IP in business transactions: China overview

A guide to intellectual property law in China. The IP in business transactions Q&A gives an overview of maintaining an IP portfolio, exploiting an IP portfolio through assignment and licensing, taking security over IPRs, IP and M&A transactions, and the impact of IP on key areas such as competition law, employees and tax.

To compare answers across multiple jurisdictions, visit the IP in business transactions Country Q&A tool.

This Q&A is part of the multi-jurisdictional guide to IP law. For a full list of jurisdictional Q&As visit www.practicallaw.com/ip-mjg.

Contents

Overview of main IPRs

1. What are the main IPRs in your jurisdiction? How are they protected?

Patents

There are three types of patents protected under the People's Republic of China (PRC) Patent Law:

  • Invention patents.

  • Utility models (a utility model is only granted to a new technical solution in relation to a product's shape, structure, or a combination of the product's shape or structure).

  • Design patents.

To obtain patents, it is necessary to apply to the State Intellectual Property Office (SIPO). However, only invention patent filings are subject to substantive examination.

Trade marks

Trade marks are mainly governed by the PRC Trade Mark Law. China adopts a "first-to-file" system that requires no evidence of prior use or ownership, although well-known unregistered trade marks may receive protection without registration, in relation to the goods or services for which they are well-known (see Question 27, Trade marks). To obtain trade mark registration, it is necessary to apply to the Trade Mark Office (TMO), which is an office of the State Administration for Industry and Commerce of PRC (SAIC) under the State Council.

Copyright

Copyright is governed by the PRC Copyright Law. Copyrighted works do not require registration for protection. However, copyright owners may wish to register voluntarily with the copyright administrative agencies as registration can serve as prima facie evidence of ownership in an infringement action.

The National Copyright Administration (NCA) is the authority in charge of registration. An application for software registration can only be filed with the Copyright Protection Centre of China (CPCC), which is affiliated to the NCA. Other copyrighted works can be filed with CPCC and the NCA's branch offices at provincial level.

Design rights

Registered designs are mainly protected in the form of design patents by the PRC Patent Law (see above, Patents).

Unregistered designs may receive protection under the:

  • PRC Copyright Law as artwork.

  • PRC Anti-unfair Competition Law (AUCL) in relation to the packaging or decoration of goods or services, as long as those goods or services have a certain amount of market recognition within the PRC and the packaging or decoration is distinctive.

Confidential information

Confidential information is protected as a trade secret under the AUCL. A trade secret is defined as technical information and business information that:

  • Is not known to the public.

  • Is capable of bringing economic benefits to the owner.

  • Has practical applicability.

  • The owner has taken measures to keep confidential.

No registration is required to gain protection for trade secrets.

Other

Other types of IPRs in China include:

  • Rights for new plant varieties, which require registration with the Ministry of Agriculture.

  • Integrated circuit layout designs, which require registration with SIPO.

The AUCL also offers protection for trade names, trade dress and packaging, which do not require registration for protection (see above, Design rights).

For further information about the main IPRs, see Patents, trade marks, copyright and designs in China: overview ( www.practicallaw.com/2-522-3909) .

 

Maintaining IPRs

Search and information facilities

2. What facilities are available to conduct IP searches and obtain IP information on registered IP rights?

Patents

Free patent searches can be conducted using the online patent search engine maintained by SIPO, available at its website (www.sipo.gov.cn/wxfw and http://59.151.93.237/sipo_EN/search/tabSearch.do?method=init).

Trade marks

Free trade mark searches can be conducted using the online search engine maintained by TMO, available at its website (www.saic.gov.cn/sbjEnglish).

Copyright

Free copyright searches can be conducted for registered software and other copyright registered with the CPCC using the online search engine maintained by the Copyright Protection Centre of China (which is affiliated to the NCA), at its website (www.ccopyright.com.cn/cpcc). For works registered with local copyright administrative agencies, it will depend on whether the agencies offer any search platforms.

Design rights

For design patents, see above, Patents.

Confidential information

Not applicable.

Other

Free searches for new varieties of plants can be conducted using the online search engine maintained by the Ministry of Agriculture, available at its website (www.cnpvp.cn/Gazette/GazetteQuery.aspx). Free searches for integrated circuit layout designs can be conducted using the online search engine maintained by SIPO, available at its website (www.sipo.gov.cn/zwgs).

