Presentation by Nikolaj Juhl Hansen - Ehversheds


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Intellectual Property Rights in Hong Kong and China

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  • I wanted to start by discussing a few cases making headlines in Asia. As I’m sure most of you will be aware, there have been a number of cases in China and further afield involving Apple that have been making news headlines around the world of late. In the last few weeks Samsung and Apple have gone head to head in courts in South Korea and the US. The recent case in South Korea centered around whether the data transmission technology used in a number of Apple’s products including the iPhone and Ipad infringed patents belonging to Samsung and whether Samsung’s Galaxy2 and Galaxy Tabs infringed Apple’s “bounce back” function on the touch screen. Just a few weeks ago the court in Seoul ruled that both Apple and Samsung had infringed each other’s patents. Apple received a sales ban and a scrap order on its related smartphone and tablet computers and was also ordered to pay the equivalent of around US$ 35,000 to Samsung. Meanwhile Samsung was ordered to stop selling 12 products infringing on Apple’s “bounce back” patent and it was also ordered to pay the equivalent of around US$ 22,000. The recent court ruling in the recent US case was a great deal more favorable to Apple. On 24 August a jury in California ordered Samsung to pay Apple just over US$ 1 billion in damages for infringing Apple’s patents. Another case that is worth looking at briefly is a case concerning the well known wine estate in France of Chateau Lafite Rothschild. Lafite is the owner of two English trade marks for “LAFITE” in China. Last year it came to the attention of Lafite that a competitor in China was using a transliteration of “LAFITE” in Chinese characters on its own wine products. The court held that the competitor had infringed Lafite’s registered trade marks and that the use of the Chinese transliteration of “LAFITE” amounted to unfair competition. The interesting aspect of this case is that Lafite did not have any registrations in China of its name in Chinese characters. The key reason that the court found in favour of Lafite was that Lafite is well known in China and was therefore able to benefit from the Anti Unfair Competition laws of China. The case does, however, serve as a warning to foreign companies looking to do business in China. Generally speaking, unless you are an extremely high profile and well known brand in China, you will not have any right of legal recourse against a third party who has registered the Chinese equivalent of your brand. So do make sure that you get you register the Chinese version of your brand as soon as possible if you are looking to do business in China. Earlier this year another foreign company operating in China was not so fortunate in the ruling on its appeal against the revocation of its trade mark for non use. The well known clothing company, Lacoste, had its China registration for its crocodile logo - shown here on the slide – revoked for non-use in 2009. Lacoste appealed that decision and submitted magazines, envelopes and packing boxes as evidence that the trade mark had in fact been used. The court ruled earlier this year that the evidence submitted was merely promotional material and was insufficient and so the decision to revoke the trade mark was upheld. This serves as a reminder to all companies with trade mark registrations in China to ensure that the trade mark is used in order to keep the registration. In China non-use of a trade mark for three consecutive years will result in the possibility that the trade mark will be revoked for non use. So if you have trade marks registered in China do make sure that you are using them as much as possible and retain examples of that usage in case you ever need to prove that you have been using your trade mark in China.Hummel’s experience in China a few years ago was not so good. 1988 – Hummel considered entering into co-operation with Chinese clothing manufaturer – some samples but no contract signed – Hummel eventually contracted with another Chinese manufacturer. 2003 – SorenSchriver appointed as the new CEO – reviewed the trade mark registrations. Chinese company had registered the Hummel trade mark. Hummel hoped it would expire without renewal. But it was renewed. Then Hummel applied to revoke for non-use. Hummel lost. Then Hummel thought it would not infringe if it did not sell in China. But trade mark holder applied to Customs to detain the exports to Denmark on grounds that they were counterfeit. 60% of its production took place in China at that point.
