Accession to the WTO has prompted China to use IP rights as a powerful means of winning market competition in an era of economic globalization and knowledge-based economy. However, trade protectionism worldwide aggravated by the financial crisis means more troubles in IP rights to Chinese enterprises and even the Chinese government.
In the past ten years since China’s entry into the WTO, great changes have taken place in the domestic and international environment of corporate intellectual property rights. What inspirations can we get from these changes? On this topic, China’s Foreign Trade reporter interviewed Li Yong, managing director of China Patent Agent (H. K) Ltd.
China stands out
CFT: The Patent and Trademark Office under China Council for Promotion of International Trade was the only international trademark agency in China, offering services mainly for the world’s top 500 companies. What changes have taken place in the domestic environment of intellectual property rights since China’s entry into the WTO? How do you think foreign companies have changed their opinions over China’s IPR protection?
Li Yong: China started to establish an IPR protection mechanism in the 1980s, and has by now formulated a relatively complete IPR protection system. China unveiled in 2011 the Patent Law, Trademark Law and Copyright Law, rules for implementation of the laws, judicial interpretations of the laws, putting China’s IPR protection system in line with the international norms, and better protecting the interests of right holders. Since the entry into WTO, China’s IPR system has seen rapid progress. We have fully fulfilled our WTO commitments. In the past decade, we have revised for many times China’s Patent Law, Trademark Law, and a series of judicial interpretations, bringing the country’s IPR system in line with international practice. In regards to law enforcement, we have made much headway in treating litigants of all nationalities fairly. Foreign nations used to complain that China’s IPR system protected the Chinese and discriminated against foreigners. However, as our statistics showed, foreigners win more often than their Chinese counterparts in IPR-related law suites involving foreigners. This has been highly commended by many foreign litigants.
My clients have spoken highly of China’s judicial hearing. They said that China has made rapid progress in judicial hearing, despite sentiments of local protectionism and the uneven abilities of judges due to different levels of education, expertise and experience.
China’s IPR system has greatly boosted the country’s innovation and the enthusiasm of enterprises for go- ing global. The number of applications by Chinese enterprises for patents has increased around 20% year on year in the past decade. The number of applications by Chinese enterprises for patents in foreign countries rose to a stunning fourth place worldwide in 2010, when patent applications in many countries were dropping due to the impact of the international economic crisis. China’s achievements were unimaginable. Before joining the WTO, China was too weak in patents to enter the ranking. So it is remarkable that China’s patent applications rose to the fourth place. China’s patent applications are not only phenomenal in number but also in growth rate. Due to the impact of the international economic crisis, the number of patent applications in 2010 dropped in many countries including the United States. International applications for patents dropped by 1.6%, while Chinese applications increased by 56%. If this increase rate continues, it will be huge in the future.
The past decade saw growing awareness of IPR in the Chinese public. The fast development of the international and domestic economy and technology and continuous improvement of IPR protection demand strong IPR
awareness of Chinese enterprises, institutions and individuals. The rights of IPR holders who lack in IPR awareness might be infringed. For example, a new product launched to the market without application for patent protection, might be used for free by others and lead to great loss to the developer. A company can’t use legitimately the trademark it has been using for a long time, if the trademark was registered by some entity other than the said company. There are many cases like these. The trademark of Tong Ren Tang, one of China’s most famous herbal medicine brands, was once registered by a foreign company (the registration was revoked later). There have been many cases in recent years of Chinese enterprises suffering losses during foreign trade, for failing to apply to the importing countries for IPR protection. Weak IPR awareness might also lead to infringement upon the rights of others and ensuing economic and credit losses.
China’s IPR system has fostered a great number of innovative professionals, facilitating corporate innovation. China ranks the fourth worldwide in terms of investment in innovation. Statistics showed that the proportion of high-tech products in the country’s export volume increased significantly to 30% in 2009 from the 13% ten years ago. It is fair to say that since the entry into WTO, China’s IPR system has had an immeasurable positive impact on the country.
CFT: IPR protection has become a common concern in international political, economic, scientific and cultural exchanges. In this context, Chinese people’s awareness of IPR protection and ability to use the international IPR protection mechanism, have an immediate impact on China’s standing in the world economy after accession to the WTO. What do you think are the significance of IPR protection?
Li Yong: Now the world has entered an era of knowledge-based economy when social development depends more than ever on science, technology and knowledge. Advanced science, technology, and knowledge have a huge impact on all aspects of society.
It is of great significance for China to improve its intellectual property protection system and strengthen IPR protection. During contacts with other nations since the beginning of the reform and opening up in 1978, China should bring in advanced technology and foreign investment, and at the same time, promote our products in the world market. Both tasks need intellectual property protection system. It is difficult to introduce advanced technology if we don’t have a sound IPR protection system, as holders of advanced technology are concerned about suffering economic losses due to a lack of protection of their technologies. It is impossible to protect our legitimate interests in foreign countries if we are not familiar with the local IPR protection system. IPR protection has become increasingly important since China’s accession to the WTO. To have an IPR protection system in line with international norms and to strengthen IPR protection are conducive to China’s drive to bring in foreign investments and technologies and to go global.
