Analysis of Intellectual Property Policy in China’s Innovation Strategy Wang Hanpo Beijing Huayi Law Firm I. History of IP Protection in China and US Table: The Development of IP Protection in China and US

Year

IP Protection in China

IP Protection in US

1790

Enact Patent Copyright Law

Law

1891

Promulgated Lanham Act

and

Signed Agreement on Scientific & Technological Cooperation Between the Government of the People's Republic of China and the United States of America

1979

1. Passed Bayh-Dole Act

1980

Join the World Intellectual Property Organization

2. Congress passed the Stevenson-Wydler Technology Innovation Act of 1980 3、Applied Bayh-Dole Act

1982

Enact Trademark Law 1、Renewed Copyright Law

1984

The Sino-US Cooperation in IP Protection

Enact Patent Law

2、Revised Patent Law and edited the Detailed Rules for the Implementation of the Patent Law in Code of

1

Year

IP Protection in China

IP Protection in US

The Sino-US Cooperation in IP Protection

Federal Regulations 1、Reform of the Science and Technology Management System 1985 2. Entered the Paris Convention for the Protection of Industrial Property Passed Federal Technology Transfer Act

1986

1987

Enact Law

Technology

Contract

1. Passed Omnibus Trade a Competitiveness Act (1988) 1988

1989

2、joined the Berne Conventi for the Protection of Literary a Artistic Works Joined the Madrid Agreement for International Registration of Trademarks

1990

Enact Copyright Law

1991

Enacted

Protection

Decided to keep China on the watch list for intellectual property theft first Sino-US IP negotiation was held and signed IP attachment of Agreement on Scientific & Technological Cooperation Between the Government of the People's Republic of China and the United States of America

of

Launch the first Special 301

2

Year

IP Protection in China Computer Regulations

IP Protection in US

Software

The Sino-US Cooperation in IP Protection investigation to China

1. Amended the Patent Act an d expanded the scope of patent protection. 2. Signed Berne Convention for the Protection of Literary and Artistic Works 1992

3.Signed Universal Copyright Convention 4 、 Enact and Regulations on Commissioning

Established National Technology Transfer Center

Signed Sino-US Memorandum of Understanding on Intellectual Property in 1992

Made Uruguay Agreements Act

Decided to keep China on a priority watch list for intellectual property theft

Applied Patent

5、Established IP Meeting in State Council 1. Made Science and Technology Progress Law 1993

2. Made Anti-unjust Competition Law, protecting trade secret 3. Revised Trademark Law 1．Promulgated the Decision on Further Strengthening IP Protection

1994

2. Published the White Paper on Intellectual Property Protection in China 3. Passed the Decision Regarding the Punishment of the Crimes of Infringement of Copyright 4. Sending the Notice on further Strengthening judicial

3

Round

Year

IP Protection in China

IP Protection in US

The Sino-US Cooperation in IP Protection

protection of IP

1995

1996

Published the Customs Protection Regulations of Intellectual Property Rights 1. Promulgated Law of the PRC on Promoting the Transformation of Scientific and Technological Achievements

Launched Special 301 Investigation to China for the third time

Passed Economic Espionage Act

2. Beijing Intermediate People's Courts established IPR tribunals

1997

Implemented Regulations on the Protection of New Varieties of Plants

Passed No Electronic Theft Act of1997

1. Passed Federal Technology Transfer Commercialization Act of 1997

1998

2. Passed Digital Millennium Copyright Act （DMCA）

1999

2000

Signed Sino-US Agreement on the Protection of Intellectual Property Rights

Signed the International Convention for the Protection of New Varieties of Plants

\

Revised Patent Law again

Passed Technology Transfer Commercialization Act of 2000

1．Revised Copyright Law 2001

2. Revised Trademark Law 3. Joined the WTO 4. Promulgated Regulations

4

Year

IP Protection in China

IP Protection in US

The Sino-US Cooperation in IP Protection

for the Protection of Layout-design of Integrated Circuits

2002

Implemented the Protection Byelaw of Computer Software IP roundtable conference was decided to be held once per year.