  • Before discussing IP in China and issues to be aware of generally I am going to talk a little about using Hong Kong as a springboard into China and why this is something that is worth considering. There are numerous reasons why foreign companies decide to use Hong Kong as a springboard into China. Language is perhaps one of the more obvious reasons, in Hong Kong English is widely spoken and understood and indeed English is the main language used by many local and international businesses based in Hong Kong. Conversely in China it can still be difficult to conduct business if you do not speak mandarin and so conducting business is automatically more difficult unless you have the assistance of a fluent mandarin speaker. Another key reason why it is advantageous for a foreign company to use Hong Kong as a gateway to China is Hong Kong’s free-trade agreement with China established in 2003 to encourage cross border business. Under the agreement, known as the Closer Economic Partnership Arrangement or CEPA, China agreed to impose zero tariffs on 273 categories of Hong Kong products and to provide earlier preferential market access to Hong Kong based companies in 18 service sectors of China. Foreign companies can take advantage of CEPA through partnering with or acquiring a Hong Kong qualified company to gain access to the China market. It is beyond the scope of this presentation to cover the full impact of CEPA but I will briefly highlight a few of the key incentives for foreign companies. These incentives include:zero tariffs on 273 categories of products exported from Hong Kong into the Chinese mainland. An overseas manufacturer is not required to establish a presence in Hong Kong to take advantage of this but the products must be classified as “Made in Hong Kong”. In order to be classified as “Made in Hong Kong” the goods must satisfy the requirements prescribed by CEPA. The basic requirements are that the goods must have been “wholly or substantially transformed” in Hong Kong. Overseas manufacturers may partner with or outsource production to a Hong Kong manufacturer to satisfy this requirement; and the opening up of the Chinese market to Hong Kong based service providers in a number of sectors. The CEPA benefits to service providers include (i) earlier market access to the PRC, (ii) ability of Hong Kong service suppliers to hold a higher equity share in PRC service companies, and (iii) lower capital requirements to set up in the PRC. Overseas suppliers can take advantage of CEPA through a merger with, or acquisition of, a Hong Kong service supplier. Anyone here who has done business in Hong Kong and China will I’m sure recognise that the legal landscape in Hong Kong is another key reason why foreign companies use Hong Kong as a springboard into China. Hong Kong’s legal system is based on the English common law and so is reassuringly familiar to many European companies who have a knowledge of common law based legal systems. China’s legal system is made up of a hierarchy of written laws, regulations and administrative directives. Unfortunately there are gaps and ambiguities in PRC law and policies can change quickly and without warning. I think it is fair to say that, generally speaking, the legal landscape in China can be challenging.
  • It seems that it is still a widely held belief that China has little respect for intellectual property rights and that there is little or no point in protecting your IP there as you will not be able to do a great deal about it if someone does infringe your rights. The reality in China is actually far from this perception and I will run through a couple of case studies later to illustrate this point. There is no denying that China has a long way to go before it has an IP system in place to rival places such us the UK or the US but a great deal has been done in recent years to improve the IP landscape in China. For example, since joining the World Intellectual Property Organization in 1980, China has: set up a comprehensive IP legal framework and operational system; implemented an effective mechanism for the administrative and judicial protection of IP; carried out its obligations under international treaties and agreements; and provided effective IP protection to rights holders at home and abroad. In 2010 the Communist Party of China issued the full text of the “Guiding Proposal on formulating the 12th Five Year Plan on National Economic and Social Development”. The proposal lays out specific tasks in relation to implementing and refining the IPR legislation. It is therefore clear that China is taking a much more robust approach to IP and the protection of that IP. In terms of IP laws in China there are a number of differences between PRC IP laws and the IP laws in other jurisdictions. It is beyond the scope of this presentation to go into PRC IP laws in any great detail but by way of illustration I will highlight a few of the PRC IP laws that are worth noting if you are a foreign company thinking of doing business in China. The first issue that I will cover relates to commissioned IP in China, under PRC law commissioned IP belongs to the commissioned party unless the relevant contract states otherwise. You should therefore always make sure that the contract states clearly what IP is to be developed and who will own it. Another issue to be aware of is that improvements will be owned by the party that makes the improvements and cannot be automatically granted back to the other party without some form of compensation or other reciprocation such as a licence to the relevant improvements. This means that any provisions in an agreement