China Law Update : China Business Law Lawyers & Attorneys : Sheppard Mullin Law Firm : Direct Investment, Dispute Resolution, Intellectual Property, Antitrust, Venture Capital

The State Copyright Bureau recently released a new set of copyright pledges registration rules to replace its current system. The "Measures for Registration of Copyright Pledges" (the "Measures") will become effective on January 1, 2011. Copyrights, like other property rights, can be pledged as a financial security. China has not updated its current copyright pledges registration system since it went into effect on September 23, 1996. The key provisions of the Measures are highlighted below.

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Article 69 of the current PRC Patent Law (the “Law”) established the “Patent Exhaustion Doctrine,” providing: “None of the following shall be deemed an infringement upon a patent right: (1) using, promising to sell, selling or importing any patented product or product directly obtained through a patented process after such product is sold by the patentee or with the permission thereof; …”

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The Trademark Law of the People’s Republic of China (1982) has gone through two major amendments in the past two decades. The latest amendment was adopted on October 27, 2001. On April 20, 2010, the Supreme Court of the People’s Republic of China issued the Opinions of the Supreme People's Court on Several Issues Relating to Trials of Administrative Cases Concerning the Grant and Confirmation of Trademark Rights (hereafter “the Opinion”) to provide more guidance and clarification in this area.

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On April 20, 2010, China’s Supreme People’s Court published its first Intellectual Property Protection by Chinese Courts in 2009 White Paper (“White Paper”). The White Paper provides a review of Intellectual Property Rights (“IPR”) enforcement in China in 2009.

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China's National People's Congress Amends the Copyright Law

On February 26, 2010, the National People's Congress passed the second amendment to the Copyright Law. Only two articles of the Copyright Law have been amended, and the changes will take effect on April 1, 2010.

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The third amendment of Chinese Patent Law went into effect on October 1, 2009, and since then there has been a need for new rules detailing its implementation. On January 18, 2010, the Chinese State Council published the third revision of the Implementing Rules For Patent Law (the "Rules"). The Rules are set to take effect on February 1, 2010.

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On December 8, 2009, the largest Bit Torrent ("BT") download base, BTChina, was shut down by the State Administration of Radio, Film, and Television ("SARFT") for "lack of Certificate". SARFT explained that the regulation of Internet audio-visual services is a long-term project. Until the site resolves its piracy issue it can not be re-opened. According to a CCTV report on December 17, 2009, SARFT announced that it had shut down more than 700 websites, including nearly 30 of the BT download sites. This incident raises deep concern among Chinese netizens: why did the Chinese government suddenly intensify efforts to crack down BT sites? Does this mean that the peer-to-peer (P2P) download technology will meet its end in the near future?

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At the 36th Annual Meeting of the Internet Corporation for Assigned Names and Numbers ("ICANN") on October 30, 2009, the ICANN board finally approved the new Internationalized Domain Name ("IDN") Fast Track Process. IDNs have been a topic of discussion since before ICANN's inception. It has taken years of intense technical testing, policy development, and global cooperation to prepare the Fast Track process for its launch. On November 16, 2009, ICANN officially opened the IDN Fast Track Process to allow countries that use non-Latin based languages to also apply for top-level domains that reflect their country's name in local scripts such as Chinese, Korean, Arabic, etc.

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On Sept. 28, 2009, comScore released August 2009 online video visit statistics from the comScore Video Metrix service, showing that the online video visit volume exceeded 25 billion in August, the largest number ever recorded. Google accounted for more than 10 billion visits during the month, while Hulu nailed fourth place with 488 million.

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On December 27, 2008, China's top legislature (the National People's Congress) approved the revision of the Patent Law. It became effective on October 1, 2009. The law was promulgated in 1984 and had previously been revised in 1992 and 2000. The first amendment added pharmaceutical compositions to the list of patentable items and introduced China's membership in the Patent Cooperation Treaty ("PCT"). The second amendment responded to the Trade-Related Aspects of Intellectual Property Rights ("TRIPS") Agreement.

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The Chinese government’s emphasis on boosting innovation might be proving fruitful. According to the latest statistics from the State Intellectual Property Office (“SIPO”), the government entity responsible for prosecuting patents, there were 426,000 patent applications filed and 252,000 patents granted in China during the first half of 2009. Compared with the first half of 2008, patent filings are up 31.3 percent and patent grants are up 23.1 percent.

China’s patent system allows for three types of patents: invention patents, utility model patents, and design patents. China invention patents are similar to utility patents in the United States. The patent term for invention patents is 20 years from the filing date. Patents for invention are substantively examined. It typically takes two to five years for an invention patent to issue.

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Online games are big business in China and they're only getting bigger. The China Annual Game Industry Report 2007 underlines the explosive growth in this industry. As of 2007, the online game user population reached 40,170,000 and has rapidly expanded since then. As the market for online games has increased, so too has the market for virtual property trading. According to The Seventh China Online Game Survey 2007, 83.7% of the users traded items for cash, 46.8% of the users hired third parties to obtain virtual properties on their behalf. These activities amounted to an estimated 4 billion in RMB in 2007.

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Should there be legal protection for virtual property in China?  This is a heavily debated topic in China with avid supporters on both sides.