 

Maintenance of main IPRs

3. What steps must a business take to maintain the registration and status of its main IPRs?

Patents

Protection for invention patents lasts for 20 years. Protection for utility models and design patents lasts for ten years. Businesses must pay annual fees to maintain the validity of granted patents. In addition, the failure (without reasonable cause) to fully or adequately exploit an invention patent or a utility model patent within three years of being granted and four years from initial application, may be considered misuse of the patent. While this does not make the patent invalid, the SIPO has the power to grant a compulsory licence to a third party to exploit the patent on the request of that third party.

Trade marks

Registered trade marks are protected for ten years from the date of registration. Under the existing Trademark Law, the registered owner can file for renewal 12 months prior to expiration of the registration. An additional six months may be granted if the registered owner fails to file for renewal within the 12-month period. Each renewal is valid for ten years.

The TMO can cancel the trade mark where:

  • The trade mark owner alters the registered trade mark, name, address or other information concerning the registrant and fails to correct the mark, name, address or other information concerning the registrant within the time limit designated by the local AIC.

  • The trade mark owner ceases to use the registered trade mark for three consecutive years without justified reasons.

  • The registered trade mark becomes a generic name of the designated goods.

Copyright

No maintenance fee or annual fee is required to maintain the validity of registered works.

Design rights

See above, Patents.

Confidential information

A business must take measures to protect the confidential nature of the information. If the secret becomes publicly known, the business will perpetually lose its trade secret rights.

Other

Businesses must pay annual fees to maintain the validity of rights over new varieties of plants. No maintenance fee or annual fee is required to maintain the validity of rights over integrated circuit layout designs.

 

Monitoring infringement

4. What steps can a business take to avoid committing an infringement of another party's IPRs and to monitor whether a competitor is infringing its IPRs?

Generally, to avoid IP infringement it is advisable to conduct, where possible, a comprehensive search before launching a product.

Monitoring whether a competitor is infringing a business' IPRs can be accomplished through the use of:

  • The business' sales force.

  • Employees with specific skills in processing information relating to competitor actions.

It is also important to educate employees in this area, through establishing a systematic method of monitoring and the infrastructure necessary to process any information uncovered.

Professional investigation firms can be used by businesses.

Patents

To avoid infringement and monitor competitor infringement, a business should:

  • Conduct a free-to-operate analysis or clearance search before launching a product (see Question 2, Patents).

  • Keep itself up-to-date with industry development (for example, by referring to the SIPO-published Patent Gazette).

Trade marks

To avoid infringement, a business should perform a trade mark search before using a logo or mark. Both the TMO website and the Trade Mark Gazette provide a comprehensive database of trade marks (see Question 2, Trade marks). Staying up-to-date will help a business avoid infringement and monitor potential competitor infringement (see above, Patents).

Copyright

As well as the general measures (see above), a business should educate its employees on how to avoid using copyrighted materials that they have not created themselves. The business can search the websites of the Copyright Protection Centre of China and other copyright administrative agencies, although registration is not required (see Question 1, Copyright).

Design rights

The same principles are applied to design patents as for other patents (see above, Patents). However, more vigilance is required for design patents compared to inventions and utility models, as there are fewer resources available to monitor the development of new design patents or their related products and services in the market.

Confidential information

Procuring, misappropriating or disclosing another's trade secrets are the major types of infringement of trade secrets. It is not easy to monitor infringement because confidential information does not have to be registered as a patent or trade mark (see Question 1, Confidential information). The best method to prevent employees from infringing another's trade secrets is to prevent careless infringement through taking precautionary measures, including educating employees to both:

  • Comply with their confidentiality obligation in relation to former employers.

  • Respect the trade secrets of others.

Other

To avoid infringement of rights over layout designs or plant varieties, a business can perform research similar to a freedom-to-operate analysis (see above, Patents). Staying current with industry developments is crucial in avoiding and monitoring infringement.

 

Exploiting IPRs

5. What are the main steps in an IP audit in your jurisdiction to determine the content of an IP portfolio?

The main steps to determine the content of an IP portfolio are:

  • Reviewing the documents provided by the business being audited.

  • Interviewing the business' management or R&D personnel.

  • Conducting an independent search, emphasising verifying the ownership and validity of the IPRs.

Patents

The IP audit will require:

  • Documents relating to the business' patents, patent applications and priority applications (past, present and pending, as well as any that were abandoned, expired or unpublished).

  • Documents relating to the assignment, pledge, licence or other encumbrance of the patents.

  • A list of any:

    • technologies and processes that are still in development;

    • non-patented technologies.

In addition, interviews may be conducted regarding the research and development history of the patented technologies.

Patent titles and validity status are usually examined in independent searches through SIPO's website (see Question 2, Patents).

