AustLII Home | Databases | WorldLII | Search | Feedback

Deakin Law Review

Deakin Law Review (DLR)
You are here:  AustLII >> Databases >> Deakin Law Review >> 2002 >> [2002] DeakinLawRw 2

Database Search | Name Search | Recent Articles | Noteup | LawCite | Help

Low, Alex --- "To Counterfeit in China is Divine: Or is it?" [2002] DeakinLawRw 2; (2002) 7(1) Deakin Law Review 21


To Counterfeit in China is Divine: Or is it?

Alex Low[∗]

I Introduction

A The Facts

On a recent visit to China, one could not help but notice the number of counterfeit CD’s, T-shirts, watches and other items being sold on street corners and in market places.

In Beijing, it is centred in the Haidian District, where all types of counterfeit computer and software items can be found meshed together by a network of street hawkers.

In Shanghai, before December 1999 the main area was found in Tian Shan Street, Changing District. The Shanghai government as part of its attack on counterfeiting closed the markets down. However, this did not stop counterfeiting and in retaliation, counterfeits are now found on various street corners connecting Huai Hai Road, Shanghai and in small individually owned electronic retail shops located in residential areas, but known to the local populace. Clothing can also be found in the Xiang Yang market centre.

Lastly, in Guangzhou, counterfeits have been lifted to a high level of sophistication. The Hai Ying District provides all types of Software, the Tian He computer district in the north of Guangzhou provides counterfeit hardware, whilst clothing, jewellery, watches and miscellaneous items can be purchased from the Cao Da Jie area near Guangzhou Railway Station.

B The Development of the Problem

In the mid-1980s, there were virtually no counterfeit products on sale in China. As late as 1990 counterfeiting was not a major problem, although small quantities of counterfeit products (especially cigarettes) could be found in some markets. In the early 1990s, the production, export and domestic sale of counterfeit products matured; some of the reasons being:

Continued liberalisation of China’s economy, allowing domestic companies to produce and distribute goods.
Hong Kong and Taiwan companies (including counterfeiters) set up manufacturing in China.
A growing appreciation within China of IP rights, particularly that money could be made from the ingenuity of others.

However, most Chinese counterfeits were of low quality and in the labelling of products, misspellings were common.

The simplification of manufacturing techniques in the 1990’s in order to cut costs meant the streamlining of production, making it easier to copy. At the same time Chinese companies, also benefited from a better-trained skill base and sophisticated machinery. It is now not uncommon for Chinese factories to have computer-aided design (CAD) machines for manufacturing moulds, and staff who have been trained overseas or in foreign enterprises in China.

In addition, many brand-owners licensed the manufacture of a range of products. For example, the Walt Disney range of products include toys, clothing, bed linen, and stationery. Large scale licensing resulted in licensors effectively losing control of the quality of their products, making it easy for counterfeiters to copy goods indistinguishable from the genuine item, or purposely producing similar products to look like famous brands. A good example is in the case of Delifrance Beijing Ltd v. Beijing Sun City Market,[1] where Delifrance licensed Sun City to sell its high quality bread. Instead the defendant sold inferior quality bread using Delifrance wrappings. Held that unauthorised use of trademark in this case breached Article 38 of the Trademark Act.

A number of causes can be attributed to the increasing supply and demand for counterfeit products:

It can therefore be seen, internally, China’s attitude to counterfeiting does not accord with western thinking on the subject. The West sees it as taking away a person’s proprietorial rights, whilst the Chinese attitude is that to copy is divine.[3] Yet the Chinese leadership has indicated its global desire is to join and become a member of international trading regimes.

It is submitted that blocking China’s pathway to globularity is:-

A well developed and respected legal framework.

The TRIPs Agreement in which China must show its intellectual property regime (IPR) conforms to an internationally accepted standard.

Ensure compliance by its citizens with the new IPR regime.

In this paper it is proposed to examine each of these issues in an effort to evaluate China’s commitment or otherwise to internationally accepted standards.

II Development of a Respected Legal Framework

Prior to the implementation of China’s reform program in the late 1970s, the country had no legal system that would be recognised as such by Westerners.[4] Disputes between enterprises were resolved administratively, as part of the state planning system. The need for intellectual property (IP) laws to protect inventions or brands was unnecessary, as under the socialist system a free market was non-existent.

After the reforms began, it became necessary to develop economic and commercial laws, including laws providing for registration and enforcement of IP rights and to regulate those parts of the economy no longer subject to state planning.

Laws were administered by a poorly trained and understaffed judiciary. Many judges were de-mobbed soldiers with no legal training, and there was political interference in decision-making, protection of local interests, and widespread corruption[5].

In the past five years, the quality of the courts and legal system has markedly improved, at least in the larger cities, through better training of judges and learning from overseas[6].

In the early 1980s, China whilst re-introducing the concept of IP, promulgated laws protecting various forms of IP, and established special departments within administrative bodies to enforce the new IP laws.[7] The State Administration for Industry and Commerce enforced the Trademark Law and Unfair Competition Law; the Patent Office enforced the Patent Law; and the State Copyright Administration enforced the Copyright Law. The State Bureau of Quality and Technical Supervision was also empowered to enforce the Trademark Law as part of its duty to enforce the Product Quality Law.

Aligned with this growth in administrative enforcement there was a parallel growth in judicial enforcement machinery, besides the People’s Court.

In July 1993, the Chinese government took steps to promote the institutionalisation of IP enforcement, with the establishment of IP divisions in the People’s Courts, beginning with the Beijing Intermediate People’s Court[8]. By the end of the 1999, the Supreme People’s Court of China had a dedicated section devoted to IP matters. Eighteen IP divisions in the higher and intermediate people’s courts, and numerous divisions of the district courts, had been established exclusively to hear IP cases[9]. Each division was permanently staffed by trained and qualified judges and law clerks.[10]

In addition, peoples’ assessors[11] were invited by the court to sit on a collegiate bench with the judge in a hearing. They are an important addition, particularly in patent and software infringement cases for they can assist on technical points. Appointments are usually made on the recommendation of relevant government authorities.

As an example, in FOTAO Group Ltd Ceramic Institute v Jinchang Ceramic Rollers,[12] a patent and trade secret case, the court appointed two professors in the field of the disputed technology and a science and technology expert. These appointments were made after consultations with the Provincial Science and Technology Commission and the local university (that recommended the two professors). The assessors joined the collegiate bench and during the trial asked questions mainly on technical issues before presenting an appraisal to the court.

The number of IP cases heard annually in Chinese courts has risen steadily since the mid-1980’s.[13] Nevertheless, the number of IP cases heard is still small compared to the total number of cases heard in, for example, the Economic Divisions of the People’s Courts.[14]

The establishment of the IP divisions in the Peoples’ Courts indicated a shift from non-judicial to judicial enforcement of IP rights. Obviously, the departmentalisation of the courts into areas of legal expertise results in a judiciary better able to hand down informed judgments in the IP area.

The development of such case law would seem to indicate judicial decisions are being made in accordance with IP laws and together with effective administrative back-up, China’s IP authorities have been effectively enforcing IP rights, and at the same time deterring future infringement of such rights. However, inadequate damage awards threatened to dampen the deterrent effect of judicial and administrative decisions on future infringement.

There are many examples but two (2) will do to illustrate the problem. In FOTAO Group Ltd Ceramic Institute v Jinchang Ceramic Rollers[15] where a claim was made for privacy of ceramic roller technology, the court awards damages according to the number of units sold multiplied by the average profit on each unit. No compensation was awarded for damages to goodwill.

Again, in Guoliwen v Chao Yanzhang,[16] a case concerning a claim for compensation for patent infringement. A claim totally justified for 40,000 yuan was made, yet the court, without any reason, awarded just 22,000 yuan.

The international community certainly has encouraged China to move to international norms in the area of IP rights enforcement through the Chinese courts for China was admitted recently entry to the World Trade Organisation (WTO).[17]

III Agreement on Trade Related Aspects of IP Rights (TRIPs)

TRIPs came into effect on 1st January 2000. TRIPs was aimed at developing countries that had minimal or no intellectual property (IP) systems in place.

For developing countries, TRIPs required the adoption of an entire new body of law, together with a framework to effectively enforce these new rights. This meant effectively a legal and political undertaking on a countrywide basis.

Thus the TRIPs Agreement endeavours to set out IP guidelines for countries whilst WTO has the job of ensuring developing countries meet these standards.

In China, a developing country, we see a package of IP laws passed in an attempt to conform with TRIPs[18] and which in turn assists the government of the day with its foreign policy goal of being a major player in global trade.

Compliance does not come easily, for China did not protect those rights in the past. The commitments necessarily came into conflict with the people who, under the old system, used IP freely without compensating the holders of those rights.

To an outsider it seems to be simply a matter of economics to transfer money from the users to the creators of IP. But, for a developing country like China the costs of fully compensating the holders of IP rights are a substantial political burden. Not only must there be an extensive country wide re-education program as to the proprietorial rights of an IP holder, but the stamping out of inevitable corruption by officials who stood to gain financially by simply turning a blind eye to counterfeiting.[19]

A China’s IPR and the Standard Set by TRIPs

1 Foundational Legislation

The General Principles of the Civil Law, 1986 gave explicit recognition for the first time in a basic law of the rights of individuals and legal persons to enjoy copyrights, patents and trademarks. For example:

(a) Article 94 deals with copyrights, or rights of authorship and entitles citizens and legal persons to sign their names as authors, issue their works, and receive remuneration for their works;

(b) Article 95 protects patent rights;

(c) Article 96 grants a right of exclusive use for trademarks; and

(d) Article 97 grants a right to apply for certificates of discovery (similar to a patent) or to receive certificates of honour, bonuses for other awards for inventions or achievements in scientific and technological research.

The General Principles of the Civil Law also established private causes of action in cases involving the infringement of IP rights. Article 118 provides that citizens and legal persons shall ‘have the right to demand that...infringement be stopped if its ill-effects can be eliminated, and the damages compensated’. [20]

2 A National Approach

Since Deng Xiao Ping announced China’s Four Modernisation Policies in 1978, China has legislated a corpus of intellectual property laws in a short time, including a Trademark Law,[21] a Patent Law[22] and a Copyright Law[23]

China has also committed itself to international standards in IP protection.[24]

In 1980, China was accepted as a member of the World Intellectual Property Organisation (WIPO)[25] and during the 1980s and early1990s, China joined most of the major international conventions concerned with IP, including the Paris Convention in 1985[26] and the Berne Convention for the Protection of Literary and Artistic Works (the Berne Convention) in 1992.[27]

China also held observer status in the Uruguay Round of the GATT negotiations from 1986 until its conclusion in late 1993. In 1990, during China’s participation as an observer, an early draft of the TRIPs Agreement was circulated, meaning that China was aware of the requirements of TRIPs prior to its final promulgation.