providing that any improvements made will automatically become the property of the foreign party will be unenforceable. One other aspect of PRC law that should also be taken into account by foreign entities is that a Chinese party cannot be restricted from making improvements to transferred technology and using the improvements. A Chinese party can therefore make improvements to transferred technology and any restrictions on them doing so will be unenforceable. These examples are by no means the only aspects of local laws in China that can take foreign companies by surprise. It is therefore wise to have legal advisors in China to advise and assist you with your negotiations and contractual documentation. The sooner you engage legal advisors the less likely that you will have problems later down the line. The next point I have mentioned on the slide is the importance of doing your homework. To illustrate the point I am going to use another recent case involving Apple, this time the case involved a Chinese company called Shenzhen Proview Technology and concerned the iPad trade mark in China. Proview claimed that it owned the rights to the iPad name in China after registering it there in 2000. Apple claimed that that it acquired the worldwide rights for the name from Proview in 2009. A ruling on the case in December of last year held that Proview did indeed still own the name and consequently Proview asked authorities in China to seize iPads in an effort to persuade Apple to settle the case. On 2nd July it was announced by the Guangdong High People’s Court that the case had settled and that Apple had agreed to pay $60 million to Proview in settlement of the case. I am not sure to what extent Apple and its in-house team researched and tried to verify the registered owner of the iPad brand in 2009 but the case serves as reminder of the importance of doing your due diligence when acquiring IP.Another even more recent case involving Apple was reported just days after the Proview settlement. A Chinese company, Shanghai Zhizhen Network Technology Co Ltd, has allegedly filed a legal challenge accusing Apple of infringing its patented voice recognition software with Apple’s Siri function on the iPhone. It is early days in respect of this case and it is certainly one that will be watched with interest by the public. Again, as far as I am aware it is not publicly known whether Apple and its legal team conducted or commissioned freedom to operate searches in China but this is certainly something that you should be doing before moving into a new market.These cases demonstrate that IP awareness amongst Chinese companies is rising and Chinese companies are becoming fairly aggressive with IP enforcement. So it really is key that, in addition to protecting your own IP, you do your checks to make sure that you are not about to infringe somebody else’s IP.
  • China’s IP laws change fairly regularly as you would expect in a country where the legal framework in respect of IP is relatively new. I don’t plan to cover local laws in any great depth but I would just like to highlight one recent change in the law that I think will be of interest to many of you here. Earlier this year new laws were introduced in China in respect of patent marking and by patent marking I simply mean labelling your products as being patented. The new Chinese rules concerning patent marking became effective on 1 May 2012. Unlike in certain other countries outside China, including Hong Kong and US, in China there is no legal obligation on patent holders to mark their products. However, if information about the patent is attached to the product the new regime sets out detailed rules on how to do this. Whereas the old regime only addressed how a product should be marked following the granting of a patent, the new regime establishes a special procedure for marking of products where a patent has been applied for but has not yet been granted. Many cases have been seen where products have been marked as patent protected before a patent had actually been granted, and the Chinese authorities now take a tough stance on this as they believe that marking a product before it is in fact patented is misleading and may also have an adverse impact on market competition. In terms of patented products, if a patent owner decides that they would like to mark their products as being patented they may mark the products themselves or accompanying materials such as instruction manuals and packaging. Patent owners marking their products should: state clearly in Chinese the type of patent it is (i.e. whether it is an invention patent, utility model or design patent);state the PRC patent registration number; and be sure not to include any information that could mislead the reader. If you mark your products about the patent in a wrong manner the Chinese authorities have the power to:make you rectify the mistake,confiscate illegal profits made, andissue fines of an amount of up to RMB 200,000 (approximately USD 31,500).So beware! There are obvious benefits to marking your patented products. From an advertising and marketing perspective it can lead to increased sales as many regard patented products to be cutting edge in terms of technology. Marking your patented products is also often used as an anti-infringement strategy because it makes potential infringers aware that the product is patent protected. As I have mentioned, it is not obligatory to mark your patented products in China but if you do decide to mark your products make sure that you comply with the regulations and, if in doubt, ask a legal advisor to check draft markings before they are used.
