China Film Industry

Mathew Alderson, our lead China media and entertainment lawyer out of Beijing, was interviewed recently for a China Economic Review story by Hudson Lockett, entitled, 2015: The Year China’s Film Industry Doubled Down on Content. The full text of the interview is below, with the publisher’s kind approval.

CER: What were the biggest developments in China for cinematic IP during 2015 and in the year to date?

Alderson: In my opinion there were no particular developments. We simply saw the continuation of a trend in which the Chinese are prepared to pay more for the right to distribute foreign content. For instance, 2015 saw a big increase in fees paid for flat-fee imports. These are usually non-studio films outside the 34-film quota for revenue share imports. Tencent provides another example. In 2015 Tencent augmented its earlier purchases of Hollywood content by acquiring catalogues from Fox and National Geographic for streaming in China. In my view, this trend is supported by steady improvement in copyright protection. Chinese companies in particular are reporting greater success in administrative proceedings against pirates. These proceedings are run by government departments and not by the courts. The fines can be quite substantial. Copyright is now becoming a sword in the hands of Chinese rights owners. Chinese companies are not going to spend a lot of money acquiring rights from foreign sources only to let Chinese pirates in the next province free-ride on the investment. Up until quite recently it was only the foreigners that had this kind of attitude.

CER: How has the November release of a draft law on box office regulation changed the industry landscape, and are there any legal ramifications already being felt prior to the final version seeing daylight?

Alderson: It has not changed the landscape and there have been no legal ramifications as far as I can tell. As I said in my blog post on this at the time, “Fundamental changes to the existing regulatory framework, as it affects foreigners, are not proposed in the draft law. Foreigners will still be prevented from engaging independently in film production in China. Foreigners will still be prevented from engaging in film distribution in China. No mention is made of any lifting of the quota on importing foreign films on a revenue-sharing basis. Still, many of the changes would definitely streamline the official co-production process for foreign producers. There is also now express official recognition of the need for improvements in the system of film finance and the need for tax incentives for local producers.”

CER: Recent years have seen improvement in copyright protection — for example with takedown requests for content online. But 2015 saw some high-profile domestic films marred by infringement and plagiarism claims. Where does the disconnect lie in terms of enforcement on these two fronts?

Alderson: China’s takedown system works quite well but it does not compensate copyright owners for their losses. Once infringing content has been taken down that’s usually where the matter ends unless the copyright owner is prepared to initiate court proceedings. In that case the owner will confront the objection that a takedown provided, or could have provided, an effective remedy. It is very hard to prove copyright damages in Chinese court proceedings. A very low statutory ceiling applies if damages are not clearly proven. The result is that the threat of damages is not a deterrent to infringement. At the same time, foreigners have not been as successful as Chinese companies in seeking administrative relief for copyright infringements.

CER: There was some controversy last year when one studio executive suggested screenwriters should take a backseat to other sources of IP on the rise in China, such as online fiction. It may have sounded flip, but to what extent does that sentiment reflect real changes in how new IP is sourced domestically?

Alderson: I frequently hear that there is still a shortage of good screenwriters in China. We have not yet seen the emergence of a professional class of screenwriters supported by a guild, and represented by professional agents, as we have in Hollywood. The secretary general of the Guangdong Film Industry Association reportedly put it this way, “In the future, the model will be: we find out what you want to watch, then we make it for you. Only those investors who understand the Internet and mobile users will be able to turn a handsome profit from filmmaking.” I think he is right. Internet companies can use their access to social media, big data and online ticket sales to pick trends and test audience tastes. Whether the scripts will be of a high standard is another matter.

CER: In addition to the standard Hollywood blockbusters and domestic sequels, a few of 2015’s top performers at the box office had roots in streaming online sketch comedy, and one was actually crowd-funded. Are these reflective of deeper changes in audience interest and, as a result, industry funding?

Alderson: Yes. We are seeing domestic motion pictures emerging rapidly out of so-called online literature. The online space is surprisingly robust and vibrant here. If a relatively small proportion of the population shows interest in a particular idea or topic the population is so large that you are suddenly talking about a massive audience. This is what drives Chinese online innovation. There are about half a billion people online in China. They are all using handheld devices. They leapfrogged desktops and PCs just like they went straight to mobile without fixed line phones. For many of them, consumption takes place entirely online. This is not happening anywhere else in the world.

CER: Does January’s Wanda-Legendary deal represent something bigger for how IP is approached by Chinese firms at the national and global level?

Alderson: I don’t see a unique IP angle but it’s still a big deal.

