BY EDWARD CHATTERTON, HORACE LAM AND JOANNE ZHANG

  1. Amendments to Key IP Laws

On 23 April 2019 China passed amendments to two major IP laws -the Trademark Law and the Anti-Unfair Competition Law (AUCL).

Specifically, the Trademark Law has been amended in order to tackle bad faith trademark filings without an intent to use by way of clarifying Article 4 of the law. The newly amended Article 4 provides that a bad faith trademark application without intent to use should be rejected. A trademark agency which knows or should have known that an application is in violation of Article 4 should refuse to act for the applicant, and anyone (as opposed to an interested party) can oppose or apply to invalidate a published or registered trademark if it violates Article 4.

The amendments to the AUCL mainly improve the protection of trade secrets. Specifically, the amended law:

(i)         broadens the definition of “trade secret” from “technical information and operational information” to also include “other business information”;

(ii)        expands acts of infringing trade secrets to include obtaining trade secrets by “electronic intrusion” and also indirect infringement such as “solicitation, seduction and assistance”; and

(iii)       extends the parties that can be held liable for trade secrets infringement to not only business operators but also other individuals (such as employees or former employees) and entities.

Most importantly, the amended law also reverses the burden of proof for trade secrets infringement by providing that the plaintiff is only required to produce prima facie evidence of infringement and that the defendant is then required to prove that the trade secret(s) at issue does not constitute a trade secret under the AUCL.

Notably, the amendments to both laws have also increased liabilities for trademark/trade secrets infringement by:

(i)         providing punitive damages in the amount of up to five times the regular damages award; and

(ii)        increasing statutory damages from RMB 3 million to 5 million.

These amendments significantly enhance IP protection in China and are quite encouraging news for those who have been watching this space. For further information, please see our recently published articles on the Amendments to the Trademark Law and Trade Secrets Protection regime.

  1. Beijing Higher People’s Court’s New Guidelines for the Trial of Trademark Administrative Cases

The Beijing Higher People’s Court published new Guidelines for the Trial of Administrative Cases relating to Trademark Rights (Guidelines) on 24 April 2019 with immediate effect.

The Guidelines provide courts with both procedural and substantive guidance on handling trademark cases regarding refusal appeals, oppositions, invalidations and non-use cancellations. One area of focus is a crackdown on bad faith trademark filings and trademark squatters which corresponds with the to-be-effective new Trademark Law — by stating a number of new activities that are now specified as violations under the new guidelines. An example of such an activity that is now deemed a violation is applying to register a large number of trademarks “without a good reason”.

The Guidelines have also confirmed that the use of a mark on products which are directly exported without being circulated in China can be used to defend a non-use cancellation, which has been a disputed issue for a long time.

  1. Amendments to Technology Import and Export Regulations

The Regulations on the Administration of Import and Export of Technologies (TIER) of China was amended on 2 March 2019 with immediate effect.

In this round of amendments, three mandatory requirements for technology imports have been removed to provide a greater degree of flexibility to the parties in making contractual arrangements on the ownership of rights and their exposure to liabilities. Namely:

(i)         the party which makes improvements to the imported technology is no longer automatically deemed as the owner of such improvements under the amended TIER and, instead, this would become the default position only if the parties fail to agree otherwise and ownership cannot be determined according to the usage of trade;

(ii)        the provision stipulating the obligation of the transferor of the imported technology to indemnify the transferee against any infringement of third party rights arising from the transferee’s use of the technology has been removed, and the transferor would only be liable for such infringement if the parties fail to agree otherwise; and

(iii)       the provision which prohibits certain restrictive terms in a technology import contract has been removed; however, similar provisions still exist in the Contract Law and in practice in judicial interpretations.

The amendments are believed to have followed the principles set forth in China’s new Foreign Investment Law which will become effective on 1 January 2020 — which aim to liberalize investment requirements so as to attract inbound investment and stimulate innovation.