This message on IP protection and enforcement to conform to international standards has been re-iterated as recently as December 2000 by Gu Jinchi, Vice-Chairman of the NPC Committee for Internal and Judicial Affairs during a panel discussion with the WTO on China’s entry into the Organisation.[28]

B TRIPs and Trademark Law

1 TRIPs Requirements

The TRIPs provisions on trademarks provide that WTO member countries must comply with Articles 1 to 12 and 19 of the Paris Convention,[29] which are incorporated into TRIPs. TRIPs further requires that WTO member countries:

a)Provide trademark owners with the right to prevent others from unauthorised use of a registered trademark (Article 16(1)),

b)Extend trademark protection to service marks (Articles 15(1) and 16(2)),

c)Expand the protection afforded to well-known marks beyond that provided under the Paris Convention (Article 16(2), (3)),

d)Establish an official trademark publication to give notice of trademark applications (Article 15(5)), and

e)The duration of the initial trademark registration term as well as renewal terms be at least seven years (Article 18).

TRIPs also prohibited a compulsory-licensing scheme for trademarks (Article 21) and allowed the cancellation of a trademark for non-use if such non-use has been continuous for at least three years (Article 19(1)).

2 The Trademark Law

In 1993, in an effort to harmonise its trademark regime with international standards, China amended both the Trademark Law and the Trademark Law Implementing Regulations.[30]

Once the trademark of another person that has, in respect of the same or similar goods, been registered, then after examination and preliminary approval, the Trademark Office must reject the application. This objective is reinforced by Article 16 of the 1993 Trademark Law Implementing Regulations, which provide that ‘where a trademark is distinctive and in conformity with the relevant provisions of the Trademark Law, the Trademark Office shall, after examination, preliminarily approve the Trademark....’.Henceforth, a trademark right gave the owner a claim for damages in cases of infringement, equivalent to the profit made by the infringer together with any damages suffered (Article 39).

However, under Article 6, the exclusive use and assignment of the trademark is diminished by the responsibility to maintain ‘the quality of the commodities labelled with the trademark’. This requirement as to the quality of goods bearing the trademark remained at a certain specified level, which applies whether such commodities are manufactured by the rights holder, or by an assignee (Article 26(1)).

It could be argued that the role of the Trademark Law in assuring quality is unnecessary because of existing consumer protection legislation: the Product Quality Law, and the Protection of the Rights and Interests of Consumers Law (Consumer Protection Law).[31]

Recently in Shanghai, the first of its kind in China, legislation was passed forcing service providers to offer more equitable sales agreements by holding providers liable if a consumer suffered any personal harm, financial or property loss as a result of a service providers negligence.[32]

3 Differences with TRIPs

Because of the 1993 amendments to the Trademark Law, China is in substantial compliance with the TRIPs requirements for Trademarks[33]. Nevertheless, some inconsistencies remain:

1) As a precondition for registering trademarks for products such as tobacco or pharmaceuticals, Article 5 of the Trademark Law requires that applications obtain a license or production approval certificate from the government in the terms as set out in Article 7 of the Regulations that “pharmaceutical products for human use and tobacco products shall use a registered trademark”.

2) This requirement is against the spirit of Article 15 (4) of TRIPs, which provides that “the nature of the goods or services to which a trademark is to be applied shall in no case form an obstacle to registration of the trademark”[34]. To comply with TRIPs China needs to remove any certification of controlled substances through police power legislation [35].

3) The Trademark Law is inconsistent with several provisions of the Paris Convention that are incorporated into TRIPs Article 5(c)(2) of the Paris Convention which provides that an owner may alter a trademark in anyway that does not alter its distinctive character. Yet Article 30 of the Trademark Law, by comparison, provides that the Trademark Office may cancel a registered trademark ‘where any work, device or combination thereof of a registered trademark is altered unilaterally’.

An interesting case is M & M v W & W,[36] which was decided administratively and not judicially. The plaintiff had its trademark infringed by the defendant who produced a wrapper similar in all respects to that produced by the plaintiff except that it was in a different type set.

The Ningbao Administration for Industry and Commerce via a collegiate panel, found that the trademark had been infringed under Article 30 of the Trademark Law and this justified cancellation of the trademark.

However, the plaintiff did not want cancellation and appealed arguing that it was impractical and that it would have to re-register its mark and so during the existing registration period it would have no mark so that Article 30 in this situation operated as a barrier to commercial activity.

The State Administration for Industry and Commerce failed to over-rule the Ningbao decision.

It is submitted that a better alternative is to use the judicial system for it appears that the courts are intolerant of infringers.

In the Peoples Procurate of Fengxian County v Jiang Zhijiang and Yang Xue Chun,[37] The VW Corporation had registered in China a trademark (Santana) for Volkswagon mufflers. The defendants manufactured and sold an inferior muffler under ostensibly the same name.

The defendant was prosecuted under counterfeiting provisions which defined counterfeiting as ‘using on the same kind of product, a trademark identical to a registered trademark without the consent of its owner, and gaining a considerable amount of unlawful profit’.

Held that the defendants had breached the law and were sentenced up to six and a half (6½) years and three and a half (3½) years gaol respectively and fined.

There is no record as to what happened to the trademark, but currently, the Santana trademark is alive and well. It seems either approach accords with the Paris Convention, but the effect on the infringers in the later case was more drastic, resulting in a deprivation of liberty.

4)Articles 6 and 8 of the Paris Convention states that there is no registration requirement for the enforcement of ‘service marks’ or ‘trade names’. The Trademark Law in Article 4 imposes a registration requirement for service marks, and is silent on trade names. This could be corrected by China amending its law to remove the registration requirement for enforcement of service marks.

The judiciary appears to favour this approach for in one case; a Shanghai court entered judgement in favour of the claimant, Nengshi Industries of Hong Kong, where the defendant had infringed on the Nengshi trade name, even though such trade name was not registered in China[38].

Again, in the 1996 case, Microsoft Corporation v. Beijing Giant Computer Company,[39] a software trade name/copyright was registered overseas but not in China. The court took the approach that both could still be prosecuted and in its judgement the court made specific reference to an international trend to offer such protection and ruled in favour of Microsoft.

These cases indicate that Chinese courts are willing to afford trade name protection to marks that have not been registered.

5)There are certain provisions of the Paris Convention that the Trademark Law does not address. Article 3 of the Paris Convention states that nationals of non-member countries ‘who are domiciled or who have real and effective industrial or commercial establishments’ in a Paris Convention country are to be treated as nationals of such country. Article 11 of the Paris Convention provides temporary protection to trademarks in respect of goods exhibited at certain official functions.

The Trademark Law is silent on both of these points.

4 Summary

Despite the above inconsistencies China has made progress in changing its trademark regime to conform to international IP norms, and is considering further changes in its trademark regime in the near future. The provisions that remain non-compliant with TRIPs or the Paris Convention can be resolved with minor amendments.

Requiring production approval certification is clearly a dinosaur of a trademark system that once served to guarantee product quality and consumer safety. It is submitted that requiring trademarks be accompanied by notice of registration may reflect efforts on the part of the Chinese government to educate the Chinese populace about a still nascent intellect property regime, rather than to effort to impose onerous formality on trademark owners. In addition, the requirement that service marks be registered may indicate an attempt to more efficiently administer and monitor the trademark system in China.

The importance of addressing the above policies through the Trademark Law is not now so important for China’s legal system has evolved and more relevant regulations have been passed to deal with these issues, for example, China now has consumer safety laws.

Because of China’s desire to join the international community China surely will continue to reform its trademark law in the direction of TRIPs compliance and to pursue its policies of consumer protection through other legislation. At the same time, it should be recognised that China is in substantive compliance with the major provisions of TRIPs on trademarks.

C TRIPs and Patent Law

1 TRIPs Requirements

In keeping with trademarks, TRIPs provides that WTO member countries must comply with Articles 1 to 5, 11 to 12 and 19[40] of the Paris Convention that are incorporated into TRIPs in Article 2(1). In addition, TRIPs (Article 28(1)-(2)) requires that member countries provide patent owners with the right to prevent others from unauthorised use of a patent, as well as a right to assign, transfer by succession or conclude licensing agreements in respect of their patents.

In addition, TRIPs also requires that member countries:

a) Protect invention patents for a minimum of 20 years (Article 33);

b) Allow judicial review of any decision to cancel a patent (Article 32);

c) Protect “any inventions whether products or processes, in all fields of technology” which include patents for pharmaceuticals, chemicals and agricultural products (Article 27(1));

d) Protection for plant varieties (Article 27(3)(b));

e) Limit the availability of compulsory licensing (Article 31); and

f) Applications must disclose inventions clearly so that someone skilled in the art would be able to carry them out (Article 29(1)).

2 The Patent Law

As with the Trademark Law, the Patent Law of 1984 was followed by implementing regulations. Thus in 1992, in order to bring China into compliance with TRIPs, China amended the Patent Law and enacted a new set of implementing regulations for the Patent Law (Patent Law Implementing Regulations)[41].

3 Differences with TRIPs

The Patent Law together with allied legislation, as expounded later, brings China into complete compliance with TRIPs requirements, and the very minor deviations from TRIPs will not be dealt with in this paper.

Article 27(2) of TRIPs allows a WTO member country to deny a patent that would harm “public order or morality” and at the same time a WTO member country cannot object just because domestic law prohibits exploitation.

Article 5 of the Patent Law, like Article 27(2) of TRIPs, provides that an invention that is ‘contrary to social morality or that is detrimental to the public interest’ is not patentable. But unlike the TRIPs article, Article 5 of the Patent law gives the government the right to reject a patent because it is ‘contrary to the laws of the state’.[42]

Article 27(3) of TRIPs provides, in part, that ‘plant varieties shall be protected either by patents of by an effective sui generis system or by any combination thereof”. China has extended patent protection to ‘plant varieties’ as required by TRIPs, for in 1997 the Plant Breeders Rights Regulations were passed[43] and in July 2000, The Seed Law was passed.[44]

There are provisions in TRIPs and the Paris Convention that China’s Patent Law Implementing Regulations are silent:

1) Article 3 of the Paris Convention states that nationals in non-member countries who are domiciled or who have real and effective industrial or commercial establishments in a Paris Convention country are to be treated as nationals of such country.

2) Article 4 of the Paris Convention states that patent rights obtained for the same invention in different countries shall be independent of one another.

3) Article 34(1) of TRIPs states that when a product is identical to a product covered by a patented process, a presumption arises that the manufacturer of the identical product used the patented process if (1) the product produced by the patented process is novel or (2) there is a substantial likelihood that the identical product was made by the [patented] process and the owner of the patent is unable to determine the process actually used.