Legendary Entertainment is a proven Hollywood production company. It’s Hong Kong affiliate, Legendary East, has a co-production deal with China Film Company, a powerful Mainland S.O.E. That same affiliate is now producing, for global release, a big-budget Chinese motion picture with a major Hollywood star and one of China’s most famous directors. A majority stake in Legendary Entertainment would give Dalian Wanda unprecedented production capacity spanning China and the U.S. The potential for the integration of this capacity with the theatrical exhibition reach of Wanda Cinemas and AMC Entertainment is self-evident.

This definitely holds true for China copyrights takedowns.
This definitely holds true for China copyright takedowns.

 

This is the fourth in a series about online copyright takedowns. Copyright Takedowns in China was a general summary of the regulations that establish the takedown procedures. These regulations enable enforcement of the “right of communication through an information network” as it applies to sound recordings and audiovisual recordings. Copyright Takedowns in China Part II: Searching, Linking or Storing? looked at how providers of storage space encounter more liabilities than those merely providing searching or linking services. The application of the takedown regulations to cloud service providers was covered in Copyright Takedowns in China Part III: Audiovisual and Sound Recordings in the Cloud.

Our China lawyers are handling more and more takedown work these days and one thing is very clear: if you ever expect to have infringing content taken down the single most important thing you should do is register your copyright in China in advance. The reason for this is simple. If you attempt to invoke China’s notice and takedown system the internet service provider will put you to proof. If you don’t have a Chinese copyright registration certificate ready to go you will need to prove your copyright ownership. Though Chinese network service providers all have their own requirements for this, all of them will require you to provide a bunch of chain of title documents that have been translated into Chinese. These documents will be essentially the same as those required to obtain a registration anyway. Once you have proven your ownership to a network service provider, you will have nothing to show for all the work, except, we would hope, the taking down of the infringing content in one instance. You will need to repeat the exercise again and again if numerous sites are involved or if your content goes back up again on a site from which it was taken down.

So speed up the takedown process, and have something to show for your work, by registering your copyrights in China. If you have your chain of title ducks in a row it will be quick and inexpensive to get a registration. You will then be ready to strike.

The eight IP questions you should be asking before you bring your business into China.
The eight IP questions you should be asking before you bring your business into China.

The below is a modification of a ten item list on the Heerlaw website. That list was geared towards Canada; this one is geared towards China.

The Heerlaw list starts out advising new companies to concern themselves “with intellectual property rights at the start of any new business.” It goes on to note that if your new business fails to respect others’ intellectual property rights, it may become liable for damages and it also could be required to rebrand or redesign its product or service.

All this holds equally true for China, where many a foreign company has sought to retain one or more of the China lawyers at my firm to pursue claims against a company in China that is “violating our trademark,” only to have us discover that our client is actually violating the trademark of the Chinese company. Why the disconnect? Because the foreign company assumed its trademark rights extended to China and based on that assumption, had failed to register its brand name or logo in China and a Chinese company had beaten them to it and now owned it. See Don’t Sleep on Your China Trademark.

The following are the eight questions foreign companies starting a business in China (or even with China) should be asking about their own intellectual propery before they start doing business in China (or even with China):

  1. Can we adopt, use and register as trademarks in China the names we want to use for our products or services in China?
  2. Is any aspect of our IP new, inventive and useful and therefore potentially patentable in China or anywhere else relevant to our business?
  3. Have we instituted procedures to keep any of our potentially patentable inventions confidential until a patent application may be filed? See China NNN Agreements — No, Don’t Do That
  4. Are there any third party patents that could prevent us from selling our services or products in China or even from manufacturing our products there or anywhere else?
  5. What aspects of our products or services are protected by copyright?
  6. Is the design of our product protectable as a design patent in China or elsewhere?
  7. Are there any third party design registrations that could prevent us from selling our product in China or .elsewhere?
  8. Do we have written agreements with our China employees and manufacturers that clearly assign IP created to us and that provide for maintaining the confidentiality of our information and our trade secrets? See The Four Keys To China Trade Secret Protection

The China Music Business Blog (who knew?) just did a post by University of Oregon Law School Professor Eric Priest. Priest’s bio notes that he previously “worked in the Chinese music industry as a consultant, entrepreneur, and producer.”

Priest’s post (paper) is entitled, Making Amends: China Music Copyright Law Primer, and it is broken out into the following sections:

  • The Development of PRC Copyright Law
  • Copyright Law Since China’s Entry into the WTO
  • Copyright Enforcement—Administrative and Judicial Enforcement Routes
  • Internet Enforcement

It really does provide an excellent overview on China copyright laws, especially with respect to its handling of music copyrights.  I found myself nodding along as I read it, except on the following two points.

