Research: Through Fake Sunglasses You Will See Reality Differently, Behave More Unethical, Feel Less Authenic

Remember IP Dragon’s post of April, 2009: ‘Faustian Pact Anno 2009: Receive Counterfeit Products, Loose Your Soul‘.

Francesca Gino (Kenan-Flager Business School, University of North Carolina in Chapel Hill), Michael I. Norton (Harvard Business School) and Dan Ariely (Fuqua Businss School, Duke University) wrote an interesting paper for Psychological Science about the experiments, which shed light on the influence of wearing fake sunglasses.

Conclusions:

Wearing counterfeit products makes individuals:
– feel less authentic;
– increases their likelyhood of behaving dishonestly;
– increases their likelyhood of judging others as unethical.

Read their paper in Psychological Science (10 PDF pages) here.

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IP Dragon Speaks at 3rd Global Forum on Intellectual Property, Singapore, January 6 and 7, 2011

IP Dragon is very honored he is invited by the IP Academy of Singapore to speak at the 3rd Global Forum on Intellectual Property, Raffles City Convention Centre, on January 6 and 7, 2011. This years theme is very actual: “Turbulent Times: Onwards and Upwards for Intellectual Property?”

I am very impressed by the learned line-up and I am very sure special things will happen when so much IP passionate scholars and practisioners fill up the same Singaporean space.
The Chairman of the IP Academy, professor David Llewelyn, and author of the book ‘Invisible Gold in Asia’ which will be reviewed on this blog soon, and the following IP scholars and practisioners will be present:

For an updated list of speakers, see here.

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What Can A Famous Food Brand Do Against Footwear Using Its Mark?

As a vegetarian I do not frequent the many McDonald’s fastfood joints that can be found in China and which turn the slim people obese, just as they did with the American and European populations. I am not really certain what is on sale inside a McDonald’s, but when I was in Shenzhen near the beach I was surprised to see that McDonald’s has been diversifying into toe slippers. You could say, well that is not really diversifying, because toes could be considered meat too, although not dead meat. Then again, maybe it was not the fast food chain’s idea to put its trademark on the slippers. Let’s assume that they did not. What could a(n) (in)famous company such as McDonald’s do against such unauthorised use of their mark?

April 23, 2009, China’s Supreme People’s Court promulgated the ‘Interpretation on the Application of the Law Concerning Several Issuels Regarding the Trials of Civil Disputes Relating to the Protection of Famous Trademarks’ (Judicial Interpretation on Famous Trademarks judicial interpretation).

So since that time the judicial interpretation clarifies that a famous trademarks registered in certain product/service classes is protected against a mark that is identical or similar but on products/services that are dissimilar.
If the plaintiff files a motion to enjoin the defendant from using a trademark, which is identical with or similar to its famous registered trademark, or enterprise name on dissimilar commodities, the people’s court shall, in light of the concrete circumstance of the case, make a ruling after comprehensively taking into account the following factors:

1. the distinctiveness of the said famous trademark;
2. how well the famous trademark is known by the relevant general public that use the commodities using the trademark against which the lawsuit is filed or using the enterprise name;
3. the connection between the commodities using the famous trademark and the commodities using the trademark against which the lawsuit is filed or using the enterprise name;
4. other relevant factors.”
This is based on China’s WTO obligations to comply to TRIPs.
Article 6bis of the Paris Convention (1967) shall apply, mutatus mutandis, to goods or services which ar not similar to those in respect of which a trademark is registered, provided that use of that trademark in relation to those goods or services would indicate a connection between those goods or services and the owner of the registered trademark and provided that the interests of the owner of the registered trademark are likeley to be damaged by such use.”

This goes further than article 6bis of the Paris Convention of which China is a member since 1985.

(1) “The countries of the Union undertake, ex officio if their legislation so permits, or at the request of an interested party, to refuse or to cancel the registration, and to prohibitthe use, of a trademark which constitutes a reproduction, an imitation, or a translation, liable to create confusion of a mark considered by the competent authority of the country of registration or use to be well known in that country as being already the mark of a person entitled to the benefits of this Convention and used for identical or similar goods. These provisions shall also apply when the essential partof the mark constitutes a reproduction of any such well-known mark or an imitation liable to create confusion therewith.
(2) A period of at least five years from the date of registration shall be allowed for requesting the cancellation of such a mark. The countries of the Union may provide for a period within which the prohibition of use must be requested.
(3) No time limit shall be fixed for requesting the cancellation or the prohibition of the use of marks registered or used in bad faith.”

So if we apply article 10 Judicial Interpretation on Famous Trademarks.
(1) I think we can come to the conclusion that McDonald’s is a distinctive mark;
(2) And that it is well known to the relevant general public (because of its ubiquitous existence); (3) So what exactly is the connection between the commodoties of the famous mark and the dissimilar commodities of the mark that might infringe upon it? What is the connection between food and footwear? McDonald’s could argue that the association with toe slippers is not conducive for fueling an appetite for its food, save for some foot fetishists. And this could dilute the brand.
(4) Other relevant factors, could be perhaps the popularity of the McDonald’s toe slippers. Are they sold all over China, or just at the beach of Shenzhen. In other words the extend of the (potential) damage for the fast food chain.
Photo/text Danny Friedmann
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Q&A on Trademark Proactive (TP), Tipi and Indian Givers

I was delighted by the questions after I uploaded my Asia Pacific IP Forum presentation in Hong Kong to Slideshare: ‘How Social Media Challenge the Brandscape for Trademark Holders‘ in which I propose a solution for trademark holders: Trademark Proactive (TP).

Below I will explain some key points of TP:

Why should a trademark holder give away some of its rights? Social media users will use or abuse trademarks, whether trademark holders want it or not. Because of the characterisics of Social Media the spreading of damaging content can hardly be stopped. However, with TP they do not give away any right. To be proactive a trademark holder engages with the Social Media users and regains some of its control by authorising some use of the trademark under certain conditions.
Rob Polet, President, CEO and Chairman of the Management Board of Gucci Group put it this way at a presentation at Google Zeitgeist Europe 2010 (starting from minute 38): “How do we manage this community of Facebook? Friends that we have. 660,000 for the Gucci Brand. And I said, well you interact with them. You ask them everything they want to tell you. Ah, but they might say something which is bad about us. That’s exactly what you like to know. Yeah, but it’ll be public. But you know what? We better have it saying it to you, then being public, and saying to their friends anyway.
And Dan Cobley, marketing manager of Google gave an interesting TED presentation about what physics taught him about marketing: “The lesson from physics is that entropy always increases, it’s a fundamental law. The message for marketing is that your brand is more dispersed, you can’t fight it, so embrace it, and find a way to work with it.”

Why do service providers need to assume liability?
Service providers (such as Facebook, Twitter and Blogger) are more and more setting up the rules. Therefore it is fair they should also be held liable for non-enforcement of these rules. This will be pushing service providers to come up with Terms of Use that are effectively enforceable. In other words, Social Media could become more or less restrictive than trademark law, on a contractual basis. So far the Social Media sites’ business model is advertising paid by trademark holders. Therefore it is justified that the trademark holders get something in return: enforcement of their trademarks.

What makes an effective and efficient enforcement of trademark authorisations possible?
Social Media could automatically compare the request for a third level domain name or content which mentions a trademark, and one database in which trademark holders have given exactly what is possible with their trademarks and under what conditions. Enforcement could be also automatically, without elaborate notice and take down procedures.

What kind of trademark use and under what kind of conditions could a trademark holder proactively authorise to a Social Media user?
A trademark holder could for example proactively authorise that a Social Media user could use a trademarked logo online, to illustrate an article about the brand, under the condition that the logo is not altered, and that the logo is linked to the official website of the brand. Or the logo could be altered, or used in parody, or used in comparative advertising (only in jurisdictions where this is allowed).

Why is the symbol of TP a tipi?
TP stands for Trademark Proactive, but can be pronounced as tipi. The tipi refers to a place where disputes can be solved. When the first Europeans came into contact with native Americans and for example they were cold, the Indians provided them with blankets. When they did not need the blankets anymore, the Indians wanted the blankets back. This lead to the misperception that the Indians wanted their presents back. That is how the saying: “Indian giver” came into being. Of course the Indians did not give a present, but just the right to use the blanket. TP should also give more clarity about how social media users are authorised to use trademarks.

What is next?
Feedback of trademark holders needs to be incorporated into a more definitive proposal.
Feedback to Danny Friedmann is welcome: ipdragon at gmail dot com

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Mickey, Pokémon and Dooly Still Banned From Chinese Prime Time TV

September 30 to October 5, 2010, the second China International Animation Copyright Fair will be held in China’s animation capital Dongguan, Guangdong province. Read an article by Tan Jing for News Guangdong here.

In 2010 foreign animations, such as Mickey Mouse (US), Pokemon (Japan) and Dooly (South Korean) have substantial mature industries, are still banned from prime time, a measure which started on September 1, 2006. The rationale behind the discriminatory measure is to support the fledgling domestic animation industry and to protect Chinese children from too much foreign exposure.

“The positioning of the second animation copyright fair will be clearer in order to focus on copyright protection and trade.”

The American cartoon series The Transformers was provided to China Central TV (CCTV) free of charge, because they anticipate making money with the merchandise. Chinese animation companies are too small (at least in 2006), according to Crystal Wong of Asia Times, read here.
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Anglo-Chinese Memorandum of Understanding on Copyright


Intellectual property minister Wilcox and the president of the National Copyright Administration of China (NCAC) Liu Binjie signed a Memorandum of Understanding (MoA) on Copyright, read more on the UK Central Office of Information site here.

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Uncreative Brand, Creative Brand in China

Uncreative Brand


In Yangshuo, next to Guilin, Guangxi province, you can see one of the most characteristic mountains of China. But if you bike through the village, you will notice some interesting shops as well. Almost next to each other you can see a shop that embodies the old copycat mentality and one that characterises the new creative brandbuilding mentality.

adivon, easily recognised as a blatant adidas clone, has some remarkable things to say on its corporate website about branding and trademarks:

“The company has always adhered to the marketing philosophy of human-oriented and loyalty-led and been upright and creditable. We are competing for first place in the industry and targeting for gold medal in the market as we are to create it into a Chinese famous trademark and international famous brand.” See here.


It even has a webpage dedicated to “brand honor” which shows eight certificates including

– From 2008 the annual message trust the quality of the top ten brands”;

– 500 Chinese brands
– Top Ten China Industry Brand Campaign
– Famous brand products in Fujian


Talented IP student at CUHK, Brian Chen, illuminated me about the meaning of the Chinese characters of Adivon (阿迪王 pronounced as “a di wang”): “Chinese consumers use 阿 (a) 迪 (di) short for adidas. The brand is taking advantage of the association with adidas and by adding 王 (wang), which means king, it even implies it is better.”

Creative Brand
But only a few shops to the right one will find one of the most creative and esthetical Chinese brands I have ever seen: Mulinsen, a shoe brand, that wants to have a green image (the question is whether this is justified, since the shoe industry is a rather polluting industry with a big water footprint, read here) is of course because of the characters used. Mu 木 means tree; lin 林 means forest and sen 森 means many trees. So all characters amplify each other, sort of alliteration with Chinese characters, and then the logo with four times the character 木 (or two times 林) is a very distinctive mark.

Mulinsen is also:

– Fujian famous brand
– Chinese famous brand

Photos/text Danny Friedmann
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How Social Media Challenge the Brandscape for the Trademark Holders

Stan Abrams (China Hearsay), Chris Bailey (Rouse), Xie Lin (CUHK) and I gave presentations about the impact of Social Media on intellectual property (and vice versa).