  1. Restructuring and Renaming of Trademark and Patent Authorities

In the past year, the State Intellectual Property Office (SIPO) of China — which has recently changed only its English name to the China National Intellectual Property Administration (CNIPA) — has been restructured to not only handle patent registrations, but also registrations of trademarks and geographical indications. Further, the Trademark Review and Adjudication Board (TRAB) has also been merged into the China Trademark Office (CTMO), and the Patent Re-examination Board (PRB) has been merged into the Patent Office. Both are now under the CNIPA.

As a result of this restructuring, the SIPO (which is now known as the CNIPA) is now no longer a subordinate body directly under the State Council, and is instead supervised by the newly established State Administration for Market Regulation (SAMR).

Following the completion of the restructuring at the national level, the patent, trademark and geographical indication authorities at the local levels are also currently undergoing similar restructuring efforts. However, the national and local copyright authorities are not involved in this round of restructuring.

  1. China’s First e-Commerce Law

Effective 1 January 2019, China’s first such law applies to any and all e-commerce activities (i.e., selling goods or providing services through the Internet or any other information networks) within the territory of the PRC. The provision of financial products and services and content services such as provision of news information, audio and video programs, publication and cultural products via information networks are exempted from this law.

The law requires that all e-commerce operators, including individuals, shall obtain business registrations, with very few exceptions. The law also strengthens the protection of IP rights in e-commerce by (among other things):

(i)         requiring all platform operators to establish IP protection rules, regardless of the size of the platform;

(ii)        improving the existing “notice and take-down” mechanism and placing more stringent obligations on platform operators; and

(iii)       imposing a fine of RMB 50,000 to RMB 2,000,000 on platform operators that fail to take necessary measures against IP infringements committed by in-platform operators and fail to rectify such failure within the period specified by the relevant authorities.

The law also provides that e-commerce operators need to take any necessary measures to comply with the relevant laws and administrative regulations regarding cybersecurity and personal data protection, especially the PRC Cybersecurity Law.

  1. Supreme People’s Court Becomes The Court of Appeal for Complicated IP Cases

Since 1 January 2019, the Supreme People’s Court of China (SPC) has become the court of second instance (and re-trial) for IP cases which require more technological expertise, including:

(i)         all IP civil cases involving invention patents, utility model patents, new plant varieties, integrated circuit layout designs, trade secrets, computer software and anti-trust issues; and

(ii)        all IP administrative cases involving patents (including invention patents, utility model patents and design patents), new plant varieties, integrated circuit layout designs, trade secrets, computer software and anti-trust issues.

The purpose of these reforms is to not only improve the quality of second instance judgments/rulings and the judicial protection of IP, but also to unify the court of second instance for invalidation cases and the court of second instance for infringement cases for certain types of IP, especially for invention patents and utility model patents.

As part of the reforms, an IP Tribunal was established within the SPC to try the above-mentioned second-instance or re-trial IP cases that require more technological expertise. The SPC’s IP Tribunal is also to try the above-mentioned IP cases at first instance if they are major and complicated IP cases nationwide. Further, the SPC’s IP Tribunal may, according to case circumstances, try cases in a circuit manner on site or at the place where the original trial court is located.

  1. Establishment of Beijing and Guangzhou Internet Courts and Adoption of Blockchain Technology In Internet Court Cases

Following the establishment of China’s first Internet Court (IC) in Hangzhou in August 2017, China established its second and third ICs in Beijing and Guangzhou respectively in September 2018. A majority of the cases tried under the ICs jurisdiction are not directly related to IP, except the following three types of disputes:

(i)         disputes over ownership of copyrights or neighboring rights of works published on the Internet for the first time;

(ii)        disputes arising from online infringements of copyrights or neighboring rights of works published or disseminated online; and

(iii)       disputes over Internet domain name ownership, infringements and contracts.

Notably, Internet-related trademark and patent cases are not among the specific types of cases under the ICs jurisdiction.

As a general rule, the litigation process in the ICs will be conducted online – including case filing, evidence submission, service of documents, hearings, etc. Electronic data submitted by the parties, which can be authenticated by electronic signature, blockchain or other technologies, should be accepted by the ICs. Notably, the Hangzhou IC, for the first time in China, admitted evidence that was authenticated by blockchain technology in an online copyright infringement case in June 2018.