  • A common problem for our clients doing business in China is third parties manufacturing almost identical designs to the designs of our client with the only difference being the application of some form of pattern or colour applied to the infringing design. This issue was examined in a recent case in China which related to a set of stackable cups. It is an interesting case and certainly one worth looking at as it provides useful insight as to how the Chinese courts will view this type of case. You can just about see from the pictures here that the original patented design did not have any surface decoration on it whereas the alleged infringing design included a picture of a man on it. Chinese patent law states that “the extent of protection of the patent right for a design patent shall be determined by the design of the product as shown in the drawings and photographs”. So all elements of the design will be considered when its scope of protection is considered. The interpretation of the Supreme People’s Court in this case is of particular interest. The court stated that “when determining whether designs are identical or similar, the People’s court shall consider … the overall visual effect of the design to make a comprehensive judgment”. The court also emphasised that the overall visual effect of a design is usually more effected by design features of a patented design which are distinct from those of the existing designs as opposed to other design features of the patented design.The court determined that the shape of the product should be preferentially considered in judging design patent infringement because the design patent did not claim colour and contained no pattern and a regular consumer, based on his/her cognitive ability would realise without doubt that the alleged infringing design misappropriated the design scheme, especially the shape, of the patented design when the two designs are observed as a whole. The court consequently determined that the two design were similar to one another and that the defendant was liable for infringement of the design patent.
  • Copycat trade marks is another common problem encountered by clients doing business in China. In a recent case in China the well known brand of NIVEA was infringed by a company calling itself “German Nivea (Hong Kong) Co. Ltd”. This infringing company applied to register several trade marks that were similar to brands owned by Beirsdorf AG (the company that owns the “NIVEA” brand) and it was manufacturing and selling numerous goods under the brand “NIYEA”. Beirsdorf filed a complaint with the Administration for Industry and Commerce in China (also known as theAIC) but, despite the fact that a large quantity of goods had been seized from the defendant by the AIC, the AIC only imposed a very small fine on the infringing company and they subsequently resumed the infringing activities. Beirsdorf then decided to commence a civil action and it proved to be a wise move as the court found the defendants liable for trade mark infringement and ordered them to pay compensation of RMB 500,000 (approximately USD 79,000). This case is proof in itself that the courts in China do listen to foreign applicants filing IP infringement claims in China and it also illustrates the point that you need to think carefully about your strategy for dealing with IP infringement claims. Each case needs to be analysed on its own merits in order to establish whether an administrative action is worth pursuing or whether in fact the case would have a good chance of succeeding if it were a civil or criminal claim. Many foreign companies automatically file a complaint with the AIC when they have a trade mark infringement issue but that may not be the best option as the fines issued (if successful) tend to be relatively small and not enough to deter the infringer from resuming their activities. Whilst there is nothing stopping you from then launching subsequent civil or criminal actions it is clearly not the most cost effective approach and you will also have put the infringing company on notice that you are aware of their activities. In many cases an administrative action may well be the best option but there are other options so think it through carefully before you take action.
  • Whilst the legal landscape in China is different to many other jurisdictions in respect of IP, the approach companies should take in order to protect their IP when doing business in China is pretty much the same as for any other jurisdiction. We advise clients that they should think ahead and ensure that their IP is protected before they start doing business in China. Practical steps you can take include: conducting freedom to operate / clearance searches before entering the market to identify any potential litigation risks. Learn the lesson from Apple! In respect of patents make sure that your FTO searches cover both invention patents and utility model patents. registering your IP that can be registered as soon as possible- trade marks – be aware that China has a first to file system so if you do not register your company’s trade marks in China any other third party may do so and will then have the right to use the marks in respect of products and services in the Chinese market. This system is unlike many other countries where the law will provide rights to the company that is able to demonstrate first use of a particular trade mark. patents – speak to local patent attorneys and consider filing for both invention patents and utility model patents if possible. designs – protect designs by registering design patents. ensure that you ask potential partners to sign up to confidentiality/non-disclosure agreements before you start talking to them to protect your confidential information and know-how. Many companies get overly worried about offending local companies by asking for a CDA/NDA to be signed. Whilst it is obviously necessary to be aware of and respect the difference in cultures the fact remains that it is a business arrangement and so you should not be hesitant in asking for this. if you are considering having products manufactured in China it is also worth considering dividing up the manufacture process between several companies. This ensures that each supplier only has a partial knowledge of the product and therefore makes copying far more difficult.Partners should be carefully chosen and researched to the extent that this is possible. Find out what your partners objectives are, what do they want from you and are you willing to give it? Do internet searches to see if there is any evidence of the company in question having been involved in IP related disputes with other companies. If the potential partnership is of high strategic importance or particularly high value then you may also want to consider engaging a professional investigation organisation to undertake the due diligence for you so that you can be sure you know all there is to know about the company you are about to partner with. Finally, as I have mentioned previously, do make sure you have local legal advisers in place in Hong Kong and China to advise you not just on the law itself but also the cultural and commercial aspects of doing business there.
