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The Chinese IP market in a nutshell

27.01.2019
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January 27th, 2019

It is now time to review our prejudices that cast China as an assembly line for cheap imitations: many strong Chinese brands are now entering Europe. The more innovations that are introduced by China, the greater the need to wake up to IP rights in both Asia and China. 

China has been renewing its IP administration to bring it to the level of global standards in the 2000s. President Xi Jinping has publicly stated that the rights of IP owners should be respected and infringers punished. The country has already achieved tangible results in improving its IP environment. China has systematically improved both its IP laws and legal structures, and has adopted new practices, including the curbing of protectionism.

The world's largest patent factory

The Chinese IP landscape is dominated by a huge volume of patent applications. Around 350,000 patent applications a year are filed in Europe, but the figure for China exceeds one million. The two companies with the largest number of international patent applications, Huawei and ZTE, are Chinese. This trend shows no signs of tailing off. The trade war with the United States is directing Chinese companies towards the European market, which is stimulating active business protection through patents and trademark registrations. Because companies and the Chinese government understand the importance of IP rights in business, patent and copyright law will be reformed to improve IP rights protection and facilitate the making of IP applications.

Previously, the USA clearly offered a more favourable environment for software and business method patents, for example. However, the US Supreme Court’s decision to restrict the patenting of software has made the situation confusing at the same time as China has become more permissive regarding the patentability of software and business methods. China will be the leading country in AI technology by 2030.

China is entering Europe, particularly in the area of strong electronics, automotive and computer software brands, and recognises the need for IP protection and an effective IP strategy as a shield for its core technologies. Kolster operates between continents in the vanguard of the IP sector: in October, a new Kolster office was opened in Shenzhen, in southern China, which gave Kolster direct access to the heart of activity.

Continuous development

Innovation became one of the key objectives of China’s five-year plan back in 2015. The Chinese administration has therefore developed tax and financial incentives to encourage the filing of patent applications. There has also been a significant increase in the amount of damages awarded for IP infringements. For example, the amount of damages awarded for patent infringements since 2015 has almost tripled from EUR 56,000 to around EUR 175,000.

In 2014, three specialised IP courts have been established in Beijing, Shanghai and the Guangdong province as the courts of first instance for all IP cases in their territories. These IP courts are systematically reducing protectionism and guarantee fair and equal treatment to foreign companies in IP disputes. In addition, the IP courts have judges and technical inspectors who investigate complex cases more effectively than other local actors.

Trademark disputes between Chinese and foreign companies due to the overseas expansion of Chinese companies is bringing further impetus to enhance IP rights in China. Defeat in such disputes is encouraging Chinese companies to improve their IP protection. In addition, more and more foreign companies are expanding into China and seeking IP protection against potential IP infringements.

A challenging market environment

China's IP environment is developing at a dizzying speed and offers an attractive business sector. On the other hand, the challenges facing companies cannot be shrugged off. China is home to a large number of IP infringements and local legislation is not in line with European IP systems. Corrective action is either challenging or remains incomplete in many cases of IP infringement. However, most difficulties in terms of IP in China can be prevented and avoided through careful preparation and a comprehensive IP strategy.

Local protectionism can cause problems for foreign companies, whereby the local party is favoured in a court decision on copyright infringement. When bringing court actions against Chinese companies, foreign companies have encountered difficulties in obtaining compelling evidence, as well as due to bias.

However, Chinese courts do not always decide in favour of domestic companies. For example, in March 2017, Apple Inc won an infringement case against Chinese companies in the Beijing IP Court, concerning iPhone 6 and iPhone 6 Plus devices. In October 2018, the British menswear brand Alfred Dunhill won a long-standing trademark dispute with the Chinese Danouli brand for copying its logo. In November 2018, Lego A/S won a case in which lego bricks and miniature figures had been copied under the Chinese LEPIN brand.

Litigating against Chinese companies can be challenging, but foreign companies, in particular, are more often opting to have patent disputes between each other heard in Chinese courts. They are finding that the Chinese courts treat them fairly in such situations.

Clamp down on counterfeiting

Trademark hijacking and product imitation, which are big business in China, are also causing headaches. Because registration is cheap, trademark bots scan foreign brands, for example, and make hundreds of trademark applications. Fast, local applications can prevent and limit the business activities of the brand’s original owner in China.

Many Finnish companies do not register their trademarks, or register them too late. In such situations, companies run into unpleasant surprises on the Chinese market, when they have to pay huge sums of money to buy back a brand which has already been registered by another party.

However, the counterfeiting of trademarks and products equally affects both foreign and Chinese companies, particular in eCommerce. In addition, a new ruling by the Chinese Supreme Court in the autumn of 2018 will make trademark trolling illegal.

Kolster as a partner in China

Despite the gaps remaining in China’s IP system, we should not underestimate the reforms already made and still underway. These changes represent a positive, continuing trend in the Chinese market. New laws are fostering innovations and facilitating their protection in both China and Europe. Foreign company are ignoring such progress at their own risk, since the Chinese growth market offers considerable opportunities for enterprises.

Our expert services facilitate expansion into the Chinese market in a range of business sectors. Kolster China Desk™ has decades of experience of cooperating with Chinese companies, providing us with unrivalled knowledge of the local language, culture and laws. Together, we will draw up a detailed IP strategy to protect your company and will localise your trademark. For a monthly fee, you will have a top-class IP specialist at your disposal. Your business will gain comprehensive and tailored IP protection on the Chinese markets.

Contact us

Zhangping Wu
Business Development Manager, China
+358 40 7073877
zhangping.wu@kolster.fi

Sources

Bloomberg
“Lego Wins Intellectual Property Lawsuit In China”

China Daily
“To ease load, more IP courts planned”

European Commission

Global Innovation Policy Center (GIPC)
“U.S. Chamber International IP Index, Sixth Edition, February 2018”

IPKitten
“Chinese Supreme Court: hoarding trademarks in bad faith falls within scope of ‘illegitimate means’”

IPWatchdog
“Chinese President Xi Jinping says infringers should be punished and pay a heavy price”

South China Morning Post
“China applying for more patents than ever before as companies push to innovate, protect brands”

The Diplomat
“China’s Progress on Intellectual Property Rights (Yes Really)”

The Economist
“China grapples with trademark infringement – of its own brands”