The Flanders-China Chamber of Commerce, the China IP SME Helpdesk and the EU-China Business Association organized a webinar focused on “IP Protection in China: Considerations for innovative tech companies” on 13 July 2023.
Ms Alessandra Capriglia, Project Manager, introduced the China IP SME Helpdesk. It is an EU-funded initiative providing free advice to European SMEs that are interested in China. The Helpdesk covers mainland China, Hong Kong, Macao and Taiwan, which each has its own IP system. Over the last 15 years the Helpdesk has assisted over 100,000 SMEs. Questions about your IP strategy or concerns may be addressed to question@china-iprhelpdesk.eu Advice is provided free of charge within three working days. The Helpdesk organizes training workshops and webinars; one-on-one sessions; publishes self-learning materials, and has a website and blog. There are six EU-funded IP Helpdesks, including Europe, India, South-East Asia, Africa and Latin America.
An introduction of the Flanders-China Chamber of Commerce and of the EU-China Business Association was given by Ms Gwenn Sonck, Executive Director. She also said that it was very important that companies doing business with China have an IP strategy. Doing business in China has become more complex in a slowing market and with local competitors scaling. Companies need to rethink China and recalibrate appropriately for a possibly different business environment. Many companies are in China for the size of the market, the local supply chains, and very importantly for its innovation power. It is crucial to do the innovation where the applications are. Companies must be close to their customers. To keep up with the technology of the future, they must continue to invest in China. The speed of innovation in China is very fast and keeps our companies sharp. China is filing more than 60% of AI patents with the world patent organization.
Mr Valentin De le Court, China IP Expert, delivered a presentation on “IP Considerations for Innovative Tech Companies”. He has been an IP lawyer for almost 20 years and lived in China from 2012 till 2016, working for a Shanghai-based Chinese IP boutique. Today he works for the British firm Osborne Clarke, which has an office in Shanghai.
China is aiming at becoming more self-reliant in science and technology. From an IP perspective, more challenges may occur for innovative SMEs. IP laws in China have evolved in less than four decades from a no man's land to being the top national priority. There were no IP laws in 1978, while in 2021 it became a top national priority. Innovation is absolutely a key concern for China today. When you focus on innovation you have to focus on IP, because it will allow to protect innovation. China is a member of the World Intellectual Property Organization (WIPO) and is part of the world IP order. A complete set of Chinese IP laws is in place and the legislative dynamism is very impressive. Laws are constantly being adapted. The fourth amendment of the China Patent Law came into effect on June 1, 2021 and the Trademark Law is now under revision.
China is the No 1 country for patent applications. In 2015 more than one million Chinese invention patent applications were filed. Has China become an innovator or is this the result of targets imposed on Chinese businesses? It is somewhere in the middle, but it is clear that China has become a strong innovator. It is moving from the quantity of patents to high-quality patents. In 2021, 1,586,000 Chinese invention patent applications were filed, up 5.9%, with 90% of them domestic, originating from companies based in China. It is internationalizing and Chinese businesses are developing sophisticated IP portfolios abroad. In 2021 China was again the No 1 Patent Cooperation Treaty (PCT) applicant filing almost 70,000 applications. China is the country with the most applicants to feature in the top 50 university list and the Shenzhen Institute of Advanced Technology became the top PCT applicant in the government and PRO sector. Huawei was the single top PCT applicant.
China is the most IP litigious country in the world. In 2021 more than 31,000 patent litigation cases were introduced compared to between 20 and 30 in Belgium. There are highly specialized IP judges and courts in China to deal with complex technology-related cases. The judges know very well how the patent system works, resulting in very qualified patent court decisions. IP litigation cases are mostly domestic (99%). Among the public cases, there is a higher win rate of foreigners. This means that as a foreign company you can certainly win your IP case. There is an increase in cases involving foreign businesses and also more cases against and between foreign businesses. This means that you really need to have an IP strategy when doing business in China. You need to tackle the risks in advance because now more than ever you might be accused of IP infringement especially in strategic technology sectors that are promoted by the government.
