Copyright, IPR licensing and Trade secrets in China

The Copyright Law

In China, copyright protection is governed by the Copyright Law of the People’s Republic of China (last amended in 2021) and the Regulations for the Implementation of the Copyright Law. China is also a member of several international treaties, including the Berne Convention and the WIPO Copyright Treaty, which means that foreign copyright works are protected in China based on international standards.

What Can Be Protected by Copyright in China?

Literary works (novels, poems, essays)
Dramatic works (plays, scripts)
Musical works (songs, compositions)
Artistic works (paintings, drawings, sculptures)
Photographic works
Cinematic works (films, TV programs)
Architectural works (building designs)
Software programs
Compilations (like databases, provided they are original in arrangement)

Copyrightable Works Criteria

The work must be original, meaning it must be created by the author independently and not copied from another work.
The work must be expressed in a tangible form, like written text, recordings, or images. Ideas or concepts that are not expressed are not protected.

China’s Copyright Law provides different durations of protection depending on the type of work and the right in question:

For individual works: Copyright lasts for the lifetime of the author plus 50 years. It expires on December 31st of the 50th year after the author’s death.
For works of legal entities or organizations: The term of protection is 50 years from the date of first publication.
For audio-visual works (e.g., films): Protection lasts for 50 years from the date of first publication.
For photographic works: Protection also lasts for 50 years from the date of creation or first publication.

Rights Conferred by Copyright

– Economic Rights (Transferable):

Reproduction right: The right to make copies of the work.
Distribution right: The right to distribute copies to the public, including selling or renting.
Exhibition right: The right to display the work in public.
Performance right: The right to perform the work in public, whether live or recorded.
Broadcasting right: The right to transmit the work via radio, TV, or the internet.
Adaptation right: The right to create derivative works, such as adaptations, translations, or other transformations of the work.
Rental right: The right to rent audiovisual works or software to the public.
Communication right via the information network: The right to make the work available to the public through digital networks like the internet.

– Moral Rights (Non-Transferable):

Right of authorship: The right to claim authorship of the work and to be credited as the author.
Right of alteration: The right to control modifications to the work.
Right of integrity: The right to prevent others from distorting or mutilating the work.
Right of publication: The right to decide when and how the work will be made available to the public.

Automatic Protection (No Registration Required)

Under Chinese law, copyright protection arises automatically upon the creation of an original work. This means that a creator does not need to register their work to obtain copyright protection. However, registration is recommended in certain cases for easier enforcement.

Although copyright protection is automatic, China provides a system of voluntary registration for copyright. Registering a work makes it easier to prove ownership in cases of dispute and strengthens enforcement efforts. Copyright registration is handled by the Copyright Protection Center of China (CPCC).

Registration Procedure:

Application Submission:
- The applicant must submit an application form along with the necessary documents (identity proof, description of the work, samples of the work, etc.).
- Applications can be filed online or in person.
Formal Examination:
- The CPCC reviews the application for completeness and compliance with the necessary procedural requirements.
Issuance of Certificate:
- If the application is successful, the CPCC will issue a Copyright Registration Certificate, which serves as proof of ownership and the registration date.

China adheres to the Berne Convention for the Protection of Literary and Artistic Works, which means that foreign works are protected in China without the need for registration, provided the country of origin is also a member of the Berne Convention. Works created in other World Intellectual Property Organization (WIPO) member countries enjoy similar protection.

Enforcement of Copyright in China

There are several ways to enforce copyright rights in China, both through administrative channels and legal action:

– Administrative Enforcement

Copyright owners can file complaints with the local Copyright Administration Bureaus or the National Copyright Administration of China (NCAC). These bodies have the authority to:

Investigate infringement cases
Seize and confiscate infringing goods
Impose fines and penalties on infringers

– Civil Litigation

Copyright holders can initiate lawsuits in People’s Courts, including specialized Intellectual Property Courts in major cities like Beijing, Shanghai, and Guangzhou.
Copyright holders can seek:
- Injunctions to stop the infringing activity
- Monetary damages for losses caused by infringement
- Compensation for legal expenses

– Criminal Enforcement

In cases of severe copyright infringement (e.g., large-scale piracy or counterfeit operations), infringers can face criminal prosecution. Chinese law allows for imprisonment and hefty fines in serious cases.

– Online Infringement and Internet Control

China has strict measures against online copyright infringement. Internet Service Providers (ISPs) and websites can be required to take down infringing content under China’s Copyright Law and Measures for the Protection of Information Network Transmission Right.
Copyright owners can issue takedown notices to platforms hosting infringing content.
CNIPA and other relevant agencies monitor online platforms for piracy and infringing content.