My presentation focused on social media and trademark law. In this presentation I tried to shed light upon the challenges trademark holders are facing in these times of social media. With the solutions I propose I hope I can start a discussion about a more proactive role for trademark holders. Stan Abrams of China Hearsay called my proposal “a very provocative vision of the future“.
Your feedback is welcome (ipdragon at gmail dot com)
Danny
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IP Dragon Speaks on 7th Annual Asia-Pacific IP Forum 2010

September 1, 2010, Stan Abrams of China Hearsay fame, and I will speak on Social Media (such as Facebook, LinkedIn, MySpace, but also blogs) and intellectual property (especially trademark and copyright) issues, during the 7th Annual Asia-Pacific IP Forum 2010.

There is a lot to say about this subject. If you deem a related subject important or have a great example about this subject matter, please do not hesitate to tell me, so that I will use it in my presentation (ipdragon at gmail dot com).

Last year’s event Asia-Pacific Forum was great and this year’s event seems very promising. Organised by Managing Intellectual Property and chaired by IP Dragon’s friends Peter Ollier, Asia editor of Managing Intellectual Property and Dan Cole, Group Publisher (Asia), Legal Media Group.

Hope to see you there. See the agenda of the two day seminar here.

Picture/Text Danny Friedmann

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IP Dragon Gives Lunch Presentation At Baker & McKenzie


Yesterday I gave a lunch presentation at the Hong Kong office of Baker & McKenzie. The title of my presentation: ‘Is China’s Unique Patent Law Paving the Way to Innovation?’ about the challenges of foreign innovators because of the changes in the Third Amendment to China’s Patent Law 2008. I was delighted to find such interested audiences at Baker & McKenzie’s Hong Kong office and via video conferencing also at Baker’s Shanghai and Beijing’s offices and get excellent input of Baker’s IP experts.

I spoke about:
– PRC history of patent law
– ‘How socialism slipped out of the patent law’
– Confidentiality review in case of foreign filings
– Disclosure of genetic resources
– “Absolute” novelty standard
– Conclusions
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Professor Llewelyn’s Book Launched: ‘Invisible Gold in Asia: Creating Wealth Through Intellectual Property’

Professor Llewelyn’s new book just came out: ‘Invisible Gold in Asia: Creating Wealth Through Intellectual Property‘. If IP is the invisible gold in Asia, then Professor David Llewelyn is the alchemist of intangible property.

Publisher Marshall Cavendish Business writes:
World competition in the 21st century will revolve around competition for intellectual property rights (IPRs). But what are these rights that you can’t see – the Invisible Gold of today’s Knowledge Economy. What can you do with them and how can Asian businesses foster the innovation and creativity they protect? From the patents protecting Creative Technology’s MP3 player and Tata’s ‘Nano’ car to ‘Tsingtao’ and ‘Singha’ branded beer, IPRs protect this Invisible Gold. David Llewelyn challenges Asian businesses to build up their reserves of Invisible Gold and governments to build a culture that encourages and rewards innovation and creativity. Using Asian examples throughout, David Llewelyn explains what the rights are, answers the questions and sheds much-needed light on this crucial but little-understood part of doing business in the 21st century.”

IP Dragon certainly concurs with the thesis of Professor Llewelyn’s book and is definitely going to read this highly relevant book.
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Vax Is Not Infringing Dyson’s Design Right?

Damian Reece wrote for the Telegraph that Dyson lost its claim in the High Court that its design right was infringed by the Mach Zen of Vax, a Chinese manufacturer of vacuum cleaners, whose design looks very similar indeed. See picture: left Dyson, right Vax. Judge for yourself.

Read Mr Reece’s article for the Telegraph here.
I have not read why Dyson lost the case and whether Dyson registered its design rights or not (UK has also unregistered design rights, since 1989, just like throughout the European Community since 2002). Many Chinese infringing companies have the ambition to be a player on the world market, therefore they can not only be sued in China but oftentimes at a court in one of the markets they are exporting to.
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TGIF: Intellectual Property Enforcement Coordinator Says The Darndest Things

Online copyright piracy is a serious problem. China has started a campaign of three months to blacklist websites with pirated content so that Chinese telecom operators can take them offline. Now one can question the effectiveness of this temporary measure, see here. But there are even worse solutions… Look at the idea of Brad Sherman, U.S. democratic representative, which goes.. let’s say a bridge too far. Doug Palmer reported for Reuters that Sherman said the U.S. government should use cyber-combat techniques to take down internet sites in China, Russia and other countries that sell pirated U.S. music and movies. Of course the US could take Chinese websites offline if they are based on servers in the US, subject to US laws. But if the servers are in China, this would be obviously a violation of China’s sovereignty and could be answered with similar cyber-combat strikes at US websites based on US servers.
Incredibly, Victoria Espinel, the US White House Intellectual Property Enforcement Coordinator responded allegedly, according to Palmer’s Reuters article: “That is something we’re actively investigating.” And then Espinel allegedly continued: “But while it is technically possible, it does not take long for the sites to pop up in new locations.” Was she seriously considering this or just like a thought experiment? Read more here.
The same article is a nice follow-up on the misguided use of hyperboles when one only wants to say that the level of IPR enforcement in China is unacceptably low. Sir Arthur Bamford called it “cancer”, see here, and William Delahunt is taking the hyperbole one step further and calls China’s low IPR enforcement “economic terrorism”. These words are probably not conducive to solving the IPR enforcement challenge in China.
One might better use arguments for protection and enforcement of IPR in China (regardless whether these are in the hands of domestic or international companies/persons) that show China’s advantages, based on David Ricardo’s theory of comparative advantage, and disadvantage if it engages in mercantilistic policies. This is hard, now that China’s economy is so successful and the importance of its domestic market is growing. Ms Espinel, and many international IPR holders are facing a daunting task to protect and enforce IPR in China.
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Copyright Piracy in China: China Did Not Shed Its Fetish For Temporary Mass Campaigns

Blacklisting until the blacklisting goes on black again…

The National Copyright Administration of China (NCAC) has started a campaign on July 21, which will last until the end of October, to blacklist websites that are found to contain pirated content.

According to IPR Focus, who run the People’s Daily Online article, the action was announced jointly by the National Copyright Administration, the Ministry of Public Security and the Ministry of Industry and Information Technology. Read here.
It seems that in regard to intellectual property rights (IPR) enforcement China did not lose its fetisch for temporary mass campaigns. We have seen these kind of campaigns over and over (see page 74 of my thesis Paper Tiger or Roaring Dragon). And the only thing that is missing is a nice poetic name.
The procedure to put the names on the website of the NCAC, so China’s three telecom operators (China Telecom, China Unicom and China Mobile) can take them offline evokes questions. Do the websites get the chance to take down the pirated content first? What is wrong with a more durable solution to obligate websites to take down pirated content, and if they don’t and the content is confirmed pirated by the NCAC, to let one of the telecom operators take the website offline.
Unsurprisingly the crack down will also focus on all content related to the Shanghai Expo and Guangzhou Asian Games. “Anyone who reports cases of infringement and piracy will get reward betwen 1,000 and 10,000 yuan.” I guess the latter measure is only focused to enforce the IPR of these public events. Instead of spending the money on informers, the NCAC could enforce themselves or spend it on campaigns that should raise the awareness about IPR in general. China should know by now that there is more IPR to protect and enforce than the IPR of the Beijing Olympic Games, Shanghai World Expo and Guangzhou Asian Games.
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JCB’s Chairman Compares China’s IPR Enforcement To Disease At Banquet With Premier Wen

Jonathan Guthrie’s article for the Financial Times about the travails of JCB, the manufacturer of loaders, forklifts etc. to survive the economic crisis, includes quotes of its chairman. This Sir Anthony Bamford allegedly said to the Chinese premier Wen Jiabao during a banquet that the unlicensed copying of Western technology by Asian manufacturers equals “cancer”.

Is this an effective metaphor or a hyperbole that is offensive to those who suffer from it directly or indirectly? According to Wikipedia, cancer is a class of diseases in which a group of cells display uncontrolled growth, invasion and sometimes metastasis. Many times the counterfeit and piracy can grow beyond the control of the rights holder. Invastion (intrusion on and destruction of adjacent tissues): it can destroy market share of the genuine product. Metastasis (spread to other locations in the body via lymph or blood): spread to other locations via export or up and downloading. It might be accurate at some level, but very stylish it is not. And these expletives lead to inflation of meaning. What’s next? Godwin’s law comes to mind.

One cannot accuse Sir Anthony of using euphemisms or much talent for diplomacy. Then again he is not mentioning China but uses the more generic category of Asian manufacturers. But premier Wen took the hint that he was meaning China and Guthrie reported that premier Wen answered according to Sir Anthony: “He said that China was a big country with millions of mouths to be fed, and that many Chinese businesses were suing Chinese competitors for the same reason”.

In the first part of the answer “China is a big country with millions of mouths to be fed” the premier plays the “China as a developing country” argument. And the latter part “many Chinese businesses were suing Chinese competitors” contends that the problem that bothers foreign businesses also bothers Chinese companies. In other words the problem is distributed equally over foreign and domestic companies. This remains to be the question. China can easily come up with a number of intellectual property rights (IPR) disputes between Chinese companies that outnumber those IPR disputes where a foreign companies’ IPR in China is involved, in absolute terms. However, if one looks at the relative numbers I am positive that the percentage of foreign firms whose IPR are infringed in China is higher than the percentage of domestic companies’ IPR that is being infringed in China.

In short: domestic companies’ IPR infringed divided by all domestic companies with IPR versus
foreign companies’ IPR in China infringed divided by all foreign companies with IPR in China

Openly critizising China’s IPR enforcement to the Chinese premier during a banquet is a route not much travelled by fellow captains of industry. To my knowledge it is the first time (let me know if I have missed other examples). Most company representatives are afraid that critique will lead to repercussions, in the form of covert barriers. Let’s look how JCB fares in China in the future.

Read Mr Guthrie’s article here.
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CNBC: “The Most Profitable Criminal Enterprise: Counterfeit Goods”

CNBC presents “Crime Inc.: Counterfeit Goods,” presented by Carl Quintanilla will be aired July 14. “At around 7% of all global trade, Counterfeit Goods are a big business with low overhead. It makes too much money to go away any time soon.”
UPDATE, Friday July 30, 2010: Lies, damn lies and statistics. Felix Salmon could already fry the numbers used in the trailer for the CNBC documentary on counterfeit goods, read here.
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Chinese Counterfeit Cisco Products Because of Profit Seeking Or State Sponsored Cyber Terrorism?

After ‘Cisco Raider/Operation Network Raider‘ about counterfeit Cisco Systems router products which originate from China, Professor Peter Navarro poses the question whether the intention was only profit seeking by unscrupulous Chinese counterfeiters, or whether these products are trojan horses that are designed to make the US defense more vulnerable to state sponsored cyberterrorism. Professor Navarro (University of California-Irvine) is the author of ‘The Coming China Wars’.

Professor Navarro lashes out against China’s alleged mercantilist trade practices in 2008, see here.

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Ms Pagnattaro Does Not Keep It A Secret How To Protect Your Trade Secret In China

Marisa Anne Pagnattaro wrote a very good paper: ‘‘‘The Google Challenge’’: Enforcement of Noncompete and Trade Secret Agreements for Employees Working in China’, American Business Law Journal Volume 44, Issue 4, 603–637, Winter 2007.

If you don’t need to share a product, idea or ingredient with the world, then don’t. Keep it a business secret, just like Coca-Cola who never patented its drink’s ingredients. Easier said than done, though. At Coca-Cola only two people in the board of directors have each half the number combination to a safe. And there are a lot of things you should pay attention to protecting your trade secret. Trade secret is considered often as the ugly stepdaughter of the IP system. But it can be very effective.

In China the Provisional Regulations of the State Council on Technology Transfer, promulgated
January 10, 1985, and the Regulations on the Administration of Technology Acquisition Contracts, May 24, 1985, hereinafter Technology Acquisition Regulations Detailed Rules and Regulations for the Implementation of the Regulations on the Administration of Technology Import Contracts, December 30, 1987, are relevant. However, all of these rules and regulations are contract based and, accordingly, are not binding on third parties. Additionally, no legal penalties are specified; the only remedy is for
breach of agreement.