The article discusses how China “has a notice-and-takedown regime akin to § 512(c) of the Digital Millennium Copyright Act in the U.S.” On that I agree. The article goes on to say that “under the Chinese regulation, if a copyright owner notifies a website of the presence of an infringing work, the website is not contributorily liable so long as it: (1) provides notice to the subscriber using its storage space, (2) does not alter the work in question, (3) has no knowledge of or reasonable grounds for knowing of the infringing act, (4) does not seek to financially benefit directly from the works, and (5) expeditiously removes the content after receiving the 5) expeditiously removes the content after receiving the notice.” On that, I also agree.  But Priest then says that “for music copyright owners in particular, this procedure has provided little relief.” On this, I agree a less now than I would have two or three years ago.

I say this because in the last year or so, our China lawyers have achieved far greater success in getting China internet sites to take down content that violates IP rights, even copyrights and even music. In the past, websites were (and, admittedly, many still are) unwilling to take down anything unless you could prove that the offending material violated a trademark, patent or copyright registered in China.  This position makes some sense with respect to trademarks and patents, because generally a trademark or a patent in one country does not extend to another. But as a signatory to various conventions, China is supposed to provide at least some copyright protection to foreign works, including those from the United States. Chinese websites were in the past pretty much oblivious to this and they would seldom take down foreign content as violative of China’s copyright laws. That is slowly changing.

The other matter on which I take small issue is this sentence, that actually cites to our blog for its support: “As a practical matter, however, injunctive orders have been difficult to enforce in China.”  Again, I agree on this less now than I would have even a year ago.  When we wrote the blog post, Protecting Your IP In China With An Injunction. Yeah, That’s The Ticket, back in 2012, securing a preliminary injunction for an IP violation was pretty much unheard of.  But since then, more particularly starting in late 2013, quite a bit has changed on that front.

First, China’s Supreme Court issued a statement effectively urging China’s courts to be more liberal in granting preliminary. Second, in apparent response to the Supreme Court’s exhortation, there have been a few patent infringement cases in which preliminary injunctions were granted on behalf of foreign plaintiffs and there has even been a case in which a foreign plaintiff (Novartis) was granted a preliminary injunction in a trade secret case against one of its former employees.

Notwithstanding my two petty beefs with the piece, I think it would be extremely helpful to anyone with an interest in China copyrights and I urge everyone with that interest to read it. And for more on China’s music industry, check out China’s Music Industry.

Just came across an interesting post with a not so interesting title on the China IPR Blog: IP Developments in Beijing.  The post starts out discussing how “due to the rapid increase in IP cases in the Beijing Number 1 Intermediate Court, particularly IP cases involving patent and trademark validity, the Beijing Intermediate Court will split its Intellectual Property Tribunal in two” with the number one IP Tribunal hearing mostly trademark and unfair competition cases and the number two IP tribunal hearing mostly patent and copyright cases.

The post then notes that the Beijing court (which hears about 10% of all China IP cases) has seen its case load increase from “4,748 cases in 2008 to 11,305 in 2012, an increase of nearly 150%,” with copyright cases representing about half the total.

This is important for foreign companies doing business in China and here’s why.

  1. Rational human beings do not generally spend money on something that is not going to bring them any benefit.
  2. Bringing a lawsuit in China always costs money (China court filing fees tend to be fairly high), oftentimes a relatively large amount of money.
  3. Chinese businesses tend to be made up of rational human beings who understand the value of an RMB.
  4. Chinese businesses must believe that they can get the Beijing IP court to give them redress for alleged IP infringements or they would not pursue the lawsuits.
  5. Chinese businesses must, in increasingly large numbers, believe that they can get the Beijing IP court to give them redress for alleged IP infringements or they would not be increasing the number of IP lawsuits they are pursuing.
  6. Chinese businesses are almost certainly correct in their belief that suing before the Beijing IP court will give them redress.
  7. If Chinese businesses are correct in their belief (and they almost certainly are, see number 6 above), that means that IP enforcement, at least through China’s courts is improving.

Independently of the above, you would have a tough time finding a China lawyer who does not also believe that IP enforcement in China is improving, particularly with respect to trademarks.

