China Makes Significant Commitments to Improve Intellectual Property Protection in Phase 1 Trade Deal

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In the Economic and Trade Agreement Between the United States of America and the People’s Republic of China, Phase 1, dated January 15, 2020 China has made several major commitments to improve Intellectual Property protection.  Chapter 1, which comprises 16 pages of the 94-page document, specifies improvements in trade secret protection; strengthening pharmaceutical-related Intellectual Property; granting patent term adjustments and extensions; preventing piracy and counterfeiting on e-commerce platforms; increasing transparency in geographical indications protection; preventing manufacture and export of counterfeit goods; stopping bad-faith trademarks; and increasing bilateral cooperation on Intellectual Property protection. China will generate an action plan within 30 days to implement the above listing measures that China will take and as well as the date each measure will go into effect.

Trade Secrets and Confidential Business Information

The agreement requires China to enumerate additional prohibited acts that constitute trade secret misappropriation including:

(a) electronic intrusions;
(b) breach or inducement of a breach of duty not to disclose information that is secret or intended to be kept secret; and
(c) unauthorized disclosure or use that occurs after the acquisition of a trade secret under circumstances giving rise to a duty.

In addition, the agreement provides for burden shifting to an accused party in civil proceedings for misappropriation when the holder of a trade secret has produced prima facie evidence, including circumstantial evidence, of a reasonable indication of trade secret misappropriation by the accused
party.

Other measures include the use of preliminary injunctions, clarifying criminal enforcement of misappropriation, and preventing unauthorized disclosure of trade secrets by government entities.

Pharmaceutical-Related Intellectual Property

The agreement requires allowing pharmaceutical patent applicants to rely on supplemental data to satisfy relevant requirements for patentability, including sufficiency of disclosure and inventive step, during patent examination proceedings, patent review proceedings, and judicial proceedings.  In addition, the agreement specifies a mechanism for early resolution of patent disputes in the pharmaceutical space.

Patents

Similar to the U.S. Patent & Trademark Office’s patent term adjustment and patent term extension, China shall provide extensions  to compensate for unreasonable delays that occur in granting the patent or during pharmaceutical product marketing approvals.

China, at the request of the patent owner, shall extend the term of a patent to compensate for unreasonable delays, not attributable to the applicant, that occur in granting the patent. For purposes of this provision, an unreasonable delay shall at least include a delay in the issuance of the patent of more than four years from the date of filing of the application in China, or three years after a request for examination of the application, whichever is later.

With respect to patents covering a new pharmaceutical product that is approved for marketing in China and methods of making or using a new pharmaceutical product that is approved for marketing in China, China, at the request of the patent owner, shall make available an adjustment of the patent term or the term of the patent rights of a patent covering a new product, its approved method of use, or a method of making the product to compensate the patent owner for unreasonable curtailment of the effective patent term as a result of the marketing approval process related to the first commercial use of that product in China. Any such  adjustment shall confer all of the exclusive rights, subject to the same limitations and exceptions, of the patent claims of the product, its method of use, or its method of manufacture in the originally issued patent as applicable to the approved product and the approved method of use of the product. China may limit such adjustments to no more than five years and may limit the resulting effective patent term to no more than 14 years from the date of marketing approval in China.

Piracy and Counterfeiting on E-Commerce Platforms

This section of the agreement requires expeditious takedowns on e-commerce platforms (e.g., taobao); eliminates liability for erroneous good-faith takedown requests; extends to 20 working days a deadline for rights holders to file a judicial or administrative complaint after receipt of a counter-notification; and to ensure validity of takedown notices and counter-notifications.  Further, China should revoke operating licenses of e-commerce platforms that repeatedly fail to curb the sale of counterfeit or pirated goods.

Geographical Indications

Perhaps controversially for other trading partners, the agreement  calls for any measures taken in connection with pending or future requests
from any other trading partner for recognition or protection of a geographical indication pursuant to an international agreement do not undermine market access for U.S. exports to China of goods and services using trademarks and generic terms.  In addition, China shall give its trading partners, including the United States, necessary opportunities
to raise disagreement about enumerated geographical indications in lists, annexes, appendices, or side letters, in any such agreement with another trading partner.

The agreement also calls on China to recognize the geographical indications can become generic over time and therefore subject to cancellation as well as providing for how to determine if a geographical indication is generic.

Manufacture and Export of Pirated and Counterfeit Goods

The agreement calls for measures to increase transparency and taking effective and expeditious enforcement action against counterfeit pharmaceuticals and related products containing active pharmaceutical ingredients, bulk chemicals, or biological substances.  Similarly, the measures call increased enforcement actions against counterfeit goods with health and safety risks.

The measures further call for the destruction of counterfeit goods instead of only removal of a counterfeit trademark unlawfully affixed to the counterfeit good.

For border enforcement, China should increase the number of trained personnel to inspect, detain, seize, effect administrative forfeiture, and otherwise execute customs’ enforcement authority against counterfeit and pirated goods, with an emphasis on counterfeit and pirated goods
that are exported or in transit. China should also increase the number of enforcement actions and publish quarterly updates of same.

China should also increase enforcement actions at physical markets (e.g., AP Xinyang Fashion & Gifts Market in Shanghai) for copyright and trademark infringement. 

Finally, all government agencies and all entities that the government owns or controls (e.g., state-owned enterprises that comprise perhaps up to 28% of China’s GDP) will use only licensed software.  Third party annual audits will be conducted annually beginning within 7 months of the date of the agreement.

Bad-Faith Trademarks

A main focus of China’s trademark law as amended effective November 1, 2019, the agreement requires further measures against bad-faith trademarks including transferring cases from administrative enforcement to criminal enforcement; instituting deterrent-level penalties; and ensuring expeditious enforcement of Court judgments.

The bad-faith trademark section of the agreement also includes measures for copyright, document authentication (reducing the need to authenticate evidence and streamlining procedures when needed), and allowing for witness testimony with cross examination in civil proceedings.

Bilateral Cooperation on Intellectual Property Protection

China and the U.S. agree to strengthen bilateral cooperation in the protection of IP without specific commitments except to discuss biennial cooperation work plans.

Implementation

Within 30 working days of entry into force, China will generate an Action Plan to implement the measures indicated and date each measure will go into effect.  The U.S. affirms that existing measures are already consistent with the agreement (and therefore, presumably, does not need to take any further action).

The agreement also includes other measures to stop forced technology transfer; increase trade in food and agricultural products, increase U.S. market access to China’s financial sector, increase transparency in currency exchange rates and not manipulate exchange rates; and increase exported goods bu the U.S. to China by $200 billion from a 2017 baseline amount.

Author: Aaron Wininger

Aaron Wininger is a Senior Attorney and Director of China Intellectual Property at Schwegman Lundberg & Woessner.

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Author: Aaron Wininger

Aaron Wininger is a Senior Attorney and Director of China Intellectual Property at Schwegman Lundberg & Woessner.