4 Summary

It appears the only area of concern is that China has the power to deny a patent if such patent is illegal under Chinese domestic laws. This certainly is not an impediment.

China’s Patent Law limits compulsory licensing, protects chemicals, pharmaceuticals (through bilateral agreements with the United stated and others, but not specifically in the Patent Law), and agricultural products, and protects all invention patents for a term of 20 years, conforming to TRIPs requirements.

It should be recognised that China has made great progress in creating a modern patent regime, one that both conforms to international IP norms and complies with TRIPs on patents.

D TRIPs and Copyright Law

1 TRIPs Requirements

Under Article 9 (1) of TRIPs, parties to the agreement must comply with Articles 1 to 21 (except Article 6) of the Paris Convention[45] as well as the Appendix to the Berne Convention.

In addition to the Berne Convention incorporated by reference into TRIPs, member countries must:

a) Protect computer programs as literary works (Article 10(1));

b) Protect compilations of data (Article 10(2));

c) Provide authors with rights to the commercial rental of computer programs and movies (Article 11); and

d) Protect copyrights for works whose term of protection is not measured by the life of a natural person for at least fifty (50) years (Article 12), except where such works are works in applied art or photography, in which case protection must extend only twenty five (25) years.

Regarding recordings and broadcasts, TRIPs requires that member countries:

a) Provide performers with a fifty (50) year right to authorise the recording of a performance or the broadcast of a live performance (Article 14(1), (5));

b) Provide producers of recordings with a fifty (50) year right to authorise the reproduction of their recordings (Article 14(2), (5)); and

c) Provide broadcasting organisations or owners of copyrights in broadcasts with at least a twenty (20) year right to prevent unauthorised recording or rebroadcast (Article 14(3), (5)).

2 The Copyright Law

The first Copyright Law was enacted in 1990.

Article 1, of the Copyright Law, like the Trademark Law and the Patent Law, sets out an ideological agenda of encouraging the creation and dissemination of works that contribute to the construction of socialist culture and ethics and material civilisation, and of promoting the development of socialist culture and science”.

In addition, Article 1, states that the law is intended to serve the traditional end of “protecting the copyright of authors in their literary, artistic and scientific works and rights and interests related to copyright.”

The initial Copyright Law did not answer the main concern of foreigners. Foreigners did not enjoy equal treatment with Chinese citizens under the Copyright Law (Article 2 provides that unpublished works of foreigners are not protected, while those of Chinese are).

However, Xu Jialu the NPC Standing committee Vice-chairman, indicated that international rules are resorted to in cases involving foreigners and the domestic law only applies in cases only concerning Chinese citizens. He also intimated that a revision was imminent.[46]

In other regulations, China has enacted the following:

3 Differences with TRIPs

The Copyright Treaties Provisions in 1992 meant that China substantially complied with TRIPs provisions on copyrights, but some inconsistencies still exist:

1)Article 13 of TRIPs provides for ‘fair use’. This means use of a copyrighted work that advances the public benefit, but is made without the consent of or payment to a copyright owner, so long as any such use ‘does not conflict with a normal exploitation of the work and does not unreasonably prejudice the legitimate interests of the right holder’.

Article 22 of the Copyright Law sets out a ‘fair use’ exception, and states the following instances in which ‘a work may be used without permission from, and without payment to the copyright owner’ viz: personal enjoyment, education, commentary, new reporting, republication of public speeches, classroom teaching, official duties of state organs, reproduction by libraries and archives, nonprofit performances, copying and photographing of outdoor public exhibits, translation of Chinese works into ethnic minority languages, and translation into brail.

Some of the fair use exceptions appear potentially broader than those of TRIPs, including the ‘use of a published work by a state organ for the purpose of performing its official duties’ (Article 22(7)), and the ‘free of charge performance of a published work’ (Article 22(9)).

2)The Copyright Implementing Regulations brings China into compliance with Article 13 of TRIPs regarding usage by state enterprises,[49] and virtual compliance with free-of-charge performances.

Where performances are given without charge, Article 30 of the Copyright Implementing Regulations states in the performance of a published work, no fees may be collected from an audience and no remuneration paid to performers. Effectively this means a copyright owner's rights are totally protected.

3)Article 18(1) of the Berne Convention provides that all works that are not in the public domain as at the date of joining the Berne Convention then those rights are protected by that country (the principle of retroactivity).[50]

Under the Berne Convention, therefore, China was required to grant copyright protection to all works that were still protected in their countries of origin as at 15th October 1992, the date China acceded to the Berne Convention.

Further, Article 70 (2) of TRIPs specifically incorporates retroactivity as a requirement of TRIPs. In contrast, Article 17 of the Copyright Treaties Provisions,[51] permits Chinese citizens and legal persons to continue using any foreign work owned or used prior to China’s accession to the Berne Convention in 1992, provided that such reproductions are not used in any way that would unreasonably prejudice the legitimate rights and interests of the owners of copyright in the works.

The rigidity of the retroactivity principle in Article 18(1) of the Berne Convention is modified by Article I8(3), which provides that each member of the Berne Convention may determine the conditions for application of the principle of retroactivity with respect to other members. However, Article 17 of China’s Copyright Treaties Provisions is so broad as to go beyond any condition that would be acceptable under Article 18(3) of the Berne Convention.[52]

4)As far as record producers and broadcasting organisations are concerned:

Article 14(1) states that performers on records may prevent others from broadcasting their live performances; record producers may authorise or prohibit reproductions of their records; and broadcasting organisations may prohibit recording and rebroadcasts of their broadcasts.

Additionally, record producers and broadcasters may use a published work created by others without permission from the copyright owner provided remuneration is adequate and so long as the copyright owner has not stated that ‘exploitation is not permitted’.

Articles 35, 37 and 40 of the Copyright Law,[53] may well be in violation of Article 14 of TRIPs, which expressly prohibits such performances without the copyright holders’ permission. However, the avoidance of such compulsory licensing through a reservation of rights largely mitigates any such violation of TRIPs. The requirement of a notice reserving rights to the author would, however, violate Article 5(2) of the Berne Convention, which prohibits member countries from imposing formalities as a prerequisite to copyright protection.

4 Summary

Obviously the international community would like to see continuing improvements in China’s enforcement of copyrights, especially now that China is a member of WTO.

Despite the fact that there is considerable disagreement over China’s enforcement of its copyright laws, recently enacted laws are in substantial compliance with TRIPs. For example, protection for copyrightable works such as computer software was completely nonexistent in China several years ago, but laws now exist that have allowed slow, but consistent progress stopping counterfeiting in this area.

IV Ensuring Compliance by Citizens

It is essential to ensure that a culture of compliance exists throughout the country so that its citizens understand that counterfeiting means taking away someone else’s rights and if one does that, they will be punished.

A The Courts’ Approach

1 Trademark Cases

An amusing account of the effect of trademark infringement in China can be found in the following:

On any day down any street in Xian, a parade of cartoon mice, ducks, hound dogs and rabbits walk past you. In the thermos shop, you can buy decorated plastic cylinders painted ingaudy colours with Mickey, Minnie, Donald and Goofy. The precious only “toddlers” wear dancing mice T-shirts; the red-kerchiefed Young Pioneers carry school notebooks decorated not with pictures of Marx but with the perpetually smiling Mickey. In the candy store, small fists that will build the Four Modernisation reach over the counter clutching aluminium fens (pennies) in sweaty fingers to order Shanghai tang guo, hard fruit candy that comes in plastic sacks stamped with Minnie Mouse holding hands with the famous Shanghai white rabbit. “Trixon” and “Mow the Helmsman” didn’t open China to the West; Walt Disney did.[54]

It is precisely this type of blatant and obvious infringement that the law is attempting to control.

2 Remedies for the Infringement of a Trademark

Article 39 of the Trademark Law prohibits the culpable party from further infringing, fines the infringer and awards damages to victims of infringement[55]. Furthermore, a party whose trademark has been infringed may ‘institute legal proceedings directly in the People’s Court’.[56]

Under the Trademark Law Implementing Regulations, administrative authorities can seize infringing trademark and the means of production employed in trademark infringement.[57] Criminal prosecution is also available under Article 127 of the Criminal Law.[58] Where infringement takes the form of passing off or where a party knowingly sells a product bearing a counterfeit trademark, the infringing party may be criminally prosecuted under Article 40 of the Trademark Law, and subjected to fine or imprisonment[59].

In calculating damages, Article 39 of the Trademark Law provides that the Administration for Industry and Commerce (AIC)[60] can order compensation be paid, such compensation to comprise the ‘profit that the infringer has earned through the infringement of the damages that the infringed has suffered through the infringement.[61] In additions, Article 39 provides for the imposition of fines.[62] Under Article 43 of the Trademark Law Implementing Regulations, a fine may not exceed fifty (50) per cent of any illegally derived revenue or five times any profits made from the infringement.[63]

Critics have argued that the damage awards allowable in trademark infringement cases in China are inadequate to deter future trademark infringement. The Chinese response to calls for stricter enforcement was to revise Article 40 of the Trademark Law to make cases subject to criminal prosecution.[64]

3 Direct Infringement of a Trademark (Counterfeiting)

Counterfeiting involves Chinese companies attempting to profit on the value built up in popular and profitable products bearing a certain trademark. A counterfeiter re-creates the product in almost identical form, so that consumers believe they are buying the trademarked product. The resultant product hurts the trademarked product by decreasing sales of the authentic product, and injures the reputation of the trademark owner for the quality of the counterfeit good is usually inferior, compared to that of the trademark owner.

In the widely reported trademark case of IBM v. Six (6) Shenzhen Companies,[65] IBM Hong Kong obtained judgement against the Shenzhen companies that had been selling computers with counterfeit IBM labels. It was held by the Shenzhen Administrative Industry and Commerce Bureau (SAIC), that infringement had occurred and made the following orders:

a)Fined the six (6) companies RMB 662,696.00, the amount being in accordance with Article 43 of the Trademark Implementing Regulations, 1984 (approximately 20% of the monies earned from the illegal sales).
b)Removed the counterfeit labelling and destroyed all packaging material.

One can be critical of such administrative decisions, for a fine may be considered insufficient. The question of damages was not addressed by the SAIC, but there are good arguments for not doing so. Often an award could destroy a business relationship with the local government and by simply fining a company, it serves as a warning to the infringer, sets out the government stance and does not financially ruin the company where the workers are often employed in an iron rice bowl situation. Such a fine does not stop the plaintiff from taking further judicial action.

Furthermore, regionalism and corruption could influence the award of damages, for if the defendant happens to be a source of local employment and revenue, there is likely to be pressure from interested persons, local government and local business.