  • Presentation by Nikolaj Juhl Hansen - Ehversheds

    1. 1. Intellectual Property Rights in HongKong & ChinaNikolaj Juhl Hansen, Adrian Toutoungi, Sian Lewis,Eversheds LLP4 September 2012
    2. 2. UK and Ireland Worldwide1. London 17. Munich 36. Johannesburg2. Ipswich 18. Vienna 37. Amman3. Cambridge 19. Budapest 38. Baghdad4. Cardiff 20. Rome 39. Riyadh5. Birmingham 21. Milan 40. Doha6. Nottingham 22. Madrid 41. Abu Dhabi7. Manchester 23. Tallinn 42. Dubai8. Leeds 24. Riga 43. Singapore9. Newcastle 25. Vilnius 44. Hong Kong10. Dublin 26. Bratislava 45. Shanghai11. Edinburgh 27. Prague 28. BerneMainland 29. ZurichEurope 30. Amsterdam12. Paris 31. Rotterdam13. Brussels 32. Geneva14. Copenhagen 33. Ostrava15. Stockholm 34. Hamburg16. Warsaw 35. Bucharest
    3. 3. Eversheds in Copenhagen• Only major international law firm with a Danish office• 20 lawyers• Corporate, M&A, commercial contracts, employment, tax, bank and finance, data protection, fraud and anti-bribery, IPR, competition and regulatory• Advising international companies in Denmark and Danish companies abroad including 50% of the C20• China IPR and other legal experience include: – Registration of trademarks in China for a number of Danish clients – Advising Lundbeck on its establishment of an R&D centre in Shanghai – Advising a major Danish pharma company on regulatory issues in relation to building of new production site – Advising Hong Kong listed AAC Acoustic Technologies on its acquisition of Kaleido Technologies, a very innovative and IP heavy Danish company in one of the biggest Chinese investments into Denmark to date
    4. 4. What we will cover• Hot topics – IP cases making headlines• Hong Kong – a gateway to China• The IP landscape in China• Practical steps to take
    5. 5. Recent IP cases making headlines
    6. 6. Recent IP cases making headlines
    7. 7. Why use Hong Kong as a springboardinto China?• Language• CEPA• Legal landscape
    8. 8. The legal landscape in China andissues to be aware of• Is it worth protecting IP in China?• Technology transfer – avoid inadvertently giving away your IP• Do your homework to avoid infringing a third party’s IP
    9. 9. New Chinese rules concerning patentmarking (1 May 2012)• No obligation on patent holders to mark their products• Rules if you do decide to mark your patented products: – state clearly in Chinese the type of patent (e.g. invention patent, utility model, design patent) • Fines-up to – state the PRC patent number RMB 200,000 – be sure not to include any information that could mislead the reader
    10. 10. Case study – infringement of a designpatent• Patented design:• Alleged infringing design:
    11. 11. Case study – infringement of a trademark• Registered trade mark: NIVEA• Alleged infringing trade mark: NIYEA
    12. 12. Practical steps to take beforedoing business in China• Protect your IP from the outset: - conduct FTO/clearance searches - register IP that can be registered - take measure to protect non-registered IP rights such as trade secrets - obtain non-disclosure agreements from potential partners before disclosing commercially sensitive information - consider dividing manufacture of products between several manufacturers
    13. 13. Practical steps to take before doingbusiness in China• Partners – do your due diligence• Engage local counsel and specialist IP agents
    14. 14. Questions?
    15. 15. Nikolaj Juhl HansenPartner, EvershedsDirect dial: +45 3375 0507Email: nikolajhansen@eversheds.comAdrian ToutoungiPartner, EvershedsDirect dial: +44 (0)845 497 3831Email: adriantoutoungi@eversheds.comSian LewisAssociate, EvershedsDirect dial: +852 2186 3205Email:
    16. 16. © EVERSHEDS LLP 2012. Eversheds LLP is a limited liability partnership.