IP enforcement/IP protection is improving in China for two main reasons.  First, Chinese companies and foreign companies alike are now realizing that it makes sense for them to register their trademarks, copyrights and patents in China so that they have an opportunity at being able to protect them (in the courts, among other places).  And two, China’s courts are increasingly realizing the importance of protecting IP in China, largely because Chinese companies increasingly want them to grant IP protections.

What this all means for those of you doing business in China is that you too should be jumping on the IP registration bandwagon.  For more on protecting your IP in China, check out the following:

  • How To Protect Your IP From China. Part 2. What we, as China lawyers, look at in trying to protect our clients’ IP from China and what you, the company, should be looking at and doing to protect your own IP.

What are you seeing out there?

A few months ago, a couple of our China lawyers did a project for a company looking for various ways to bring its internet game to China.  Now that the project is over, I cleaned up my files and came across an initial email interaction between the client and me, that went something like the following (the point of which is that China’s internet is different from the West, and legally complicated):

Q. How can we register trademarks in China? We’ve already registered them in the United States and in Vietnam (that’s a long story), but now we are ready to register them in China. What do we do?

A.  You register trademarks in China pretty much like anywhere else, which means that you firs figure out the appropriate category/class and then you register your trademark in that category/class. The thing about China though is that if you register your trademark in video games, you have zero protection from someone using your trademark on their t-shirt or even in their book. Add in the fact that all of this has to be done in Chinese and you can see how difficult it is. Then there is the separate issue of copyrights, which may or may not protect some of what you are doing.

Q.  Is there anything special about internet games in China?  
The legal issues relating to the internet in China are just so numerous as to be impossible to discuss without my knowing more about your intentions. The really short answer is that foreign online content is illegal in China and some people make a fortune from it and others go to jail.
Dealing with the internet in China is usually quite expensive; most who go in on the cheap end up getting everything stolen.
We represent two large companies involved in businesses similar to that to which you aspire and we are constantly having to deal with China IP issues for them.

BBC did an hour-long show today with Nassim Nicholas Taleb, author of the groundbreaking book, The Black Swan: The Impact of the Highly Improbable.   Taleb’s thesis is that we humans tend to be “blind” to major (a/k/a black swan) events.

During the show, an audience member who announced that he was from Vietnam, asked Taleb whether there are any cultural differences regarding black swan events.  Taleb and the announcer then did a fairly short riff on how failure is a “badge of honor” in Silicon Valley and on the West Coast of the United States, but is viewed far more negatively on the East Coast of the United States and in England, and even more to be avoided “in Asia.”

I am going to be speaking at the Plastics News Executive Forum in Tampa in late February on protecting your IP in China, and as a bit of a prelude to that, I am participating next week in a free online webinar that asks “Can China Innovate?”  Now I do not think that I would be giving too much away by saying that my answer to that question is, yes, of course it can, because it has.  Rather, the question is what changes must we see in China for it to increase its innovation so as to even come close to the United States as an innovation powerhouse?

The bulk of my talk is going to focus on the legal aspects of China IP that need to change/improve for China to increase its innovation, but the BBC show really did get me to thinking about the cultural aspects as well.  Does China have a risk averse culture?  I don’t think that is true overall, especially since it is extremely entrepreneurial.  Yet, it also strikes me that far too many of China’s best and brightest view a government job as their highest and best use/opportunity and governments are just not going to be the font of much innovation.

So does Mainland China have a culture well suited for innovation?

You tell me.

What do you think?

 

Very interesting discussion recently took place on our China Law Blog Linkedin Group.  The discussion was started by a businessperson wanting to know whether “‘—the concept of prior art’ in patent and trademark application really exists in China?”

I am rehashing the discussion below for three reasons.  First, because I think it nicely highlights the sort of high level discussions we have on our Linkedin Group.  Shameless plug:  If you are not yet a member, please join us!  Two, because the views are so common and show a real division between lawyers and non-lawyers on the issue of China IP. The lawyers’ attitude is essentially, register your IP in China or don’t complain, while businesspeople seem to want to focus on how China is different and thereby worse when it comes to IP protection.  Third, I think it provides expert instruction both as to what you need to do to protect your IP in China and as to what can happen to you if you fail to do so.

So without further ado, here is that discussion.

Michael Lin, a patent lawyer with Marks & Clerk out of Hong Kong, answered the initial question as follows:

Yes, prior art exists in China with respect to the patent law — which requires both novelty and an inventive step over the prior art. “prior art” with respect to trademarks is a bit different, so I believe that you may be getting these concepts confused.