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In February of 2005, Zhang Bin (“Zhang”) offered for sale one user account for the online game Paradise.  On the sales ad, Zhang claimed his account has a high player level and excellent equipment.  In March of 2005, Mr. Shen purchased Zhang’s Paradise account and password for 4800 RMB.  Soon after Mr. Shen’s purchase, he noticed that his Paradise account had been stolen.  After investigation, local police arrested Zhang on March 28, 2005 for theft.  The case “Zhang’s Alleged Theft of Account” was heard by the Ningbo Haishu District Court.  The court found that virtual property could be the subject of theft because virtual property is controllable and transferable without losing value.  The court found that Zhang’s actions amounted to the crime of theft.  Zhang was sentenced to one year imprisonment with two year suspension of sentence and a fine of 5,000 RMB.

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The State Administration of Taxation recently announced the levy of individual income tax on income obtained through network virtual currency transactions.  The announcement is as follows:

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Today, virtual currency trading is widely accepted in China.  Billions of RMB in virtual currency is being traded online, and this amount increases by 20% every year.  There are two major types of virtual currency.  The first type of virtual currency is offered by instant messaging and portal-based issuers.  Examples of such currency include Q Coins from Tencent, U Coins from Sina, POPO Gold Coins from NetEase, and Baidu Coins from Baidu.  Q Coins is the most popular virtual currency in China because Tencent’s instant messaging software QQ dominates 90% of the market in China and has four times the users of MSN.  Starting in May 2002, users can purchase Q Coins with RMB at the exchange rate of 1:1.  Tencent has always prohibited users from selling back or exchange Q Coins for real money.  Tencent’s original intention was for users to spend Q Coins on Tencent operated websites.  However, the popularity of Q Coins has projected Q Coins beyond Tencent’s control and Q Coins are now being trade for real money and used as an online payment system.

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On November 17, 2008, the Supreme People’s Court (“SPC”) released the “100 Typical Cases of Intellectual Property Right (‘IPR’) Protection” (the “100 Cases”).  The SPC hopes that these cases reflect improvement in China’s judicial protection of China IPR.  The SPC deems these "100 Cases" as “model cases”.  The "100 Cases" consist of 50 SPC cases (45 civil and 5 administrative cases) and 50 District Court cases (30 civil, 10 administrative and 10 criminal cases).

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In August 2008, the Third Amendment to the Patent Law of China (draft) (“Draft Amendment”), was presented to the National Peoples Congress for final deliberation and is expected to become law by early 2009.  This Draft Amendment is the subject of heated discussions throughout China.  This article will give you an overview of some important changes relating to design patents.

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After a 5-year Chinese court battle, Ferrero SPA (“Ferrero”), an Italian chocolate maker, recently won a dispute to stop infringement of its intellectual property rights against Montresor (Zhangjiagang) Food Co. Ltd. (“Montresor”) and Montresor’s distributor, Zhengyuan Distribution Co., Ltd (“Zhengyuan”) in China’s Supreme People’s Court (SPC).  This is the first known case where Chinese Courts applies the Anti-Unfair Competition Law to protect well-known foreign merchandise.

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China has not had a particularly good reputation for protecting intellectual property.  People focus on the occurrences of IP infringement in China and mistakenly conclude that there is effectively no IP protection here. China’s present IP dilemma is rooted in the concept of “rule of the man – Emperor.”  Western civilization’s concept of “rule of law” was not adopted by China until about 25 years ago when Deng launched the modernization of China.  Since then, China has been faced with a huge challenge of establishing an internationally acceptable legal framework. China has made significant progress in the enactment of laws, establishment of a court system, and training of legal personnel which have substantial vested interest in protecting their own IP.  The fact is that IP protection is available in China today.  This area has been a key focus of the Chinese Government and China’s emerging high-tech industries.  Thus, significant ongoing progress in IP protection in China can be expected.

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When looking into registering domain names in Asia, companies often encounter the problem that their .cn domain names in China have already been registered by someone else.  Companies who are zealous about protecting their brands should consider reclaiming their .cn domains.

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Why Invest in the Chinese Bio-Industry

The Chinese Government is placing significant emphasis on developing and expanding China's biotech and pharmaceutical sectors, using a variety of tax breaks, government inducements, and other incentives. The goal is to make China the leader in global life sciences industries. This priority effort poses significant opportunities for foreign investors.

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Have you ever received a letter such as the following:

Dear CEO,

We are the department of registration service in China. There is something we need to confirm with you. We formally received an application on March 26, 2008, from a company which self-styled "Halliton Holdings, Inc" is applying to register "smrh" as internet brand and CN domain names as below:[Name redacted]

smrh.com.tw smrh.hk
smrh.net.cn
smrh.org.cn
smrh.tw
smrh.asia

After our initial examination we found that the internet brands applied for registration are the same as your company’s name and trademark. We are now investigating this matter and hope to get the affirmation from your company. If your company has not authorized the aforesaid company to register these, please contact us as soon as possible.

In addition, we hereby affirm that our time limit for dissent application is ten days. If your company files no dissent within the time limit, we will unconditionally approve the application submitted by "Halliton Holdings, Inc.".

Best Regards

What is that all about?

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