Intellectual Property

Patent Law

In China, patent protection is governed by the Patent Law of the People's Republic of China (PRC) and its related regulations. Patents in China fall under three categories: invention patents, utility model patents, and design patents.

Invention Patents

Definition: Inventions refer to new technical solutions proposed for a product, a process, or their improvements. They are subject to a rigorous examination process.
Protection Duration: 20 years from the filing date.
Examination Process:
- Application: Must be filed with the China National Intellectual Property Administration (CNIPA).
- Formal Examination: After application, the CNIPA reviews the documents for compliance with procedural requirements.
- Substantive Examination: A thorough examination of the invention's novelty, inventiveness, and industrial applicability. This process may take several years.
- Publication: The invention is published after 18 months from the filing date or earlier if requested by the applicant.
- Granting: If the patent passes the examination, it is granted, and the applicant must pay the relevant fees to maintain the patent.

Utility Model Patents

Definition: Utility models protect new technical solutions relating to the shape, structure, or combination of a product that has practical use. The examination process is less rigorous compared to invention patents.
Protection Duration: 10 years from the filing date.
Examination Process:
- Application: Filed with the CNIPA.
- Formal Examination: CNIPA reviews the application for compliance with the basic formal requirements.
- No Substantive Examination: Utility model applications do not undergo a substantive examination for novelty or inventiveness, which allows for faster approval.
- Granting: If the application is in order, the utility model is granted.
- Enforcement: Utility model patents can be challenged more easily compared to invention patents because of the lack of substantive examination.

Design Patents

Definition: Design patents protect the new aesthetic appearance of a product, including shape, pattern, or color, or a combination of these that are fit for industrial application.
Protection Duration: 15 years from the filing date (recently extended from 10 years, effective June 1, 2021).
Examination Process:
- Application: Filed with the CNIPA.
- Formal Examination: The design patent application is only subject to a formal examination to ensure compliance with procedural rules.
- No Substantive Examination: Like utility models, design patents do not undergo a substantive examination for novelty.
- Granting: The patent is granted once it passes the formal examination, provided that all requirements are met.

General Procedures for Filing a Patent in China

Filing: Applicants must submit their patent applications to the CNIPA, either directly or through an authorized patent agency.
Priority Claims: If the applicant has filed the same patent in another country within 12 months (for invention and utility models) or 6 months (for designs), they can claim priority based on international agreements like the Paris Convention.
Publication: Invention patents are published after 18 months from the filing date, while utility models and design patents are published upon grant.
Opposition and Revocation: After a patent is granted, third parties can challenge the validity of the patent through patent invalidation proceedings at the Patent Reexamination Board (PRB).
Maintenance Fees: After a patent is granted, annual fees are required to keep the patent in force.
Enforcement: Patentees can enforce their rights by initiating legal action against infringers in the courts or filing complaints with local patent enforcement authorities.

Enforcement and Litigation

Administrative Enforcement: Patent owners can file a complaint with local authorities (Administration for Market Regulation), which can investigate and impose penalties on infringers.
Civil Litigation: Patentees can also file civil lawsuits in specialized IP courts or tribunals in China.
Border Control: China has customs procedures that allow patentees to file with the General Administration of Customs (GAC) to prevent infringing goods from being exported or imported.

International Applications

China is a member of the Patent Cooperation Treaty (PCT). Applicants can file international patent applications designating China through the PCT system, which streamlines the process for obtaining patent protection in multiple jurisdictions, including China.

Summary of Key Differences:

Invention Patents: require substantive examination, offering 20 years of protection.
Utility Models: simpler and quicker to obtain, offering 10 years of protection but with no substantive examination.
Design Patents: protect aesthetic designs for 15 years, with no substantive examination required.

Each of these patents offers different levels of protection, and their application processes reflect the complexity and importance of the innovations involved.

READ THE GUIDES IN THIS PAGE: Patent Law - Trademark Law - Copyright Law - IPR Licensing - IPR Squatting - Trade Secrets - GO TO THE TOP OF THIS PAGE - GO TO THE INDEX OF THIS SECTION - GO TO THE HOMEPAGE

Trademark Law

In China, trademark protection is governed by the Trademark Law of the People's Republic of China and its related regulations. The China National Intellectual Property Administration (CNIPA) oversees trademark registration and enforcement.

