EU Afraid To Share Sensitive Proprietary Info With China

The executive summary of the 2009 Position Paper of the European Union Chamber of Commerce about China shows the concerns the EU has about China's alleged industrial-intervention policies and foreign investment restrictions.

"The results of the European Chamber Business Confidence Survey 2009, [..], indicate that European investors in high-tech and branded goods are more interested than ever in the Chinese market. However they are extremely cautious about further investment. They have concerns about the protection of Intellectual Property Rights if they transfer technology, and about the relatively unpredictable mergers and acquisitions policies. Meanwhile, the barriers to market entry – the establishment costs in capital requirements, licensing, forced joint ventures and ownership caps – are making China less and less appealing as an investment destination for European companies."

The executive summary of the paper states that the EU is more important for China than vice versa. China's exports to the EU represent 7 percent of China's GDP, while the EU's export to China represents only 0.7 percent of the EU's GDP. Therefore, the EU claimes it is in the interest of China, to open up its markets, so that EU companies will continue to invest in China.

The paper itself consist of four themes:

• market access (An important channel of knowlegde transfer is the licensing of patent-pending or patented inventions, which “typically involves the purchase of production or distribution rights and the underlying technical information and know-how”, according to Keith E. Maskus, who wrote extensively about the subject. See 'Transfer of Technology and Technological Capacity Building. ICTSD-UNCTAD Dialogue,' 2nd BellagioSeries on Development and Intellectual Property. Sept. 2003, pg 18-23. So, when the protection/enforcement of IPRs in a developing country is less than perfect, chances are bigger that companies from developed countries transfer technology via exports or foreign direct investments, instead of licensing. Also, according to the executive summary China made a not very generous offer during the negotiations of the World Procurement Agreement (WPA), which would delay China's accession. I hope to speak about the IPR implications of the WPA with
• transparency "The promulgation by ministries ofadministrative rules and interpretations is still generally characterised by a disturbing lack of transparency.";
• administrative coordination;
• IPR: "there is a growing concern amongst European companies about the leakage of confidential information which can occur at various stages of business development, such as: project approvals, product certification, environmental impact assessments, patent filings, marketing approvals and registration. For example, during the CCC process (China Compulsory Certification, a precondition to market access for 130 product categories), highly confidential information, which goes far beyond the scope of information necessary for the approval concerned, is frequently requested by testing labratories."

In the same vein: the EU has problems with article 19 of the Third Amendment of the Patent Law (passed on December 27, 2008) which prescribes any entity or individual intending to file a patent application abraod for an invention-creation made in China, shall apply in advance for a confidentiality examination conducted by the patent administrative department under the State Council.

So in order to get market access or intellectual property protection EU companies need to share confidential information. However, they are afraid that if they do, there is a chance that this information is misappropriated. For example given to a Chinese company that can register first or make sure that the information belongs to the prior art or prior design.

Read the executive summary here (10pg PDF).

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Patent Law Draft About to be Adopted: How Will Patent Law Change?

China Daily's reports via People's Daily that China's third revision of its patent law is drafted.

On July 31, 2006 SIPO promulgated the Draft of Amendments to the Patent Law for public comments. Draft amendments to the law were handed to the State Council for deliberation on December 27, according to the State Intellectual Property Office (SIPO), which was in charge of drafting the amendments.

SIPO spokesman Yin Xintian said that half of the current 69 provisions will be changed.

If the draft will be adopted, what will change? The article 'China: Third Time Lucky' by Yong Li Wenping Chen of King & Wood published for Managing Intellectual Property sheds light over the possible outcome:

• the absolute novelty standard (currently it is a blended novelty standard; where prior art includes publication inside or outside China, but public use or other means of disclosure only in China); in the draft prior art is broadened to include public use or other means of disclosure outside in China;
• a design patent shall not be identical or similar to a prior design, but it shall also be significantly different from element combination of prior designs;
• the optional brief description of the design under the current rules will become compulsory for design applications;
• a design application for multiple similar designs of a product becomes possible.
• infringement determination standards will be incorporated, that strengthen patent protection, extend the scope of patent infringement exemptions and further clarifies stipulations on compulsory licenses;
• only inventions made during execution of employment duty or made mainly by using the employer's technical secrets are statutory service inventions. However, inventions made mainly by using the employer's other materials and technical means will be deemed as non-service inventions unless otherwise agreed. In the latter case, the employer has a non-exclusive and non-assignable right to use the inventions.
• SIPO is getting more powers, including examining witnesses and other relevant parties; reviewing and making copies of relevant contracts, receipts, accounting books and other documents; conducting inspections of premises; seizing infringing goods and specialized equipment for infringement; issuing orders to stop infringement; and confiscating infringing goods and specialized equipment for infringement in severe cases;
• the doctrine of equivalents, prosecution history estoppel, and defence based on practicing prior art in infringement are incorporated in the draft. Infringing equivalents are limited to equivalents of technical features rather than the whole solution, and the well-known function-way-effect test is adopted. Any written amendments or statements that restrict the patent scope which the patentee made during the patent prosecution or invalidation proceeding to comply with the granting requirements will have estoppel effects. No infringement shall be found if the alleged infringing product or process belongs to prior art;
• patentee is liable for bad faith actions;
• for injunctions issued by a court or a decision of an administrative authority, if the same infringer conducts a similar act infringing the same patent, the patent administrative authority may take the following actions: ordering the infringer to stop the infringement and publishing the order; confiscating the illegal revenue; and imposing a fine of up to three times the illegal revenue. Where there is no revenue, the fine can be up to Rmb100,000;
• pre-suit injunctions and property preservation orders are available under the current Patent Law, and include evidence preservation;
• the provision on statutory damages is incorporated in the Draft, and the upper limit is increased to Rmb1,000,000;
• parallel import is explicitly defined as non-infringement, and the Bolar exception is adopted for pharmaceutical related patents. According to the Draft, an entity may make, use or import patented pharmaceuticals or medical devices solely for acquiring information necessary for obtaining regulatory approval, and a third party may make or import and sell the patented pharmaceuticals or medical devices to that entity. The Bolar exception in effect shortens the protection term of pharmaceutical and medical device patents. However, the Draft has no corresponding provisions for possible extensions of the term of those patents. Even worse, the Draft does not provide a time limit for starting activities under the Bolar provision;
• after five years from knowledge of the infringement, no injunction may be issued if the infringer is willing to pay royalties as agreed by the parties or decided by the court.

Read Yong Li and Wengpin Chen's article here and the People's Daily article here.

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