Ms Pagnattaro illustrates the relevance of protecting trade secrets by showing the case of Dr. Kai-fu Lee who first worked for Microsoft and then for Google. Even more interesting is the conclusions she is drawing from this case.

The duration of the noncompete agreement should be limited to the amount that is just enough to protect the employer. “The longer the period, the more evidence you need to prove that the period is reasonable and necessary to protect against unfair competition and not an undue restrain on the employee’s right to work.”

Limit the Scope of the Information covered by the noncompete agreement. “It is advisable that the noncompete clause expressly states that it is designed to preserve business secrets, thereby tying the agreement to a legitimate business reason and undermining any defense that the agreement is an unfair restriction on labor or creates undue hardship on the employee.”

Tailor the geographic scope of the noncompete agreement to protect legitimate business interests.

Provide compensation in exchange for the noncompete agreement.

Limit access to the trade secret information. Files and other places containing trade secrets should be labeled.

Ensure that the information claimed to be a trade secret has economic value and practical applicability realizable utility.

Take active steps to protect the business secret.

The policy should also include penalties for improper use or disclosure of the information and enforcement of the penalties.
Incorporate a provision addressing trade secrets developed by the employee.

Take Action When an Employee Resigns. “Notify new employers of the secrecy obligations after a key employee leaves, the employer may want to follow upon where the employee goes, to protect against breaches of the noncompete agreement as well as the development of any competitive practices that infringe on business secrets to which the former employee was privy.”
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Is Hong Kong’s Copyright Stopping the Publication of Li Peng’s Historic Significant Diary?

Benjamin Kam Lim reports for Reuters that the diary of Li Peng that describes Li’s version of what happened during the events that lead up to the June 3, 1989 massacre, that Hong Kong publisher New Centuty Press was going publish this June 22, will be halted, because the copyright holder allegedly is banning it.
The South China Morning Post quotes Cai Yongmei, editor-in-chief of Hong Kong’s Open Magazine saying that she believes that Beijing intervened, because the diary could stir controversy, especially about premier Wen Jiaobao and president Hu Jintao’s allegedly agreement over the intervention of the People’s Liberation Army at the Square of the Heavenly Peace. Another possibility is that Hong Kong exerted self-censorship.
Whether the prohibition of the publication of the diary because of the copyright is not applicable, Ms Cai is alleging, because of the significance of its historical content, is dubious. One can still study it and write about it, without publishing the original.
In Germany the publication of Hitler’s ‘Mein Kampf’ is prohibited because the copyright holder, the State of Bavaria does not allow it. Only after the German copyright (death of the author plus 70 years) expires, which will be in 2015, the book falls into the public domain. See more here.
According to Hong Kong’s Copyright Ordinance (which is in this respect the same as China’s Copyright Law), the copyright length is life of the author plus 50 years. Li Peng, is still alive, so after his death it will take another 50 years.
So who has the copyright over the book? Did Li Peng assign his copyright to someone else who does not give his permission?
Read Benjamin Kang Lim’s article here.
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With An Eye On ACTA: China Champion of TRIPs Freedoms and Flexibilities

During the TRIPs Council, which was held June 8 and 9, China told delegates it was concerned about developed countries that want provisions (for example the lower thresholds for criminal enforcement of counterfeiting and piracy) that go beyong TRIPs. This could lead according to China, to barriers to legitimate trade (when customs can seizure goods too easily) and restrict the flexibilities of TRIPs. And each country should be able to make decisions about the allocation of resources to enforce IPRs.

China points out all the provisions of TRIPs that makes their dramatic low IPR enforcement level arguably not noncompliant to TRIPs.

– Article 7 and 8 TRIPs: which gives a country leeway to not enforce in case of a public health or security emergency.
– Article 41(5) TRIPs: I called this in my master’s thesis the Achilles heel of TRIPs: because it says that a country has the souvereignty to decide how much of its resources it would allocate to TRIPs.
The DSU panel at the WTO who decided over DS663 ‘China – Measures Affecting the Protection and Enforcement of Intellectual Property Rights’ made it clear that China’s level of numerical thresholds of criminal enforcement was not noncompliant to TRIPs.

Obviously China is not falling for ACTA’s charms of the promise of high enforcement levels. And maybe even some obligations of measures. One could say that ACTA is demanding a monotonous relationship with right holders. China rather wants to continue its marriage of convenience with TRIPs because it gives it only the obligation to legislate, not a single obligation of measure, let alone obligation of result. TRIPs allows room for a romance with other goals than only enforcement on behalf of right holders: technology transfer, public dissemination of information, developing regions, indigenous innovation.

Read Catherine Saez’ article about the TRIPs Council meeting for Intellectual Property Watch here.

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Professor Llewelyn: “Leverage Your IP Rights”

This Morning IP Dragon attended a breakfast seminar by Professor David Llewelyn (IP Academy of Singapore and Of Counsel at White & Case in Singapore). Even though it was quite early, many people interested in how to maximise the use of IP did show up at the office of White & Case in Central, Hong Kong. Professor Llewelyn’s presentation was about Intellectual Property Rights as a Balance Sheet Asset. In other words how to commercialise your intellectual property rights. Below is a brief impression:

Professor Llewelyn rightly made the point that IP is not just a legal tool. That the IP assets are fast becoming a focus of the investment world. The securitization of intellecutal property rights is in Asia nascent. Article 26 Copyright Law 2010 even mentions this possibility explicitly: “Where a copyright is used as a pledge, both the pledgor and pledgee shall register the pledge with the copyright administrative authorities of the State Council.”
China’s leadership understands that it has to climb the value chain in order to continue its economic growth. And IP is protecting this added value. Professor Llewelyn covered the different kinds of intellectual property rights (he can cover all IPR in one hour, see here) and explained the origin of patent (to disclose the information in exchange for a temporary monopoly) as the opposite of latent (which one could apply to trade secrets).

Llewelyn described how Li Ning (athletic shoes and sporting goods) used a combination of the swoosh of Nike, the stripes of Adidas and the wave of Puma and using the slogan “Everything is possible” (while Adidas uses the slogan “Impossible is nothing”, read an article by Drog Poleg on Danwei here) and still gets away with it.

About trademarks Professor Llewelyn said that many companies did not pick a very good name. He illustrated this by drawing the travails of China’s computer manufacturer Lenovo, who used be called Legend. But this laudatory name was very hard to trademark in other countries. So it had to rename itself to Lenovo (Legend + Novo), which must have been a costly operation.
He made the distinction between copyrights which give the copyright holder the right to exclude others from copying their work, but is not giving a monopoly to the holder as is the case with patents.
In China most companies have utility patents which are not examined, therefore cheap, but really do not tell competitors anything about whether they are valid or not. Professor Llewelyn told about the IP game, of patent trolls (non-practising entities), licensing and sub licensing etc. which, of course, is a serious game, because a lot can be at stake. Valuation of IP can be very difficult. But it is getting more important, since many companies start to park their IP assets in “tax neutral” jurisdictions such as the Cayman Islands, Guernsey, Jersey etc.
You should know first what you have. Then use what you have. Leverage your IP rights.
Professor Llewelyn made a case for using IP strategically. And to bring IP out of the marketing and legal departments into the boardroom. One of the board should own the IP issue internally and deal with the IP challenges.
I am looking forward to read his book: ‘Invisible Gold in Asia‘, which deals about the same crucial subject matter that only becomes more important for each and every company: Creating wealth through intellectual property.
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China’s National Intellectual Property Strategy, What’s The Progress? Website To Stay Updated

September 11, 2008 IP Dragon published ‘China’s National IP Strategy 2008: Feasible Commitments or Road to Nowhere Paved With Good Intentions.’ To “popularise” and to keep those interested in the progress of China in implementing its National IP Strategy a website was launched on June 5th, see here (Chinese).

The site has 10 main categories:
  • Important news;
  • Media viewpoint;
  • National strategy;
  • Ministry developments;
  • Regional strategy;
  • Industry strategy;
  • IPR protection;
  • International developments;
  • Strategy research;
  • Strategy special.
Below I summarise the first article in the category ‘Important news’:

Li Changchun (a Politburo politician at the Standing Committee): ‘Cultural Industries Are the Resource for Intellectual Property Rights Output’. June 16th, 2010, Mr Li’s article ‘Correctly understanding and handling the cultural construction and development efforts to the relationship between a number of aspects of major socialist culture with Chinese characteristics and the path of development.

Mr Li understands that by developing Chinese culture new intellectual property rights will be created. This will involve many jobs, for which no plants are needed nor land. For this the relationship between culture and intellectual property must be researched. Also the relationship between culture and economy; culture and technology must be correctly understood. And the relationship between domestic and foreign culture. Foreign culture must be actively absorbed.
Read the full article here in Chinese.

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Guest Blogger Mathijs van Basten Batenburg On The People’s Courts of China

IP Dragon asked Matthijs van Basten Batenburg legal counsel of several Chinese and Dutch SME at MvBB Ltd. in Shanghai to write a guest column. IP Dragon does not necessarily agree with the content, but wants to present a forum for all opinions that have something to do with IPR in China.

Inside a Chinese Courtroom presentation for the EU Chamber of Commerce Shanghai by Stéphanie Balme of the China EU School of Law.

By Mathijs van Basten Batenburg in Shanghai

On Thursday March 4 I attend a breakfast seminar organised by the EU Chamber of Commerce in Shanghai. At 8 in the morning I join one of the tables with legal professionals who have flocked to hear a reading that has the tantalizing title “Inside a Chinese Courtroom”. Today’s subject has indeed made many curious, including myself, and I later learn that the turnout for this meeting is indeed well above average. This curiosity might be explained due to the fact that many foreigners have extremely low hopes for a fair trial in a Chinese Courtroom. The result of a small survey over the first cups of coffee of the day is in line with my own prejudices: all the lawyers on my table regard the Chinese judiciary system as a venue to be avoided at all costs, and if unavoidable, either find a Chinese lawyer to “negotiate” with the judge handling the case, or just write the file off altogether. No small wonder we are all keen to hear an expert’s opinion on this subject.

Ms. Balme turns out to be very enthusiastic speaker and it is immediately clear she has a passion for China and its judicial system. For her research she has travelled extensively throughout the country, has interviewed judges and attended court sessions.

We learn that the Chinese government is seriously committed to improve accessibility to the legal system and to modernize the courts. In practise this is mostly taken literally: old, shabby, courts are demolished and replaced by shiny, steel and concrete palaces. The government has also instated some Western rituals such as the robe and gavel, although many Chinese judges are apparently still not sure what to use these weird objects for.

Despite these investments by the government, the quality of the rulings is still questionable. By and large, judges lack a law degree and principles such as “equality before the law” are not applied. It is also good to note that there is no “division of the powers” in China: judges are considered civil servants and are subordinate to the government. Furthermore, public opinion exerts great influence over the rulings of Chinese judges. The well-known case Danone vs. Wahaha (where the Chinese company established mirror companies of their joint-venture with Danone, later forcing the French company out of the joint-venture altogether) is given as a typical example. What doesn’t come as a surprise to most of the listening lawyers is that corruption is still very real and very common, also in China’s major cities. Most of the time litigation fees are still paid cash and judges are commonly presented with “gifts” by the litigants.

Even if the judiciary system would function as in Western countries, the law itself would pose a challenge since laws are still quite chaotic and are often internally contradictory. Nevertheless, Chinese people increasingly use the courts as a way to settle problems as is shown by the stats of civil cases being filed each year. As opposed to the West, in China a judicial ruling is the start of the settlement of a conflict, not dissimilar to that the signing of a contract is still mostly the start of negotiations in this country. From a Western perspective this also means that enforceability of Chinese rulings is extremely difficult. Even if you find a judge that is prepared to rule in your favour, this doesn’t mean you can enforce the verdict!

