Intellectual Property Rights in China

From bags to movies to computer software of the world’s most popular brands, China is the leading country in the production of counterfeits. Thus, it is not surprising that China has once again secured top position on the US “Priority Watch List” as per the recent USTR 2012 Report.1

In response, China has been making immense efforts to restructure and modernise its Intellectual Property Right (IPR) laws to be in-line with the existing regimes in developed nations. The move from a non-existent IPR regime before the 1980s to a comprehensive legal structure in a mere three decades is a huge achievement. However, due to the lack of effective enforcement, in reality little has been done to curb the rampant counterfeiting of almost every conceivable popular brand. Counterfeit products account for over 15 per cent of China’s total GDP, amounting to almost US $25 billion.2

In the mid-1970s, China began to feel the need for foreign investment and to enter international markets, thus necessitating the drafting of Intellectual Property (IP) laws. China joined the World Intellectual Property Organization (WIPO) in 1980 and the first effort in setting up an internal wide-ranging IPR regulation was made in the year 1982 with the enactment of the Trademark Law of the People’s Republic of China. The Patent Law and the Copyright Law came in 1984 and 1990, respectively. This was followed by China joining various international conventions, including the Berne Convention and the Universal Copyright Convention in 1992 and the Geneva Convention in 1994. China joined the World Trade Organization (WTO) in 2001. This has led to the revamping of China’s IPR laws and their restructuring more on the lines of the WTO Agreement on Trade Related Aspects of IPR (TRIPS). Subsequent amendments have resulted in an IPR system that resembles the ones existing in most developed nations. However, this is only with regard to substantive laws. As noted earlier, the bane of China’s IPR regime is the issue of law enforcement.

The enforcement mechanism in Chinese IPR regulations is two-fold. There exists an administrative mechanism, which is highly efficient but without any form of financial compensation that can be claimed.3 Further, prior to an authorised raid, the IPR holder must submit sufficient evidence.4 In this procedure, although damages are imposed, it is debited in the State’s account and the rights owner is not given title over the goods.5 The second mechanism is the judicial one, in which the victims can file a suit in the local people’s court.6 Here, interim injunction and financial compensation can be awarded and the possibility of imprisonment, though in existence, is rarely used.7

The crux of the problem in China lies in the lack of efficient enforcement of IP laws. There exists a disconnect between the law as it exists in theory and as it is practiced. 8 Deterrence in cases of IPR infringement is almost non-existent, wherein the average damages that a violator is required to pay is very low and is not in any case sufficient to adversely impact the profit made by the infringers. In addition, there exists an unwritten maximum limit to the damage that can be imposed on the infringers in all categories of IPR, over and above which the court generally will not pass judgment.9

The underlying reason for this is the clear conflict between Western perceptions of IPR and traditional Chinese culture.10 Also, while IPR laws in China have been modified, there has not been a corresponding change in the political, cultural and social spheres of the country in favour of the enforcement of IPR laws.11 This is plainly due to the fact that though IPR has been recognised in China from the time of the Tang Dynasty (618-907 AD), there was never a concept of protection of IPR belonging to an individual.12 All the IPR from that century till recent times was solely limited to state-owned IPR used for the common benefit of all.13 Duplicating and circulating another’s work was regarded as the highest accolade, rather than an infringement of IPR.14 Thus, it has been argued that Chinese culture itself counters any hope of a workable IPR system. The other important argument is that the Chinese Communist Party (CCP), which is interwoven in every sphere of the country’s life, is a dominating influence on the functioning of the judiciary.15 According to Pitman Potter, the CCP exploits the laws of the State to further its own agendas while itself not coming under the purview of the same laws.16 Hence, in the absence of an independent judiciary, it does not come as a surprise that the enforcement of laws is lax in China.