Good fighters are not angry
CFT: In the past decade, an increasing number of Chinese enterprises have gone global. How do you think foreign IPR environment has changed in the past decade?
Li Yong: Foreign intellectual property right holders use their rights to prevent Chinese enterprises from selling products or equipment or engaging in investment or trade in their countries. This is a big problem facing Chinese enterprises seeking to go global. The following data from the United States support this point. One of the most important means the United States employ to look after its commercial interests using IP rights is the so-called Clause 337, which blocks Chinese enterprises or businessmen it deemed to violate its IPR from entering the United States. It can issue prohibition and exclusion orders. America’s use of the clause against Chinese enterprises has increased
year by year, reaching a record high in 2007. A stunning number of 50% of all the Clause 337 cases involve Chinese enterprises. Besides, the proportion of lawsuits involving Chinese enterprises in the total number of America’s lawsuits has been on the rise. Clause 337 and lawsuits are the two major barriers to Chinese enterprises’ drive to enter the U.S. market. The same problems happen in Europe as well. As we know, for many times Chinese enterprises were shut up, taken into custody, or sent directly to courts of law. This is a serious problem encountered by Chinese enterprises.
About this problem, I think the Government and enterprises should strengthen and assume their respective responsibilities. The most important job of the Government is to strengthen communication, exchanges, consultation, or even mediation to some extent, with relevant nations. IPR issues are part of national relations. All factors should be taken into consideration during diplomatic mediation. This is where we should enhance our work.
I am most concerned about the issue of non-discrimination treatment. The level of IPR protection varies from countries to countries. Some countries are very strict about IPR protection while others are not. But every nation should follow an international rule, the principle of minimum protection. It’s all right to be strict about IPR protection on the basis of the principle of minimum protection. But nations should give foreigners the same protection as is available to domestic parties. The principle of non-discrimination treatment should be widely recognized. Inter-governmental work should emphasize the principles of national treatment, fairness, transparency, and impartiality. It is the Government’s responsibility to take some actions on bilateral and multilateral occasions.
CFT: Accusations of infringements upon IPR against Chinese enterprises are a major excuse used by foreign nations to deny China’s fulfillment of its WTO commitments. In their effort to go global, Chinese enterprises are confronted with an increasing number of disputes and litigations over IPR. How should we look at this in perspective?
Li Yong: When treated unfairly, enterprises can either report to their governments or seek suggestions from fellow enterprises through chambers of commerce. However, they need to know that it’s inevitable to encounter such troubles. I analyzed the major cases over IPR in the United States in 2010, and I found that a large number of well-known, established companies were involved. Big companies such Apple, IBM, Disney, Time Warner were sued by big companies, small companies, or individuals. We call these plaintiffs patent hooligans, patent pirates, or patent fishermen. They go through lengths to collect a lot of patents, and target established company for litigation. This is a common phenomenon.
For examples, Apple, which has risen rapidly to dominance in the IT industry in the past few years, was sued for many times last year, with at least US$600 million in claims for compensation. I don’t quite agree with the saying that foreigners use intel-


lectual property rights as a means to block Chinese enterprises from entering their markets. The argument is only partially true. In my opinion, we should deal with the lawsuits calmly as long as they are heard in compliance with international rules and the rules of non-discrimination treatment. As said by Lao-tzu, one of China’s most influential ancient philosophers, good warriors do not have to be angry. Our most important job now is to strengthen our innovation capability. Chinese enterprises have made much headway in innovation capability, but it’s far from being enough. Chinese applications for international patents are mostly exterior designs and new utility models, with real patent designs accounting for only 30%. 1,100 U.S. applications for patents were approved last year. The number of newly approved patents of IBM alone was four times of China’s total. Therefore, we should work harder to have more patents, and strengthen research and development. High-tech enterprises such as Huawei should invest at least 10% of their profits in research and development. The cost of one patent application ranges from 2000 to 3000 U.S. dollars. Many companies are not willing to pay for this. However, a lawsuit costs an average of 2 million U.S. dollars in the United States. There is a huge difference between the two figures. Many enterprises regretted for not having applied for patents when involved in lawsuits.
CFT: What are your suggestions for Chinese enterprises subject to IPR problems?
Li Yong: Whether intellectual property rights can be protected largely depends on whether right holders take initiative to protect their rights. In order to prevent their rights from being violated, IPR holders should protect their innovations by means of applying for patents, registering trademarks, registering copyrights, etc. IPR holders need to protect their rights not only in their own countries but also in major importing countries of their “products”. An IPR holder should promptly report to administrative government departments or go to court, when he finds his IP right being infringed on.
In order not to infringe upon intellectual property rights, and not to waste resources, investigation and research must be done before the start of a project, product development, logo design and other important actions. Enterprises can also choose to make innovative research and development in new technologies other than those under protection. Protected technology and products can be used legitimately after getting the permission of right holders through legal ways.
In short, companies have a lot of things to do about IPR protection, as it concerns their IPR strategies. Chinese enterprises have realized the importance of IPR strategies. They just don’t know how to formulate them. I think in the regard, the Government has the responsibility to help enterprises develop IPR strategies. As the saying goes, you teach a man to fish instead of giving him a fish. The Government should not just offer financial aid to enterprises but also help them in patent application.