Unfortunately we run out of time before Ms Balme is even halfway through her presentation. Reinforced in my slightly cynic ideas about the Chinese judiciary system, but once again fascinated by this country, I leave the gathering.

Written by Mathijs van Basten Batenburg, legal counsel at MvBB Ltd. in Shanghai.

IP Dragon does not necessarily agree with the content of this guest blog, but wants to offer a forum to all opinions that have something to do with IPR in China.

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China Copyright and Media Looks At the Law of China’s Entertainment Media

IP Dragon’s friend Rogier Creemers has started a great website called ‘China Copyright and Media, Looking at the Law of China’s Entertainment Media’, see here.

For this field of study it includes many relevant laws, regulations and rules, from the State Council of the National People’s Congress, Central Committee, Supreme People’s Court, Public Security Bureau (PSB), State Administration for Radio Film and Television (SARFT), General Administration for Press and Publications (GAPP), State Administration for Industry and Commerce (SAIC), Ministry of Commerce (MOFCOM), etc.

The database is in “beta”, but it is already very interesting.
So check it out: China Copyright and Media.

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Shanghai World Expo 2010 Exposes Organisers’ Lack of Creativity

In 2007 the Bureau of the Shanghai World Expo 2010 Coordination promulgated a special regulatation (See here: No. 11) concerning intellectual property rights. In short all participants to the World Expo were warned that they should comply to China’s IPR laws, regulations and rules far in advance. The General Administration of Press and Publication and the National Copyright Administration have also called for a rapid-response mechanism to protect the intellectual property rights of the Shanghai World Expo, meaning that copyright departments at all levels will check materials that may infringe on the copyrights of the Shanghai World Expo as soon as they are found. Read more here. That is laudatory indeed, but what about the Shanghai World Expo 2010 organization themselves? Do they also have to comply to the very same IPR laws, regulations and rules?

You probably have seen that ‘Haibao’, the expo mascot, was an unauthorised copy of an American cartoon figure Gumpy, read the Japan Probe article about it here.

Then the Shanghai Expo theme song ‘Right here waiting for you’ is an almost completely plagiarized song by Maya Okamoto from 1997 called ‘Stay the way you are’, listen to the two songs and read Japan Probe’s article here.
The Shanghai World Expo and organizers first paid 10 million yuan for the plagiarized song and then had to pay 300 million yen to Ms Okamoto to settle the case. According Elaine Kurtenbach who wrote an article about ti for the Associated Press, the Shanghai World Expo organizers said that Ms Okamoto was honored to have a chance to cooperate with the event. Read the AP article here.

[youtube http://www.youtube.com/watch?v=ggTMfIQoTp8&hl=en_GB&fs=1&]

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IP Dragon’s “Shock and Awe” Holiday Tips

When in Paris, IP Dragon does not only highly recommend you to visit le Louvre at the rive droite and le Musée d’Orsay at the rive gauche so you will be awed by the original works of great artists. For a more, let’s call it balanced world view, you must also hop on le métro and stop at Porte Dauphine in the XVI arrondissment, and stroll to Rue de la Faisanderie where you will find a very special place at number 16. Here you can witness the shockingly ingenuity and deception of the pirated and counterfeited products devised by devious but sometimes likewise brilliant minds at Le musée de la Contrefaçon. Quelle horreur, but how interesting! The Union des Fabricants pour la Protection Internationale de la Proprieté Intellectuelle (UNIFAB) has founded this museum already in 1951. See here. Therefore you can see the developments of the fakes over more than half a century and you will be confronted with some of its dramatic consequences. “The imitation will not have a secret for you anymore”, as UNIFAB states. At the museum you will see that many of the counterfeits originate from China.

If you are not going to Paris this year you can visit another museum which exhibits the same subject matter: the Counterfeit Museum, sponsored by law firm Lehman Lee and Xu. Most law firms that deal with intellectual property law have a kind IP altar in the office where the fake and genuine goods are standing next to each other. It is a great idea to share them with the world via a virtual museum. Each law firm could do this, or even better when they join in so the collection at one museum will be more interesting. So far the Counterfeit Museum has four rooms: Clothing and Accessories, Food and Restaurants, Movies and Music, and Appliances.

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Is It a Plane? Is It a Bird? No It is the Bleagle! Made in China

Stan Abrams of the China Hearsay (which has been totally upgraded) reports straing from the INTA in Boston about … Geely’s Gleagle. Mr Abrams is giving his always entertaining thoughts about trademarks that consist of made-up words.

Read more here.

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IPR elasticity of FDI is back in China?

The last years there seemed to be no relation between the level of protection and enforcement of intellectual property rights and foreign direct investments (FDI) in China. Most companies did not let them scare by the intellectual property related challenges in China and invested massively. Of course one can argue that if China had a higher level of protection and enforcement of intellectual property rights it would attract even more FDI. So because of this China faces some opportunity costs. But China is not complaining, it is doing economically much better than the rest of the world.

Businesses always have to make the decision whether the opportunities really weigh up against the risks. Let us apply the ‘price elasticity of demand’ formula on this topic. In this case the level of intellectual property rights protection and enforcement is like price a more or less endogenous factor. And the outcome; the amount of FDI is just as the demand an exogenous factor. One can compare quality of a product with the opportunity of investing in China. Therefore the intellectual property rights elasticity of FDI in China might have worked all the time, but the perceived opportunities in China were just too high to show any negative impact of the IPR protection and enforcement level on the FDI in China.

For Microsoft the tipping point might just happened. It is complaining that it has a market share in China of 15 to 20 percent but which is only good for 1 percent of the revenues. All thanks to copyright piracy.

Microsoft is considering focussing more on India and Indonesia, according to Steve Ballmer, CEO of the software manufacturer from Redmond, Washington, U.S.A. Then again, Mr Ballmer’s expesses himself sometimes a bit dramatic, see here. Read Alex Kennedy’s article about it for the Associated Press.

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Geertje Hesseling’s thesis about Intellectual Property Rights in Fashion in China

Geertje Hesseling wrote an interesting Master’s thesis ‘Intellectutal Property rights in fashion in China and the knowledge of young Chinese designers on this topic‘ for Cultural Economics & Cultural Entrepreneurship at the Erasmus University Rotterdam.

She develops her thesis by testing the following hypotheses:
H1. With stronger intellectual property rights law, China will attract more investments in fashion.
H2. The most useful way to implement stronger intellectual property rights in fashion is to strengthen and adjust in particular the copyright and trademark policies, but next to this also cultural and governmental adjustments are needed.
H3. Intellectual property rights strengthen the fashion cycle instead of damaging it.
H4. Younger designers care and know little about intellectual property rights concerning their designs.
H5. Young designers are in more need of IP rights protection than bigger and already established companies.
Next to do desk research Ms Hesseling did empirical research by interviewing the following people:
  • Paul Smidt of Baker & McKenzie in Hong Kong;
  • Paul Ranjard, co-chair of the EU China Chamber of Commerce in Beijing and representative of Unifab;
  • Queenie Leung, young designer, graduate Fashion and Textile Design of Polytechnic University Hong Kong;
  • Ivan Yip, young designer, third year of Textile and Design of Raffles University Shanghai;
  • Gerry Ng Yuen Yi, young designer, third year of Accessory Design at Mod’ Art International School Beijing;
  • Yin Shu, young designer, graduate Textile and Design of International Fashion Academy, Shanghai;
  • Sheila Pitigala, young designer, working on her own label in Shanghai;
  • Tim Hoar, Business Development Manager Student IP, Central Saint Martins College of Art and Design;
  • Dominique Simard, Marketing and Business Development Director, International Fashion Academy Shanghai.
  • Yours truly.
Geertje Hesseling interviewed me in June 2009:
Geertje Hesseling: What should be changed in policies in China so that piracy is a issue of less concern?
Danny Friedmann: If you have to evaluate China’s intellectual property protection it looks good in the books but on the ground it is not effective. Enforcement is not always taken seriously (massive anti-counterfeiting campaigns are not effective in the long run, and are often announced in advance so the infringers are warned), but the development of China is getting at a point where it is in the interest of China to enforce intellectual property rights. So, in case of fashion, when Chinese fashion creators, such as Shanghai Tang’s copyright is infringed, it will start to enforce intellectual property rights in a more effective way, since Chinese companies demands this.
Geertje Hesseling: Is IP rights protection more important for smaller companies or is it equally important for the large companies?
Danny Friedmann: Large companies in general have more famous brands. Therefore, probably in more cases, they will be targeted by trademark counterfeiters and copyright pirates. Then again, large companies can have more budget to protect (via design rights and copyrights) and enforce their intellectual property rights.
Geertje Hesseling: What do you think will be the future of fashion with little IP rights, in countries such as in China?
Danny Friedmann: Fashion trends will change even faster. I can speculate that consumers will start to look more at quality. Trends in fashion infringements: first brands and designs were copied. Now, although this still happens, a new category of infringements is becoming more prominent: only the design is infringed under a Chinese brand name. In other words, the trademark counterfeiters/copyright pirates are becoming only copyright pirates because they start to build their own brand name.
By the way: In the European Union each fashion designer who has created a design obtains (just like copyright) at the moment of creation a European Design Right for three years, which can be enforced in the EU. This is without registration! Just like copyrights.
Geertje Hesseling: What do you think are China’s most influential factors for attracting piracy when it comes to the rampant copying of the fashion industry in this country?
Danny Friedmann: China can manufacture clothes relatively much more cost-effective compared to companies in the West. And the distribution of wealth in China is uneven and much lower than in the West. Even in the West fashion is copied very frequently, or to put it differently: fashion designers are inspired by other fashion designers. And maybe fashion is not so suitable for copyright protection, because by definition fashion designers build upon the designs or remix the designs of others. And fashion trends change so quickly anyway, first mover advantage is probably more important in fashion business than intellectual property protection. Please see chapter 8 ‘Extra-judicial factors’ of my thesis.
Read Ms Hesseling’s thesis here.
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Don’t Feed The Patent Trolls in China and Start Your Own IP Team

Tian Lipu, commissioner of the State Intellectual Property Office (SIPO) visited Samsung, according to the China Daily. Mr Tian was told by the Keun-Hee Park, president of Samsung’s operations in China that patent trolls were on the rise.

One can argue that a patent troll, or more neutrally called a non-practising entity (NPE) abuses its intellectual property: the patent is only used to enforce or threaten to enforce it via litigation. This way, they do not create added value to society, because (except for lawyers and magistrates) and form an obstacle to research and/or manufacturing of some product.
According to PatentFreedom, a website providing research on and strategy about NPEs, Samsung has been relentlessly pursued and ranks sixth by the number of NPE lawsuits it was involved in in 2009. See the list at the site of PatentFreedom here.
Mr Tian was quoted saying: “Since the Chinese government adopted a national intellectual property strategy in 2008, fighting such inappropriate use of patents has been listed as one of five top priorities on our agenda.”
If one reads Article 4 (Preventing Abuses of IPRs) of Chapter III Strategic Focus of the National Intellectual Property Strategy 2008 you will see: (14) Formulate relevant laws and regulations d to reasonably define the scope of intellectual property. Prevent abuses of intellectual property. Maintain fair market competition. Safeguard the public lawful rights and interests.
The fact that Samsung founded a special intellectual property team was praised by Mr Tian. It is “of demonstrational significance” to Chinese companies, according to Mr Tian. Whether Samsung’s example will be followed remains to be seen.
Read the China Daily article here.
UPDATE: Anonymous wrote a very interesting comment:

“As many Chinese commentators have noted, what constitutes patent “misuse” or “abuse” is unclear in China. Also, what constitutes an “NPE” or “troll” or (in Chinese) “cockroach” is also unclear. If it is simply a “non-practicing entity” then all research institutions may be trolls. The concept of “abuse” in Chinese (lanyong) likely encompasses “abuse” under the Chinese antitrust law (Art. 55) and may also encompass “misuse” – which is typically a defense to infringement and not an affirmative claim in the US. Moreover, there are aspects of the issue which involve patent examinations/grants/novelty requirements and patent litigation (damages/availability of injunctive relief). A country, such as China can have a relatively high level of NPE’s (or non-service inventions), esp. in patents that are not examined for substance (utility model and design patents), or in patents that were once examined only on grounds of “relative novelty” (under the former patent law), but the patents may have a low value for litigation (damages or injunctions, or preliminary injunctions). Moreover, there may be limited means of compensating a victim for abusive assertion of rights – under US “Walker Process” type remedies, or “Rule 11″ or other doctrines.”
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Would You Tell A Stranger On The Phone Whether You Have Pirated Software?