In a later case once again concerning computer software, was Microsoft Corporation v. Beijing Giant Computer Company.[66] Here the defendant reproduced software without permission and so infringed copyright. This case is an example of a Chinese Court awarding damages in accordance with international standards as set out in international conventions.

The court looked specifically at Article 38(1) of the Trademark Law which treats an infringement as the use of a Trademark that is identical with or similar to a registered trademark in respect of the same or similar goods without the authorisation of the registered trademark. Similarly, Article 30(1) of the Regulations on Computer Software Protection states that the copyright infringer usually should be liable for such remedies as ceasing infringement, making a public apology or paying compensation. Under Article 39 of the Trademark Law, Beijing Giant was ordered to pay RMB 260,000.00 in compensation and to make a public apology.

Due no doubt to increased pressure from the Western countries who have business in China and WTO members for China to increase its attack on counterfeiters, China has been bringing criminal actions against counterfeiters. Such prosecutions have led in some cases to the ultimate penalty: The Death Sentence.

In the People’s Procuratorate of Shanghai Pudong New Area v Gu Ren Xiao,[67] the prosecution case was that the defendant sold counterfeited candy worth over RMB 1.8m to various department stores knowing that they were counterfeit. he was the manager of the confectionery factory that held the original trademark. The court stated that as manager he had control over the original trademark and should have known better and sentenced him to six years imprisonment and deprived him of his political rights for a further two years and fined him RMB 200,000.00. He appealed to the Intermediate People’s Court of Shanghai in 1997, but the decision of the lower court was affirmed.

On October 18, 1992, the Gulzhou Higher People’s Court sentenced Luo Deming to death; he had produced and sold 40,000 bottles of counterfeit Maotai wine at a profit of approximately RMB 260,000. On April 29, 1993, the Kunming Intermediate People’s Court sentenced one defendant to death and six others to life imprisonment, they had sold counterfeit ‘Red Pagoda Mountain’ cigarettes for an illegal profit of approximately RMB 150,000.[68] It may be commented that the cases show that China’s government through its judicial system has steadily increased its umbrella of control over counterfeiting

Whilst the death penalty certainly raises questions as to the proportionality of punishment and crime, it did indicate that the Chinese courts resolve to deter serious trademark infringement. Yet a cynic might say publicity was given to this case as it was for foreign consumption, for executions are generally not given great publicity in China’s English media; yet in this case a front page was devoted to it[69].

Of course not all counterfeiting in China is carried out by Chinese citizens and in many instances unfair blame is laid on the Chinese when the Taiwanese and Hong Kong persons have used China as a base for counterfeiting operations[70].

4 Indirect Infringement of a Copyright (Unfair Competition)

Unfair competition occurs where a lower quality product attempts to gain a competitive edge by mimicking a higher-quality product while avoiding outright copying of the higher quality product or of its registered trademark. The seller of the lower quality product tries either to create confusion in the mind of the consumer as to the identity of the maker of the product, or to sell “copycat” products bearing a trade name similar to that of the higher quality product. Other instances of unfair competition include attempts to obtain registration for trademarks similar to previously registered well-known marks.

A good example of unfair competition and its consequences for infringers can be seen in the following case and the subsequent appeal: Shanghai Land of Abundance Food Centre Corporation v Shanghai Hong Mo Fang Club Corporation.[71] Here it was alleged that the defendant hired employees of the plaintiff, using the plaintiff’s special menu and put up a streamer, which read ‘Patrons are now welcome at Hong Mo Fang Sichuan Steamboat Restaurant, which has engaged a super-class chef from Land of Abundance’. Tourist coach drivers were also encouraged to take tourists to their restaurant instead of Land of Abundance. Held that the totality of the acts breached Articles 5 and 9 of the Law Against Unfair Competition which provides that business operators should not by advertising or by other means make false and misleading statements as to quality, ingredients, functions, production methods and commodities. In calculating damages the court took into account changes in gross turnover of the plaintiff and also future loss due to the fact that the negative effects would last after the infringing behaviour ceased.

In Lansheng Corporation Ltd v Baochen Group Incorporated and Others,[72] an employee left her former employer and took with her commercial secrets which she later exploited with her new employer.

Article 10 of the Law Against Unfair Competition provides commercial secrets are technical and business information that is not known to the general public, is of practical use to the claimant and may bring economic benefits to the claimant who has taken positive steps to maintain secrecy. Clearly the former employee was obliged to maintain the commercial secrets of Lansheng and exploiting the trade secrets constituted an infringement.

Under Article 20 of the Law Against Unfair Competition the defendants were required to stop the infringing acts, to apologise and pay damages. The amount of damages claimed was RMB 1.0M. The court only awarded RMB 140,000.00, a token amount. Clearly, the monetary amount did not fit the crime, although it was found the former employee had breached rules of confidentiality and she (Wang Hailan) had to pay a further personal damages amount of RMB 20,000.00 which in terms of income was not insubstantial.

Santak v Hong Kong Sendon Scientific Instrument and Equipment Co.[73] shows that administrative authorities look to international standards in making legal decisions. In this 1990 case, the Trademark Review and Adjudication Board (Trademark Review Board), of the State AIC, cancelled an improperly registered trademark, citing, in support of its decision, Article 10(2) of the Paris Convention, which prohibits registering a trademark when such registration would constitute an act of unfair competition.[74]

Santak and Sendon Scientific were established in the mid-1980’s by an entrepreneur, He Shaowen to manufacture electronic power supply units called, uninterrupted power suppliers (UPS). In 1986, He Saowen left Sendon Scientific but continued using the Santak mark in the production of UPS. Sendon Scientific, in competition with Santak. Both the ‘Sendon’ and ‘Santak’ trademarks were registered in China in 1989.

Santak applied to the Trademark Review Board, under Article 25 of the Trademark Law Implementing Regulations (1988),[75] to have Sendon Scientific’s registration of the ‘Santak’ trademark cancelled. On 28th May, 1990, the Trademark Review Board ruled that the ‘Santak’ trademark be cancelled, reasoning that as Santak had built up a reputation for excellence in products bearing the ‘Santak’ trademark, the registration of this mark by Sendon Scientific constituted an act of unfair competition in breach of the Paris Convention and the Trademark Law Implementing Regulations (1988).

B Patent Cases

1 Introduction

If China is to achieve modernisation, it must have advanced technology. However, investors are not always willing to transfer their technology to China due to fears that their ownership right in the technology will not be protected. Only when technology is protected will investors be willing to supply China with the technology it needs to achieve its modernisation goals.

When the Patent Law was introduced in 1985[76] it provided protection for investors willing to apply for patent rights in China.

Little did anyone realise that it would spark an invention boom. Between 1985 and the end of 1990, the China Patent Office granted 22588 patent, of which 3284 were granted to foreigners. The Patent Office by 1998 had granted 67,889 patent rights, but only 6511 had been granted to foreigners.[77] One reason for this is that most overseas applications are for technology inventions, which require about three years for testing and approval in China. On the other hand, domestic applications are usually for design and utility models. These take less than a year to be tested and officially approved. It is interesting to note that most domestic applications for patent rights involve technology, which China needs in order to develop its agricultural, forestry, animal husbandry, fishery and electronics industries. Foreign applications, however, focus on technology related to computers, semiconductors and information storage.[78]

2 Remedies

Under Article 60 of the Patent Law, parties that infringe the patent rights of others may be ordered by the administrative authorities to cease the infringing action and pay damages. Article 60 of the Patent Law provides for administrative authorities to order compensatory damages, but it is silent as how such damages should be calculated. In cases of passing off, administrative authorities may, under Article 78 of the Patent Law Implementing Regulations, impose fines ranging from RMB 1,000 to RMB 50,000 or, alternatively, between 100 percent and 300 percent of any income derived by the patent infringement. The regulations are silent as to which schedule of fines is to be applied in any particular case.

Alternatively, a party whose patent has been infringed may directly institute proceedings in the People’s Courts.[79] Further, under Article 63 of the Patent Law, parties that pass off the patented product of another as their own may be prosecuted criminally under the Criminal Law, potentially leading to imprisonment, or fine.[80]

3 Infringement

In Lu Zhengming v Shanghai Engineering General Company and Wuxi City Enviromental Sanitation Engineering Research Factory, the Shanghai Higher People’s Court held, on appeal, that Shanghai Engineering and Wuxi Environmental infringed the patent right of Lu Zhengming in a utility model for a compactor to be used for recycling garbage.[81] In April 1989, Wuxi Environmental had contracted with Shanghai Engineering to research and produce a garbage compactor. Lu alleged that Shanghai Engineering had used his published patent in producing the compactor. Although the lower court had found that Shanghai Engineering had used Lu’s patent, it dismissed the complaint, holding that under Article 62(5) of the Patent Law, Shanghai Engineering’s reliance on the patent did not constitute infringement of Lu’s patent right. Article 62(5) provides that it shall not be deemed infringement of a patent right ‘where any person uses the patent concerned solely for the purposes of scientific research’.[82]

The Shanghai Higher People’s Court reversed the lower court decision, reasoning that application of Article 62(5) of the Patent Law is restricted to laboratory use. The purpose of Article 62(5), the court ruled, is to further develop technology, to demonstrate the technology, or to determine the technology’s economic value. Because Shanghai Engineering had used the patented technology to manufacture a machine to be sold for profit, the court also held that its use of the patented invention violated Article 11 of the Patent Law. Article 11 provides that ‘after the grant of the patent right for an invention no entity or individual may, without the authorisation of the patentee, make, use or sell the patented product.’[83] The court ordered Shanghai Engineering to pay Lu RMB 20,000, and Wuxi Environmental to pay RMB 1,000 for the cost of evaluating the technology by experts during the proceedings.

C Copyright Cases

1 Introduction

China’s first copyright law, the Copyright Law of the Great Qing Empire, was promulgated in 1910. Ironically, the Qing Dynasty used Japanese law as the basis for its first copyright law. However, it did not last for long. With the liberation of China in 1949, the Qing Copyright Law was abolished.

While the new government of the People’s Republic of China planned to develop a copyright law of its own, the country had other priorities. Emphasis was placed on development and national construction, and the promulgation of a copyright law was delayed. At the same time, however, a new socialist culture was developing in China, creating a need to provide protection so as to encourage authors in their creative work. Such protection was carried out through individual government departments, which formulated their own regulations.

During the Cultural Revolution, each government department had its own internal rules for dealing with copyright protection. Due to the paucity of artistic expression, this did not pose a significant problem. Following the Cultural Revolution, however, books and music began to be published in greater quantity and the previous internal rules became insufficient.

In 1979, the issue of formulating a national copyright law for China arose for the first time.[84] The initial draft of the copyright law was produced in 1980 and since then, there have been constant amendments.