There is also the persistent problem of rampant corruption where either the local administrators are reluctant to implement the law in lieu of kickbacks and bribes they receive or due to the general cultural norm of considering it best to resolve disputes peacefully rather than through the judiciary.17 The former is a key predicament given that regionalism and local protectionism are predominant in Chinese provinces. Another important argument put forward by William P. Alford is that in a state where the freedom of ideas and thoughts are not accorded their due protection, there can never be a powerful IPR regime.18 Thus, the individual’s private right over his discoveries and creations can never be effectively protected.

Zhang Qianfan has stated that “as long as the government finds an incentive in enacting good laws but a disincentive in enforcing them, then laws and reality will never collide.”19 What this translates into is that, no amount of external demands can force China to move on this front. For a change to occur, the cause for it must be internal forces within China. And this can be done only when the CCP realises that there are advantages in forcing this change.

China, it seems, has become a prey of its own good fortune. While there has been a huge increase in the number of IPR applications filed in the last decade, China’s capacity to deal with this in the form of IPR offices and trained officials is inadequate.20 Without an efficient law enforcement mechanism in place, foreign investments in the Chinese economy will remain unenthusiastic. There is also a need to effect a change in the cultural, social and political spheres of China where adequate enforcement of IP laws must be seen as an absolute prerequisite to maintain the thriving economy. However, there is hope for the future. As China shifts from an agriculture- and manufacture-dominant society to a more knowledge-based society, it needs to sustain its high rates of GDP growth to facilitate this shift.21 To achieve this, China is dependent on other states. Effectively implementing its IP laws is the perfect peace offering to initiate this greatly desired cooperation.

• 1. See Stan Abrams, ‘USTR Issues 2012 Special 301 Report on IP’, avaliable at http://businesswatch.21cbh.com/index.php?m=content&c=index&a=show&catid=…, last accessed on 1 May 2012.
• 2. See Gillian Kassner, ‘China’s IP Reform: State Interests Align with Intellectual Property Protection (Again)’, avaliable at http://jolt.law.harvard.edu/digest/copyright/chinas-ip-reform-state-inte…, last accessed on 1 May 2012.
• 3. See Kristina Sepetys and Alan Cox, ‘China: Intellectual Property Rights Protection In China: Trends In Litigation And Economic Damages’, avaliable at http://www.mondaq.com/article.asp?articleid=74520, last accessed on 1 May 2012.
• 4. See ‘Intellectual Property Rights in China: Risk Assessment, Risk Assessment, Avoidance Staregy and Problem Solving’, China-Britain Business Council, UK China IPR Forum, 2004, avaliable at http://www.chinabusinesssolutions.com/dbimg/china_ipr_guidelines1.01.pdf, last accessed on 1 May 2012.
• 5. See Hunter Rodwell Consulting & Rouse & Co. International, ‘Intellectual Property Rights Primer for China’, UK Trade and Investment & UK Intellectual Property Office, avaliable at http://www.ipo.gov.uk/ipr-guide-china.pdf, last accessed on 1 May 2012; also see supra note 4.
• 6. Supra note 3.
• 7. Ibid.
• 8. See supra note 5.
• 9. Supra note 5.
• 10. Supra note 2.
• 11. See Scott J. Palmer, ‘An Identity Crisis: Regime Legitimacy and the Politics of Intellectual Property Rights in China’, Indiana Journal of Global Legal Studies, Vol. 8, No. 2 (Spring 2001), p. 468.
• 12. Supra note 2.
• 13. Ibid.
• 14. Ibid.
• 15. Ibid.
• 16. Pitman B. Potter, ‘Riding the Tiger: Legitimacy and Legal Culture in Post- Mao China’, THE CHINA QUARTERLY, 1994, as cited in supra note 11, p. 452.
• 17. Supra note 5; Also refer supra note 11 at 465-466.
• 18. See William P. Alford, To Steak A Book Is An Elegant Offence: Intellectual Property Law In Chinese Civilization (1995) at 119 as cited in supra note 11 at 474.
• 19. See Zhang Qianfan, ‘A Constitution without constitutionalism? The paths of constitutional development in China’, 2010 as cited in supra note 2.
• 20. Supra note 5.
• 21. Supra note 3.