China Daily has an optimistic article about the declining software piracy rates in China. At least according to a survey by Chinalabs.com commissioned by the State Administration for Industry and Commerce. The surveys were done by phone and one can question the reliability of the answers. Even though the anonymity of the respondents might be guaranteed (Was this the case?), many people give social acceptable answers, especially in China where the government keeps tight control over all things related to the internet, computers and copyright. So this could mean that at least the respondents are aware that pirated software is illegal. Or, best case scenario, they speak the truth.

Business Software Alliance (BSA) has commissioned IDC to do an annual survey about software piracy in China as well. The difference between the BSA/IDC and SAIC/Chinalabs.com results is significance. In 2005 there has been a controversy about BSA’s statistics (see the Economist article, “BSA or just BS”, about dodgy piracy data, so this year a video of John Gantz, Chief Research Officer of IDC is posted where he explains the methodology for the BSA/IDC Global Software Piracy Study.

“There are three kinds of lies: lies, damn lies and statistics” (19th century British Prime Minister Benjamin Disraeli)

  • 2005 66 percent (SAIC/Chinalabs.com); 86 percent (BSA/IDC);
  • 2006 63 percent (SAIC/Chinalabs.com); 82 percent (BSA/IDC);
  • 2007 56 percent (SAIC/Chinalabs.com); 82 percent (BSA/IDC);
  • 2008 47 percent (SAIC/Chinalabs.com); 80 percent (BSA/IDC);
  • 2009 45 percent (SAIC/Chinalabs.com); 79 percent (BSA/IDC).

Unsurprisingly Chinalabs.com questions BSA’s methods. And IP Dragon questions’s Chinalabs.com methods. So if you question my methods, please send your comment below.

See the China Daily article here.

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June 25, Seminar: ‘Managing IPR As A Business Asset in Greater China’

IP Dragon is delighted to invite everyone interested in IPR in China to a seminar called ‘Managing IPR as a Business Asset in Greater China’ organised by EUBIP and China IPR-SME Helpdesk. (Take note: some speakers still need to confirm). I confirmed.

When? Friday 25 June, 2010
Where? HK Convention & Exhibition Center

What is the programme?
8:30-8:50 Registration and Coffee
8:50-9:00 Welcoming remarks
Morning: General China IPR Overview for European SMEs
9:00-10.00 Session 1:
Protecting your intellectual property in China? Why it is so important.
  • Is IPR protection in China possible and how?
  • China IPR environment and what businesses need to know?
Speaker presentation 2×20 min + Q&A
  • Elliot Papageorgiou, Rouse & Co (speaker)
  • Other speaker (to be confirmed)
10.00-10:15 Coffee break
10:15-11:15 Session 2:
  • How to identify and leverage your IP assets?
  • Working with Chinese business partners – how to structure relationships to protect your assets?
Speaker presentation 2×20 min. + Q&A
  • Serena Tierney, Consultant at Wragge & Co LLP (speaker)
  • Willi Vett, Beiten Burkhardt Hong Kong (speaker)
  • Dr. Christopher Heath, member of the Boards of Appeal of the European Patent Office, former head of the Asia Department of the Max Planck Institute for Intellectual Property law, Munich (moderator)
11:15- 11:30 Coffee break
11:30-12:30 Session 3
IP Management and Enforcement
  • How to prevent IPR infringements and steps to take if you discover infringements
  • IPR Enforcement process in China
Speaker presentation 2×20 min. + Q&A
  • Danny Friedmann, Chinese University of Hong Kong / IP Dragon (speaker)
  • Henry Wheare, Partner Lovells Hong Kong (speaker)
  • Professor Anselm Kamperman Sanders (moderator)
12:30-13:30 Lunch
Afternoon Panel Discussion / Clini Sessions + Networking
13:30-14:30 Panel Discussion
  • Dr. Christopher Heath
  • speaker
  • Serena Tierney
  • Elliot Papgeorgiou
  • Anselm Kamperman Sanders (moderator)
14:40-15:00 Clinic Session 1/Networking
15:10-15:30 Clinic Session 2/Networking
15:40-16:00 Clinic Session 3/Networking
16:00 Closure
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What is so special about Special 301 vis-à-vis China? Part IV

Previous parts can be seen here: Part I, Part II, Part III.

What was said during the Special 301 hearing about Intellectual Property in China?

So who were the four witnesses that spoke about IPR in China?

Ambassador Shaun Donnelly (Senior Director for International Business Policy of the National Organization of Manufacturers) proposed to use both a carrot and a stick. Carrot: the U.S. is already involved in capacity building, training, exchange and industry has been involved a s trade partner. “We have to convince the Chinese to deliver results. To make them clear that we hold them in IPR to a much higher standard.” Stick: “If they don’t that it has concrete consequences.” He urged the USTR to start an Out-of-Cycle review, which involves a systematic evaluation of China’s entire IPR enforcement regime, supported by submissions from U.S. manufacturers and businesses to document IPR infringement to the extent possible. This way a strategy could be devised, and a decision be made about benchmarks and on the implications of failure to deliver on the set benchmarks.
Eric Smith (International Intellectual Property Alliance (IIPA) pointed out that although physical copyright piracy remains a problem, for most industries, the internet has taken over as the means to distribute content, including pirated content. China, with its 750 million mobile device users and where 3G broadband has just been introduced, poses a huge problem. For the IIPA criminal action against piracy is the holy grail: “We should ask our trading partners too, first, undertake more criminal actions against piracy of software in the corporate environment, against growing online and mobile device piracy of music, motion pictures, software, video games and books and journals, against continuing piracy of optical disk products and the unauthorized printing and commercial photocopying of books and journals and against the manufacturing and trafficking and circumvention devices.”
Mr Smith’s wish list continues:
  • Enough enforcement resources and training commensurate to the problem;
  • To remove onerous and unnecessary procedural barriers to the judiciary acting in civil and criminal cases;
  • Impose deterrent penalties in criminal cases and adequate and deterrent damages and remedies in civil cases;
  • U.S. government should ask its trading partners to encourage cooperation of ISPs with all content owners so that workable and fair notice and takedown systems and a graduated response mechanisms (3-strikes) to deal with repeat infringers online can be implemented;
  • Government agencies, contractors and educational institutions should be urged to use only legal software and legal copies of textbooks and it should be ensured that their networks and computers are not used for infringement of any copyrighted content;
  • That laws against camcording motion pictures are enacted and enforced.
Michael Mellis (Senior Vice President and General Counsel of MLB (Major League Baseball) Advanced Media L.B.) testified that his company was affected by an emerging type of telecast IP infringement: unauthorised streaming over the internet of live television programming of all types including live sports telecasts and related programming. The number of sites and services involved in this phenomenon is significant (on an annual bases tens of thousands of hours of live television programming from networks around the world are being pirated) and has grown rapidly. “Many are open doors permitting any type of television programming to be streamed live persistently and globally without authorization from copyright owners.” This can be accomplished through the use of this $70 device and some software. “In our rights enforcement efforts through the past several years, during which we have identified and logged thousands of piracy incidents, the dominant pattern we have seen is piracy occurring through a streaming over peer-to-peer services based in China.” According to Mr Mellis approximately 75 percent of the pirated retransmissions of the telecast have occurred through offshore sites and services and approximately 50 percent of the total through Chinese sites and services.”
Streaming video via the internet presents new challenges to copyright law:
Mr Mellis: “Our domestic copyright law is clear that this is copyright infringement. However, litigation in the United States is a remedial tool available to U.S. exporters of television programming only in limited circumstances.”
Mr Mellis pointed out two relevant reports about this matter:
– U.S. House of Representative, Committee of the Judiciary, ‘Hearing on Piracy of Live Sport Broadcasting Over the Internet‘, December 16, 2009.
– OECD, ‘Piracy of Digital Content‘, 2009.
Major League of Baseball works together with the Coalition Against Online Video Piracy(CAOVP) which has had informal discussions with Chinese government agencies.
In reply to a question Mr Mellis makes clear that he cannot quantify the damages of the telecast infringements, because of “the recency of the problem” and the unknown parts such as the size of the audience size is, who was involved beyond what we can find out through our own limited means of figuring that out, patterns of piracy. Mellis sends routinely cease and desist letters and notices to infringers abroad, in particular China. To no avail, with one exception.
Mike Palmedo (Assistent Director of the American University Washington College of Law Program on Information Justice and Intellectual Property (PIJIP) criticized the Pharmaceuticals and Research Manufacturers of America (PhRMA) for criticizing China’s government about Active Pharmaceutical Ingredients (API), that the enforcement of health regulations for API, noting that chemical manufacturers may sell and ship API products to locations within China and abroad with either no regard for the intended use of the API or choosing not to comply with existing regulations. However, the enforcement of Chinese regulation of APIs is, according to Mr Palmedo, outside the scope of the Special 301 report, since it doesn’t address the adequacy or effectiveness of intellectual property rights and PhRMA doesn’t suggest that these Chinese health regulations deny fair and equitable market access to United States persons that
rely upon intellectual property protection. Mr Palmedo has a point. However, his conclusion “So if this complaint is included in the Special 301 report, it will be nothing more than an attempt to intimidate Chinese companies which many developing country producers rely on to produce affordable generics.” is based on an assumption which is not necessarily true. The reason for it is that counterfeit pharmaceuticals that originate in China have proved lethal. In the report it says: “(..) in China, domestic chemical manufacturers that produce APIs can avoid regulatory oversight by not declaring that the bulk chemical is intended for use in pharmaceutical products. This contributes to China being a major source country for APIs used in counterfeit pharmaceutical products.”
Text/Picture: Danny Friedmann
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What is so special about Special 301 vis-à-vis China? Part III

Previous parts can be seen here: Part I, Part II.

So what does the report say about China?