To which the businessperson responded by launching into a mini-diatribe on the lack of IP protection afforded to foreign companies under China’s IP laws:

Michael, I’ve seen cases when patents were filed and granted to Chinese companies that practically copied the existing patents existing elsewhere. The same story with the trademarks — my company’s trademark has been registered by someone else before we could do it (we’ve been using for it over 10 years internationally) and, from what I was told, it’s nearly impossible to get it back through court.

If existing patents or trademarks don’t constitute prior art, then I’m not sure what exactly is meant by it in China and whether it has any practical value when it comes to protecting your IP assets.

Michael then sought to further explain China’s patent laws:

Generally: Just because a patent is granted does not mean it is valid. Also, China is a first-to-file country for both patents and TMs.

For the patents you talk about above, are they Invention Patents or Utility Models (UMs) that were filed and granted? Prior to grant, Invention Patents in China undergo substantive examination where they are checked for novelty and inventiveness. In China, both UMs and Design patents are not checked prior to grant and therefore whatever is filed is granted. However, owners of such UMs and Designs are supposed to have a search/assessment conducted prior to enforcing the Design/UM against an infringer. Furthermore, it is possible to invalidate patents, Designs, and UMs that are granted by the SIPO – you just collect the correct evidence (prior art) and to follow the established invalidation procedures.

With respect to TMs, the Chinese TM examination does not take into account whether someone else owns the TM outside of China, or if it is a famous TM outside of China. However, the new TM law that just went into effect makes it much easier for legitimate TM owners to combat bad-faith TM filings.

At which point, Randi Miller, a China lawyer with Foley & Mansfield in Minneapolis, sought to further explain China’s old and new trademark laws:
Michael, we do not know whether it will be “much easier” for legitimate TM owners to combat bad faith filings under the amended trademark law. The language is vague and we all have to wait to see how it is interpreted. The law is certainly intended to combat this problem, but whether it will be effective remains to be seen. Also, the law does not go into effect until May 2014 and it does not apply retroactively to existing registrations or applications that are filed before May 1, 2014.Val, “prior art” is a patent concept only, it does not apply to trademarks. What you are asking is about is whether prior rights in a trademark can be used to stop someone from registering it. In general, trademark rights are territorial and you do not have rights in a mark in one country just because you have rights in a different country (though in some cases, the fame of a mark outside of the country might make a difference). Europe is a big exception since one Community Trademark Registration will cover 27 different countries.China is not really different from other first to file countries (which is most of the world) except that bad faith filings for the purpose of making trademark owners buy the rights to their marks in China are rampant and effectively an industry here and the law has been supporting the continuation of this situation. I think that the IP problems are slowly going to get better because the Chinese are now becoming entrepreneurs and wanting to develop and own IP themselves.

The businessperson then responded, once again assailing China’s IP protections and stating that they are “vastly different from the rest of the world”:
Thank you all for commenting on my question. It cleared some of the issues I was looking for answers to.From my experience however, I do feel that China’s application and interpretation of IP rights are vastly different from the rest of the world. I doubt that things are going to change anytime soon, simply because too many people are benefiting from the existing situation.Here is an example from my own industry: a well-connected Chinese company (by which I mean connected to some local government) starts by registering patents that were issued to another manufacturer elsewhere. In the meantime, they reverse engineer that manufacturer’s products (industrial equipment), steal their software source code and produce exact copy. Once the patents are granted (which they proudly display on their website), this company begins to sell those systems locally and becomes a major competitor in the market.

Foreign manufacturer sues them in China but fails, Chinese company sues them back for patent infringement (that they have copied in the first place) and wins!

Moreover, this is not the first time they do it — the same company has a track record of doing exactly the same trick to other foreign manufacturers in the past to the point of driving them off the market completely…

Can anyone imagine such situation anywhere else in the world except in China?

Then I chimed in with the following quasi-retort:
Yes, I certainly can imagine that in other countries. I also think that oftentimes when someone complains about the result in a case, they blame it on the things that you mention rather than admit that they made the mistake(s) that cost them the case. I cannot tell you how many times someone has claimed someone in China stole their trademark when in fact they had been too cheap to have registered it for themselves in the first place. Here’s a blog post I did just last week on how China just isn’t that bad: Doing Business In China. Not That Bad.
The businessperson responded to me with the following:
Dan, I wasn’t just talking about copied trademarks, this is a minor issue. The case I mentioned is about a foreign equipment manufacturer (with over 500 patents worldwide) having their entire system copied to the last screw. Even the file structure is exactly the same retaining most of the original file names…Not only that Chinese legal system could do nothing about it, the copier sued the original and won! The same company used to drive other manufacturers from the Chinese market (in different segments of the same industry) for years using the same tactics and without producing anything original by themselves.Maybe you are right, China isn’t that bad. I’m sure there are much worse places in world when it comes to IP protection, but, since China is where pretty much everything is made these days, one could hardly care about those other places.