China has become an important innovation center. R&D spending in China grew tenfold between 2000 and 2016 and China is set to pass the U.S. on research and development spending by 2025. Today everyone is aware that China has become a strong innovation center but this is a very recent development. When I came to China in 2021 as an IP lawyer people were laughing at me because they were convinced China could only copy.
It is clearly stated in the 14th Five Year Plan (2021-2025) that China's goal is to become a self-reliant technological powerhouse and to end reliance on foreign technology. Focus on innovation leads to focus on IP. The Chinese authorities are strongly supporting the development of an efficient IP system at the highest level of government. Four years ago, President Xi Jinping already mentioned that without innovation there will be no progress. IP is a driver of innovation, which is also supported by centralized planning in R&D and innovation.
China is very sophisticated and focused and planning to become a leading innovator. China is leading in the three indicators of innovation: patents, peer-reviewed scientific publications and education. The impact on the IP system has been a great improvement and a maturing system. The biggest threats to your business are IP theft, but also China's tech competitiveness. One example is a Chinese business planning to set-up a company in the EU to commercialize a new generation of battery technology. The technology was developed by a Chinese company in China. The plan was to license the technology to a newly set up a Sino-Belgian joint venture. Central to the deal was a technology transfer agreement which was only possible because the Chinese company was very IP-aware.
What can we learn from these facts and figures? The Chinese IP landscape has improved. It is possible to protect your IP rights in China and also to enforce them. IPR is now essential for Chinese businesses. Your Chinese competitors are IP focused. The goal to end technology dependence has consequences for EU SMEs. It opens up opportunities in strategic industries in the short and medium term, but only to companies with a strong IP strategy, tailor made to the Chinese context and needs. But in the longer term, there will be market challenges and the need for EU companies to stay one step ahead and to strongly innovate.
The domestic impact is increased filings in strategic industries; greater scrutiny of foreign IP filings and more foreign IP invalidations, and more IP disputes. Globally, there will be more outbound IP filings, internationalization of Chinese brands, and more outbound filings of Chinese patents internationally.
How to protect your intellectual property in China? The first step is that you should now your IP and perform an IP audit and due diligence. Intangible assets are non-physical and may be difficult to identify. Very often SMEs lack an overview of the IP assets of the company, so they do not know what they should protect. Some companies heavily reliant on Chinese manufacturing do not have an IP portfolio. Step two is to know what to protect and what IP assets are essential to achieve your business goals. Step three is to know how to protect your technology through IPR and trade secrets. An IP right is an exclusive right, forbidding others to exploit it. In the tech sector this will mainly be patents and copyright. In the case of trade secrets, the protection will be based on the nature of the information and on the way it is handled by the holder. Trade secrets protect you against unlawful acts. Step four is to create a bundle of rights as different IPRs serve different goals. Trademarks will protect your brand identity; patents protect technical features; designs protect the external aspect of products, copyrights protect creative works, and trade secrets protect confidential information. A same object can be protected by different types of IP rights. Step five is to have enforceable IP rights, requiring you to be proactive. Territoriality is crucial, registration is needed and you need to adapt to the specificities of the Chinese IP system. Not applying for registration is the same as granting a free license to use your inventions on the Chinese market. Step six is to pay attention to IP in your contracts. This is the key for successfully protecting your IP in China. Those contracts not only include technology contracts, but also employment and consultancy agreements. Step seven is a focus on three types of rights: patents, copyright and trade secrets. Invention patents can cover a product, process or a combination of both, while utility models only cover products. Invention patents are valid for 20 years and utility models for 10 years after the filing date. It is now easier to patent computer implemented inventions (CIIs) in China. Utility models are underused by foreign companies although they are easy, cheap and quick to obtain. The foreign/Chinese ratio for invention patents is 1 to 9 while for utility models it is 1 to 382.
What to remember? China's IP landscape is constantly on the move. The main IP issues often are the result from foreign companies failing to take the required steps. There are opportunities for EU SMEs with technologically strong brands and an IP strategy. Be proactive and have a tailor made IP strategy, and finally, be confidentiality-obsessed and focus on human resources. A Q&A Session concluded the webinar.