On the positive side:
  • An increase in the number of civil IP cases in the courts (would be nice if the report states the numbers);
  • Largest software piracy prosecution in Chinese history in 2009;
  • “Continued and constructive discussions in the Joint Commission on Commerce and Trade (JCCT) and the JCCT Intellectual Property Rights Working Group” (this might be a diplomatic way of saying that the U.S. and China are on speaking terms, but nothing concrete has come out of the meetings, why not mention it otherwise?);
  • October 2009 the National Copyright Administration of China, the Ministry of Education, the Ministry of Culture, and the National Anti-Pornography Office issued the Notice on Strengthening Library Protection of Copyright, which directs libraries to adhere to the Copyright Law;
  • Judicial enforcement related to infringing activities in retail markets in Beijing and Shanghai;
  • Judicial authorities sentencing wholesalers to prison terms;
  • Holding retail market landlords liable for failing to take appropriate measures to prevent infringement;
  • Shanghai municipality is seen as bright spot regarding IPR enforcement;
  • Zhejiang province has shown progress, undertook more trademark infringement investigations than any other Chinese province (which could however also indicate that they have a higher level of infringement than the other provinces; what is needed is to use the IP enforcement/infringement ratio);
  • Jiangsu province demonstrated, according to USTR, its recognition of the importance of IPR protection: “including through a Suzhou court’s criminal sentences in a high-profile software piracy case (sounds rather anecdotal to come to this conclusion, then again it is also encouragement) and set an example of transparency by publishing IPR decisions online: Jiangsu.ipr.gov.cn.
Room for improvement:
  • The USTR is concerned about the proliferation of the manufacture, sale, and distribution of counterfeit pharmaceuticals in China;
  • China’s domestic chemical manufacturers that produce Active Pharmaceutical Ingredients (API) can “avoid regulatory oversight by not declaring that the bulk chemical is intended for use in pharmaceutical products.” (according to Mike Palmedo, PIJIP, this is more a health issue not an IP issue, see ‘What was said during the Special 301 hearing about IP in China?’ below);
  • Internet piracy is significant in China. Unauthorised retransmission of live sports telecasts over the internet is a problem (see Michael Mellis, Major League Baseball Advanced Media L.B., ‘What was said during the Special 301 hearing about IP in China?’ below);
  • Pre-loaded illegal content on cellular telephones, palm devices, flash drives and other mobile technologies (see Eric Smith, IIPA, ‘What was said during the Special 301 hearing about IP in China?’ below);
  • “Other countries still need to adopt and implement legislation or improve existing measures to combat illegal optical disc production and distribution, including China, India, Paraguay, and Thailand, which have not made sufficient progress in this area.” This is rather vague language: In case of China does the USTR need to implement legislation or improve existing measures? That remains unclear;
  • Government use of legitimate software is a problem in China;
  • The report gives the USTR’s view about what the US achieved with the WTO Dispute Settlement cases DS362 (China – Measures Affecting the Protection and Enforcement of Intellectual Property Rights) and DS363 (China – Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products);
  • USTR is concerned about the promotion of China’s “indigenous innovation”. They give one example: preferential government procurement. As a comment about my post about the subject “Anonymous” gave many more examples as a comment on my post about the subject. See them here.
  • The share of IPR-infringing product seizures at the U.S. border that were of Chinese origin was 79 percent in 2009, a small decrease from 81 percent in 2008.
  • “Business software theft (theft is a misnomer, since the software is not taken a way, but copied and used without authorisation by the rights holder) by enterprises is particularly troubling as it not only results in lost revenues to software companies but also lowers the business costs of offending enterprises and my give these firms an unfair advantage against their law-abiding competitors.” Don’t know why infringed business software is singled out. All companies making use of a counterfeit or pirated product have an unfair advantage in comparison to law-abiding competitors;
  • That during a recent internet enforcement campaign, see here (Managing IP) or here (China Daily), in which 558 cases were investigated and 375 websites were shut down, demonstrates according to the USTR that if the Chinese government chooses to utilise its enforcement resources and personnel to deal with an IPR problem, it can produce results. The question is whether these actions are structural.
  • “The United States notes that at times particular enforcement actions are directed not only at copyright or trademark infringement, but also include infringement activities that may be considered more serious under the Chinese legal system.” Is this a cryptic way of saying that China is more interested in controlling the media? And one should take into account that article 41 (5) TRIPs requires no special allocation of resources to the enforcement of law in general in absolute terms, nor to the enforcement of intellectual property rights in relative term;
  • Retail and wholesale market have still pervasive problems. Despite 1. attention from brand owners, the Chinese central government and foreign governments; 2. resources from brand owners; 3. contractual agreements with landlords;
  • Civil damages for infringement are deemed inadequate; minor penalties levied by courts;
  • U.S. trademark and copyright industries report that administrative fines are too low; and imposed too infrequent, to provide deterrence. The ambition level of TRIPs is not helping: the wording of article 61 TRIPs is not that remedies should provide a sufficient deterrent, but that they should be sufficient to provide a deterrent. China’s implementation of article 61 TRIPs is one of the most vehemently debated issues. Many WTO members seem to expect a lot of this enforcement route. But they should perhaps do some self reflection first, because criminal enforcement in IPR cases is underdeveloped in most countries, or, as professor Hugenholtz (IvIR, UvA) pointed out, not even available, as is the case with patent law. Maybe that is why there has been no jurisprudence or decision of a competent WTO body thus far;
  • Market access barriers create incentives to infringe products such as movies, video games and books;
  • September 2009, Ministry of Culture issued a “circular that bars providers of imported, but not domestic, digital music from distributing their content online unless they obtain content approval”; and the foreign providers have to enter into an exclusive licensing arrangement with a wholly Chinese-owned entity;
  • Some landlords and infringers ignore applicable court rules;
  • November 2009, the Standardization Administration of China (SAC) released the Draft Regulations for the Administration of the Formulation and Revision of Patent-Involving National Standards (Chinese) for public comment. The USTR reports that it is “concerned about the expansive scope, the feasibility of certain patent disclosure requirements and the possible use of compulsory licensing for essential patents included in national standards” (Article 9, Chapter III: “(1) The patentee agrees to license, on a reasonable and non-discriminatory basis, any organization and person to implement the patent when implementing the national standard at a price significantly lower than the normal royalties; “; Compare the just released Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, of which section 284 states that “(..) in case of a dispute, the assessment of whether fees imposed for patents in the standard-setting context are unfair or unreasonable, will be based on whether the fees bear a reasonable relationship to the economic value of the patents.” Article 12, Chapter IV of the Chinese draft regulation: “In principle, a compulsory national standard shall not involve a patent.”; Article 13, Chapter IV of the Chinese draft regulation: “For a compulsory national standard that indeed needs to involve a patent, the patentee shall grant license free of charge or the national administration department of standardization shall request the related departments to consult with the patentee about disposal of the patent. If the related departments fail to agree with the patentee on the disposal of patent, the approval for release of the national standard will be temporary withheld or a compulsory license will be granted according to law.”) which could indeed give a disincentive for innovation by foreign rights holders in the development of standards in China. Not only the U.S. but also the European Commission is taking a different approach to standards and IPR from China;
  • October 1, 2009, the Third Amendment to the Patent Law is effective (Patent Law 2008). USTR writes that rights holders have raised a number of concerns, including the effect of disclosure or origin requirements on patent validity (rightly so, because it is unclear), inventor remuneration (no reason for this fear, see ‘Are Statutory Compensation Rules for Inventors Scary?‘;
  • China’s recently got a “naked” Bolar exemption, article 69 (5) Patent Law 2008, which exist of the safe harbor provision. I am not sure whether it is bad that there is no possibility of extending the term of patent protection, as is possible in the U.S. system. I am not sure whether the State Food and Drug Administration (SFDA) has long delays. And 20 years seem long enough to get a return on the investments of innovators. And otherwise generic producers have to wait longer, which might be bad for competition. And in principle, the law applies in the same way to Chinese and foreign companies in China. The USTR has concerns about effective protection against unfair commercial use, as well as unauthorised disclosure, of undisclosed test or other data generated to obtain marketing approval for pharmaceutical products;
  • Guangzhou province’s IPR enforcement is seen as inconsistent with respect to valuation methodologies for calculating damages, fines and penalties, and the criminal IPR cases initiated are deemed too low;
  • According to the USTR, IPR enforcement at the local level is poorly coordinated among Chinese government ministries and agencies; rife with local protectionism, corruption, high thresholds for initiating investigations and prosecuting criminal cases, lack of training, inadequate and non-transparent processes.

The report states that “the overall level of IPR theft in China remains unacceptable.” The usage of the term ‘IPR theft’ could be confusing. Because the IPR are not stolen, but infringed. If they were stolen the rights holders would not have the intellectual property rights anymore.

Mike Masnick wrote an interesting article for TechDirt with the title ‘USTR Announces What Countries Have Been Naughty When It Comes To Intellectual Property’.

I have put my comments on Mr Masnick’s article in italic.

IP Dragon: Naughty is a term that might be perverse in the case of counterfeited medicines and food/beverages that have proved lethal in China.

Mr Masnick asserts the following about Section 301:
– standard used is mythical;
IP Dragon: Why mythical? The USTR listens to the witnesses, reads the public submissions, and reviews, evaluates and determines whether the standard of proof has been met. If so then it comes with a qualification. What exactly the standard of proof is, is difficult, because it inadequacy and ineffectiveness of intellectual property is contingent on several factors, see directly below.
– no methodology;
IP Dragon: The USTR, together with the interagency Special 301 subcommittee made an assessment. Imput: apart from public engagement, 571 submissions, there was a hearing, seetranscript of 23 witnesses (But only four talked about China, see pages

64:21 65:6,7

69:4,4,5,8 70:10

70:20 71:2,10

93:7,11,16 94:3,4

96:2,3,7,8 128:17

136:14 268:8,13

274

:9,20) For each country they took the following factors into account:

  • level of development (this is hard to measure, and controversial: China for example is a country fragmented in regions of different developmental speeds);
  • international obligations and commitments (this might be easy);
  • concerns of rights holders and other interested parties (question is whether the rights holders and other parties heared form a representative group);
  • trade and investment policies of the United States.

John Rawles’ legal-philosophical theory of the Veil of Ignorance (devising a legal system without knowing whether it will be applied to you or to someone else) is hard when you want to devise a system for protection and enforcement of intellectual property rights. Especially in case your IP system takes the above-mentioned factors into consideration: it is hard to forget your own level of development, your international obligations and commitments and the particular interests of your own industries.

– Masnick alleges that Section 301 is biased, because it is based on what the entertainment and pharmaceutical industry do not like;
IP Dragon: Academics and journalists should be as objective as possible. Lawyers and marketeers should defend one side/show the best side of something. Governments should be fighting for the interests of their citizens. Including the industry. Industry groups should be fighting for the companies they are representing.

– it is not taken seriously, because “even people of the US Copyright Office” are making fun of it;
IP Dragon: This argument should not be taken seriously.

– no real interest in hearing consumer concerns;

IP Dragon: there was public engagement. 571 submissions that are public via Regulations.gov, with docket number USTR_2010_003.

– no interest in sovereign rights of countries;
IP Dragon: It is each country’s right, to protect the interests of its citizens and industry as well as possible. The U.S. trying to do this for a decade with Section 301. Whether it have been effective is another question.

– Mr Masnick wrote that the USTR wants to “monitor” countries that do compulsory licensing of patents.
IP Dragon: However, one can read in the USTR report that “the United States respects our trading partners’ rights to grant compulsory licenses, in a manner consistent with the provisions of the TRIPS Agreement and encourages our trading partners to consider ways to address their public health challenges while maintaining intellectual property systems that promote investment, research, and innovation.” The USTR also writes that it will follow the scope and procedures related to compulsory licensing. Not so strange. And in the case of standards and IP in China there are enough reasons to be concerned.

– Canada is included in the list;
IP Dragon: I will focus on China only.

– Michael Geist’s wrote: “According to the report, approximately 4.3 billion people live in countries without effective intellectual property protection.” Masnick suggest that if the USTR has a problem with the countries where the majority (4.3 billion) of people live, then the problem might be the U.S..

IP Dragon: 1. this reasoning is: if most people approve of something, therefore it is true. This is a fallacy ad populum, 2. the people who live in a country do not necessarily agree with their government or their legislation.

A commentor using the name Daemon_ZOGG made some interesting remarks:
– many consumers don’t care about whether the product is produced by the original manufacturer as long as the quality is good;
IP Dragon: could be the case.

– half of the time pirated media and software are as good or better than the real products;
IP Dragon: it is a trend that pirated and counterfeit goods are getting a better quality and sometimes are better in tune with the needs of local markets. The way the products are manufactured could be degrading for the environment, and employees, could involve child labour and the funding of organised crime.

– because of the global market, jobs were sent overseas and piracy is a collatoral damage.
IP Dragon: income from innovation (patents), creativity (copyrights) and commerce (trademarks) via intellectual property rights (IPR) is a growth market and creates jobs. Because of globalisation and digitisation, each company has more chances but is at the same time more vulnerable. Rewards and risks are linked.