I then talked about how cases are so often misconstrued by those not involved in them and how maybe the facts of the patent case were not exactly how he described them:
I know you weren’t talking about trademarks. I was just using that as an example. Take your patent example. Maybe the Chinese company didn’t copy it. What if they had it before the company that patented somewhere else? It’s possible. I am NOT saying Chinese courts are always fair, but I am saying that unless we have ALL of the facts, we have no idea why they ruled the way they did in this case. A classic example in the US where everyone complained about the McDonald’s hot coffee case, but had the facts all wrong:https://www.caoc.org/?pg=facts
Randi Miller then chimed in, very strongly reinforcing how those who talk of having had their IP “stolen” from China never really owned that IP to begin with because they chose not to register it in China:
I agree with Dan that many companies do not want to spend money to protect their IP and later complain, incorrectly, that their IP has been “stolen”. You said that your company used a trademark internationally for 10 years and someone else registered it before your company “could do it”. In fact, your company could have registered the mark at an earlier time, if it had wanted to do so. The other party did not register the trademark before you “could”; it registered the mark before your company wanted to make registration in China a priority and spend the money to do it. Your outrage about the fact that you cannot use Chinese courts to get your trademark “back” is misplaced because, due to its own decision not to do so, your company never owned the trademark in China in the first place. If a developer builds a subdivision with 20 identical houses, I buy 19 of them, but hold off on purchasing the 20th one for a few months, and during those few months, another party buys the 20th house, has that party stolen the house from me? If not owning all of the houses in the subdivision interferes with my plans and I am forced to pay the buyer a price that is far above market price in order to acquire the 20th house so that I can proceed with what I want to do, is the developer at fault for that?In your example, the foreign manufacturer registered its patents “elsewhere”, but not in China. If protection of its software source code was important to its business, why didn’t the manufacturer register its patents in China? However unjust the ultimate result may be, could it have been avoided if the manufacturer had registered its patents (or at least filed applications) in China before the Chinese company had access to the foreign manufacturer’s products?I’m not saying that there aren’t problems with IP protection in China, but I agree with Dan that some of the problems are a result of companies not doing what they should be doing to protect their assets.

Michael Lin then analyzed how the company with the patent problem could probably have better handled it:
In your above scenario, I don’t doubt that it happened exactly as you say — I have seen this happen many times in the past, and have heard similar stories from many sources and in many industries. Nonetheless, there are lessons to be learned here, especially since it HAS happened so many times (a brief conversation with a China hand, or even a brief review of Dan’s blog will show this).The initial mistake made was when the foreign manufacturer didn’t file their patents in China first. If they did this, then the Chinese company would not have been able to “re-register” the foreign IP (I’m assuming patents here, not UMs or designs).Of course, as hindsight is 20/20…so when the above was NOT done, and the foreign manufacturer became aware of what was going on, then the proper thing to do would be for the foreign equipment manufacturer to have invalidated the Chinese company’s patents in the SIPO. As Schneider and other companies have learned you can NOT do this in the court. Furthermore, the foreign company could have tried to register their software’s copyright in their home country, or China, and then sued the CN manufacturer for copyright infringement, if the source code was indeed exactly the same.

These are the first things that jump into my mind in this situation.

Last year, while back at my law school on a speaking engagement, a Chinese law student made the comment that I am always negative on China.  I felt really bad about that and insisted that I am neutral and just calls ’em as I see ’em.  Since then, however, whenever I am quoted defending China’s legal system, I think of that student.

I thought of that student today when I read a China Daily article that has me defending China’s intellectual property protections:

Dan Harris, founding member of Asia-focused commercial law firm, Harris & Moure, based in Seattle, says Chinese courts are starting to get tougher on IPR violations and while that is a good thing, particularly with respect to trademarks, the courts also need to be tougher in enforcing them.

“China’s laws are fine. It’s not just a question of the laws. It’s really a question of implementation. A lot of times it’s a question of implementation not just by the Chinese government but by companies that are doing business in China.”

“A lot of times foreign companies complain about IPR in China, when in reality it was the foreign company that made the mistake of not sufficiently protecting it intellectual property rights when it went to China.”

Harris says China is a lot better now compared to a decade ago, because the country is getting wealthier, and because Chinese companies are starting to become more conscious about IPR.