What Can Be Registered as a Trademark?

A trademark can consist of:

Words, letters, numbers
Devices, logos, symbols
Combinations of colors
3D shapes
Sound marks (sound trademarks were introduced in 2014)
Combination of any of the above elements

Trademarks in China must be distinctive, lawful, and not conflict with prior rights.

Types of Trademarks

China allows for the registration of various types of trademarks, including:

Product trademarks (for goods)
Service trademarks (for services)
Collective marks (registered by associations for their members)
Certification marks (certifying the origin, quality, or other characteristics of a product)

Trademark Protection Duration

A registered trademark is valid for 10 years from the date of approval.
Renewal: Trademarks can be renewed indefinitely, each time for an additional 10-year period. Renewal requests must be filed within 12 months before expiration or during a 6-month grace period after expiration (with late fees).

Trademark Registration Process

Here’s an outline of the procedure for trademark registration in China:

Step 1: Pre-Application Considerations

Search: It is highly recommended to conduct a trademark search to ensure that the desired trademark does not conflict with existing marks. This can be done via the CNIPA’s online database or through professional trademark agents.
Classification: China follows the Nice Classification system, which divides goods and services into 45 classes. Applicants must specify the classes in which they wish to register their trademarks.

Step 2: Filing the Application

Where to File: Applications must be filed with the CNIPA either directly or through authorized trademark agencies.
Application Requirements:
- The applicant’s name and address (can be an individual or a company).
- A clear representation of the trademark.
- The list of goods/services to be covered under the trademark.
- If claiming priority from a foreign application, it must be within 6 months of the first filing date under the Paris Convention.

Step 3: Examination Process

Formal Examination: CNIPA checks if the application meets the formal requirements. If successful, the application proceeds to the next step.
Substantive Examination: The trademark undergoes a review for distinctiveness, legality, and conflict with prior trademarks.
- If the examiner finds the trademark to be acceptable, the application moves forward. If there are objections, the applicant will receive a rejection notice, and the applicant has 15 days to respond.
Publication: If the trademark passes the substantive examination, it will be published in the Trademark Gazette for a 3-month opposition period. During this time, third parties can file an opposition to the registration of the trademark.
- If no opposition is filed, or if the opposition is unsuccessful, the trademark proceeds to registration.

Step 4: Registration

After a successful examination and opposition period, the CNIPA issues a Trademark Registration Certificate.
The registration is then published, and the applicant gains exclusive rights over the trademark in China.

Opposition, Review, and Appeals

Opposition: As mentioned, during the 3-month publication period, any third party can file an opposition if they believe the trademark conflicts with their rights.
Appeal Against Rejection: If the trademark is rejected by the CNIPA, the applicant can appeal the decision to the Trademark Review and Adjudication Board (TRAB) within 15 days of receiving the rejection notice.
Review of Opposition Decision: If an opposition is upheld, the applicant may appeal the decision to the TRAB within 15 days.
Further Appeals: Decisions by the TRAB can be appealed to the Beijing Intellectual Property Court and, if necessary, further to higher courts.

Trademark Renewal

Timing: Renewal applications must be filed within 12 months before the expiration of the trademark’s 10-year validity period. A 6-month grace period is allowed after expiration, but late renewal fees apply.
Procedure: The renewal application must be filed with CNIPA, and after approval, the trademark is renewed for an additional 10 years.

Trademark Infringement and Enforcement

There are several mechanisms for enforcing trademark rights in China:

- Administrative Actions

Trademark owners can file complaints with local Market Regulation Bureaus (MRBs), which can investigate and stop infringing activities. MRBs can also impose fines, confiscate products, and seize infringing goods.

- Civil Litigation

Trademark owners can initiate lawsuits in People’s Courts (including specialized IP courts) to seek damages for trademark infringement. Courts may order injunctions, compensation, and other remedies.
China has specialized IP courts in major cities (Beijing, Shanghai, Guangzhou) to handle trademark and intellectual property disputes more effectively.

- Criminal Prosecution

Serious cases of trademark infringement, especially those involving large-scale counterfeiting, can lead to criminal prosecution. Criminal penalties may include fines and imprisonment for those found guilty of infringement.