Collective Management of Copyright

China allows for the establishment of collective copyright management organizations, which manage rights on behalf of multiple right holders. For example, the Music Copyright Society of China (MCSC) manages music copyrights and collects royalties for public performances, broadcasts, and online streaming.
Collective management is important for ensuring that copyright holders, especially in industries like music and broadcasting, receive appropriate compensation for the use of their works.

Software is specifically protected under Chinese copyright law. Software developers enjoy the same rights as other copyright holders, and software programs are protected for 50 years from the date of publication or creation.
Software can also be registered with the CPCC for easier enforcement.

Measures Against Bad-Faith Copyright Claims

To prevent abuse of copyright laws, China has implemented measures against bad-faith claims, including penalties for those who file fraudulent claims of copyright infringement.

International Copyright Treaties

China is a member of several international copyright treaties, including:

The Berne Convention (provides automatic copyright protection among member states)
The Universal Copyright Convention
The WIPO Copyright Treaty (WCT)
The WIPO Performances and Phonograms Treaty (WPPT)

These treaties extend the protection of foreign copyrights in China and enable Chinese authors to protect their works abroad.

The IPR Licensing

In China, Intellectual Property Rights (IPR) Licensing, including the licensing of trademarks and technologies, is governed by specific rules and regulations under Chinese law. Licensing agreements allow the licensor to authorize a third party (the licensee) to use the intellectual property under specific terms, while the licensor retains ownership.

Trademark Licensing in China

– Governing Law

Trademark licensing in China is primarily governed by the Trademark Law of the People’s Republic of China and its Implementing Regulations. The China National Intellectual Property Administration (CNIPA) is responsible for overseeing trademark registration and licensing procedures.

– Types of Trademark Licenses

Exclusive License: The licensee is the only one authorized to use the trademark, and even the licensor cannot use it during the term of the license.
Sole License: The licensee can use the trademark, but the licensor also retains the right to use the trademark.
Non-Exclusive License: The licensor can grant the same trademark rights to multiple licensees, and the licensor can still use the trademark.

– Trademark Licensing Procedure

Licensing Agreement:
- A trademark license agreement must be established in writing.
- The agreement should include:
  - Licensed trademark and scope of use.
  - Term of the license.
  - Quality control provisions.
  - Geographical scope (if applicable).
  - Royalties or compensation structure.
Quality Control Requirements:
- The licensor must supervise and ensure the quality of the goods or services produced or provided by the licensee under the licensed trademark.
- If the licensor fails to exercise quality control, it could damage the reputation of the trademark, and the authorities may revoke the trademark in extreme cases.
Recordation of the License:
- Trademark licenses must be recorded with the CNIPA. This step is not mandatory for the validity of the license between the parties, but it is important for enforcing the licensed trademark against third parties.
- Recordation provides legal evidence of the license, which can be used in disputes or in case of infringement.
- The recordation process typically requires:
  - A copy of the license agreement.
  - Information about both the licensor and the licensee.
  - Details of the trademark being licensed.
License Registration Process:
- The CNIPA reviews the application for the recordation of the license.
- Once approved, the license is officially registered, and the trademark office will issue a certificate of recordation.
Duration and Renewal:
- The duration of the trademark license can be freely negotiated between the parties, but it cannot exceed the remaining term of the registered trademark.
- If the trademark is renewed, the license agreement can be extended accordingly.

– Key Points for Trademark Licensing:

Infringement Protection: Without recordation, it may be difficult for the licensee to enforce the trademark against infringers, as only the registered owner (licensor) has the legal standing to file infringement claims.
Sub-Licensing: Sub-licensing can only occur with the explicit consent of the licensor. This should be clearly outlined in the licensing agreement.
Royalties and Payments: Trademark licensing agreements commonly involve royalties based on sales or usage, but they can also involve lump-sum payments.

Technology Licensing in China

– Governing Law

Technology licensing is governed by several laws and regulations, including the:

Contract Law of the People’s Republic of China (until 2020, now replaced by the Civil Code).
Regulations on Technology Import and Export Administration.
Patent Law (if the technology involves patented inventions).
Anti-Monopoly Law (to prevent anti-competitive practices in technology licensing).

– Types of Technology Licensing

Exclusive License: The licensee is the only one authorized to use the technology, and even the licensor cannot use it during the license term.
Non-Exclusive License: The licensor can grant the same technology rights to multiple licensees.
Sub-Licensing: The licensee can further license the technology to third parties, but only if expressly permitted in the license agreement.

