Decision Regarding the Revision of the Patent Law adopted at the 17th Session of the Standing Committee of the Ninth NPC on August 25, 2000.
2 The Trademark Law was adopted by the 24th Session of the Standing Committee of the Fifth NPC on August 23, 1982, revised for the first time by the Decision on the Amendment of the Trademark Law adopted at the 30th Session of the Standing Committee of the Seventh NPC, on February 22, 1993, and revised for the second time by the Decision on the Amendment of the Trademark Law adopted at the 24th Session of the Standing Committee of the Ninth NPC on October 27, 2001.
3 J. Kohler, Handbuch des Deutschen Patentrechts, (1900), p.19.
4 One “li” equals half a kilometer.
5 Historical Materials of the Taiping Heavenly Kingdom, Zhonghua Publishing House, Chinese edition, 1955, p.29, 40.
6 Zhuanli (monopoly of interest), though inventoried in ancient Chinese, is actually translated from the term “patent” in the middle of 1850.
7 Complete Works of Li Wen Zhong Gong, vol. 43.
8 Later, more and more patents were granted. For example, in 1889, a ten year patent was granted to a paper mill, established by a merchant in Guangzhou, Zhong Xi Liang, and another was granted to a spinning mill in Tongzhou, in the province of Jiangsu. In 1895, a 15-year patent was granted to a grape winery in Yantai, in the province of Shandong and another was granted for an innovative technique applied to an old weaving machine.
9 Patent Work Developments, P1ublisher place no. 26, 1983, p.7.
10 Two months after promulgation of these Regulations, the Reform Movement of Emperor Guangxu was destroyed by the Empress Dowager and the Regulations were immediately cancelled.
11 According to the 1928 regulations, industrial products and their manufacturing processes could be granted patents for 15, ten or three years. Under the 1932 regulations, the terms of patents were stipulated to be ten and five years.
12 This law provided three categories of patents: patents for inventions, with 15-year terms; patents for utility models, with ten year terms; and patents for industrial designs, with five-year terms. All the terms began to run on the date of filing. Though this law did not enter into force on the continent under the rule of the Guomindang Government, it did enter into force on January 1, 1949, in the province of Taiwan where, subject to many amendments, it remains in effect.
13 Patent Fundamentals, China Patent Textbook, Patent Documentation Publishing House, 1993, p. 17.
14 Collection of Laws and Decrees of the PRC 1949–1950, People’s Publishing House, 1952, p.539.
15 Such as pharmaceuticals, as well as agricultural and plant species.
16 The Committee was comprised of eight members, all experts from the legal, foreign trade and scientific-technological fields, namely, Song Yongling, Tang Zhongshun, Hu Mingzhen, Zhu Jingqing, Zhao Yuanguo, Xia Shuhua and Duan Ruilin, and Guo Shoukang.
17 Guo Shoukang, Drafting and Promulgation of the Chinese Patent Law, IIC, vol. 16, no. 4/1985, p. 369. A Forum on Patent Issues and a Symposium on Patent Law was held in Beijing respectively during the months of October and November, 1980. After these two meetings, there remained differences of opinions.
18 In 1992, the United States designated China as a “priority foreign country” under the US trade representative’s watch list system (the Special 301 Actions: under Section 301 of the Trade Act of 1974, 19 U.S.C. § 2411-16). In response to this designation, the US and the PRC entered into a Memorandum of Understanding in which China committed to certain improvements in its intellectual property legislation. Early Chinese adherence to this agreement was promising, with the PRC enacting intellectual property laws comparable on paper to those of most industrialized countries. See Theodore H. Davis, Jr., Sino-American Intellectual Property Rights Trade War Narrowly Averted, The American Bar Association Section of Intellectual Property Law Newsletter, Vol. 13, No. 4, summer 1995, p.4.
19 Promulgated by the State Council on June 15, 2001 and effective as of July 1, 2001.
20 Also, the Guidelines for Examination, prepared by the Chinese Patent Administrative Department and in effect since April 1, 1993, though they do not rank as law or regulation, are still very important for applying and understanding the Patent Law and its Regulations.
21 The law was adopted by the Second Session of the Fifth NPC on July 1, 1979 and amended by the Fifth Session of the Eighth NPC on March 14, 1997.
22 Article 216 of the Criminal Law.
23 Article 220 of the Criminal Law.
24 The law was adopted at the Fifth Session of the Standing Committee of the Eighth NPC on December 29, 1993 and promulgated by the President on the same date to enter into effect on July 1, 1994, amended by the 18th Session of the Standing Committee of the tenth NPC on October 27, 2005 with effect on January 1, 2006.
25 Adopted at the Second Session of the Fifth NPC on July 1, 1979, and amended by the decision on Amendment to the Law on Chinese-Foreign Equity Joint Ventures adopted at the Third Session of the Seventh NPC on April 4, 1990.