Trade marks

The IP audit will cover documents relating to the business' trade mark registrations and applications. Interviews may or may not be required. Independent searches are usually conducted concerning the ownership and validity of the trade marks, and whether the designated goods or services are appropriate or sufficient for the business, through TMO's website (see Question 2, Trade marks).

Copyright

To determine the copyright owned, the business must usually provide lists of publications or public disclosures, copyrighted software and non-software works, and the documents in relation to the process of the creation, for example, project approvals, drafts, correspondence and so on. The documents provided will be of high importance as an independent search will not be exhaustive.

Design rights

See above, Patents.

Confidential information

As trade secrets are kept confidential, the success of the audit will greatly depend on the documents provided by the business. Interviews with management or R&D staff are sometimes necessary to better define the scope and development of the business' trade secrets as well as the preventative measures the business has taken to protect them.

Other

The audit will require:

  • The business' documents relating to the registration of the new plant varieties and integrated circuit layout designs.

  • An independent search to verify their proper ownership and validity through the Ministry of Agriculture and SIPO's websites (see Question 2, Other).

 

Assignment

Scope of assignment

6. How can main IPRs be assigned?

Patents

It is possible to assign both:

  • The right to file for a patent.

  • The rights (including future rights) associated with the patent or patent application.

Although future rights can be assigned, if they cannot be accurately described and specified in the agreement, it may be better to wait until the right becomes effective or detailed information becomes available.

Jurisdictional restrictions can be imposed.

Trade marks

Registered trade marks can be assigned. When assigning the trade marks, the assignor is legally required to also transfer to the assignee all of its identical or similar trade marks that are used on identical or similar commodities. The law does not specify whether goodwill is automatically transferred with the trade marks, but in practice the goodwill is transferred with the marks.

Future rights can be assigned and jurisdictional restrictions imposed (see above, Patents).

Copyright

Moral rights can never be assigned, but can be waived, including the rights of:

  • Publication.

  • Authorship.

  • Revision.

  • Keeping the integrity of the work.

The copyright owner can wholly or partially assign economic rights, including the rights of:

  • Reproduction.

  • Distribution.

  • Lease.

  • Exhibition.

  • Performance.

  • Projection.

  • Broadcasting.

  • Information network dissemination.

  • Adaptation (including for the cinema).

  • Translation.

  • Compilation.

Future rights can be assigned and jurisdictional restrictions imposed (see above, Patents).

Design rights

See above, Patents.

Confidential information

The PRC Contract Law provides that the parties can agree on the terms and scope of the assignment of trade secrets, particularly technical secrets.

Other

As with patents, the actual rights to a new plant variety or the right to apply for a new plant variety can be assigned. In addition, the rights to an integrated circuit layout design can also be assigned.

Formalities for assignment

7. What formalities are required to assign each of the main IPRs?

Patents

Assignments of the right to apply for a patent, of the patent itself, and of a patent application, must be concluded by a written contract. The contract must be registered with SIPO and the assignment is deemed effective on registration. If the assignment is from a Chinese entity to a foreign entity, it will be deemed to be a technology export, and the contract should also be registered with the Ministry of Commerce or its local branch offices before registration with SIPO.

Trade marks

Assignments of registered trade marks must be concluded by a written contract between the assignor and assignee, who must then jointly apply for an assignment to the TMO. Where a registered trade mark is to be assigned, the trade mark registrant will assign all the trade marks that are identical with or similar to that mark on identical or similar goods simultaneously. The assignee obtains the right to the trade mark from the date of announcement of the assignment by the TMO.

Copyright

Assignment of copyright must be concluded by a written contract (Copyright Law). The assignee cannot exercise any right that the copyright owner has not explicitly assigned in the contract. Generally, no registration is necessary, but in some cases, software copyright assignment contracts can be deemed to be technology transfer agreements, which should be registered with the Ministry of Commerce or its local branch offices. However, where the technology is allowed to be freely transferred, failure to register the contract does not affect the validity of the contract.

Design rights

See above, Patents.

Confidential information

A technical assignment contract must be in writing and signed by both parties (PRC Contract Law). If the assignment involves a technology import (from a foreign entity to a Chinese entity) or export (from a Chinese entity to a foreign entity), the contract should be registered with the Ministry of Commerce or its local branch offices. However, where the technology is allowed to be freely transferred, failure to register the contract does not affect the validity of the contract.

Other

Rights over integrated circuit layout designs can be assigned by a written contract, which must be registered with SIPO. The assignment takes effect on registration.