2003

1. established the National Working Group on IP Protection 2004 2. Revised Customs Protection Regulations of Intellectual Property Rights

2005

2006

State Council published white paper: New Progress in China’s Protection of Intellectual Property Rights

1. established the Office of U.S. Intellectual Property Enforcement Coordinator 2. Made the Family Entertainment and Copyright Act

Decided to keep China on a priority watch list for intellectual property theft

Published the IP Protection Action Plan of 2006

2007

Published the IP Protection Action Plan of 2007

2008

State Council published the Outline of the National Intellectual Property Strategy

The United States proposed to the WTO Dispute Settlement Body asking for consultations with China

Promulgated Prioritizing Resources and Organization for IP Act 2008, PRO IP Act and employed Intellectual Property Enforcement

5

Year

IP Protection in China

IP Protection in US

The Sino-US Cooperation in IP Protection

Coordinator

Published A Strategy for American Innovation: Driving Towards Sustainable Growth and Quality Jobs

2009

2010

2011

Revised the Customs Protection Regulations of Intellectual Property Rights

Published the IP Protection Action Plan of 2011

WTO dispute experts group of the Sino-US intellectual property case gave their Panel Report

1. Proposed Strategic Plan Fiscal Year2010-2015 2、Issued 2010 Joint Strategic Plan on Intellectual Property Enforcement

Pubilished the latest version of A Strategy for American Innovation: Securing Our Economic Growth and Prosperity

United States International Trade Commission issued a report named China: Effects of Intellectual Property Infringement and Indigenous Innovation Policies on the U.S. Economy (Investigation No. 332-519)

In the past 30 years, the American Intellectual Property Policy has been developing and improving in three areas: First, revision of such traditional IP legislations as patent law, copyright law and trademark law. 6

Many new concepts are listed as the protected IPR, such as ideas of e-marketing model and function gene.

Second, US continued

strengthening legislation on IP interest and translation. After The Bayh-Dole Act in 1980, Federal Technology Transfer Act in 1986, the US Congress passed the American Inventor's Protection Act of 1999, to enable universities and national laboratories have more initiatives in the process of patent applications and founding high-tech enterprises. In October 2000, the Senate and house passed the Technology Transfer Commercialization Act of 2000 to further simplify the utilization procedure of science and technology. Third, the US is suppressing counterparts in global trading competition through Omnibus Trade Act and Special 301, while on the other hand, the US has been promoting agreements on WTO TRIPS, hoping to establish a new powerful international IP protection standard and better protect the interests of the intellectual property right holders. It was in the same period China started its reform and opening up policy, reformed economic structure and science and technology system, began to construct IP protection system and also initiated a long-term intervened relationship of Sino-US IPR. Sino-US Cooperation Agreement on Science and Technology in the 1979 was the start point of Sino-US cooperation in science and technology. The first Sino-US negotiation on IP in 1989 was also started on the basis of that agreement. At this point, 7

the Sin0-US diplomatic relation has just established for only 10 years, Chinese Patent Law has only implemented for only 5 years, and China have had no Copyright Law. China was really like a blank sheet of paper, having no experience on IP protection, while US was enacted its Patent Law in 1790 and was keen to establish a new powerful international standard which was in favor of US’s national interests. After the negotiation process, China amended the newly enacted Patent Act expanding the scope of patent protection, made Copyright Law, protecting computer software and legislated Anti- unjust Competition Law, starting to protect trade secret. After three or four years, a new round of negotiations started. However, this time it no longer focused on intellectual property legislation, but the law enforcement. And the issue of law enforcement has been talking about until today. Fifteen years ago, Chinese government developed an Action Plan for the Effective Protection and Implementation of Intellectual Property, as the exchanges of letters for Sino-US IP negotiation; while fifteen years later, Chinese government intensified law enforcement and launched IPR protection campaigns. Fifteen years ago, the key issue of law enforcement was the copyright of pirate DVD and computer software; while fifteen years later, the focus was shifted to the copyright of pirate DVD and computer software on the Internet. Fifteen years ago, the Chinese Government was established the intellectual property joint meetings of the State Council 8