But what is really special about Special 301?
If you are a WTO member state and you have an IP related problem with another WTO member state, you can take the take the case to the Dispute Settlement Body (DSB) of the WTO. But what if you are a company or a person? Then you first have to lobby with your government to take your case to the DSB. Every U.S. person (natural or legal) can take their case to the USTR. Until there is a possibility for industry groups, individual companies or natural persons, to bring their case against another country for not meeting their IPR obligations and commitments, there is a valid reason for the Special 301 procedure’s existence.
To be continued, see Part IV.
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What is so special about Special 301 vis-à-vis China? Part II

The previous part can be seen here: Part I.

Yes, Special 301 is special, but what is rather normal?

Like each sovereign state, the US tries to use its power to encourage/pressure other countries to protect its interests as long as it honours its obligations and commitments. Or as the report states: “(..) USTR works to protect American inventiveness and creativity with all the tools of trade policy, including this Report.” And since Special 301 is not incompatible with WTO, I don’t see anything wrong with a USTR’s assessment excercice from a legal perspective. Subjectivity is completely legitimate for a government. This time I do not share the outcry of Mike Masnick (see below) nor the indignation of my esteemed blogger colleague Shamnad Basheer of Spicy IP. However, I do share Mr Basheer’s remark in his open letter to the USTR here that “[i]f your grudge is that we haven’t complied with TRIPS, please feel free to take us to the WTO dispute panel.” Yes, that is each WTO member’s prerogative. From a Realpolitik point of view: the BRIC-countries (Brazil, Russia, India and China) are getting more powerful economically and might be able as a bloc to change the legal and political pressure to the other side, if they wanted to and if they would not be so divided.
To be continued: see Part III and Part IV.


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What is so special about Special 301 vis-à-vis China?

Each year, since 2005, IP Dragon dealt with the annual Special 301 reports, as a ritual dance in April which had to be described concisely and quickly. Not this year. The ferociousness of the tone by some (see below Messrs. Masnick and Basheer) against the perceived lack of legitimacy, methodology and flawed content of the report combined with the important subject matter made me take a closer look.
First the legitimisation of the Special 301 procedure and its report is explored; then the content of the report about the adequacy and effectiveness of intellectual property in China (this is IP Dragon, after all) is investigated (see Part II), then some of the criticism will be debunked (see Part , and some comments on a comment on Mr Masnick’s article will be made. After that the testimonies of messrs. Donnelly, Smith, Mellis and Palmedo regarding IPR in China during the hearing will be looked into.
Legitimisation: “You are not strange, you are eh… special”
The Office of the United States Trade Representative (USTR) put China also this year on the so called ‘Priority Watch List’ and is again subject to ‘Section 306 monitoring’ (“the USTR may apply sanctions if a country fails to satisfactorily implement an agreement”, however these sanctions are restricted to bringing a case to the WTO, see ‘Statutory language versus undertakings that remove inconsistency’ below). The USTR published its annual report in which it reviews the adequacy and effectiveness of the protection of intellectual property rights in and market access to U.S. persons that rely upon the protection of intellectual property rights.

The Special 301 procedure is pursuant to Section 182 of the Trade Act of 1974, as amended by the Omnibus Trade and Competitiveness Act of 1988 and the Uruguay Round Agreements Act (enacted in 1994). It was controversial for some time, because many countries thought that it gave the USTR the right in case of a perceived denial of adequate and effective protection of IPRs or market access to retaliate unilaterally. Therefore the European Communities brought a case to the World Trade Organization, which got the code WT/DS152. See an excellent 63-page summary of the case, here.

The main complaint of the European Communities was that Section 301(c), which became later 19 U.S.C. Section 2411, authorises the USTR to “suspend, withdraw, or prevent the application of, benefits of trade agreement concessions”, or “impose duties or other import restrictions on the goods of, and … fees or restrictions on the services of, such foreign country for such time asthe Trade Representative determines appropriate”. It also came to the conclusion that because the U.S. is a member of the WTO it should bring its trade conflicts to a panel of the Dispute Settlement Body to solve the problems multilaterally. The same is also applicable to Section 306.

Statutory language versus undertakings that remove inconsistency

According to the panel the statutory language was indeed inconsistent with the obligations under the WTO Agreement. However, such inconsistency could be removed upon examination of the US’ undertakings: namely a Statement of Administrative Action (SAA) in which the US promised to follow the route set out by the WTO to settle trade conflicts and made a promise that consecutive US governments will honour this pledge.

To be continued: see Part II, Part III and Part IV.

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Indigenous Innovation in China: Soup Will Not Be Eaten As Hot As Cooked

Will Freeman and Tom Miller assert for the Financial Times that China’s economic nationalism is exaggerated:

“The State Council began to promote “indigenous innovation”—a plan to support the creation and commercialization of domestic technology—in 2006. Then in November 2009 a handful of ministries announced they would implement rules limiting government procurement to products with entirely home-grown intellectual property, trademarks and brands. Two weeks ago, MOST [Ministry of Science and Technology] backtracked on the most contentious elements of this plan. Intellectual property can now be licensed for use in China from abroad. Accreditation no longer requires that trademarks and brands are first registered in China. And eligible products no longer need to have technology that reaches or surpasses international standards.”

Read messrs. Freeman and Miller’s article here.

UPDATE:
May 1 Anonymous commented on this post. I will post it integrally below:
“If indigenous innovation were only limited to those issus, then the proposition would be partially accurate. However, even the MoST revised comments are problematic, as it leaves open the question of where R&D needs to be conducted, and it also leaves open the kinds of warranties of non-infringement/lack of controversies that are necessary for government procurement to be obtained. Moreover, many Chinese officials have recently been trying to backtrack and remove the “indigenous” from “innovation” – something that has been discused for years but never occured.

However, we are still left with a bundle of issues: (a) standardization rules that contemplate compulsory licensing; (b) extensive compulsory licensing possibilities (although none yet applied); (c) interest in third world type IP issues – folklore, genetic resources, traditional knowledge; (d) extensive exemptions from infringement, including a so-called “naked Bolar” and research and non-commercial use exemptions; (e) tax subsidization of domestic R&D which may be limited to domestically capitalized companies; (f) subsidies for patent and trademark filings; (g) local rules that protect locally established companies and give enhanced enforcement for them – typically under local “famous mark” provisions; (h) lots of low quality, unexamined patents coming from non-service Chinese inventors which may be receiving local subsidies; (i) limited remedies for TM “squatting” or patent “hijacking”; (j) low incidence of foreign related enforcement by admin agencies, and low incided of foreign related civil cases; etc. etc. Not all of these are necessarily terrible, but they do suggest government management of innovation and of IP, and not an orientation towards private rights.”

Comment by Anonymous
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Seventy Percent of US Business in China Values Protection of IP Critically Or Very Important

The American Chamber of Commerce in China (AmCham-China) launched its 2010 Business Climate Survey Report. It seems here too the climate is heating up. IP relevant results are:

  • In 2009 18 percent (company sample size 311) reported intellectual property rights infringements issues as a top-five business challenge.
  • In 2010 this has grown to 19 percent (company sample size 318).
To the question (company sample size 277) ‘How important is the protection of intellectual property rights to your business?‘ in 2010:
  • 25 percent answered ‘critically important’
  • 45 percent ‘very important’
  • 19 percent ‘slightly important’
  • 11 percent ‘not important’
To the question ‘How would you rate China’s enforcement of intellectual property rights?’
In 2002 (company sample size 219): 21 percent ‘totally ineffective’, 63 percent ‘ineffective’ and 16 percent ‘effective or very effective’;
In 2004 (company sample size 210): 21 percent ‘totally ineffective’, 70 percent ‘ineffective’ and 9 percent ‘effective or very effective’;
In 2005 (company sample size 331): 15 percent ‘totally ineffective’, 65 percent ‘ineffective’ and 20 percent ‘effective or very effective’;
In 2008 (company sample size 389): 12 percent ‘totally ineffective’, 62 percent ‘ineffective’ and 26 percent ‘effective or very effective’;
In 2009 (company sample 129): 12 percent ‘totally ineffective’, 60 percent ‘ineffective’ and 26 percent ‘effective or very effective’;
In 2010 (company sample 146): 11 percent ‘totally ineffective’ , 63 percent ‘ineffective’ and 26 percent ‘effective or very effective.
So in short the awareness of IP in China-issues as a major business challenge has risen marginally; 70 percent of business in China knows the importance of IP protection for their success in China; and 74 percent perceives that IP enforcement in China is totally ineffective or ineffective: which is about the same perception as in 2008.
On second thought: Because the samples were drastically smaller in 2009 and 2010, the survey for these years might be less representative.
See the 2010 business climate survey report here.
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Aigo Sues HP, Dell, Sony, Toshiba and Samsung for Patent Infringements

At a Beijing court Aigo sued HP and at a Xian court it sued Toshiba for infringement of 6 patents which cover USB plus, a storage port technology.

HP, Dell, Sony, Toshiba and Samsung all received a letter from Aigo’s lawyers with an invitation to negotiate within seven days. But according to Kenny Hsieh, general manager of Aigo’s R&D and IP they kept quiet.
Aigo filed for a patent in China, but has already six valid patents in PCT-member countries. Therefore it has 12 months priority to get a patent in China, counting from the filing date for the PCT-patent application.
Read the Global Times’ article here and John Oates article about it for The Register here.
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Symbolic IPR Enforcement and Bonfire of the Vanities

Zhang Jiawei reported for the China Daily about China’s efforts to destroy pirated goods and raise awareness among the public.

  • China destroyed 36 million copies of pirated and illegal publications in 31 provinces, autonomous regions and municipalities, the Guangming Daily reported.
  • A total of 15 provinces, autonomous regions and municipalities each destroyed more than 1 million copies of pirated and illegal publications.
  • China obtained 8.48 million illegal publications and handled 1,894 IPR cases in the first quarter of this year in preparation for the Shanghai World Expo.
It is not clear what the author means with illegal. Works of which the copyright is pirated are illegal, but censored works are illegal in China too. Maybe this is the distinction the author is making.
In Bozhou, Anhui province they seized and set fire to “3,000 illegally copied reading materials, 14,000 porn discs, 117 gambling machines and 2,000 units of illegal satellite TV receivers (..)”
Read more in the corresponding China Daily article with less than impressive pictures of a “bonfire of the vanities” which shows basically the empty caskets of gambling machines.
Read the China Daily article here.
IP Dragon has covered these kind of operations already many times and is quite pessimistic about its efficacy. Instead it prefers an emphasis on streamlining litigation, criminal and administrative procedures.

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Chinese Companies Are IPR Victims Too

Lin Meilian wrote for the Global Times (China’s answer to the BBC or France24) an article about a Chinese company whose IPR is being faked.

Ms Lin writes: The report in Shenzhen-based Jing Bao quoted Fang Zhen, marketing manager of Crastal Technology (Shenzhen) Company, saying that some of the company’s patented products were found to be copied overseas and then imported back to China.
In the article it becomes clear that in order to protect your invention it is essential to file for a patent application and in order to enforce your patent to register it at the customs.
Of course more Chinese inventions, brands and creative works are copied by foreign companies.
According Ms Lin, the procuratorate of Haidian district in Beijing revealed that trademark infringements represent 95 percent of all IPR cases. Of these cases 30 percent involved counterfeiting of the trademarks of local brands.
Read Ms Lin’s article here.
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Also So Much to Do in IP in the USA! Happy World IP Day To All!

Keith Johnson reports today in the Wall Street Journal that:

– Last Christmas the US seized 26 million US dollar worth of counterfeit goods.
– Now the National Intellectual Property Rights Coordination Center confiscated 40 million US dollar worth of couterfeit goods in more than 30 US cities. This operation was called: Spring Cleaning. Seems that the US is copying China’s gusto for fancy names for enforcement operations.
– And as part of a separate and long running investigation at the port of Baltimore another 200 million US dollar worth of fake goods were seized.

Mr Johnson wrote: Chinese criminal gangs are the biggest purveyors of fake goods in the U.S., accounting for about 80%, by value, of the counterfeit goods seized last year, according to U.S. government data.