Assignments of new plant variety rights must be concluded by a written contract and registered with the Ministry of Agriculture. The contract is deemed effective on publication in the gazette published by the Office for the Protection of New Varieties of Plants (CNPVP). In addition, assignments from a Chinese entity or individual to a foreign entity or individual are subject to the Ministry of Agriculture's approval.

 

Main terms for assignments

8. What main terms should be included in an assignment of IPRs?

The terms of an assignment depend on the type of IPR being assigned. In general, however, an assignment should include the following main terms:

  • A description of the IPR as well as the scope of rights assigned.

  • Provisions concerning delivery of the IPR and handover of documents.

  • Provisions concerning payments, such as upfront, milestone and minimum royalty payments, late payments and sublicensing royalty agreements (if applicable).

  • The term of assignment and rights and obligations on termination.

  • Obligations for the protection of the IPRs (for example, concerning obligations to maintain and enforce the IPR, and confidentiality).

  • Representations and warranties concerning the validity and enforceability of the IPR, the assignor's ownership and right to assign, and so on.

  • Indemnities concerning claims against the assignor, such as claims for infringement, product liability and so on.

  • Requirements for the assignee and assignor to maintain insurance (particularly for personal injury and property damage).

  • Limitations of liability for the assignee and assignor (such as exclusion of damages, cap on damages, exclusive remedies that can be sought and so on).

  • Governing law and provisions concerning dispute resolution.

  • Other general provisions typically found in contracts.

 

Licensing

Scope of licensing

9. How can each of the main IPRs be licensed?

Patents

Patents can be licensed in whole or in part:

  • Invention or utility model patents. The patent-holder can license the right to:

    • manufacture, use, sell, offer to sale and/or import the patented products;

    • use the patented process; and

    • use, offer to sell, sell or import the product directly obtained from the patented process.

  • Design patents. The patent-holder can license the right to manufacture, sell, offer to sell, and/or import the product incorporating the patented design.

Future rights can also be licensed and jurisdictional restrictions imposed.

Trade marks

A trade mark owner can license others to use its trade marks. The law does not specify whether the licence automatically transfers goodwill with the trade marks, however, in practice the goodwill is transferred.

Future rights can also be licensed and jurisdictional restrictions imposed.

Copyright

Similar to copyright assignment, a copyright owner can license its economic rights in copyrighted works in part or in whole, but the moral rights cannot be licensed (see Question 6, Copyright).

Future rights can also be licensed and jurisdictional restrictions imposed.

Design rights

See above, Patents.

Confidential information

The PRC Contract Law governs the license of trade or technical secrets, and provides that the parties can agree the terms and scope of the licence.

Other

Integrated circuit layout designs and new plant varieties can be licensed. However, the law does not specify whether restrictions can be imposed or prohibit the imposition of restrictions.

 

Formalities for licensing

10. What are the formalities to license each of the main IPRs?

Patents

A patent licence should be concluded by a written contract. The law requires the parties to register the contract with the SIPO within three months of the date on which the contract comes into effect, but non-registration will not affect the validity of the contract.

Trade marks

The law requires the parties to register the licence contract with the TMO within the validity period of the contract, but non-registration will not affect the validity of the contract (see above, Patents).

Copyright

A written contract is required for a licence arrangement. However, a licence could be effective without a written contract, if the parties have agreed to this and have actually performed the contract. Registration is not required for a licence to be effective. However, the NCA and local copyright administrative agencies permit registration of a copyright licence contract (for example, for the purpose of informing third parties).

Design rights

See above, Patents.

Confidential information

A licence contract should be registered with the Ministry of Commerce or its local branch offices, if it involves a technology import or export (see Question 7, Patents). If the licensed technology is restricted for import or export, registration is essential for the contract to take effect. If the technology can be freely imported or exported, registration will not affect the validity of the contract.

Other

The law does not specify whether a licence contract over new plant variety rights and rights in integrated circuit layout designs must be registered.

 

Main terms for licences

11. What main terms should be included in an IP licence?

The terms of a licence depend on the type of IPR being licensed. In general, however, a licence should include the following main terms:

  • A description of the IPR as well as the scope of rights granted (including territorial restrictions, if applicable).

  • Provisions concerning delivery of the IPR and handover of documents.

  • Provisions concerning sublicensing (which is usually prohibited where the licence is non-exclusive).

  • Provisions concerning who has the right to improvements on IP (for example, a grant back of rights to the licensor, if applicable).

  • Provisions concerning payments, such as upfront, milestone and minimum royalty payments, late payments and sublicensing royalty agreements (if applicable).

  • The term of licence and rights and obligations on termination.

  • Obligations for the protection of the IPRs (for example, concerning obligations to maintain and enforce the IPR, and maintain confidentiality).