with its emphasis on law enforcement; while fifteen years later, the United

States

also

employed

intellectual

property

enforcement

coordinator under the United States Executive Office of the President and developed Joint Strategic Plan on Intellectual Property Enforcement. Fifteen years ago, China was the world’s 7th largest nation by GDP; while fifteen years later, China, the world’s second largest economy, is raking the second in terms of patent application. The gap of IP protection between these two countries has been narrowed quickly. As an emerging innovation-oriented country, China quickly adapts to the rules of the international intellectual property protection, and is developing its own innovation strategies. The history of the Sino-US IP relations shows clearly that the formulation and implementation of IP in China is to satisfy the needs of China's reform and opening up, development of the market economy, transform of the economic growth mode and the making of the innovation strategy. Behind the Establishment and development of China's IPR legal system, China does bear a certain amount of administrative costs and marketing costs. These costs are including but not limited to developing new ideas, changing mechanisms, training personnel, technology research and development, increasing investment, evaluating performance and market competition and so on. However, China did not complain, and did not set obstacles for other countries. China steps into the arena of national IP protection in its 9

own pace. II. China’s IP Policy: Reasons China sticks to the principle of independence, focuses on domestic development and is putting forward socioeconomic growth through its own strength to reform and innovate. In the context of economic globalization, only by adhering to self-development, can China participate more effectively in the international division of labor and better cooperated with other countries in the world. It took only thirty years for China to develop IP protection, totally from scratch. This proved that Chinese can make it, once they determined. Pressure from outside world is the motivation for indigenous innovation. In order to transform the mode of economic development in China, there is an urgent need of high-tech support, which requires a fair and open access, efficient international technology market, and an international cooperation mechanism. China also need a mechanism to ensure unprejudiced market access, fair market cost sharing and standard legal relief. However, in this so-called “fair and open” market of technology, China can get neither the indispensable technology, nor fair deal. What should we do? We have no other choice but to rely on ourselves. History has proved a special phenomenon: the more restrictions and foreign embargo the technology fields have, the more quickly China has developed. Why? 10

Because China can only satisfy

those needs by itself. That is indigenous innovation. Some people think indigenous innovation is a less international, less scientific, less standard way of development. This is definitely a superficial interpretation. Indigenous innovation is based on historical knowledge and directs future development. Countries learn from each other in the innovation process, but there are numerous ways leading to innovation. The way out for China is indigenous innovation. State owned enterprises, private companies and foreign ventures are competing in Chinese high-tech market. Chinese market is an open market with fierce competition. All businesses could get success in Chinese market by virtue of their advantages and strengths, enjoying opportunities provided by China's reform and opening up policy and economic prosperity. If a company ignores technology transaction, it will lose this market of great potential. It is hard to imagine the serious consequences if China relied on other countries in science and technology advancement. First of all, there is no single country can provide all technologies China needs. Second, China will never be satisfied with transfer import of second rate technology, or working for other countries for blade profits. Third, there is no single company which is capable of monopolizing a certain technology forever. Technology update and market fluctuation resulted from competition among different enterprises is 11

inevitable. III. Choosing A New Model for IP Innovation Intellectual property is a double edged sword: while limiting competitors, IP also has limited the possibility of innovation. Abuse of IP is enemy of innovation. There should be effective interest adjustment between reasonable monopoly and innovation space. Illegal monopoly should be banned by legal system all over the world and also be prohibited by international trade rules. Facing with lengthy and costly proceedings, innovation companies has only two choices: one is fighting the suit, which is wasting time and energy. Even if that company could win, what it got is only the outdated technology. The other is licensing technology, paying additional cost to future R&D and business operation. Does this dilemma reflect the possibility that judicial system was incapable to protect and promote development of science and technology, as well as the social relations generated during innovation? Or is this the price innovation has to pay under the rule of old judicial system? Maybe, in the era of innovation, new rules are needed by the IP legislative system. Today, with technology developing day by day, technological renovation is ever-changing. Costly R&D input, small profit circle and short life span are the weaknesses. However, huge legal risks make it worse. Patent pools in certain industries are looking more like a minefield 12

for innovation. The contradiction between innovation and patent is sharpening. According to TRIPS Article 7, the protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations. However, recent innovation mode is running in the opposite direction. Intellectual property rights, as an alternative policy instrument of national innovation strategy, must be complemented with institutes and policies. IP policies should not divorce from innovation strategy. We should not develop intellectual property rights for the sake of intellectual property right, or innovate so as to get IP. IV. Win-Win Situation for Sino-US IP Cooperation As an innovation protection chain throughout the whole procedure of R&D, industry and trade, intellectual property right system includes creation, utilization, protection and management of IP. Every link of IP innovation protection chain should be interlocking, complementary and interweaving. On one hand, the purpose of protection is to promote innovation; on the other hand, innovation incentives also need effective protection. Protection is means, while creation is the final objective. China is ready to step up IPR protection and law enforcement to 13

safeguard the lawful rights and interests of holders. Meanwhile, China also intensifies IP creation efforts. As a developing country with weak bases of science and technology innovation, only with more indigenous IP should china have the necessity of protection, otherwise protection will be rootless and meaningless. Sino-US economic strategic cooperation should be all round, which means the cooperation should have law enforcement cooperation to purify competition environment as well as the IP creation cooperation to incentive innovation strategy. In the area of intellectual property creation, the Chinese Government has been reforming the old science and technology system since the 90’s of the last century. The major reform was the innovation evaluation index system, emphasizing the IP management. Research project regarded obtaining intellectual property rights as its innovation dynamics. In the past, China used to focus on project approval while ignore market, focus on reproduction while ignore innovation, focus on theoretical papers while ignore patent, and focus on winning awards while ignore technology transfer. After reform, the situation has been improved. However, there is a tendency of overcorrecting, stressing more on quantity and less on quality, more on application and less on maintenance, more on advertising and less on actual effect, more on individual development and less on overall arrangement, and more on domestic competition and less on international cooperation. It is to be observed that 14

there is no interaction between the core patent of key technology and original innovation. Too much junk patent is also an outstanding issue that must be solved. Improving the quality of IP will be priorities for China in the next stage of innovation strategy. Increasing number of Chinese IP application and license did not translate into IP competitive edge. In the context of sluggish global economy, rising protectionism and serious technical barriers, indigenous IP innovation has strategic significance. China and the United States is the second largest trading partner for each other, China was the fastest growing country for the US export market, for nine consecutive years. However, intellectual property rights exchange and high-tech trade between the two doesn’t stand on the same level as their economic relations. In the area of trade, Chinese government promises to provide foreign investors with a stable, transparent and predictable environment for investment. Chinese government also spares no effort on ensuring all foreign enterprises legally registered in China can enjoy equal treatment. China treats all countries, including US companies, equal in the accreditation of independent innovation products, protection of intellectual property rights and government procurement. More and more US companies will participate and contribute to innovation in China. IP policy, which was regarded as drive and regulator of innovation 15

strategy, is not isolated. IP protection service starts from R&D, and end up with trade. Chinese intellectual property right strategy includes creation, utilization management and protection of IP. We find that US always overemphasizes the trade-related protection of IP, while neglects the creation and utilization of IP. This practice is short sighted. US should not only pay much attention to the trade-related protection of IP, while ignore the creation and utilization of IP. From president Obama’s innovation strategy, we can find out that Obama attached great importance to IP innovation. We think effective IP policies in innovation strategy should guarantee unprejudiced market access, fair market cost sharing and standard legal relief mechanism. Thank you!

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