- Customs Protection

Trademark owners can record their registered trademarks with Chinese Customs authorities to prevent the import/export of counterfeit goods. Customs can seize infringing goods at the border based on registered trademark records.

Well-Known Trademarks

China recognizes a special category of well-known trademarks. These trademarks receive broader protection, including in unrelated classes of goods/services. The CNIPA, courts, or administrative bodies can grant well-known status based on factors such as the trademark’s reputation and the duration of its use.

Madrid System for International Registration

China is a member of the Madrid Agreement and Madrid Protocol. This allows for international trademark applications designating China through the Madrid System, which streamlines the process for registering trademarks in multiple countries.

Bad-Faith Filings

China has a history of bad-faith trademark registrations, where individuals or entities register foreign trademarks without authorization. Recent amendments to China’s Trademark Law, effective from November 2019, address this issue:

Applications filed in bad faith without intent to use the trademark can be rejected.
Authorities can penalize bad-faith filers, and foreign entities can challenge such registrations on the grounds of bad faith.

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.

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.

IPR Squatting

< Back

^ Up

"IPR Squatting"

"Patent Squatting" and "Trademark Squatting" (sometimes referred to as "IPR Squatting") refers to the practice where individuals or companies register patents or trademarks—typically well-known foreign ones—before the legitimate owner or inventor has the opportunity to do so. This often results in legal disputes, extortion for the rightful owners, or challenges for foreign businesses attempting to enter the Chinese market.

"Trademark Squatting" in China

"Trademark Squatting" occurs when a person or entity (often unrelated to the actual brand owner) registers a well-known or unregistered foreign trademark with the intent of selling it back to the rightful owner or preventing the rightful owner from using it in China. This is particularly problematic for foreign businesses that haven't yet registered their trademarks in China but intend to expand into the Chinese market.

- Why It Happens:

China operates on a "first-to-file" system rather than a "first-to-use" system for trademark registrations. This means that the first person to register a trademark generally becomes its legal owner, even if they have no prior relationship with the brand or have never used it in commerce.
Squatters exploit this system to register foreign trademarks before the actual brand owner can do so, then demand hefty sums to transfer ownership back.

- Common Scenarios of "Trademark Squatting":

Foreign Brands Entering China: A foreign company may not yet have expanded into China, leaving its brand unregistered. Squatters register the name, forcing the company to either pay large sums to reclaim the trademark or be prohibited from using its own brand.
Brand Misspellings or Variations: Squatters often register variations or misspellings of well-known foreign brands.
Celebrities and Personal Names: Squatters register the names of foreign celebrities or public figures to use them on products.

- Legal Remedies for "Trademark Squatting":

China's Trademark Law has improved over the years to combat squatting, but challenges remain. Some of the legal remedies include:

Opposition and Cancellation Procedures:
- A company can oppose a squatter's trademark application before it is granted by filing an opposition during the publication period (usually three months).
- If a squatter successfully registers the trademark, the rightful owner can file a cancellation action based on non-use (if the squatter does not use the mark within three years) or bad faith (if it can be proven that the squatter filed in bad faith).
Bad Faith Provisions:
- The Trademark Law was amended in 2019 to introduce clearer provisions aimed at curbing bad-faith applications. Article 4 of the law now states that applications not intended for actual use should be refused. This was designed to target bad-faith filings by squatters who have no intention of using the trademark in commerce.
- In cases where squatting is evident, China’s courts and the China National Intellectual Property Administration (CNIPA) have increasingly ruled in favor of legitimate brand owners.
Well-Known Mark Status:
- If a foreign trademark is recognized as a well-known mark in China, the CNIPA may block applications by squatters attempting to register the same or similar marks, even if the mark isn’t registered. However, obtaining well-known mark status in China is difficult, as it requires evidence of significant use and reputation in China, not just internationally.
Defensive Registration:
- To avoid trademark squatting, foreign companies are encouraged to register their trademarks in China as early as possible, even if they do not plan immediate market entry. This includes registering not only the English version but also Chinese transliterations or Chinese character versions of the trademark.
Negotiation and Purchase:
- If squatting has already occurred, some foreign companies opt to negotiate with the squatter and purchase the trademark, often paying large sums. This is sometimes seen as the fastest way to resolve the issue, though it is not an ideal solution.