In many of the copyright cases decided before China’s Copyright Law went into effect in 1991, courts and administrative authorities awarded inadequate damages to copyright owners and failed to enjoin infringers from continued infringement of such owners' copyrights.[85]

Since the Copyright Law went into effect, fines have increased, and injunctions have been issued, although in many instances, particularly those involving foreign plaintiffs, the civil awards remain inadequate. Nonetheless, recently promulgated legislative amendments to the Copyright Law (1995) allow criminal sanctions for copyright violations, and criminal prosecutions are beginning to be brought against copyright infringers. Furthermore, effective 1st January, 1997, individuals may prosecute criminal acts of infringement.[86] Although damage awards are still low by international standards, as recent cases brought by Disney and Microsoft demonstrate,[87] there is a trend in recent years for courts to impose harsher damage awards, and even criminal sanctions.[88]

2 Remedies

Article 45 of the Copyright Law provides that parties that infringe another’s copyright shall cease such infringement, eliminate the effects of the infringement, apologise publicly and pay damages to the copyright owner. In addition, administrative authorities may impose fines and confiscate illegal revenue for more serious cases of infringement.[89] Criminal sanctions, for copyright infringement, were recently introduced.[90]

3 Copyright Infringement

There have been in recent years a number of copyright cases concerning Chinese and foreign companies. In Polygram Record Corporation et al v Xu Huale,[91] the plaintiffs (23 in total) alleged between March-May 1993, the Deputy General Manager of Suzhou Bao Die Laser and Electronics Corporation provided his company with a number of master CD’s the property of the plaintiff, and proceeded to make and sell commercial quantities outside China.

An analysis of this case is interesting. According to the General Principles of the Civil Procedure Law, Article 1, a legal person must have standing to sue. Initially, the plaintiff was the Shanghai office of Polygram Southeast Asia Co. Ltd, an office responsible only for developing business contacts related to sound recordings. As it was not an interested party in the dispute, it did not have standing and so withdrew its claim and re-served writ in the Polygram International name together with twenty-three (23) other plaintiffs[92].

It was then simple to show that the defendant had breached Articles 39 by producing counterfeit recordings from the masters. Articles 45 and 46 of the Copyright Law, required the payment of damages, a public apology and payment of costs.

The next case considered is interesting for the fact that the defendants were foreigners who had breached the copyright of a Chinese citizen. Xian Qihua and Others v Huang Guoqi, Vincent Black, Dan Miller and High View Publications,[93] 1997.

Eleven plaintiffs alleged that the Chinese book “Liang Zhenpu’s Eight-Diagram Boxing” was created by their grandfather, Li Ziming, and used to teach the Martial Arts. In 1993 an English translation of the book appeared with Huang Guoqi as translator, Vincent Black as editor and copyright owner and was distributed in the USA. Dan Miller also distributed the book in China. Article 14 of the Copyright Law required that a contract and consent needed to be obtained from the copyright owner. In this case permission had to be obtained from the eleven (11) plaintiffs, not just one (1) or two (2) of them. It was also held that the translator should have carried out his own due diligence tests to ensure that he could translate the work without infringing copyright. He did not do this and so he was also liable for infringement.

It is also worth noting that the Copyright Act limits copyright in such a situation to the author’s life plus fifty (50) years.

Finally in the case of Matsushita Susmi Inc. v Shanghai Jielong Food Corporation,[94] 1998 which concerned a foreign related copyright infringement. The plaintiff, a Japanese company, alleged that a cartoon animal figure it had used in its confectionery packaging was used by the defendant in its packaging of soft candy, even though there were slight differences in the drawings. The Copyright Law provided in Article 2 that works created by a foreigner published outside the PRC might be protected by the Law provided that there is an applicable international treaty. In this case, the Berne Convention was relevant.

Article 46 was invoked as the defendant had reproduced for profit and without authority, a work owned by another. The plaintiff was found guilty and ordered to pay damages of RMB 200,00.00, costs of the litigation, publish an apology and pay an auditor’s fee.

It is worth noting that the defendants cartoon was different. However, earlier cases had held that copying occurred when most of the characteristic and memorable expressive forms of an artistic work are taken and imitated.[95]

Whilst prosecutions for breach of copyright have accelerated over the last five (5) years, there are still many bookstores in China[96] where counterfeit books are available and which have been translated into Chinese. A stark example are the three (3) volumes of Lord Denning’s works.[97]

4 Summary

While anecdotal evidence indicates that the courts and administrative authorities are better upholding the laws against intellectual property infringement in China, inadequate civil damage awards and fines continue to prevent judicial and administrative decisions from effectively deterring future infringement.

Cases like IBM v Six (6) Shenzhen Companies[98] cannot be heartening to companies seeking to protect their interests in China. However, although still not satisfactory, cases like the one brought by Microsoft, indicate that Chinese judges are displaying more independence in dealing with Chinese counterfeiters than they had in the past.[99]

V From a Counterfeit Society to a Compliance Culture

A The Chinese Psyche

The attitude in China is that the average citizen does not consider it (copying) a crime.[100] The Ministry of Culture has embarked on an educational campaign against counterfeiting and has also made efforts to confiscate counterfeit goods. Yet enforcement on the streets is minimal, meaning buyers and sellers can engage in trade with little fear, even though in the eyes of the law, both are committing a crime and could be punished.

Street hawkers see it as a way to make a living, the buyers’ see it as only natural to purchase CDs that are substantially less expensive. For example, a copy of Titanic costs RMB 5, while the retail price of the imported version is RMB 200. The cost differential is highly compelling in favour of the counterfeit CD.

The current view is that Chinese cannot afford the more costly legitimate copies of music, movies and computer software, but once China becomes industrialised, it will be able to afford to buy legitimate versions of software, music and movies, and only then can it play by the rules.

This view fails to take into account the fact that CDs provide access to invaluable information and technology. As an example, Chinese who purchase Microsoft’s Windows 95 do so because the software is a tool they need in order to compete in the Beijing or global economy, they would rather buy the counterfeit.

On a broader level one may argue that counterfeiting in any form harms the consumer and the country as a whole.

In order to diminish counterfeiting, the Chinese central government needs the cooperation of local governments. Yet some local governments are part of the problem: Some turn to counterfeiting to covertly raise revenue when they are desperately short of funds, and some conspire or assist in production of counterfeit goods. In some small cities, authorities seize counterfeit goods from a manufacturer or seller and fine the infringers, (which raises revenue for the city), and then resell the counterfeit goods to the original owners, (which raises more revenue). The objective is to make money, not to stop counterfeiting.

To stop this, one argument that may be put is that China must institute tougher laws upon punishment.[101] In fact this has been done, for the Standing Committee of the Peoples Congress in February 1993 issued a supplementary stipulation to impose criminal sanctions upon those found guilty of counterfeiting. Prison sentences were imposed as follows: imprisonment between three (3) to seven (7) years for illegal reproduction of copyrighted work; two (2) to five (5) years for unauthorised selling of copyrights.

However, it is submitted that merely putting tougher laws in place is insufficient, What is required is tougher enforcement of those laws, for Chinese laws are susceptible to corruption. For example, the law imposes on the manufacturer or seller of counterfeit goods a fine equal to five times the price of the goods. Yet in practice, fines tend to be arbitrary since many authorities are willing to reduce a fine in return for a favour. Such practices as the failure to confiscate counterfeit goods, and where false labelling has occurred, require only that the labels be removed, and the goods returned to the original owner!

To attack this problem, it is crucial that the central government direct attention at the retail level, not only at the manufacturing level, which is the present government’s current policy. Manufacturers counterfeit goods because there is demand for them by retailers, and retailers want to sell counterfeit goods because it increases their profit margins.

The process may be explained: If an owner of a computer store buys a legal version of computer software, he pays a higher price and must therefore sell the software at a higher retail price. But when the owner buys illegally produced software at a lower price, the retail price of the product often stays high. Thus, the owner increases his profit margin. This process damages consumers, who pay a high price for an inexpensive and often defective product. But the problem is that retailers will not admit they willingly purchased illegal software or CDs, and proving the crime is difficult.

Where cooperation exists between retailers, manufacturers and local governments the fight against counterfeiting has proved to be highly effective. As an example under a Memorandum Of Understanding (MOU) between Microsoft and the Dalian Government[102] to develop information infrastructure there is provision that the Dalian government will purchase only legitimate Microsoft applications in building the city’s new information port, and Microsoft “will provide assistance in establishing software education and training centres in the city ”and, “a special committee will be set up to oversee the implementation of the MOU.”

It seems that if a constant and consistent attack against counterfeiting is to be viable, the following issues need to be addressed:

a)Fines for manufacturing selling or buying illegal CDs should be consistent and tough;
b)Local governments should not use their power to profit from the illegal CD trade, but should recognise their responsibility to combat the problem;
c)The government should conduct an anti-counterfeiting education campaign; and
d)Local governments, legitimate manufacturers and retailers should cooperate to ensure that consumers use only legitimate goods.

1 China and the WTO

One may well ask now that China has gained WTO membership;[103] will China conform to WTO requirements and stop counterfeiting?

When China in the late 1970’s opened its economy to the outside world, Chinese leaders argued that by using strong regulatory controls it would be able to absorb the benefits of integration while at the same time, avoid any harmful effects on China’s economy, sovereignty, and culture. In pursuit of this goal, the government passed a host of regulations designed both to attract and control foreign business. For example, a comprehensive set of Joint Venture Laws.[104]

Since that high, there has been a gradual lessening of the reins so that there is now more ready accommodation of the norms of the global trade regime. Changes have occurred in a number of sectors, including restructuring and decentralisation of the foreign-trade system, tariff reduction, liberalisation of controls on foreign exchange and profit-repatriation, greater transparency, and the establishment of rules for dispute resolution and contract enforcement. Foreign companies have gained greater market access in sectors including light industry, foodstuffs, automobiles, petroleum, chemicals, and financial and other information services.

Since 1979 changes have been made in the domestic regime for IP rights (IPR) protection. With a change in the concept of IPR from state rights to a recognition they are proprietorial rights of the creator, China set up domestic regulations on copyright, trademarks, and patents: established institutions responsible for oversight and enforcement; and joined a number of international conventions and organisations, such as the World Intellectual Property Organisation (WIPO).[105]

If we look at China’s record in other international organisations such as the World Bank and IMF, its record is impeccable. China is a ‘system maintainer’ rather than a ‘system transformer’.[106]

The general view is that China absorbs the advice offered by experts in these organisations and has made institutional changes in its own structures to accommodate their presence. It may be said the World Bank and IMF have provided China with a training ground and a cushion until they could train their personnel and develop their expertise. Domestically, China has been able to use World Bank and IMF standards in conjunction with China’s desire to be an accepted member of global organisations as an impetus for economic liberalisation.