  • Representations and warranties concerning the validity and enforceability of the IPR, the assignor's ownership and right to license, and so on.

  • Indemnities concerning claims against the licensor, such as claims for infringement, product liability and so on.

  • Requirements for the assignee and assignor to maintain insurance (particularly for personal injury and property damage).

  • Limitations of liability for the licensor and licensee (such as exclusion of damages, cap on damages, exclusive remedies that can be sought and so on).

  • Governing law and dispute resolution.

  • Other general provisions typically found in contracts.

 

Taking security

12. Is security commonly taken over IPRs?

Security over IPRs was not commonly taken in the past, but has increased in China in recent years. In particular, security over patents, trade marks and copyright has now become an increasingly popular way of raising finance. Some common issues include:

  • The inherent subjectivity in valuing secured IP assets.

  • The difficulty in enforcing security over the IP and realising the secured assets.

  • Risk in devaluation of the secured IP assets.

 
13. What are the main security interests taken over IPRs?

IPRs can only be secured by a pledge. In each case, a pledge is created by a written contract. The rules for perfection of the pledge depend on the type of IPR (see below). If the pledgor fails to repay the debt as agreed, the pledgee can ask the court to sell or auction the pledged IPR.

Patents

Transferable patents can be pledged. Pledges over patents are perfected by registration of the written contract with SIPO.

Trade marks

Transferable trade marks can be pledged. Pledges will be concluded by a written contract between the pledgor and pledgee, who will then jointly apply for registration to the TMO. Pledges over trade marks are established by registration with the TMO.

Copyright

Only transferable economic copyright may be pledged. The parties concerned must enter into a written contract and the pledge is established by registration with the NCA.

Design rights

See above, Patents.

 

M&A

Due diligence

14. What IP-related due diligence is commonly carried out in both a share sale and an asset sale?

Share sale

IP-related due diligence usually first identifies:

  • The focus of the company.

  • All IP assets.

IP-related due diligence will mainly try, among other things, to clarify or confirm:

  • That the IP assets are adequate for the current and planned business of the company.

  • That the company has ownership of the assets and the right to use them.

  • That there are no encumbrances over the assets or restrictions on use.

  • That the assets are valid and enforceable.

  • That the assets have not been infringed or misappropriated by third parties.

  • That no rights or licences over the assets have been granted to third parties.

  • The protection and management policies relating to the assets.

Depending on how detailed the due diligence is required to be, a free-to-operate analysis may be carried out, in particular in the case of technical secrets.

Asset sale

The IP-related due diligence carried out for an asset sale is very similar to that of a share sale (see above, Asset sale). The difference usually lies in the scope and depth, which is usually less extensive for an asset sale, and which may simply focus on the target assets to be acquired. In addition, whether the assets may be duly assigned or whether the assignment would impact on the value of the assets must also be taken into consideration.

 

Warranties/indemnities

15. What IP-related warranties and/or indemnities are commonly given by the seller to the buyer in both a share sale and an asset sale?

Share sale

There is less focus on IP-related warranties and indemnities in a share sale compared to an asset sale, although similar provisions to asset sales may be used (see below, Asset sale).

Asset sale

Common warranties and/or indemnities include:

  • Full disclosure of all IP assets.

  • Good title to IP and that the IP is free of encumbrances (including all rights, titles and interests to the IP).

  • Full disclosure of IP-related contracts and licences.

  • No or full disclosure of proceedings (such as opposition, revocation, or invalidity proceedings).

  • No infringement to third party IP rights has been caused as a result of exploitation of the IP assets or no infringement claims from any third party received.

  • No third party is infringing the IP rights.

  • That the IP assets are properly protected and maintained.

  • The documentation regarding the trade secrets is sufficient for use, if applicable.

 

Transfer of IPRS

16. How are the main IPRs transferred in both a share sale and an asset sale?

Share sale

There is no transfer of IPRs in a share sale. The buyer acquires the shares of the business that owns the IP.

Asset sale

Transfers are usually executed by written contracts and registered with the relevant government authorities where required (see Questions 6 and 7).

 

Joint ventures

17. Is it common for companies to set up joint ventures in your jurisdiction to develop projects that heavily involve IPRs?

Joint ventures involving IP are common in China. The joint venture contract should include the following IP-related provisions:

  • A description of the scope of the IPRs involved in the joint venture contract, such as existing IPRs, background IPRs and IPRs that are yet to be generated.

  • An explicit provision governing the ownership of current and potential future IPRs, such as improvements on existing IP.

