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:
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.