  1. China Further Accelerates Trademark Examination Process

Following continued efforts to expedite and streamline the trademark examination process, the CNIPA announced that, the average examination term has been shortened to 5.5 months for national trademark applications (the statutory term is 9 months) and around 5 months for international trademark applications entering China (the statutory term is 1-1.5 years).

In view of this, a trademark application with a priority claim should be filed in China as soon possible to avoid unnecessary citations due to the shortened examination term and the 6-month priority period.

In addition, the examination of an average trademark assignment currently only takes around 3.5 months to complete, and the examination of the change of an owner’s name/address and trademark renewal as well as the issuance of trademark filing receipts currently take as little as 1 month. The “blind period”, during which the CNIPA enters the newly filed trademark applications into its database, has been shortened to around 10 days as well.

Furthermore, the examination of a non-use cancellation case, which used to take around 1 year, has been shortened to 8.5 months.

  1. Enhanced Protection for Non-Traditional Marks

We summarize three landmark cases below that highlight how the IP landscape has resulted in enhanced protection for non-traditional trademarks in China:

(i)         Christian Dior’s “J’adore perfume bottle”:

This was a trademark refusal appeal case that relates to Dior’s trademark application for the shape of a perfume bottle which was previously refused by the CTMO based on “lack of distinctiveness”. Both the TRAB and the lower courts supported the CTMO’s decision. However, upon appeal, the Supreme People’s Court (SPC) corrected the CTMO’s procedural error for recording and examining Dior’s perfume bottle mark as an ordinary trademark when Dior applied to extend its international registration for the 3D perfume bottle mark in China. Although the SPC did not make a substantive ruling on whether Dior’s 3D mark is sufficiently distinctive (either inherently or through use) to be registered as a trademark in China, it ordered the TRAB to re-issue a decision according to the examination standards for a 3D mark while taking into consideration the use evidence on file. The case not only provides guidance on the protection of applicants’ procedural rights and the trademark authorities’ obligation to proactively correct procedural deficiencies and facilitate international registrations, but also reconfirms the registrability and unique examination standards of 3D marks as a non-traditional type of trademarks in China.

(ii)        “Christian Louboutin red sole”

In this case, the Beijing Higher People’s Court recognized, for the first time, that a single-color trademark used on a particular position is registrable in China despite not being explicitly listed as a type of registrable mark (unlike a color combination mark) under the China Trademark Law.

(iii)       “Tencent’s Tone”

Another important case regarding a non-traditional trademark case was yet again decided by the Beijing Higher People’s Court this past year. In this case, Tencent’s “di‑di-di-di-di-di” sound mark used on instant messaging software was found to have acquired sufficient distinctiveness to be registrable with regard to the relevant services in Class 38. This is a landmark case as this is the first time that a sound mark has been judicially recognized in China. The case provides useful guidance on the examination of sound marks in China where hundreds of sound mark applications have been filed since the law recognized the registrability of sound marks on 1 May 2014, but only dozens have been registered thus far.

  1. First Judgment on the Copyright Protection for AI-Generated Content

Is artificial intelligence (AI) generated content copyrightable and who is the author of such content? The Beijing Internet Court issued the first judgment in the country answering these questions in April 2019 in a case involving Baidu.

This case was brought by a law firm against Baidu that claimed infringement of the law firm’s copyright in an article which was alleged by Baidu to be automatically generated by the Wolters Kluwer legal information database (Database) and therefore not protected by copyright. The court compared the article with two analysis reports automatically generated by the Database and found that:  (i)           the charts contained in the article which were created by using the Database do not constitute graphic works, because the differences between the charts and the charts contained in the two automatically generated analysis reports are due to data differences and do not reflect original expression;

(ii)        while analysis reports automatically generated by the Database have a certain degree of originality, they do not constitute a copyrightable work because the current law requires a literary work to be created by a natural person; and

(iii)       the verbal part of the article is different from that of the two automatically generated reports, so the verbal part of the article was not automatically generated by the Database and instead, it was independently created by the plaintiff and has originality–as such, the verbal part itself constitutes a literary work.

The court further held that Baidu’s act of reposting the article constituted infringement of the plaintiff’s copyright. Whether or not Baidu will appeal this first instance judgment remains to be seen.

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