  • The terms of scope and delivery of the IP, for example, by licence or assignment.

The joint venture contract should also include provisions concerning:

  • How to maintain and protect the IPRs.

  • The licensing arrangement among the joint venture and its investors.

  • Rights to sue for infringement.

  • Obligations to assist in the protection of IP.

  • Obligations to deal with infringing claims by third parties.

  • How the IP would be disposed of in the case of termination of contract, or liquidation of one of the parties.

 

Competition law

Main provisions and common issues

18. What are the main provisions of your national competition law that can affect the exploitation of the main IPRs?

The PRC Anti-Monopoly Law (AML) does not apply to the exploitation of the main IPRs as long as the IPRs are not being abused to eliminate or restrict competition. The exploitation of IPRs is considered to be abusive if it falls into one of the following categories of monopolistic behaviour (AML):

  • Formation of a monopoly agreement.

  • Abuse of a dominant market position.

  • Concentration of undertakings that lead or may lead to the elimination or restriction of competition.

For example, any agreement is prohibited if it is an agreement to limit the purchase of new technology or new facilities, or the development of new products or new technology, among undertakings competing with each other (Article 13, AML).

The following laws may also contain provisions that affect the exploitation of the main IPRs:

  • Articles 329 and 343 of the PRC Contract Law, which prohibit contracts that damage technological competition or development.

  • Article 10 of the Interpretation of the Supreme People's Court concerning Some Issues on Application of Law for the Trial of Cases on Disputes over Technology Contracts, which interprets Article 329 of the PRC Contract Law.

  • Articles 30 and 32 of the PRC Foreign Trade Law, prohibiting certain anti-competitive behaviour in the context of foreign trade.

  • Article 29 of the PRC Administration Regulations on Technology Import and Export, setting out restrictive clauses that a technology import contract must not contain.

  • Article 55 of the AML, prohibiting the abuse of IPRs to eliminate or damage competition.

  • Article 12 of the AUCL, which prohibits tie-in sales.

  • Article 48 of the PRC Patent Law, which allows the grant of a compulsory licence of a patent by the patent authority to remove or mitigate the damage to competition incurred by the abuse of a patent right, which is regarded as a monopoly.

In addition, a guideline on anti-trust issues in relation to IPRs is being drafted, which is expected to provide more detailed provisions.

 
19. What are the most common national competition law issues that arise in the exploitation of the main IPRs?

Technology licences may contain clauses that breach competition-related provisions (see Question 18), including:

  • Clauses restricting the licensee from improving the technology.

  • Free or non-reciprocal license-back clauses (for example, providing that the licensee must grant back the licensor for free for any improvement it made by exploiting the licensed patent).

  • Clauses unduly restricting the receiving party from purchasing raw material, parts, products or equipment from other channels or sources.

  • Clauses prohibiting the licensee from objecting to the validity of the technology.

When drafting the licensing agreement, it is important to ensure that the relevant compulsory or prohibitive provisions are not breached.

 

Exclusions/exemptions

20. What exclusions or exemptions are available for national competition law issues involving the exploitation of the main IPRs?

The AML will not apply as long as IPRs are not being abused to eliminate or restrict competition (see Question 18). In addition, agreements seeking to advance technology or research and develop new products, are not regarded as monopoly agreements under the AML.

 

Advertising

21. To what extent do advertising laws impact on the use of third party trade marks?

The following rules laws are relevant:

  • The PRC Trade Mark Law, which prohibits:

    • the use of another party's trade mark on the same or similar products without permission, including the use in advertisements;

    • altering another party's registered trade mark without authorisation and selling goods bearing an altered trade mark (for example, advertising products with altered trade marks and passing off trade marks belonging to another as one's own in advertisements).

  • The AUCL prohibits passing off registered trade marks belonging to another as one's own.

  • The PRC Advertising Law prohibits fabricating and/or spreading false facts, thereby injuring the goodwill of competitors or the reputation of their products. This makes direct comparison between the products of different brands likely to be regarded as a legal breach.

 

Employees and consultants

22. Who owns each of the main IPRs created by an employee in the course of his employment? Is compensation payable to the employee? What main steps can an employer take to ensure it owns each of the main IPRs?

Patents

The PRC Patent Law distinguishes between service inventions/designs and non-service inventions/designs:

  • Service inventions/designs. Service inventions/designs produced by an employee in the course of his employment automatically belong to the employer if there is no agreement setting out who will own the invention (see below). An invention is deemed to be a service invention where the invention is made:

    • to perform the tasks entrusted by the employer; or

    • mainly by using the employer's material and technical resources.

