China: Does It Still Make Sense To File An Application For Registration Of A Patent In The People´s Republic Of China (And In Other Countries)?

Last Updated: 8 May 2008
Article by Willi Vett

This article was originally published in the March 08 edition of the magazine "China Contact"

The figures published by German customs every year are alarming. In 2006 customs impounded electrical equipment with a total value of approximately EUR 110 million while seizure measures were effected at the border. Customs authorities effect seizures in order to prevent the import and export of counterfeit products. Roughly 70 % of the electrical equipment seized by customs came from the People's Republic of China and Hong Kong.

How can a European enterprise protect itself against product piracy in China? On the legislative level the People's Republic of China made considerable efforts to better protect owners of industrial property rights. The effective implementation of industrial property rights is, however, still inadequate. There is no standard solution grappling with all problems. With a diligently formulated strategy, the so-called IP strategy, an enterprise may, however, try to minimize the consequences and impacts of product piracy. Unfortunately, the IP strategy of many enterprises is confined and limited to statements, such as: "We are doing nothing, since we are imitated anyway." However, this might have fatal consequences. A comprehensive IP strategy must consist of a combination of legal, internal/in-house, technical and political components. As a rule, a unilateral strategy including only one of these components might hardly be promising.

The legal measures include the registration of industrial property rights, a diligent and careful contract management and the enforcement of industrial property rights by way of legal proceedings.

Two objectives are pursued with the application for registration of industrial property rights in the People's Republic of China. First of all, an application for registration provides for the necessary legal basis in order to be able to proceed against counterfeiters in the PRC at all, since, in practice, the Chinese legal system does not afford the possibilities of taking action against product pirates if the own industrial property right is not protected in the PRC. There exists no automatically accruing right in a registered design which is similar to the non-registered community design in the European Union. Furthermore, it is, in general, impossible to proceed against a manufacturer of so-called colourable (slavish) imitations on the basis of the law against unfair competition.

But even if an enterprise - within the scope of an IP strategy elects not to take an action against product pirates in the People's Republic of China an application for registration of industrial property rights is important, since - with a well-timed application - it will be prevented that counterfeiters arrange for registration of the industrial property right not yet applied for registration. What first sounds preposterous is, unfortunately, reality for many enterprises in the PRC. The costs incurred by an application for registration of industrial property rights do not act as a deterrent for counterfeiters in the PRC, since such a registration makes commercial sense and is worthwhile in the long run. In the event of a trademark registered in the PRC, cancellation proceedings if successful at all last, at least, five years. Similar applies to patents, designs and utility models. During this period the counterfeiter may use the registered industrial property rights exclusively and may even prohibit the rightful owner from using them within the People's Republic of China.

This was impressively confirmed by a court in Wenzhou in a patent litigation case in September 2007 where a subsidiary of the French Schneider Electric Group was adjudged to pay damages in the amount of approx. USD 43 million. The company had built components, for which the Chinese plaintiff had Chinese patents registered, in its products. The objection raised by Schneider Electric that the patent should not have been registered, since the components had already been state of the art and have been used by Schneider Electric since long was acknowledged neither by the court nor by the Chinese patent office.

On the other hand, the application for registration of patents or utility models results necessarily in a disclosure of the process worth of being protected. It is, therefore, understandable that there is an increasing number of publications stating that applications for the registration of patents and utility models would be counterproductive and that enterprises would protect their know-how better if they safeguard it as business secret. We share this view only in part. If it is relatively easy to copy a product by reverse engineering, then an application for registration of a patent or utility model is worthwhile anyway on the strength of the aforesaid considerations. However, as far as the process know-how is concerned it should actually be considered whether internal security makes the observance of secrecy possible which may then protect a product better against being copied than a patent application. Business secrets must be protected by a sound contract management with enforceable secrecy clauses. Then one can proceed against an infringement, inter alia, also according to the rules of unfair competition.

The Chinese legal system provides for a so-called dual system in the enforcement of industrial property rights. On the one hand, industrial property right owners in the People's Republic of China may institute civil proceedings against counterfeiters. Apart therefrom, industrial property right owners could also initiate administrative proceedings where the competent authorities may issue orders to cease and desist, determine penalties, make raids and seize any copied products. In cases of particularly severe infringements the public prosecutor should be involved. Thus, Chinese law does have possibilities to take and enforce legal measures against product pirates. Unfortunately, in practice, these proceedings are often time-consuming in particular, if local authorities have no interest in enforcing them.

Another question, which has to be dealt with by the electrical industry, is the problem of product liability. In the People's Republic of China both sellers as well as manufacturers of products can be held liable in tort. After all, only manufacturers of the final product and not suppliers should be regarded as manufacturers within the meaning of product liability law. The manufacturer will be liable irrespective of whether he has neglected his duties. He will, however, not be liable if he has not marketed the product, for example, since it is a complete fake. The manufacturer, however, will be liable for counterfeit components supplied by sub-contractors if these counterfeits are (deliberately or unknowingly) installed and built in his final product and cause damage. Therefore, it is important for enterprises to ensure by internal/in-house and technical measures that no sub-standard counterfeits could intrude their supply chain.

The problem of product piracy is increasing not only in the People's Republic of China. Enterprises affected are, therefore, obliged to develop an IP strategy as early as possible, thus, curbing product piracy as best as possible and within a reasonable scope. The aforementioned advice by some, to completely refrain from registering patents in the PRC is, however, rather too general and is not helpful to address complex problem of patents protection and infringement in the PRC.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions