Industry Specific Issues

Agriculture

The Foreign Agriculture Service (FAS) in China is concerned with the growing number of agricultural commodities trademark and patent infringements. The United States is China’s largest supplier of agricultural commodities, reaching a record level high of $6.17 billion in 2004. The U.S. agriculture industry is among the many industries that are facing IPR violations. 

The concerns for U.S. agricultural industry include trademark violations, patent abuse, and protection of new varieties of plants and seeds. On April 14, 2005, China’s State Council Information Office published the White Paper on IPR Protection, addressing issues surrounding new varieties of plants. Detailed information can be found in Section VI of the White Paper, the link to the White Paper is provided below. 

FAS believes that the new initiatives will assist the efforts to address IPR concerns in U.S.-China agriculture trade policy. All agriculture companies should follow the IPR toolkit guidelines to ensure proper registration of trademark and patents. For further details on IPR, agriculture in China, and FAS China’s IPR initiatives please visit the link below.

FAS China website
http://www.usdachina.org/trade_shows.asp?id=C3GmCJ0q

China’s State Council Information Office, White Paper
http://www.china-embassy.org/eng/gyzg/t192663.htm

Autos

Integrated Circuit Designs

In China, measures for the protection of integrated circuit layout designs focus on the protection of designs of semiconductor chip layouts, or mask works. To qualify for protection, which extends 10 years from the date of registration or first commercial use, whichever is earlier, these designs must be registered within two years of their first commercial use. While the protections afforded to mask works do not prevent the independent creation of an identical layout, the rightsholder does enjoy the following exclusive rights:

• The right to reproduce the layout-design under protection in its entirety or any creative part thereof
• The right to exploit commercially the layout-design, an integrated circuit in which the layout-design is incorporated, or an article incorporating such an integrated circuit

Automotive IPR Initiative

The manufacture, domestic sale and export to third markets, including the U.S., of counterfeit automotive parts from China are major problems for the U.S. automotive industry. Trademark infringement and design theft are also areas of major concern. Counterfeit car parts cost legitimate automotive parts manufacturers around $12 billion annually in lost sales, enough for the industry to take on an additional 200,000 workers. 

The Department of Commerce’s International Trade Administration (ITA) has opened a dialogue with the U.S. automotive industry to develop new ideas and approaches for protecting intellectual property rights and reducing the current level of IPR infringement in China. On November 1, 2005, the U.S. Foreign Commercial Service in Shanghai, in conjunction with the Trade Facilitation Office in Beijing and the Office of China Economic Area in Washington, along with the U.S. Patent and Trademark Office, conducted a three and one-half hour meeting on automotive IPR issues attended by approximately 30 U.S. auto parts companies doing business in China.  Major IPR issues were discussed and follow-up meetings and possible work plans are now being considered. 

Internet Publishing

The prior version of the Copyright Law did not address copyright issues relating to online works, electronic publications and other works created or fixed in digital media. Nevertheless, China's courts addressed this issue even before the Copyright Law was amended.

In September 1999, the Beijing Haidian District People's Court ruled that unauthorized publication of a work on the Internet is a copyright. In this case, the Haidian Court ruled in favor of six authors who claimed that their works had been published on the Internet without their permission. Subsequently, a Supreme People's Court interpretation issued in November 2000 provided further support for the view that works of literature, art and science captured in digital format may be protected by copyright, and therefore, their unauthorized dissemination or reproduction on the Internet constitutes copyright infringement.

Formally codifying the conclusion of the above and other cases, the amended Copyright Law expressly provides that the unauthorized publication of a copyrighted work over the Internet or any information network constitutes an infringement of that copyright.

Movies

The film industry is a vital component of the US economy. In 2001, the combined radio, television and motion picture industries accounted for $108.4 billion of US GDP. The American motion picture industry has the largest trade surplus of all major US industries and directly employs 500,000 people in the US alone. The success of US films abroad is a major component of industry revenue, however, market access barriers to the import, distribution, and screening of foreign films in China dramatically undermine legitimate sales of US films and create a critical market opportunity for pirates.

Both intellectual property piracy and market access barriers have hindered the U.S. film industry's attempts to establish a foothold in China. Film piracy in China is massive and accounts for as much as 95 percent of all films sold in China (up from 91% in 2002). The piracy problem is compounded by market access barriers including:

1. A government monopoly on film importation
2. A theatrical distribution duopoly
3. A numerical limit on film imports (market access restrictions limit the import and theatrical screening of legitimate foreign movies to only 20 "revenue-sharing" foreign films per year)
4. A slow and cumbersome censorship process
5. Limits on the retail sale of home entertainment

These market access problems have been exacerbated by periodic blackouts on the release of new foreign films.

China Film is the sole Chinese importer of foreign films. China Film and Huaxia Film, both part of the same monopoly managed by the Film Bureau, are the only two Chinese distributors of foreign films. As a result of China's film distribution duopoly, decisions limiting the market access and timing of foreign films, whether commercial or not, severely restrict market competition, with the result that even commercial decisions can have the impact of a market blackout.

Music

The National Copyright Administration of China and China's Musician Association founded the Music Copyright Service of China (MCSC) on December 17, 1992. MCSC is a government-related entity and the only one in existence that addresses copyright issues in China's music industry today. Starting in 1992, MCSC began collecting fees from hotels, shopping malls and other locations of entertainment in Shanghai that used background music, sometimes through the local NCA offices. Since it began collecting fees in Shanghai, MCSC has increased its reach and today collects fees in many parts of China, primarily in larger cities.

The collection of fees is by authorization of the copyright owner. The copyright owner is required to fill out a form and pay a one-time charge of RMB20. MCSC retains 20 percent of the fees it collects, while 80 percent of the fees is distributed to the copyright owner. However, the collection of fees is not without difficulty. MCSC often has to bring suit in the local courts against the entities using the music, in order to collect the fees. To date, the MCSC has signed agreements with four U.S. music associations: ASCAP, BMI, SESAC and HAFOX. The agreements with ASCAP, BMI and SESAC address use of the association members' music. The agreement with HAFOX addresses copying of the association members' music. If any Chinese users play music which belongs to any members of these associations, he or she must pay the requisite fee through the MCSC. A less detailed English version of the MCSC website can be found at http://www.mcsc.com.cn/about/english.htm.

Pharmaceuticals

Drug development and research occurs in countries with larger bundles of intellectual property rights. The additional intellectual property rights provided to the pharmaceutical industry, as compared to other industries, reflects the high-risk nature, high costs, and long development time for pharmaceutical products. Drug development is a high risk business which results in only 1 out of 5,000 screened compounds meeting the safety and efficacy profile to be approved as a medicine for human use. Currently, it costs more than 800 million USD on average (including compounds for which development is discontinued) to develop a new medicine (Tufts Study). Much of this increasing cost is due to the fact that modern medicines are treating increasingly complex diseases. Therefore, the patient numbers per clinical trial and the total number of patients needed to approve a new drug continue to increase. The total R&D process takes 11-15 years. Application for patent protection is generally made near the beginning, at the completion of the discovery stage. By the time a drug has completed the long process of clinical testing, many years of patent life have already been lost.

Some of the key milestones in China building its pharmaceutical IPR portfolio are:

• In 1993, amended the patent law to include pharmaceutical invention patents
• In 1993, provided administrative protection for a pharmaceutical patented abroad from 1986 to 1992, for a term of up to 7.5 years
• In 2002, adopted data exclusivity for a 6-year term
• In 2002, added provisions on patent linkage

China will want to strengthen the implementation of already adopted rights, and supplement current rights:

• Data exclusivity: in implementation, more details regarding scope, timing and transparency could be expected to be detailed in published notices/rules
• Patent linkage: in implementation, more details regarding transparency, and the roles of different government departments and the courts, could be expected to be detailed in published notices/rules
• Counterfeit drugs: Chinese authorities may want to consider making criminal all drug counterfeiting activities (including manufacture, sale, distribution, possession and facilitation)
• Additional exclusivity mechanisms: Chinese authorities may want to adopt a system similar to other major markets which restores up to 5-7 years of patent life lost to long development time and regulatory delays. Chinese authorities may also want to consider adding exclusivity periods for orphan drugs and new clinical studies.

Software

Registration is not a prerequisite to obtaining copyright protection for software. China, however, acting through the NCA, does maintain a non-compulsory system for registering software copyrights, exclusive software copyright license contracts and software copyright transfer contracts. Registration of a software copyright puts the public on notice that a work is copyrighted and the registrant's claim of ownership of the copyright, entitling the registered software to stronger protection. While software copyright registration is not a prerequisite to filing an infringement action, it is often a prerequisite to the receipt of tax benefits available to locally developed (but not foreign or imported) software products.

Despite the presumption of validity resulting from the registration of software copyrights, only a relatively few companies have actually done so. The decision not to register has most often been based upon the required disclosure of source code. Specifically, applications for the registration of software copyrights are required to contain program authentication materials that must include 20 consecutive pages taken from each of the beginning, middle and end of the source code.

In acknowledgment of the obvious confidentiality concerns associated with such a disclosure, the Measures for Computer Software Copyright Registration provide that to avoid the disclosure of trade secrets, program authentication material may be submitted with:

• Wide black lines covering confidential portions of the 20 consecutive pages of source code disclosed, but the portion so covered cannot exceed 30% of the source code supplied
• 10 consecutive pages from the beginning of the source code, plus 50 consecutive pages from any other part of the source code
• 20 consecutive pages from each of the beginning, middle and end of the target program, plus 20 pages from any part of the source code

Computer programs and software cannot be patented (but may be protected under the Regulations on the Protection of Computer Software) in China. However, if the combination of software and hardware as a whole may really improve the prior art, bring about technical results and constitute a complete technical solution, an invention containing a computer program may be patentable.