However, the effective transmission and enforcement of central laws and policies at the provincial and local level remains a concern for business people. China’s development of a legal environment supportive of contract enforcement and dispute adjudication must continue in all areas of the country. Such problems still plague efforts to support IPR protection in China.[107]

Despite problems and the clear role for continued monitoring of Chinese behaviour by the WTO and its members, China’s past record is quite clear: the country has shown itself able to meet the expectations of the global economic system, whether measured at the level of business transactions, government policy, or behaviour in international financial institutions. China’s integration into the world economy, far from being apocalyptic, has been accomplished with little of the friction predicted of a rising power.

Critics claim that China has failed to properly enforce intellectual property rights, allowing counterfeiting and allowing intellectual property infringement. Anecdotal evidence suggests that China’s courts are enforcing the laws. Furthermore, though civil remedies for infringement may still be inadequate to deter future breaches, China’s legal system, including strengthened criminal enforcement, has evolved such that intellectual property cases increasingly can be handled by the courts.

Admitting China to the WTO, and thereby making it subject to the WTO dispute resolution procedures (DRP), should maximise the avenues open for promoting improved enforcement of intellectual property rights in China. In areas where China is not in compliance with TRIPs, the DRP would act as additional multilateral leverage in pushing for greater adherence to international norms DRP would establish a clear legal process whereby the weight of international pressure can be brought against countries that fail to comply with international IP norms. As a member of WTO, where Chinese laws are not compliant; member countries can bring compliance under the WTO dispute resolution procedures.

China is also currently reviewing all of its laws, including IP laws. The Trademark Law and Copyright Law are currently being re-drafted and as far as they are not currently compliant will be brought into compliance with TRIPs.

Whilst some of China’s rules of civil litigation procedure are not compliant, Article 238 of the PRC Civil Procedure Law provides a catch-all clause stating that where an international treaty concluded or acceded to by China contains provisions that differ from those of the Civil Procedure Law, the provisions of the international treaty shall apply, except treaties for which China has made reservations.

Thus, the main barrier to the effective implementation of TRIPs in China is not the lack of appropriate laws, but rather, the weakness of the enforcement regime. Administrative penalties are often low, local protectionism can make enforcement actions difficult, and court decisions can go un-enforced, especially outside the major cities.

Inadequate civil damage awards have always created problems for the west and was previously thought to be a significant barrier to China’s accession to the WTO. However, as outlined earlier in this paper, courts and administrative tribunals have handed down increasingly heavy fines and criminal penalties. Coupled with amendments to the Criminal Procedure Law allowing private prosecutions for intellectual property rights violations (effective January 1997). It obviously was not the great hurdle, it was previously thought to be.

China’s accession to the WTO may well strengthen the international community’s position in pressing China to award greater damages and impose more significant fines. Making China subject to the WTO dispute resolution process (under the auspices of the Dispute Resolution Board, means China would no longer be able to hide behind claims that its laws are in conformity with TRIPs, but would be pressured to back up these claims in the form of strengthened judicial awards for intellectual property owners.

The WTO’s dispute resolution mechanisms will allow members to address these problems with China and, if necessary, file complaints with the WTO. This will not affect the outcome of individual cases, but will likely improve the enforcement system within China. There is precedent, for in 1997 in the case of Indian protection for pharmaceutical and agricultural chemical products, the United States complained that India had not established patent protection for pharmaceutical and agricultural chemical products,[108] India as a result of non-compliance with WTO requirements undertook to pass amending legislation.

A very relevant example occurred once again in 1997. Here the United States instituted WTO dispute settlement proceedings against Greece claiming television copyright piracy. In Greece, the rate of television piracy declined in 1998, and in September 1999, Greece enacted legislation that provided an additional administrative enforcement procedure against copyright infringement by television stations.[109] Similar results could be expected from WTO member complaints, about China’s enforcement of IP laws, under the WTO dispute resolution procedures.

Counterfeiting problems in China are not new or unique. All developing countries pass through a stage of development where copying of products is widespread. Japan has passed through similar stages.[110] The difference in China’s case is, that a country with one fifth of the world’s population, will soon join the world’s trading regime, at the very time that international trade is freer than ever before, and the fear is that this will unleash a flood of products-both genuine and counterfeit-onto the world market.

With the development of China’s economy, foreign enterprises in China demand protection for their rights, and international pressure encourages China to improve enforcement of its IP laws. Domestic pressure too, is driving China to improve its IP rights enforcement, with large companies, such as Haier,[111] pushing for improvement in the law. Most cases, in the courts, are being brought by domestic companies, a situation, which is developing China’s jurisprudence.

Overseas pressure on China to improve its IP protection has also forced central authorities to bring the worst cases of local protectionism to heel. Economic development in underdeveloped areas tends to reduce local protectionism by decreasing the importance of the counterfeiting industry to the local economy.

Until these trends bring about better IP protection, IP rights holders must be prepared to invest resources to control the production of counterfeits in China and the distribution of such product both within China and overseas, lest (at least in the short term) they lose their market to counterfeiters altogether.

2 Summary

While China has deemed it necessary as an internal domestic policy to develop a modern cache of intellectual property laws, the international trade community should now benefit from these efforts with China ’s admission to the WTO.

With admission, China is subject to the jurisdiction of TRIPs norms. The WTO dispute resolution system will provide additional leverage in pushing China towards greater adherence to international norms and prevent unilateral action by countries such as the USA. China is now subject to a legal process whereby the weight of international pressure could be marshalled should China fail to comply with TRIPs norms and provide greater enforcement of intellectual property rights protection in China.

VI Evaluation and Conclusion

From this paper, one can see that there is little doubt that China’s law-making in the area of IP has been rapid and in line with internationally recognised and accepted standards. However, China’s predicament arises from the fact that it has a low level of industrial/technological know-how compared to the developed countries that have set these international standards. This means China has no choice but to accept these standards if it wishes to gain international recognition: China has and is doing so by ensuring at least on the surface there is a recognisable framework of laws in keeping with international standards.

Yet it is submitted this framework does not have a strong foundation and rather it is built on shifting sands, for the state enterprise system and the social and economic order is unstable. China has been forced to grow at such a rate that its domestic requirements for technology grow at a rate faster than which can be generated from within. This means China must resort to double standards: smiling and acquiescing to the demands of developed countries, yet disregarding them at every chance. Perhaps this will change now that China is a member of WTO.

Appendix 2 illustrates there is very little by way of individual inventions or software which is not state-owned and which can provide a basis for demanding protection of exclusive rights. This means there are very few private individuals and private entities that are interested in the protection of IP in China and private proprietary rights are being encouraged, but progress is slow because most individuals and researchers ie the innovators, are cash strapped.

Perhaps the answer lies in the foreign private sector of entrepreneurs providing the required cash back-up to allow China to develop its undoubted potential in order that its actual rate of technology development increase in line with the growth in China’s IP laws.

Finally, China has a complex political environment with a slow developing and outdated institutional framework. This means there is a continuing role for pressure from international institutions and developed countries and it is this role that sits well with the WTO, for China will now have to conform to WTO standards and requirements.

In summary, this paper has attempted to show that whilst international standards are upheld by China’s courts and bureaucracy, there is still the problem that citizens themselves do not really understand why they should pay more for a genuine article when the counterfeit counterpart is good enough, especially when the population is price driven and per capita incomes of the general populace is low.

Obviously an education program takes time but the government does have the wherewithal to put such an education program in place. One only has to look at the remarkable progress in educating the general populace on matters such as health and hygiene.

At the current time it can be said that counterfeiting is slowly losing its divinity, but of course the archangels, education and WTO, should see an end to Western claims of China counterfeiting.

APPENDIX 1

TRIPS

Article 15(2): A member of the WTO may deny registration of a trademark ‘provided that they do not deviate from the Paris Convention’ and Paris Convention, Article 6 sets out conditions under which a trademark may be denied registration.

Article 15(5): A trademark must be published and afford reasonable opportunity for opposition to the trademark and Paris Convention Art. 12 requires the establishment of a service to communicate with the public about trademarks.

Article 16(1): The owner of a registered trademark shall have the exclusive right to prevent all third parties not having his consent from using identical or similar signs.

Article 16(2)&(3): Expands the scope of protection given to well-known unregistered marks under Article 6 of the Paris Convention.

Article 18: Requires the registration and renewal of a trademark to be effective for a term of ‘no less than seven years.’

Article 19(1): If use is required to maintain a registration, the registration may be cancelled only after an uninterrupted period of at least three years of non-use, unless valid reasons for non-use exist. with Trademark Law, Art. 30 (providing that a trademark is subject to cancellation “where the trademark has ceased to be used for three consecutive years”). Article 19(1) also provides in part that import restrictions [and] other government requirements for goods and services protected by the trademark” shall be considered valid reasons for non-use.

Paris Convention Article 2: requires countries party to the Paris Convention to provide national treatment.

Paris Convention Article 4(1): requires that members of the Paris Convention recognise the priority of trademark applications for trademarks that have been registered in another member country within the preceding six months.

Paris Convention Article 6(1): Requires members to refuse registration and prohibit the use of trademarks which may be confused with marks “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 protection under the Paris Convention.

Paris Convention Article 7: Provides for the protection of marks belonging to non-commercial or commercial associations.

Paris Convention Article 9: Provides for the seizure of all goods unlawfully bearing a trademark or trade name and Article 10 extends the provisions of Article 9 of the Paris Convention to false indications.

TRADEMARK

Article 8: Lists situations where a trademark will be denied registration and is largely consistent with those set out in the Paris Convention.

Trademark Law Implementing Regulations, Article 5: Provides for the establishment of a Trademark Register and a Trademark Gazette.

Articles 3 & 38: Provide owners of registered trademarks with the exclusive right to prevent others from using identical or similar signs without the trademark owners consent.

Article 1(1): Sets out China’s intent to implement specific legal reforms which would bring it in line with Article16(2) and (3) of TRIPs.

Article 23: Provides that the period of validity of a registered trademark shall be ten years and Article 24: Provides that the period of validity of each renewal of registration shall be ten years.

In a February 1995 IPR Agreement with USA, China confirmed that it would ‘not impose quotas, import license requirements, or other restrictions on the importation of audiovisual and published products’.

Article 9: Provides that foreign trademark applications are to be dealt with in accordance with international treaty to which both countries are parties.