"Patent Squatting" in China

Patent squatting refers to the practice of filing patent applications for inventions or technologies that have already been patented or developed elsewhere but have not been filed in China. Squatters capitalize on the "first-to-file" patent system in China, similar to the trademark system, where patent rights are granted to the first person to file an application, regardless of actual invention or use.

- Types of "Patent Squatting":

Foreign Inventions Not Filed in China: Squatters monitor foreign patent filings and quickly file equivalent patents in China if the foreign company has not already done so. This can block the foreign inventor from entering the Chinese market or using their own technology there.
Technical Improvements or Minor Modifications: Squatters may file patents on minor technical improvements or modifications to foreign inventions, claiming rights over these "improvements."

- Challenges Posed by "Patent Squatting":

Blocking Market Entry: Squatters can prevent foreign companies from utilizing their own technologies in China, which forces companies to engage in costly legal battles or pay off the squatters.
Extortion: Squatters sometimes wait for the foreign company to enter the Chinese market and then demand exorbitant fees for the company to continue using its technology.
Local Manufacturing and Exports: Foreign companies manufacturing products in China might find themselves unable to export these products if a squatter holds a local patent for the technology involved.

- Legal Remedies for "Patent Squatting":

Invalidation Proceedings:
- If a squatter registers a patent, the legitimate inventor can file a request for invalidation of the patent with the Patent Reexamination Board (PRB) under the CNIPA. Grounds for invalidation may include lack of novelty or obviousness if the patent is based on an already-known invention.
First-to-File Principle and Prior Use Rights:
- China’s patent system operates on a first-to-file basis, so the party that files first typically gets the rights. However, in some cases, prior use rights can be invoked. If the legitimate inventor can prove that they used the technology in China before the squatter’s filing date, they may retain limited rights to continue using the invention.
Patent Review and Litigation:
- Once a patent is granted, it can be challenged through administrative reviews or litigation in the Chinese patent courts. The foreign company must present evidence of earlier patent filings or prior art to invalidate the squatter’s patent.
Non-Use and Compulsory Licensing:
- If the squatter does not make commercial use of the patent within three years after registration, it may be subject to compulsory licensing or cancellation for non-use.
Defensive Patent Filing:
- As with trademarks, defensive filing is key to preventing patent squatting. Foreign companies should file patents for their inventions in China as early as possible, preferably simultaneously with their international filings.
- Filing a PCT (Patent Cooperation Treaty) application can be an effective way to extend patent protection to China.

Key Legal Issues:

Patent Law Amendments (2021): Recent amendments to China’s Patent Law, effective June 2021, have sought to strengthen protections for patent owners and enhance enforcement mechanisms. These updates include provisions for punitive damages in cases of willful patent infringement and stricter regulations for bad-faith patent filings.
While both trademark squatting and patent squatting pose significant challenges for foreign companies, recent legal reforms in China have sought to improve the situation. Amendments to the Trademark Law and Patent Law, as well as bad faith provisions and expanded cancellation and opposition procedures, are steps in the right direction.
However, the first-to-file system in China necessitates proactive IP protection strategies. For businesses considering market entry or already operating in China, early and comprehensive trademark and patent registration (including translations and minor variations) is crucial to safeguarding intellectual property and avoiding squatting issues.

Key Strategies for Foreign Companies:

File early: Register both trademarks and patents in China as early as possible, even before entering the Chinese market.
Monitor filings: Keep an eye on trademark and patent applications in China to identify any potential squatting attempts.
Use local counsel: Engage Chinese IP lawyers or agents to handle filings and opposition/cancellation procedures effectively.
Defensive filings: Consider registering variations or translations of your trademark and filing patents for all key technologies.

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 Agreements (NDAs):
- 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.

Recent Legal Developments

China has enhanced trade secret protection through the following updates:

Amendments to the Anti-Unfair Competition Law (2019):

Expanded the definition of misappropriation to include unauthorized electronic intrusions and hacking.
Strengthened penalties for trade secret violations, increasing potential damages and allowing for punitive damages in cases of willful infringement.
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.