– Technology Licensing Procedure

Drafting the Technology License Agreement:
- The licensing agreement must be in written form.
- It should include:
  - Clear description of the technology being licensed.
  - Scope of use (e.g., manufacturing, distribution).
  - Territories where the license applies.
  - Duration of the license.
  - Confidentiality obligations to protect trade secrets.
  - Consideration and royalty arrangements (including whether the royalties are based on sales, usage, or a lump-sum payment).
Technology Transfer vs. Technology Licensing:
- Technology Transfer involves the sale of technology or know-how to another party. In this case, the technology is transferred permanently.
- Technology Licensing involves temporary use of the technology or know-how while the licensor retains ownership of the intellectual property.
Foreign Technology Licensing and Registration:
- Foreign technology licensing or technology transfer agreements involving a foreign licensor and a Chinese licensee must be registered with the Ministry of Commerce (MOFCOM) or its local counterparts if the technology falls under the technology import/export regulatory framework.
- Certain types of technologies are subject to restricted import or export under China’s Technology Import and Export Regulations. They require prior approval and registration from relevant authorities.
- Restricted technology often includes cutting-edge or strategic technologies.
Mandatory Provisions for Technology License Agreements:
- Indemnification: The licensor must provide warranties regarding the legality and ownership of the licensed technology.
- Improvement Rights: If the licensee improves the licensed technology, the parties must negotiate whether the licensee can retain or must share ownership of the improvements.
- Anti-Monopoly Provisions: Licensing agreements must not include clauses that unfairly restrict competition, such as mandatory grant-backs (requiring the licensee to license improvements back to the licensor for free) or excessive restrictions on sublicensing.
Tax Implications:
- Royalties or other fees paid to a foreign licensor are subject to withholding tax in China. The withholding tax rate is generally 10%, but it can be reduced if there is a tax treaty between China and the licensor’s home country.
- Value-added tax (VAT) may also apply to the licensing of technology, typically at a rate of 6%.

Key Points for Technology Licensing

Patent Licensing: If the technology involves a patented invention, it must be registered with the CNIPA to ensure that the licensing is enforceable and valid.
Confidentiality and Trade Secrets: Technology licensing agreements often include clauses to protect confidential information and trade secrets. Chinese law provides specific protection for trade secrets.
Improvement and Grant-Back Clauses: Clauses requiring the licensee to grant back any improvements to the licensor must be carefully drafted to avoid violating China’s Anti-Monopoly Law.

Technology Import/Export Control: China classifies technology into three categories for import/export: prohibited, restricted, and freely transferable. Restricted technologies require approval from relevant authorities for transfer, while freely transferable technologies only need to be registered after the fact.

Licensing Registration and Enforcement

Recordation Requirement:
- For trademarks, the license must be recorded with the CNIPA for enforceability.
- For technology agreements, registration with local MOFCOM or relevant authorities is necessary, especially if it involves the transfer of foreign technology.
Enforcement:
- In the event of disputes, IPR licensing agreements can be enforced through civil litigation or arbitration in China.
- In some cases, administrative enforcement actions can be filed with local Market Supervision and Administration authorities.
Breach of Agreement: If one party breaches the licensing agreement, the other party can claim damages, terminate the contract, and seek remedies through legal channels.

Trade Secrets

In China, the protection of Trade Secrets and Confidential Information is governed by several laws and regulations. Trade secrets are increasingly important to businesses in China as they often represent critical intellectual property (IP) assets. China has strengthened its legal framework for trade secret protection, particularly with amendments to laws like the Anti-Unfair Competition Law (AUCL) and the Civil Code. These improvements are part of broader efforts to enhance IP protections and address concerns from foreign businesses about the security of their proprietary information.

Definition of Trade Secrets in China

According to Chinese law, trade secrets are defined as:

Technical or business information (including formulas, designs, programs, processes, and methods).
The information must be unknown to the public (i.e., not readily accessible by relevant people in the field).
It must have commercial value, providing a competitive advantage to the owner.
The owner must have taken reasonable measures to keep the information secret.

This definition is outlined in the Anti-Unfair Competition Law and is consistent with the trade secret protections in international agreements such as the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

Governing Laws for Trade Secret Protection

Several laws and regulations provide the legal basis for protecting trade secrets and confidential information in China:

Anti-Unfair Competition Law (AUCL) (as amended in 2019):
- The AUCL is the primary law governing trade secret protection.
- It specifically prohibits the theft, disclosure, or unauthorized use of trade secrets by employees, business partners, or competitors.
Civil Code of the People’s Republic of China:
- The Civil Code recognizes trade secrets as a form of property and provides remedies in civil disputes, including compensation for damages resulting from misappropriation.
Criminal Law:
- In serious cases, misappropriation of trade secrets can be prosecuted under the Criminal Law. If the theft of trade secrets causes significant economic losses, it may result in criminal penalties, including fines and imprisonment.
Labor Contract Law:
- This law requires employers to include confidentiality clauses in employment contracts, which protect trade secrets disclosed to employees during their employment.
Company Law:
- Under this law, directors, supervisors, and senior managers have a fiduciary duty to the company, which includes the obligation to maintain confidentiality of the company’s trade secrets.