Trademark Law Implementing Regulations, Article 25: Stating or translating any trademark of another party in the registration of a trademark shall be treated as acquisition of the trademark by ‘fraud’ or ‘unfair means’ for the purposes of Article 27 of the Trademark Law and Trademark Law, Article 27: Making trademarks obtained by fraudulent means is subject to cancellation. See also Law Against Unfair Competition of the People’s Republic of China (adopted September 2, 1993, effective December 1, 1993), Article 5(2) which states ‘the name, packaging or decoration similar to that of well-known goods’ is an act of unfair competition.

Trademark Law, Article 4: Provides that institutions, enterprises or individuals wanting exclusive use of a trademark must file for registration.

Trademark Law Implementing Regulations, Article 43: Authorises the administration authorities to order the seizure and destruction of representations of a trademark which infringe on the exclusive right of the owner of a registered trademark.

APPENDIX 2

PATENT APPLICATIONS GRANTED


Year

Item
1985
1990
1994
1995
1996
1997
1998
Total Applicants Certified
Inventions
Domestic
Service
Non service
Foreign
Service
Non-service
Utility Models
Domestic
Service
Non-service
Foreign
Service
Non-service
Designs
Domestic
Service
Non-service
Foreign
Service
Non-service
138
40
38
32
6
2
1
1
60
56
32
24
4
3
1
38
17
5
12
21
20
1
22588
3838
1149
908
241
2689
2496
193
16952
167445
100
11644
208
132
76
1798
1411
751
660
387
336
51
43297
3883
1659
1035
324
2224
2100
124
32819
32611
7587
25024
208
85
123
6595
5507
2969
2538
1088
861
227
45064
3393
1530
932
598
1863
1748
115
30471
30195
6766
23429
276
154
122
11200
9523
5344
4179
1677
1402
275
43780
2976
1383
825
558
1593
1497
96
27171
26961
6393
20568
210
135
75
163633
11381
6537
4844
2252
2083
169
50992
3494
1532
912
620
1962
1889
73
27338
27185
6564
20621
153
97
56
20160
17672
10556
7116
2488
2407
81
67889
4733
1655
965
701
3078
2949
129
33902
33717
8492
25225
185
111
75
29254
26006
15000
11006
3248
3150
98

Source: China Statistical Yearbook (1999), 696.


[∗] Senior Lecturer, Division of Law, Macquarie University, Sydney.

[1] Zhang Guangliang, Issues and Cases in Intellectual Property Enforcement(1998), 353-360.

[2] Increase in average wage in state owned enterprises from RMB644 in 1978 to RMB7668 in 1999, China Statistical Year Book (1999), 164.

[3] William P Alford, To Steal a Book is an Elegant Offense, Stanford University Press (1995).

[4] The only laws on the books were criminal laws, being the Criminal Code, 1979 and the Criminal Procedure Law, 1979.

[5] For an account of corruption, see ibid n 19.

[6] China’s judges are actively sent overseas to learn. The NSW Law Society has hosted many visits from Beijing and Guangdong judges and many of the reforms such as simply instituting a library and filing of cases in Guangdong resulted from a recent visit to NSW by the Chief Justice of Guangdong Province.

[7] Ibid n 18.

[8] Chen Chunmei, ‘Crackdown Unrelenting’, China Daily, 17 January 1995, 1.

[9] ‘Courts Make Headway in Trying Copyright Cases’, Zhingguo Xinmen She (PRC), 5 September 1996, reported in ‘BBC Summary of World Broadcasts’, 24 September 1996, available in LEXIS, News Library.

[10] Ibid.

[11] Persons appointed because of their special knowledge and experience, but not necessarily experts in the area.

[12] Foshan Intermediate Court, Guangdong, Supreme People’s Court Gazette, 1995 Vol 4, 133-136.

[13]It was reported that 4,009 IP cases were heard in 1996. If these figures are accurate, it would represent a great increase over previous years ‘Supreme People’s Court Work Report Presented to National People’s Congress’, Xinhua News Agency, 20 March, 1997.

[14] According to official statistics, 3,016, 608 cases were heard in the Economic Divisions of the People’s Courts in China from 1989 to 1993.

[15] Ibid n 12.

[16] Shijiazhuang Intermediate Court, Hebei, 1992 Yaolan, 1082-84.

[17] Ibid n 104.

[18] China has now in place a package of IP legislation consisting of:

i) Patent law, adopted 12 March 1984, effective 1 April 1985. The Patent Law was amended 4 September 1992, effective 1 January 1993, with Implementing Regulations effective 1 April 1985, which were amended in December 1992, effective 1 January 1993 (Patent Law Implementing Regulations).

Copyright Law, adopted 7 September 1990, effective 1 June 1991.

ii) Implementing Regulations, promulgated and effective 1 June 1991 (Copyright Law Implementing Regulations).

iii) The initial Trademark Law was enacted in 1982, with the Implementing Regulations in 1983. In 1988, the 1983 Regulations were replaced by a new set of Implementing Regulations (Trademark Law Implementing Regulations) which were further amended in 1993.

[19] One of the current problems has been the purge of China’s hierarchy, where it was found that many of the provincial and city leaders and their families were involved in schemes whereby the machinery of government was appropriated to serve their own ends. As an example, the former Deputy Mayor of Beijing, Wang Bao Shen was thought to have misappropriated 18.3 billion yuan from municipal coffers, but he committed suicide before investigations commenced in April 1995. Again, the last Mayor of Beijing, Chen Xi Tong, was placed under house arrest and currently the National Peoples’ Prosecutor is investigating his acts of corruption (announced at the National Peoples Congress on 15 September 1997). It was also reported that his son was involved in using public money in the purchase of shares and property in Hong Kong.

It can be seen that both father and son were very influential in Beijing and many friends and relatives were appointed to positions without going through proper channels, Wang Yong and Wang Chuandong, ‘Party Set to Stamp Out Corruption’, China Daily, 13 March 1998, 5.

The latest scandal is probably the biggest since the Communist Party took power in 1949. In the city of Xiamen, more than 200 people are under investigation in a corruption enquiry involving firearms, cars, electronic goods and crude oil. Those implicated include Xiamen police officers, senior bankers, customs agents and the former wife of a member of the Communist Party’s powerful 22-member Politburo. This occurred despite Premier Zhu Rongji in March 1999 ‘China Sees Risk to Power in Corruption’: Muzi Daily News, 27 January 2000 (http://dailynews. Muzi.com) stating his determination to stamp out smuggling in a speech to the National People’s Congress (NPC).

The real significance is not the size of the case, but the fact that Premier Zhu Rongji appears to be delivering on the promise that he made at the NPC: to get serious about corruption, abuse of power and the illegal levying of fees and charges. Such action sends a message not only to officials, but wins the support of China’s new entrepreneurs, who drove the economy and his reforms forward. It is in reality a message to officials to stop preying on the masses who are attempting to make an honest living, or suffer the consequences if caught.

This fight against corruption is ongoing and the latest statement reinforcing this stance was made by Jiang Zemin, General Secretary of the Communist Party of China’s Central Committee whilst addressing the CPC Central Committee For Discipline Inspection, Fifth Plenary Session, Shanghai Daily, 27 December 2000, 5.

[20] The National People’s Congress and its Standing Committee, can under Art 62 and 69 of the Constitution make ‘Basic Laws’. For a discussion of the relative weights of legislative enactments in China, Tao-tai Hsia and Constance A. Johnson, ‘Law making in China – Part I’, East Asian Executive Reports, January 1987, 6.

[21] The Trademark Law was passed in 1982, with amendment in 1993, and the latest amendment in October 2001 and coming into effect on 1 December 2001. This Act should be read in conjunction with its Implementing Rules.

[22] China’s initial Patent Law was passed in 1984, extensively amended in 1992, with the latest amendment on the 25 August 2000, coming into effect on 1 July 2001.

[23] The Copyright Law was passed in 1990, together with Implementing Rules in the same year. The latest amendment was on 27 October 2001 and effective from 1 January 2002.

[24] Less than one year after the announcement of the Four Modernisation, China entered into a series of agreements with the United States normalising their political relations, including one agreement in which China formally recognised the importance of effective protection of intellectual property. In Art VI of the US-PRC Agreement on Trade Relations of 7 July 1979, China agreed to abide by the principles of reciprocity and national treatment in the protection of patents, trademarks and copyrights: Agreement on Trade Relations, 7 July 1979, US-PR.C, UST 465I.

[25]‘IPO Convention Accession: China’, Industrial Property, 4 April 1980, 123. The WIPO Convention came into force with respect to China on 3 June 1980.

[26] Paris Convention and China became a member of the Paris Convention on March 1985. Convention For the Protection of Industrial Property, 14 July 1967, 21 UST 1583, 828 UNTS 305.

[27]China acceded to the Berne Convention as one of its commitments under a memorandum of understanding on intellectual property entered into by China and the United States in January 1992. Convention For the Protection of Literary and Artistic Works, 9 September 1886, S. Treaty Doc. No. 99-27, 99 Congress, 2d Session (1990), 1 UNTS, 217 (Berne Convention).

[28] Shanghai Daily, 17 December 2000, 2.

[29] These Articles refer to national treatment of member countries and then goes on to set out specific details to deal with patents, designs, trademarks and models ranging from fees, assignment and protection of intellectual property in these items. However, member countries do not have to abide by the Convention provided country agreements do not contravene its provisions.

[30] Trademark Law adopted 23 August 1982, and effective 1 March 1983. The Trademark Law was amended on 22 February 1993, effective 1 July 1983, and amended again in October 2001, effective 1 December 2001. Regulations under the Trademark Law became effective 10 March 1983. The Implementing Regulations were amended 13 January 1988 (Trademark Law Implementing Regulations), and after amending its Trademark Law in 1993, the Implementing Regulations were also amended on 15 July 1993, effective 28 July 1993.

[31] Product Quality Law, ‘PRC, Protection of the Rights and Interests of Consumers Law’, China Law & Practice, 28 December 1993, 8.

[32] Shanghai Daily, 29 December 2000, 2.

[33] Regarding compliance of the Chinese trademark regime with the requirements of TRIPs, App 1.

[34] Art 15(4) of TRIPs mirrors Art 7 of the Paris Convention.

[35] For a discussion of legislation dealing with controlled substances, Mitchell A. Silk ‘Recent Efforts in China’s drive to Promote Investment through the Protection of Intellectual Property Rights: The 1988 Trademark Rules and the 1988 Technology Import Contract Rules’, 15 Syracuse Journal of International Law & Commerce (1989) 215, 220.

[36] China Law & Practice, June 1990, 31.

[37] Chin Xu (ed), Protection of Intellectual Property Rights, Cases and Comments, Publishing House of China (1998) 455-467.

[38] Andrew Browne, ‘Shanghai Cracks Down on Fake and Shoddy Goods’, Reuters, 14 February 1995.

[39] Zhang Guangliang, Issues and Cases in Intellectual Property Enforcement, Publishing House of Law (1998) 342-352.