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Shanghai Court Awards Microsoft 318,000 US dollar Damages For Copyright Infringement

Kathrin Hille wrote for the Financial Times that a Shanghai court ordered Dazhong Insurance, “a Shanghai-based insurer backed by Chinese state-owned and listed companies” to pay 318,000 US dollar to Microsoft for use of illegal copies of its software. The Global Times reported that the court was the Shanghai Pudong New Area District Court, read here.

Stan Abrams of China Hearsay has a lot to say about the case, he gives a disclaimer because there was limited information on a case that was just decided. “Even without details, I thought it was worth making a series of assumptions so I could discuss some general points. I undoubtedly made some incorrect assumptions about this specific case, so please keep that in mind.” Mr Abrams’ analysis is interesting as always, read here.

In August four men who ran the website Tomato Garden were given prison sentences and fines for distributing counterfeit Microsoft software. Read Chris Buckley’s article for Reuters about it here.

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Google Government Requests Tool Copyrighted Content Included and What About China?

Google has launched a Google Maps tool, called Google Government Requests to show statistics of all government requests it is getting to supply data or to remove content and the percentage it is fully or partially complying with these requests.

  • Because, according to Google, “Chinese officials consider censorship demands as state secrets”, Google “is not disclosing that information at this time.”
  • “[F]or YouTube, we have not included government requests for removal of copyrighted content. The vast majority of requests for removal of copyrighted material on YouTube are received from private parties; some may come from state or foreign governments, but that number is very low. Regardless, such requests are not reflected in these statistics.”

Great that Google is disclosing its dealing with governments, but the following is unclear to me:

  • This emphasis on the exclusion of government requests for removal of copyrighted content for YouTube, suggests that the requests for the removal of copyrighted content at other Google sites is included in the statistics. Is it? However, when you click on China, the only information you are getting is about censorship.
  • And this suggests that the Chinese government never requested a removal of data because of copyright infringement. Did it?
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Youku Fingerprints Against Copyright Piracy and Can Advertisers Be Liable Too?

Loretta Chao wrote a good article for the WSJ (Asian edition April 21, 2010) about Youku.com and its efforts to clean up its act toward copyrights. Youku.com is the most popular video site in China (15.7 million unique daily visitors according to iResearch), followed by Tudou.com (12 million), Xunlei.com (9.8 million) and 56.com (5 million).

Ms Chao points out that Youku’s fingerprinting software costs roughly 146,000 US dollar to develop (identifying codes based on characteristics such as colour combinations or brightness) and that it is also used to remove prohibited content that is censored by the Chinese government.

Last year one could find very recent movies at Youku that were still in the cinema. At first sight this seems to be no longer the case. However, old movies such as the Godfather, Scarface and the English Patient can all be seen.

Youkou, Ms Chao writes, wants to attract more advertisers that don’t want to be associated with copyright piracy. And it even might risky too from a legal perspective:

Last year an antipiracy group of Chinese Internet companies filed a number of lawsuites against Youku in Chinese courts, including one that alleged that a Coca-Cola Co. ad had run on Youku accompanying a clip from a Chinese TV show that Youku hadn’t licensed.

Whether an advertiser can be liable in case he advertises on a platform that is used by copyright infringers is a good question. It should be relevant if the advertiser knows or should have known that the platform is used predominantly for the distribution of copyrighted contents that are pirated. I would love to hear more about the copyright infringement case in which Coca-Cola was involved. If you know more about it, please let me know.

Ms Chao finishes on a realistic note that Youku’s efforts are unlikely to improve piracy rates in China.

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Cheese With A Double Identity Crisis: Dutch, No Chinese, No Kiwi

Last Saturday this consumer strolled through the Park N Shop Super Store in Tsuen Wan, near the Tsuen Wan MTR line towards Central, Hong Kong, and was confused not once, but twice.

Firstly, because when he saw Edam on the package, he associated the cheese with the city in the Netherlands with the same name. Edam cheese, one assumes, is produced in Edam. However, when he read the promotional line: “A smooth Dutch-style cheese with a light fresh flavour” he knew his association was a mistake, since it is not a real Dutch cheese, but only Dutch-style.
Intrigued by the origin of the cheese, (and flattered by the combination of the words Dutch and style) he was looking for clues of the place of origin of the cheese. When one is in Hong Kong and reads ‘Mainland’, in the lion’s share of cases the People’s Republic of China is meant. Therefore yours truly was confused for the second time, since the manufacturer is a New Zealand company named Mainland, based in Dunedin.
Against this kind of confusion the Agreement on Trade-related aspects of Intellectual Property Rights (TRIPs) mandates protection via Geographical Indication (GI)’s. According to the World Intellectual Property Organization (WIPO) a Geographical Indication (GI) is “[…] a sign used on goods that have a specific geographical origin and possess qualities or a reputation that are due to that place of origin.” Read more here.
The best article I have ever read about GI’s was written by Professor Justin Hughes of the Cardozo School of Law, Yeshiva University of New York. Professor Hughes proposes three basic purposes of GI’s: (1) to communicate geographic source, (2) to communicate (nongeographic) product qualities, and (3) to create evocative value. Read his excellent article ‘Champagne, Feta, and Bourbon – the Spirited Debate About Geographical Indications‘.
Professor Hughes describes the two basic approaches in national
law protecting GIs: “either a free-standing appellations law or the use of certification marks within trademark law.” So appellations law, which is used in the EU versus certification marks, which is used in the US. China seems to side with EU on this issue, but on second thought it is more complicated.
How does China protect geographical indications?
  • The State Administration of Industry and Commerce (SAIC) is protecting it via the trademark law, implementing regulations for the trademark law, measures regarding the registration and administration of collective marks and certification marks.
  • The Administration for Quality Supervision Inspection and Quarantine (AQSIQ) protects it via the product quality law and standardization law
  • Ministry of Agriculture via administrative measures.
Read more about China’s solution to protect GI’s in Jinhua Ham’s article ‘Application of geographical indication systems in China’ here.
So China seems to protect GI’s via three separate administrative institutions. This could on the one hand cause some coordination problems in the protection of GI’s and ambiguity for manufacturers of agricultural produce about how to product their GI, and on the other hand it could increase competition between these administrative institutions, which could ameliorate the quality of protection.
Read more about China’s views on GI’s here (IP Dragon) and here (WIPO magazine) and here (EU-China trade project).
For a confusing title read ‘China owns 600,000 geographical indication trademarks for agricultural products‘ (People’s Daily Online). In the article, however, you will find statistics that China had 531 geographical indications and 600,000 trademarked agricultural products at the time the article was published (2008).
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Madrid, A Bit Chilly For China’s International Trademark Filings

  • China is still the most designated country, with 14.766 in 2009, which was a drop of 17.2 percent from 17,829 in 2008.
  • According to the State Administration of Industry and Commerce (SAIC)’s statistics China’s domestic trademark applications in 2008 were estimated to be around 800,000. See article ChinaIPR here.
  • Novartis of Switzerland that was the largest filer in 2009 (136 international trademark applications) followed by Lidl (Germany), Henkel (Germany) and Zhejiang Medicine Company. How many this Chinese company filed WIPO did not say.
  • China is both a member to the Madrid Agreement and Protocol.
Catherine Saez of Intellectual Property Watch wrote that WIPO’s director general Francis Gurry said that the interest in China is not so much the infringement threat but the fact that China represents a massive market, and companies may face a lot of competitors.
Read more about the impact of the global financial crisis on the number of international trademark filings in 2009 here and Catherine Saez‘ article for Intellectual Property Watch, here.
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Are Statutory Compensation Rules For Inventors Scary?

In the Wall Street Journal (WSJ) Asia of March 18, 2010, Andrew Browne and Jason Dean wrote an interesting article called ‘Foreign businesses sour on China’.
IP Dragon was happy to see that patent law in China was on the front page and page 17 of the WSJ Asia. The authors of the article assert that China is getting more nationalistic in its business policies, therefore discriminatory toward foreign businesses. Messrs. Browne and Dean’s concerns might be justified. However, when they use China’s legislation on compulsory licensing and the remuneration for inventors, they do not give good examples of a China that is favouring its domestic entities.
Messrs. Browne and Dean wrote: “Patent rules imposed Feb. 1 threaten to increase costs in China for foreign innovators in industries such as pharmaceuticals, and let authorities force foreign drug companies to license production to local companies at state-set prices.”
The first half of the sentence is not about compulsory licensing, because if that scenario manifests itself, the costs of production will not increase, but the profits will decrease. The authors probably mean with the first half of the sentence the ‘statutory compensation rules’, with which they deal later, see below.
The second part of the sentence is about compulsory licensing. Articles 48-57 Patent Law 2008 promulgate this right of emergency of the state. When a patentee has not exploited his patent within three years or when the act of the patentee is harming competition, the State Intellectual Property Office (SIPO) can grant a compulsory license to exploit the patent. In case of a national emergency or any extraordinary state of affairs, SIPO can grant a compulsory license. The articles 73-75 Implementing Regulations 2010 give further rules for the grant of a compulsory license. China signed the Agreement on Trade-related Aspect of Intellectual Property Rights (TRIPs) and Public Health (Doha Declaration) in 2001 and the Decision on the Interpretation of Paragraph 6 of the Doha Declaration in 2003 to establish legislative and administrative frameworks to allowing compulsory licensing for export purposes, in order to help other countries that lack the capabily to manufacture medicines.
The new patent rules providing for what is called compulsory licensing are not unique to China. But China’s pharmaceuticals industry is dominated by state-owned firms, and Western lawyers worry the rules will favor them.
Indeed, compulsory licensing is not unique to China. In fact, China never granted any compulsory licensing. But, I understand messrs. Browne and Dean’s concern that it might be easier for SIPO to target a foreign patentee than a patentee that is a state-owned company. But since we have no data on this, it cannot be proven.
Then directly after that the authors write: “One provision requires companies to pay Chinese employees at least 2 % of profit derived from their inventions in China unless the employees explicitly waive that right.

I have some troubles with this sentence:
  • First, this is not an example of an excess of compulsory licensing.
  • Secondly, the sentence could be read as if employees, who are not inventors, need to get 2 percent of the profit derived from inventions of the entity.
  • Thirdly, it is not a question of whether employees waive their rights or not. According to rules 76-78 Implementing Regulations of the Patent Law 2010 it is a question of whether the employers want to put in the contract with their employees that if they invent anything what their reward and remuneration will be. Only if they don’t, the statutory compensation rules will kick in. Not so strange since article 16 Patent Law 2008 obligates employers to give the inventors reasonble remuneration.
  • Fourthly, both Chinese entities and foreign companies in China have to abide by this rule. Articles 74-77 Implementing Regulation of the Patent Law 2001 already gave statutory compensation rules, but those were limited to state-owned enterprises/institutions. I think it is nothing more than fair that the inventors of all entities are compensated for their inventions, innovations and designs. The statutory compensation rules are a good way to press companies to include invention rewards and remuneration into the contracts with their employees.
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Nexocial, Dutch Copycat in China

Hugo Leijtens, an ex-Microsoft employee, went two years ago to Chengdu, he describes as the new Silicon Valley. There he became the Chief Technical Officer of Nexocial, a company that came up with an iPad clone in just three months: the nPad, which works on Microsoft Windows C. The nPad will be launched April 3, while the iPad will be launched next summer.

Presenter Jort Kelder of the Dutch television programme about entrepreneurs ‘Bij ons in de BV‘ (With us in the private company) asked Mr Leijtens the following question: “Are you not a petty thief, in the best Chinese tradition?”
Mr Leijtens reply: “I believe Apple has said once ‘Good artists borrow. Great artists steal.’ ”
IP Dragon is wondering whether Apple will sue Nexocial. If they do, let’s see if Mr Leijtens will repeat that one liner in court.
The Nexocial site http://www.nexocial.com is not in the air. Don’t know what that means.
Read also Willemien Groot’s article about Nexocial for Radio Netherlands Worldwide here.
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