China update: IP section in the China-US trade deal (phase one)


On 15th January 2020, the Governments of the United States of America and the People’s Republic of China signed the phase one documentation of a new Economic and Trade Agreement to settle their trade disputes. Section 1 of the documents deals prominently with intellectual property topics. Specifically, China pledges to implement new standards which are, in part, elements of the ongoing reform which we have reported on earlier (see links at the end of this article), or newly added to the agenda.

The agreement is made with the aim of achieving better protection of trade secrets and confidential business information, as well as the protection of intellectual property in the pharmaceutical industry and for patents in general. The agreement also covers geographical indications according to international agreements, rules for combating pirated and counterfeit goods, and bad faith trade mark filings. Specific improvements in judicial enforcement are also mentioned.

The agreement covers a list of topics that are to be implemented in the law reforms with high priority and speed. It includes:

  • Trade secret protection issues in enforcement to be addressed by refined definition of trade secret misappropriation, shifts of burden of evidence, more preliminary injunctions and reduced barriers to criminal charges.
  • Holders of pharmaceutical patents may benefit from the announced changes to consider supplemental data in the patent office and court proceedings in relation to insufficient disclosure or inventiveness issues. A patent linkage system with early information of generic regulatory activities and rights for the innovators to stop generics before market entry based on their IP rights is defined. Additionally, compensation by patent term extensions for regulatory delays will be introduced, and combined with patent term extensions for delay in the granting procedure.
  • In combating online infringements on e-commerce platforms, the platform owners will be forced to act more against counterfeit goods and take-down measures will be facilitated for IP rights holders. To promote the development of internet industries, an e-commerce platform operator will now be held responsible for infringement by third party vendors on their platform which the operator actually knew or should have known about. If the platform operator knew, or should have known, yet failed to take appropriate measures in a timely manner to protect the IP, even if the IP owner had not filed a complaint, the platform operator may be held jointly and severally liable for direct infringement with the vendor, subject to certain criteria such as:
    1. information on the product page indicating the seller’s identity, or labelling on the product page such as “self-run” (自营) as opposed to “run by others” (他营);
    2. the seller’s information marked on the actual product;
    3. the seller’s information marked on transactional documents, such as shipping documents, invoices, product warranties, etc.

    The threshold of mere constructive knowledge and the express provision of joint-liability with third party vendors on its platform impose a higher burden on the platform operator to take active steps to police its platform. On the other hand, the provision that “in the event a platform operator chooses to adopt certain examination standards for complaints and responses to complaints, it shall bear legal responsibility resulting from its wrongful examination” might cause it to be slow to protect unregistered rights such as anti-unfair competition rights, overlapping with unregistered trade mark rights, unregistered copyrights and trade dress rights.
  • The protection of geographical indications shall be further defined in more detail. The consumers’ view is to be considered, as are the situations in which they can become generic. Protection by international agreements with other trading partners shall face more scrutiny to prevent unjustified hindrance of imports.
  • Measures for strengthened enforcement against manufacturers of counterfeit medicines are specified including the regular publication of fines and punishments taken by the authorities in this regard. Counterfeit goods will be effectively destroyed after border enforcement or judicial proceedings. Criminal actions related to this will also address the forfeiture of the counterfeits and materials for their manufacture, but also ensure evidence preservation in the criminal case. Border enforcement will be strengthened through highly trained enforcement officers, while physical markets will be better surveyed for copyright and trade mark infringements. The use of unlicensed software in government authorities is to be addressed through increased audits.
  • Trade mark filings in bad faith shall be efficiently dealt with in the prosecution and enforcement of trade marks. Trade mark filings in bad faith have been acknowledged as a problem, and the provisions in the latest amendments to the Trade Marks Law in November 2019 addressing filings in bad faith (which inter alia introduced an express requirement for an intention to use the trade mark filed) and the stronger reliance on a blacklist started in 2017 of known trade mark squatters, would be robustly used to curb further such filings and remedy the existing situation.
  • Regarding judicial IP enforcement, an agreement is to be made to refer more cases to criminal proceedings, increase the penalties and remedies against infringers significantly and ensure full enforceability of all court decisions. Copyright enforcement will be strengthened by reducing the burden of evidence in proving the ownership of the copyright without a registered copyright. The judicial procedure shall further be reformed to reduce the need for legalised documents and the acceptance of witnesses as a suitable form of evidence.

The long list of agreed IP system improvements addresses several points that have been demanded over many years by the US as well as other foreign IP owners. Some of these points are already being addressed in ongoing law reforms, but have not produced final results. The agreement now sets a 30-day deadline to present an action plan to implement them. We will report if further details regarding this important implementation become available.

For further information or questions on this agreement please contact our Beijing or Hong Kong office.

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