[40] Ibid n 29.

[41] For a discussion of these changes, David Hill & Judith Evans, ‘Chinese Patent Law: Recent Changes Align China More Closely with Modern International Practice’, 27 George Washington Journal of International Law & Economics (1993-94) 359-364. Note also that the Patent Law was revised for a second time on 25 August 2000, coming into effect on 1July 2001. This was a most detailed revision and twenty-eight(28) articles were amended, four(4) were rescinded and four(4) added. The aim of these reforms were to make the law fully compliant with TRIPs, to speed up the patent review process and to strengthen protection of patent rights in judicial and administrative proceedings. For an outline of the detail, Jiwen Chen, ‘The Amended PRC Patent Law’, Chinese Business Review (Washington) July/August 2001.

[42] Art 4 of the Paris Convention, which provides that ‘[t]he grant of a patent shall not be refused and a patent shall not be invalidated on the ground that the sale of the patented product or of a product obtained by means of a patented process is subject to restrictions or limitations resulting from the domestic law’.

[43] Unpublished SJD thesis by the author, entitled ‘Patenting the Global Plant Kingdom: A Chinese Perspective: Fact or Fantasy?’ (2000) especially App A.

[44] Passed by the National People’s Congress on 8 July 2000 and came into effect on the same day.

[45] This is the same requirement as for patents and trademarks, above n 28.

[46] Shanghai Daily, 27 December 2000, 3.

[47] Regulations for the Protection of Computer Software (promulgated 4 June 1991, effective 10 October 1991) (Computer Software Regulations).

[48] For a synopsis of these rules, ‘Computer Software Copyright Registration Procedures’, China Law & Practice, 19 July 1992, 6.

[49] Art 13 provides such use must not be prejudicial to the rightful interests of the copyright owner.

[50] Berne Convention, Art 18(3), which allows countries, by mutual agreement, to derogate from the protection of Art 18(1).

[51] Promulgated pursuant to Art 4. Art 3(7)(ii) of the MOU on IP permitted the continuation of reasonable uses for works owned and used prior to 17 March 1992, the date bilateral copyright relations were established between the United States and China.

[52] Art 17 of the Copyright Treaties Provisions sufficiently limits further use of foreign works owned or used prior to China’s accession to the Berne Convention in 1992 to those situations that would be deemed ‘fair use’ under the Copyright Law.

[53] Copyright holders may authorise another to perform his/her work to the public and is limited to live performances. However, there are extensive exceptions set out. For example, in respect of Chinese works, performing, broadcasting and sound recordings, work units can use the published work without the author’s permission.

[54] William Holm, Coming Home Crazy 115-116, quoted in Alford, above n 3.

[55] Trademark Law, Art 39.

[56] Ibid.

[57] Trademark Law Implementing Regulations, Art 43.

[58] Criminal Law of the People’s Republic of China (adopted 1July 1979, effective 1 January 1980 and further amended on 25 December 1999).

[59] Trademark Law, Art 40, Supplementary Provisions Concerning the Punishment of Crimes of Counterfeiting Registered Trademarks made by the Standing Committee of the National People’s Congress (adopted 22 February 1993, effective 1July 1993) (supplementing the Criminal Law to provide for criminal sanctions for the crime of passing off a registered trademark).

[60] The role of AICs is set out in the Trademark Law Implementing Regulations, the AICs are responsible for registration of trademarks, assignment of trademark registration and renewal of registration; Trademark Law Implementing Regulations (Art 3). The AICs have also been given enforcement powers for trademarks, including the power to impose fines and to seize infringing trademark representation (Art 43).

[61] Trademark Law, Art 39.

[62] Ibid.

[63] Trademark Law Implementing Regulations.

[64] Trademark Law, Art 40 was amended in 1993 to allow criminal prosecution in cases of forging a trademark or knowingly selling counterfeit goods; Previously, Art 40 has allowed criminal prosecution only in cases where a person other than the trademark holder passed off a trademark as his own; Trademark Law (1982), Art 40.

[65] Ibid n 98.

[66] Chang Win, ‘Comments on the Microsoft/MS DOS Trademark Infringement Case’, China Patents and Trademarks (1995) 85-87.

[67] ‘Counterfeiting Spirit Manufacturer Receives Death Penalty’, China Law & Practice, 14 January 1993, 20.

[68] ‘Counterfeit Cigarette Seller Receives Death Penalty’, China Law, & Practice, 14 October 1993, 24.

[69] China Daily, June 1993, article entitled ‘Unmistakable Warning to Pirates Across the Nation’.

[70] Doerner, William, ‘Pirates of the High C’s’ Time Magazine, 15 November 1993, 42.

[71] Chen Xu (ed) Protection of Intellectual Property Rights Cases and Comments, Publishing House of Law (1999), 413.

[72] Ibid 425.

[73] Santak v Hong Kong Sendon International Scientific Instrument and Equipment Company, translated in Santak v Sendon, China Law & Practice, 10 December 1990, 25.

[74] Art 10(2) of the Paris Convention provides: ‘any act of competition contrary to honest practices in industrial or commercial matters constitutes an act of unfair competition.’

[75] Trademark Law Implementing Regulation (1988), Art 25 : ‘Wherever any organisation or individual considers that a trademark has been improperly registered, it or he may apply for adjudication by sending an ‘Application for the Cancellation of Improperly Registered Trademark’ to the Trademark Review and Adjudication Board’.

[76] The Patent Law has been amended countless times, suffice to say the latest amendment was on 25 August2000, effective from 1 July 2001.

[77] China Statistical Year Book 1999, 696.

[78] App 2.

[79] Patent Law, Art 60.

[80] Ibid. Art 63: applies Art 127 of the Criminal Law, which imposes criminal penalties for trademark infringement mutatis mutandis to the crime of passing off a patent-the act of selling a product that the seller claims is patented but that is not patented-under Art 63 of the Patent Law.

[81] Lu Zhengming Su Shanghai Gongcheng Chengtao Zong Gongsi, Wuxi Shi Huanjing Weisheng Gongcheng Shiyanchang Zhuanli Qinquan Shangsu An (‘Lu Zhengming v. Shanghai Engineering General Company and Wuxi City Environmental Sanitation Engineering Laboratories, on Appeal from a Suit for Violation of Patent’), 1994 Zhongguo Falu Nianjian (Law Yearbook of China) 1994, 901.

[82] Patent Law , 1984.

[83] Ibid.

[84] The latest is the Copyright Law (1990), which was amended on 27 October 2001, effective from 1 January 2002.

[85] FOTAO Group Ltd and Guoliwen cases are both dealt with on page 4 of this paper, where in one case the court did not take into account the goodwill component of a business and in the other case, the award of an amount under half of the total claim seemed unjustified.

[86] Shirley Kwok, ‘New PRC Criminal Procedures Enable Private Prosecutions’, Intellectual Property Asia, May/June 1997, 62.

[87] ‘Disney Scores Victory in Chinese Copyright Suit’, Hollywood Reporter, 19 May 1995, 9 (the Beijing Intermediate People’s Court ordered the Beijing Publishing House to pay damages of RMB 227,094 or about $27,000); ‘Landmark judgement Against Juren Computer Co.’Intellectual Property Asia, June 1996, 26, (in which the Beijing No.1 Intermediate People’s Court, Intellectual Property Division, ordered Juren to pay plaintiffs Microsoft, Wordperfect and Autodesk RMB 500,000 or about $60,000).

[88] This trend in copyright protection parallels the same development in trademark protection. Above pages 17-19.

[89] Ibid Art 46.

[90] ‘National People’s Congress, Penalties for Infringement Upon Copyrights Decision’, China Law & Practice 29 August 1994, 6; Ma Chenguang, ‘Copyright Violators Face Imprisonment’, China Daily, 6 July 1994, 1 (ie computer software copyright infringement punishable through criminal sanctions).

[91] Chen Xu, above n 71, 289-307.

[92] My view is that the Shanghai office did have standing, for Art 35 states that a person that has exclusive rights (including a persons representative office) can prevent any other person from using the work.

[93] Chen Xu, above n 71, 309.

[94] Ibid, 329.

[95] For example, when Sanmao, the boy hero of a cartoon series was imitated in another series but not in exact form, was found to breach copyright. Therefore to take the characteristics and expressions of a work is copying.

[96] For example, In Shanghai the works may be found in a bookshop very near the Shanghai Law Society!

[97] In Guangzhou the volumes can be found in a bookshop in The Tian He Book Centre, Tian He District, Guangzhou. When asked if these were copies, the shop assistant was quick to point out that China (presumably as a developing nation) could not afford to pay royalties.

[98] China Patents and Trademarks (1992) Vol 3, 7-9. Note that the Shenzen and Beijing Industry and Commerce Bureau ordered maximum fines against the infringers, but did not address the issue of compensation.

[99] It is particularly heartening to note in the Chengdu Intermediate People’s Court the judge’s willingness to make ruling favourable to Microsoft and other foreign software giants in the face of what undoubtedly can be characterised as strong localism in Sichuan Province.

[100] Report by U.S. and Foreign Commercial Service, Beijing, 1.

[101] Culin Gad, ‘Taking a Stand’, The Chinese Business Review, November/December 1994, 1-7, especially 6.

[102] 16 June 1998.

s[103] China became the WTO’s one hundred and forty-third (143rd) member on 11 December 2001 (WTO website: www.wto.org).

[104] The package of joint venture laws are:

Equity Joint Venture Laws, adopted on 1 July 1979 amended on 4 April 1990 with Implementing Regulations on 20 September 1983 and amended on 15 January 1986.

Cooperative Joint Venture, 1988.

Foreign trade Joint Venture Law, 1996.

Foreign Trade Law, 1994.

Contract Law, 1999.

Company Law, 1993.

[105] ‘An IPR Overhaul’ (Anon) in The Chinese Business Review, January-February 1998, 16.

[106] Elizabeth C. Economy & Michel Oksenberg(eds), China Joins the World: Progress and Prospects, Council on Foreign Relations, 1999; generally Chapter 5.

[107] ‘Countering Counterfeiters’ by Joseph T. Simone in The Chinese Business Review, January-February 1999, 8.

[108] WTO report WT/DS50/AB/R (1997) – http://www.wto.org/wto/dispute/tripab.pdf .

[109] WTO Report WT/DS125/1, IP/D/14 (7 May 1998) and also 15 International Trade Reporter (BNA) 768 (6 May 1998).

[110] Similar complaints were voiced against Japan World War II when Japan in a period of 20 years changed from a feudal society into an industrial powerhouse.

[111] China’s leading white goods producer.


AustLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback
URL: http://www.austlii.edu.au/au/journals/DeakinLawRw/2002/2.html