Considerations for New Zealand Technology Innovators Entering the Chinese Market

Article  \  1 Oct 2020

Despite the allures of the fast-growing Chinese market, issues of intellectual property theft and enforcement remain a critical concern. The Chinese government has made strides to strengthen its legal framework, and improve on intellectual property rights.  These changes are ongoing.

For example, on 8th Sep 2017, twelve China authorities (upper level) have jointly issued the Action Program on Protection of Intellectual Property Rights of Foreign-invested Enterprises (the ‘Action Plan’), which is the first time in China.

The formulation of this action plan indicates that the Chinese government is determined to construct a market environment with fair competition and further promote foreign investment growth.

More recently, draft amendments to China’s patent law have been released.  The proposals include an increase in the term of design patents from 10 years to 15 years, extension of the patent term for innovative drugs for up to 5 years, reform of damages including increased statutory damages and punitive damages, and several measures that should make it easier for a patentee to succesfully sue an infringer.

World Intellectual Property Organisation (WTO)’s end of year indicator (report dated 6th Dec 2017) shows that China tops the worldwide filings for patents, trademarks and industrial designs. China alone has filed more patent applications than the combined total for the United States of America, Japan, the Republic of Korea and the European Patent Office. China is increasingly amongst the leaders in global innovation and branding, they are not simply manufacturing overseas-originating technology.

This can be either an opportunity or a challenge for NZ exporters, depending on how they plan their IP strategies for the China market. Patents are an important weapon in warding off potential infringers and enabling action against actual copiers.  While less well known, similar to trade mark squatters, there are inscrupulous parties that will seek patent / utility model protection for others’ innovations, seeking protection yourself can be an easy way of fighting this.

Although China receives the largest number of patent applications in the world, it has a relatively stringent patent system, based on the German patent system.

China provides a 6-month grace period. This means that some disclosures of the invention up to 6 months before the filing date are not considered prejudicial or a bar to patentability.  In China, the grace period can only be applied under very strict conditions.  One allowed disclosure by the applicant at an international exhibition sponsored or recognized by the Chinese Government.  Despite this grace period, we recommend filing patent applications before any disclosure of an invention, particularly in view of the strict limitations as to what types of disclosure can be excused.

International exhibitions and trade fairs in China can reap substantial benefits. The top famous trade fairs in China include The Canton Fair (China Import and Export Fair) and the Yiwu Commodifies Fair. For example, statistics[1] indicates that there were about 191,950 buyers and 25,049 exhibitors from all over the world in the 2017 Canto Fair. The overall business turnover reached 30.16 billion USD.

Attending such trade fairs in China has substantial marketing value for exporters, but additional care should be taken, especially the risk related to intellectual property right theft.

Intellectual property rights are territorial, there are no ‘worldwide’ patents. China is a ‘first to apply’ country and whoever files the patent application in China first owns the right. Such right is only protected from the date of registration, which means that the patent right against an infringement is only enforceable after a patent is officially granted in China. Fortunately, one major difference between the patent systems in New Zealand and China is that, other than standard invention patents which are valid for 20 years, China has utility model patents which are valid for 10 years and normally granted within 1 year. While the scope of protection is similar to standard patents, examination is generally more straightforward.  These can be useful for products likely to have a relatively short life or where the additional cost of a standard patent is not justified.  For example, it can provide a relatively cost effective way of protecting your rights against contract manufacturers based in China where you are contemplating marketing the invention in China.

The internet and E-commerce have become a popular and easy channel for product distribution around the world. Up to 2017, it has created a marketplace of around 750 million internet users in China. For instance, the E-commerce giant Alibaba claims that it reached a sales record of 18 billion USD on the 2017 annual Singles Day event, a rise of 32% on the previous year’s sales of 14.3 billion USD. Apart from being a forum for exporters and original products, E-commerce platforms are also used illegally by unscrupulous businesses for the distribution of counterfeit goods, requiring careful monitoring to stop infringers.  E-commerce platforms have significantly lessened this burden, facilitating monitoring of counterfeits and providing quick and effective take down processes.

China provides great opportunities but also significant risks.  Since patents require absolute novelty (except for the narrow exemptions that fall within the grace period provisions), patents should be filed at the earliest opportunity.  It is highly recommended that exporters register their patent rights in China, even before they plan their marketing strategies. This can make it relatively straightforward to deal with IP theft such as by business partners but can also enable you to protect your turf on E-commerce platforms.

The legislation or at least procedures are different in some other Chinese language territories such as Hong Kong and Macau. Ask us for advice if these regions are important to you.

For more information on how to protect your business in China, download a copy of our free ‘Protecting your IP in China’ ebook.