    The employer has the exclusive right to use, transfer or exploit the invention in other ways. However, the inventor has the right to be:

    • rewarded where a patent right is granted or the invention exploited;

    • indicated as the inventor.

    If the employer decides to assign the invention, the inventor has the right of first refusal under equal terms and conditions.

  • Non-service inventions/designs. Non-service inventions/designs belong to the individual who produces that invention.

The employer can take the following steps to ensure it owns the main IPRs:

  • Enter into properly executed contracts with the employees in which the employer has ownership of inventions produced in the course of the employment.

  • Ensure that employees respect confidentiality, as the employer could lose the right to patent a technology due to an employee's disclosure.

Copyright

The copyright of a work is vested in an entity, if the work is created according to the intention and under the supervision and responsibility of that entity, and therefore that entity is regarded as the author of the work.

Copyright of work made for hire (WMFH) is usually vested in the author while the employer retains rights to use the work, if there is no agreement to the contrary. Within two years of the creation of the work, the employee is not allowed to grant to any third party, without the consent of the employer, the right to use the work in a way identical to the way the employer is allowed to use the work. In the following cases, however, only the moral rights are vested in the author, while the employer retains the other rights:

  • Drawings of engineering designs and product designs, maps, computer software and so on, created mainly by using the material and technical resources of the employer.

  • Other WMFH agreed where the employee and employer have contractually agreed (or the law provides) that the author only has moral rights while the employer retains the other rights.

 
23. Who owns each of the main IPRs created by an external consultant? What main steps can a business take to ensure it owns each of the main IPRs?

Generally, the contract between the business and the external consultant will agree the ownership of IPRs created by that external consultant. Where the contract does not expressly provide for ownership or where no contract is concluded:

  • The IPRs will vest with the external consultant.

  • The business will retain the right to use the IPRs for free.

To ensure it owns each of the main IPRs a business should, in addition to specifying that it owns the IPRs in the agreement, check that the consultant has properly executed agreements with its employer regarding the ownership of any IP developed, and take care of the compensation and right of first refusal issues, if applicable (see Question 22).

 

Tax

24. What are the main taxes payable by a licensor on the licensing of the main IPRs?

The following are the main taxes payable by a licensor of IPRs:

  • Income tax on income received from the licensing of the IPR, where the licensor is an individual.

  • Business tax, where the licensor is a business.

  • Stamp duty on the licence agreement.

In some cases, the licensor may be exempted from paying business tax. For example, if the licence is in the form of a technology contribution by a foreign company to the capital of a Chinese company in exchange for an equity stake in the Chinese company, the transfer is not subject to business tax.

In addition, various preferential tax treatments are available for licences of patents and technology, although they are not available for the licensing of trade marks and copyright. However, the licensing of computer software, which is protected by copyright law, can qualify as technology licensing in certain circumstances. The availability of these tax benefits may vary with time, and therefore a business should consult a tax specialist when planning a licensing transaction.

 
25. What are the main taxes payable by a seller on the disposal of the main IPRs?

Income tax, business tax and stamp duty are the main taxes payable by a seller on disposal of IPRs (see Question 24).

In a similar way as to licensing, if the disposal is in the form of a technology contribution to the capital of a Chinese company in exchange for an equity stake, it is not subject to business tax. Various preferential tax treatments may also be available. A business should consult a tax specialist when planning disposals (see Question 24).

 

Cross-border issues

26. What international IP treaties is your jurisdiction party to?

China is a signatory to the following IP treaties:

  • Beijing Treaty on Audiovisual Performances 2012.

  • Marrakesh Treaty to Facilitate Access to Published Works for Persons Who Are Blind, Visually Impaired or Otherwise Print Disabled 2013.

  • Singapore Treaty on the Law of Trademarks 2009.

  • WIPO Copyright Treaty 1996.

  • WIPO Performances and Phonograms Treaty 1996.

  • WIPO Convention Establishing the World Intellectual Property Organization 1967.

  • Patent Cooperation Treaty 1970.

  • WIPO Berne Convention for the Protection of Literary and Artistic Works 1971 (Berne Convention).

  • WIPO Paris Convention for the Protection of Industrial Property 1883.

  • WIPO Washington Treaty on Intellectual Property in Respect of Integrated Circuits 1989.

  • WIPO Nice Agreement Concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks 1957.

  • Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure 1977.

  • Strasbourg Agreement Concerning the International Patent Classification 1971.

  • WIPO Madrid Agreement Concerning the International Registration of Marks 1891 (Madrid Agreement).

  • Protocol Relating to the Madrid Agreement 1989.