Protection of Trade Secrets and Confidential Information

To enjoy legal protection for trade secrets in China, companies must take reasonable measures to safeguard their confidential information. Below are key rules and best practices for protecting trade secrets:

1. Reasonable Measures to Protect Trade Secrets

Chinese law requires that the owner of trade secrets takes reasonable efforts to maintain their secrecy. This may include:

Non-Disclosure Agreement (NDA):
- Companies should require employees, contractors, and business partners to sign NDAs that clearly outline confidentiality obligations.
- NDAs should specify the definition of confidential information, how it should be protected, and the consequences of disclosure.
Confidentiality Clauses in Employment Contracts:
- The Labor Contract Law requires companies to include confidentiality clauses in employment agreements, especially for employees who handle sensitive information.
- These clauses should prohibit the unauthorized use or disclosure of trade secrets both during and after employment.
- Non-compete agreements can also be included in employment contracts, restricting employees from working for competitors after leaving the company (typically for a period not exceeding two years).
Internal Policies and Training:
- Develop comprehensive internal policies governing the use, storage, and dissemination of confidential information.
- Train employees regularly on the importance of protecting trade secrets and the company’s confidentiality protocols.
Access Control:
- Restrict access to confidential information on a need-to-know basis. Employees or third parties should only be given access to the specific information they need for their roles.
- Use passwords, encryption, and other technical measures to control access to electronic data.
Marking Documents as Confidential:
- Physically and digitally mark sensitive documents as “Confidential” or “Trade Secret” to indicate that they are protected under the law.

2. Trade Secret Protection with Third Parties

When sharing trade secrets with business partners, suppliers, or customers, companies should:

Sign confidentiality agreements with third parties before disclosing any sensitive information.
Clearly define what constitutes confidential information in these agreements and set specific time limits for how long the confidentiality obligations last.
Specify the permitted uses of the information and prohibit unauthorized sharing or further disclosure.

Remedies for Trade Secret Misappropriation

If trade secrets are misappropriated, companies can pursue legal action in several ways:

1. Civil Litigation

Compensation: The owner of the trade secrets can sue for damages in civil court. The damages awarded will be based on the economic loss suffered by the rightful owner or the profits gained by the infringer.
Injunctions: The court may issue an injunction to stop further use or disclosure of the misappropriated trade secrets.
Statutory Damages: If actual damages cannot be proven, the court can award statutory damages, which may range from CNY 5 million or more for serious cases.

2. Administrative Enforcement

The owner of the trade secrets can file a complaint with local Market Supervision and Administration (MSA) authorities. The MSA can impose fines on the infringer and take measures to stop the misappropriation.

3. Criminal Prosecution

In cases where the misappropriation of trade secrets causes significant economic losses (typically above CNY 500,000), the case may be referred for criminal investigation.
Penalties for criminal misappropriation of trade secrets include:
- Fines.
- Imprisonment of up to seven years in severe cases, depending on the scale of the loss.

4. Arbitration

If the confidentiality agreement includes an arbitration clause, the parties may resolve trade secret disputes through commercial arbitration rather than litigation.

Legal Developments

China has enhanced trade secret protection through the amendments to the Anti-Unfair Competition Law. This reform of 2019 has expanded the definition of misappropriation to include unauthorized electronic intrusions and hacking; furthermore, the new law has strengthened penalties for trade secret violations, increasing potential damages and allowing for punitive damages in cases of willful infringement; the reform has also made it easier for plaintiffs to shift the burden of proof in trade secret litigation. Once a plaintiff provides preliminary evidence that a trade secret has been misappropriated, the burden shifts to the defendant to prove that they did not engage in misappropriation.

Challenges and Recommendations for Foreign Companies

Despite legal improvements, foreign businesses still face challenges in protecting trade secrets in China due to:

Employee Mobility: High employee turnover rates, particularly in the technology and manufacturing sectors, can increase the risk of trade secret leakage.
Business Partnerships: Working with local Chinese partners, suppliers, or distributors can expose trade secrets, especially if appropriate contractual protections are not in place.

Best Practices for Foreign Companies:

Early Registration: Ensure that all IP, including patents and trademarks, is registered in China as soon as possible to complement trade secret protections.
Strengthen Employment Agreements: Include comprehensive non-disclosure and non-compete clauses in employment contracts, especially for senior managers and key technical staff.
Audit and Monitor: Regularly audit business processes and relationships to ensure compliance with internal trade secret policies. Monitoring employees with access to key trade secrets can help prevent leaks.
Local Counsel: Engage Chinese legal counsel experienced in trade secret protection to draft effective contracts and handle disputes.

Chinainforma

Copyright, IPR licensing and Trade secrets in China

The Copyright Law

The IPR Licensing

Trade Secrets

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