“I am of the view that countries start doing well with IPR when their own powerful companies really start caring about it. And I’ve seen this progression elsewhere, such as in Japan and South Korea.

“The reality is nobody is going to be able to force China to improve its IP from the outside, but big companies within China, like Haier, Huawei, and Lenovo can do so,” he says.

In fact, Chinese companies, though largely defendants, have a good record of winning IPR cases overseas. Huawei, which has been involved in many disputes with strong rivals such asMotorola and ZTE, provides a good example.

“Interestingly enough, in my experience, Chinese companies that come to the United States take IPR protection more seriously than American companies that go to China,” Harris says.

“I think a lot of the reason for that is because in the United States certain IPR protections are automatic without any need to file for them. So when Chinese companies come over here, in most cases they are prepared to file, whereas when the Americans go over to China, oftentimes they neglect to IPR do the necessary filings.”

Not saying China IP protections are great overall (because they certainly are not), but I am saying that if you are a foreign company and you fail to take the necessary steps to protect your intellectual property in China, it’s your bad, not China’s.

What do you think?

I have to admit that one of the things I love about both China and Russia is that they take various international days seriously, that nobody even knows about in the United States.  I suspect that is due to communism and/or its remnants.  Anyway, as part of today’s World Intellectual Property Rights Day (how many of you knew there was such a thing and how many of you knew it was today?) I was interviewed about the past, present and future of China intellectual property law and intellectual property protections in China.  Here is that interview between Zheng Chenguang (ZC) and me (DH).

 

ZC: First, from the international scene we speak to Dan Harris, founding member of Asia-focused commercial law firm, Harris & Moure, based in Seattle, in the US Mr. Harris, welcome to the program.

DH: Thank you.

 

ZC: Friday marks World Intellectual Property Rights Day.  How do you look at the level of IPR protection today, how better are we compared with the situation, say like five years ago, and do you see IPR protection as mainly a challenge facing the developing countries, rather than the developed countries.

DH: No, I do not. I see it as a challenge for any company that does business anywhere in the world.

 

ZC: Why would you say that?

DH: Because certainly developing countries tend to have a poorer record at IP protection than developed countries, but at the same time, developed countries have all sorts of issues as well.  You’re not going to find a company with more than 100 employees in the United States that hasn’t had a problem with an employee leaving with trade secrets or an employee leaving to compete when they shouldn’t have or with a rival using their design. It goes on everywhere.

 

ZC: In your mind, what is the key to protecting IP rights?  Is it more important to make more or stronger laws, or is it more important to solve the problems related to implementation of the existing laws?

DH: Well are you asking about China or are you asking about anywhere?

 

ZC: How about the situation in China?

DH: China’s laws are actually just fine.  It’s not a question of the laws. It’s really a question of implementation. And a lot of times it’s a question of implementation not even so much by the Chinese government, but by companies that are doing business in China.  Meaning, a lot of times foreign companies complain about IP in China, when in reality it was the foreign company that made the mistake when it went into China of not sufficiently protecting its IP. But one thing I want to clarify, and that is when I talk about IP, I always like to divide it up into three, sometimes even four areas: trademarks, copyrights, patents, and you can throw in trade secrets as the fourth item. And the reason I like to divide this up is because in some of those areas, China is actually quite good, while in other of those areas it’s quite poor, and so it’s really unfair to talk about China IP in general without breaking it up.

 

ZC: You’ve divided IP intro three categories. In what category do you think China has done the best job, and which leaves a lot to be desired?

DH: Trade secrets—China’s excellent. They borrowed the laws from the United States and they tend to enforce them. Trademarks—China’s fine. Their laws are very similar to France, to Sweden, to much of the world, and enforcement is pretty good as well. When it comes to patents, China’s patent laws are not as tough as those in the United States, but those in the United States are tougher than those in Europe, and that’s just the way China wants it … its enforcement isn’t bad. Where China does poorly is in copyrights. And that hurts China’s reputation because so many people ascribe China’s handling of IP based entirely on China’s handling of copyrights. And copyrights involve, generally speaking, content—books, movies, software.   Everybody knows you can buy a DVD of just about any movie on the street in China for about two dollars. That’s a problem.

 

ZC: Chinese Intellectual Property laws, there are origins in Deng Xiaoping’s 1978 reform and opening up policy. During the past decade or so, especially after China’s accession into the World Trade Organization, IP protection has been brought to the fore, since China wants to dock with international standard and adopt international practices. How did China’s accession into the World Trade Organization influence intellectual property rights in China? And how better are we compared to with, say, ten years ago?

