Draft regulations from the National Development and Reform Commission (NDRC) formalise China’s changing stance on asserting punitive damages for infringement, severely punishing criminal acts regarding IP rights and stating that IP rights should be fully protected.
The NDRC leads China’s macroeconomic planning. It formulates and implements strategies for national economic and social development and for coordinating major economic operations. The NDRC published the Regulations on Optimising the Business Environment (Draft for Comments) on 14 July 2019. The draft regulations are in response to the State Council’s 2019 Legislative Work Plan.
The draft regulations are among the 42 administrative regulations to be formulated under the work plan for optimising the business environment. Essentially, the draft regulations are the NDRC’s response to the work plan to change government functions and accelerate the establishment of a stable, fair, transparent and predictable business environment.
The draft regulations contain 68 articles covering:
- better protection for intellectual property;
- equal market access; and
- more support for private businesses and small companies.
The regulations underline that it is necessary to treat all types of market entities equally and to establish a punitive damages system for IP infringement.
The regulations are open for public comment until 12 August 2019, with Articles 13 and 20 dealing primarily with IP rights.
Articles 13 and 20
Article 13 notes that the state will:
- strengthen the protection of IP rights;
- severely punish criminal acts infringing IP rights in accordance with the law;
- promote the establishment of a punitive damages system for IP infringement; and
- fully protect the legitimate rights and interests of IP rights holders.
It also requests the relevant departments to:
- establish and improve a mechanism for IP disputes, as well as a mechanism for safeguarding IP rights;
- improve the review of IP rights, the confirmation of rights and rights protection mechanisms; and
- increase the assistance available for the protection of the intellectual property of small and micro enterprises.
Article 20 of the draft regulations also touches on IP rights, calling for the establishment of a unified registration system for personal and IP rights. The proposed unified platform pledges personal property and intellectual property as security for financing. This will facilitate the monetisation of IP rights for IP owners. There were already some regulations in place for pledging IP rights for financing, but this paragraph sets out the framework for a unified registration system to encourage the transaction of personal property and the monetisation of IP rights.
Domestic and international corporations have been calling for a punitive damages system in China for some time. IP owners have been concerned about the ever-increasing costs of IP litigation and the disproportional damages awarded by the courts.
For a long time, the low amount of damages – and even nominal damages – have significantly deterred IP owners from enforcing their IP rights. This has had a chilling effect on investments in China from overseas technology companies. Establishing a punitive damages system helps to address the concerns of IP owners and increase confidence in the enforcement of IP rights. It also helps to build the IP protection framework in China, especially in the eyes of foreign investors.
The move was foreshadowed in April last year when Shen Changyu (head of the State Intellectual Property Office) stated that a punitive damages system for IP rights would be introduced. As a result, China has been amending its laws and regulations in different fields to establish a comprehensive punitive damages system. For example, relevant articles were put in place in the amended Trademark Law. The revised law was promulgated on 23 April 2019 and will become effective on 1 November 2019. The revision adds clear language to Article 4 of the law to the effect that applications for trademark registration that are malicious and filed without intent to use shall be refused.
The fourth draft of China’s Patent Law (published in January 2019) also introduced the concept of punitive damages for serious wilful infringement. It is reported that similar regulations for punitive damages will be included in the upcoming third amendment to the Copyright Law.
Bad-faith registrations and infringement put tremendous strain on brand value and portfolio management for foreign owners. This is particularly true in China as a brand’s global portfolio will likely have a significant China component in such a major market. Considering the significant number of trademark applications in China (7.371 million in 2018), it is increasingly important for trademark owners to have a strong portfolio for enforcement purposes, even for brands that are not selling, but only manufacturing, within China.
The draft regulations from the NDRC are part of a larger movement in a country that is increasingly recognising the true value of intellectual property. This movement acknowledges that it is necessary to increase the financial penalties for IP rights infringement in order to act as a substantial deterrent and warn off potential infringers.
This article first appeared on WTR Daily, part of World Trademark Review, in August 2019. For further information, please go to www.worldtrademarkreview.com.