  • UN Universal Copyright Convention 1952.

  • WIPO Convention for the Protection of Producers of Phonograms Against Unauthorised Duplication of Their Phonograms 1971.

  • Locarno Agreement Establishing an International Classification for Industrial Designs 1968.

  • International Convention for the Protection of New Varieties of Plants 1961 (UPOV Convention).

  • WTO Agreement on Trade-Related Aspects of Intellectual Property Rights 1994 (TRIPS).

A detailed list of treaties can be found at www.wipo.int/wipolex/en/profile.jsp?code=CN.

 
27. Are foreign IPRs recognised in your jurisdiction?

Patents

Foreign patents must be registered in the PRC to enjoy protection in the PRC. If the application in China is filed within 12 months (for inventions and utility models) or six months (for designs) of the date of the foreign filing, the applicant can claim priority for prior applications when applying for registration in the PRC in accordance with the treaties entered into by China or the principle of reciprocity, by:

  • Submitting a written declaration.

  • Providing a copy of the original application.

Trade marks

Trade marks must be registered in the PRC to enjoy protection, but foreign trade marks, like foreign patents, enjoy a right of priority, if such application is filed within six months of the date of the foreign filing. However, trade marks that are well-known in the PRC enjoy broader protection (Article 13, PRC Trade Mark Law):

  • Registered well-known trade marks enjoy protection in China in relation to different or non-similar goods or services.

  • Non-registered well-known trade marks enjoy protection in China in relation to the goods or services for which they are well-known.

See Question 1, Trade marks.

Copyright

Works of foreigners or stateless persons that are first published in the PRC are protected under the PRC Copyright Law. The copyright of foreigners is protected under the PRC Copyright Law:

  • Where there are agreements or international copyright treaties between the author's home country and China.

  • Where there are not agreements or international treaties between the author's home country and China, but the work is first or simultaneously published in a country that is a signatory to an international treaty to which China has acceded.

Design rights

See above, Patents.

 

Reform

28. Are there any proposals for reform?

The PRC Copyright Law is being revised for the third time. The PRC Patent Law is being revised for the fourth time. Although drafts have been issued for public comments, it is hard to predict when they will enter into force.

The new PRC Trade Mark Law is effective as of 1 May 2014.

Generally, although tremendous progress has been made, the legal system regarding IPR and competition law still has much room for further improvement. The competition law of the PRC, mainly contained in the AML, which regulates anti-trust law concerning IPRs, is relatively new. Various drafts of the Guidance on the Enforcement of Anti-Trust Law in relation to IPRs have been published and discussed. However, it has not been officially adopted; it is therefore expected that China will continue its work on new laws and regulations for IPR protection.

The PRC has also experienced issues with interpretation of other aspects of IP-related laws, leading to inconsistent decisions across administrative agencies and courts of different geographic regions. Efforts are being made to standardise the decision-making process and outcomes in both judicial decision making and administrative decision making.

 

Online resources

Central People's Government of the People's Republic of China

W www.gov.cn/flfg/index.htm

Description. The website is maintained by the Central People's Government of the People's Republic of China (PRC). It contains all PRC legislation and rules in Chinese. The information it contains is official, up-to-date and available in English.

General Office of National People's Congress (NPC) of the People's Republic of China

W www.npc.gov.cn/englishnpc/Law/Integrated_index.html

Description. The website is maintained by the General Office of National People's Congress (NPC) of the PRC. The English-language translation of the laws is a useful reference for non-Chinese readers.

State Intellectual Property Office (SIPO)

W http://english.sipo.gov.cn/laws ( www.practicallaw.com/1-518-2037)

Description. The website is maintained by SIPO. It contains the PRC IP-related laws and policies. The information it contains is official and up-to-date. The English-language translation of the laws and policies is a useful reference for non-Chinese readers.



Contributor profile

Mia Qu

King & Wood Mallesons

T +86 21 2412 6028
F +86 21 2412 6250
E qumiao@cn.kwm.com
W www.kingandwood.com

Professional qualifications. China, 1998

Areas of practice. IP legal; IP litigation.

Recent transactions

  • Representing an Australian company to reach a licence agreement with a leading Chinese solar company for a basic solar technology patent.

  • Representing a leading French glass company in patent infringement litigation, assisting client in reaching a licence agreement with a leading Chinese glass company.

  • Representing a leading US IT company in software copyright infringement litigation, assisting client in reaching a licence agreement with the defendant.

  • Representing a leading US electronic company in a trade mark infringement action, which was settled by reaching a trade mark assignment arrangement.


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