DH: China is a lot better compared to ten years ago. I think very little of that has to do with the WTO. I think that China is better because China is getting wealthier, and because Chinese companies are starting to care more about IP. I am of the view that countries start doing well with IP when its own powerful companies really start caring about it. And I’ve seen this progression happen in Japan, I’ve seen this progression happen in Korea, I’ve read about how this progression happened in the United States. The reality is nobody is going to be able to force China to improve its IP from the outside, but big companies within China like Haier, like Huawei, like Lenovo — companies that care about their own IP — are going to be able to force China to improve. That’s what’s happening. And as more big companies come to the fore in China, China’s IP is going to continue to improve. And there’s not much that can be done to rush it. In fact, if anything China’s IP is improving nicely. Meaning, it’s improving at least as fast as Korea’s did, at least as fast as Japan’s did, and probably as fast as the US’s did, but the US was a long time ago.

 

ZC: As the founding member of an international law firm which has operations both in US and in China, what kind of advice do you want to give to say, Chinese investors, who want to do business in the US, and vice versa, what kind of advice do you want to give to US companies making a foray into the Chinese market?

DH: Okay, I’ll start with the US first, US companies doing business with China, because that’s easier for me because I talk about that every day with our clients. The advice I always give is twofold: number one, know what your IP is and know how to protect it yourself. And what I mean by that is look at your own IP and figure out how you can protect it outside of the law. One of the ways you can protect it is don’t bring it over to China, or just bring over part of it.  Or have a good partner in China — one who is not going to steal your IP. These are things called structural IP protection; it’s what companies can do outside of the law. The second thing, register your IP in China. Don’t complain if your IP is taken in China and you haven’t registered it, because if you haven’t registered it in China, it’s not your IP. On the flip side for Chinese companies coming to the United States, our IP system is different from China’s and you better recognize that and you better take it seriously. Interestingly enough, in my experience, Chinese companies that come to the United States take IP protection more seriously than American companies that go over to China. I think a lot of the reason for that is because in the United States certain IP protections are automatic without even needing to file for them. So when Chinese come over here they’re prepared to file, whereas when Americans go over to China, oftentimes they neglect filing.

 

ZC: We understand that China is now trying to effect a transition in its growth model, focusing more on the quality of the growth side, commercial and technological innovation and a so-called knowledge economy would be important factors for China’s economic growth. To what extent will technological innovation play in China’s economic future? Will the roles of intellectual property laws increase their influence in the future?

DH: Yes. And that goes to what I said earlier, that as domestic companies view intellectual property protection as becoming more important, then the country will as well. And so, as China develops more companies with their own intellectual property, China’s intellectual property laws will improve. More importantly, enforcement will improve as well. China is developing sophisticated pharmaceutical companies, sophisticated technology companies. Those companies are not going to let China fall behind in terms of intellectual property protection. They’re going to be fighting for it. So yes, as China’s economy goes more and more towards the high end, I’m virtually certain its intellectual property enforcement will follow right along with it. It has to. And if it doesn’t, that will temper innovation and a knowledge-based economy in China. The two have to go together.

 

ZC: Lastly, Mr. Harris, one of the most controversial and polarizing debates regarding intellectual property law in the modern world seems to be IP law as it applies to the pharmaceutical industries in the developing world. And this year the Indian Supreme Court came down with a ruling against the patent claims by Swiss pharmaceutical company Novartis. Speaking from a broad perspective, what do you think about the debate of availability versus innovation regarding pharmaceuticals and the developing world?

DH: It’s a tough debate. It’s a really tough debate. I think that China has played that hand better than India. When India makes a ruling like it did, all sorts of companies say “I’m not going to India, I’m too afraid.” Yes, India is going to get some medication because of the that ruling, but, in the end, my guess is dollar-wise they probably hurt themselves a lot more than they help themselves. Because companies see — or I should say hear — about rulings like that, and it really scares them. And that’s not what India should be wanting right now. And not just pharmaceutical companies. People hear about a ruling like that and, non-lawyers, by the time it reaches them, they don’t understand that it’s a complicated patent issue/accessibility issue.  All they hear is, “Wow, India doesn’t protect western intellectual property rights. I’m not going to take my widget factory there.”

 

ZC: Right. That was Dan Harris, founding member of the Asia-focused commercial law firm, Harris & Moure, talking about intellectual property rights protection in China. Mr. Harris, thank you very much indeed for your insights.

DH: Thank you very much for having me.