Intellectual Property Protection in China (I)
 

Keywords: intellectual property right, infringement, trademark, patent, copyright

As a result of external pressures and to meet its own economic objectives, China has been moving its intellectual property rights (IPR) regime closer to those found in many more developed nations. As China's economy grows, its transition from manufacturing-based to knowledge-based production, more comprehensive laws, and more attention to enforcement have led to an increase in the number of IPR infringement cases being brought before the courts or taken up through China's administrative procedures. Allowing IP owners to recover their economic damages from infringers is an important component of a system for IPR protection. Properly determined, damage awards can serve as an effective deterrent to IPR violations and protect the incentives to innovate.

While problems of intellectual property infringement are widespread in many areas of the world,1 some Chinese and foreign observers continue to assert that more should be done to deter counterfeiting in China.2 According to many of these observers, IPR owners are generally compensated for only a small proportion of their losses under existing law.3 If these contentions are correct, such low damages discourage the filing of meritorious lawsuits and generally fail to adequately protect intellectual property.

This paper examines the pattern of damages awards by Chinese courts. To put this examination of damage awards in context, we first review the evolution of IPR protection as an economy becomes increasingly dependent on knowledge-based production. For readers who are not familiar with the remedies for IPR infractions in China, we then describe the laws and procedures in China for the protection of IPR, including both judicial and administrative procedures. Finally, we describe the results of a statistical analysis of a unique dataset that we have compiled on recent damage awards in IP cases in China.

We find that, under the administrative systems established in China, penalties and fines for IPR violations generally do not appear to provide adequate deterrence to would-be infringers. Fines are so low that they appear to allow infringers to earn an adequate profit, even if caught and fined. Consequently, most studies suggest that fines represent only a tiny fraction of the estimated sales revenue lost to IPR holders.4

Our review also suggests judicial damage awards for IPR violations in China are low compared to the United States and compared to the likely degree of harm caused. Furthermore, although the frequency of damage awards in IPR cases in China has increased, the average amount awarded has not increased. However, each year there appear to be a few cases which involve significant damages, and these high damage awards appear to be occurring more frequently each year. It also appears that, while damage awards tend to be low, IPR owners typically make low damages claims.

Balancing IPR Protection and Economic Growth In Evolving Economies

IPR protection typically proceeds through a predictable series of stages as a country moves from an economy based upon manufacturing to an economy dependent on the utilization and exploitation of information and advanced technology.5 In the early stages of development, with limited resources and limited capacity for research and development, there may be little or no IPR protection. Domestic industry will be characterized by imitation rather than innovation. Imitation allows for low-cost production, low prices for goods and services, and the stimulation of consumption and employment. A weak IPR regime may support technological growth and development through imitation in early stages of development. At subsequent stages of development, however, a weak IPR regime discourages domestic innovation. Innovation and technological development are drivers of economic growth. Economies that succeed in shifting into knowledge-based production are characterized by domestic innovation, typically supported with well-designed and adequately enforced IPR laws.

A country may face conflicts and challenges while making the transition to a more developed IPR regime. Achieving the benefits of a strong IPR regime may involve incurring short-run costs. These costs include short-term and regional unemployment as labor shifts from infringing activities, and higher prices for consumer goods.6 These costs may create short-term disincentives for enforcing and upholding IPR laws. They will also tend to create divergent interests among different sectors of the economy and among different regions of a country.

Effective IPR enforcement may improve the quality of goods over time and facilitate more effective dissemination of knowledge both domestically and internationally. In a highly developed economy, losses to consumers due to higher prices associated with IPR enforcement will be counterbalanced by the benefits of increased innovation and invention.

The Legal Framework for IPR Protection In China

Overview
Over the past two decades, China has steadily developed an infrastructure to protect IPR in pursuit of its own interests at its current stage of development and in order to meet its international commitments. China has joined several international agreements to protect intellectual property7 and drafted and promulgated domestic IPR laws. It has established specialized IP divisions in many courts,8 as well as enforcement processes, and training programs. In November 2001, China joined the World Trade Organization (WTO). Since joining the WTO, China has further strengthened its legal framework and amended its IPR laws and regulations in compliance with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

The TRIPS Agreement is particularly significant, as it specifies strong minimum standards for the protection and enforcement of various types of IPR, including copyrights, patents, and trade secrets. The resulting IPR infrastructure in China has been described as an extensive, though not complete, alignment with the IPR regimes in other countries that are party to the WTO Agreement.9

Source: http://www.mondaq.com/article.asp?articleid=74520

 

 

 

 

 

 

 

 

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