China’s IP protections have come a long way

Lots of experienced travelers to China say the country has changed drastically over the past few decades. Nowhere is this more accurate than in its IP laws.

Major tier-one cities like Beijing or Shanghai are barely recognisable compared to what they were in 1994. These highly modern cities are packed with technologies that countries in the West are only just beginning to experiment with. A big reason for its speedy development is China’s realisation that copyright and intellectual property laws are crucial.

Beijing has worked hard to tighten its IP regulations since the “bad old days” of the 1990s when it seemed like any foreign company setting up in China ran the risk of IP theft. Horror stories were common of factories pumping out contracted goods all day, shutting down at 5 pm, then restarting at 5:05 pm to churn out counterfeit goods. It really was the Wild West.

Jack Shan, principal and patent attorney at Davies Collison Cave, said for decades foreign companies needed to partner with a local Chinese business before they could operate effectively in the country. Due to the country’s weak IP protections, this led to regular IP thefts by those partners.

But then the Chinese government decided it wanted to join the World Trade Organisation (WTO) in the 2000s. Shan said this goal was driven partly by a fear that Western firms may no longer invest in China if they knew their IP would be stolen.

“The penalties for IP infringement in China used to be paltry. But China has done a fantastic job cleaning this up. Today, even basic penalties threaten an infringer with significant multiples of damages.

“Also, the interpretation of IP laws by Chinese courts is now much more likely to defer to the defence when a case is 50/50. They used to simply throw out these controversial cases. That’s all changed,” Shan said.

The upgrades to IP protections weren’t all top-down like most things in China tend to be. They were actually the result of pressure from Chinese inventors, Shan said. This makes sense because as China became a world leader in the number of patents filed, its companies suddenly understood that IP laws were useful, rather than things to ignore on their way to making a quick buck.

“Today, about 80% of filings in China are from domestic companies. These companies are also becoming more litigious as they know the new protections have real teeth,” Shan said.

The numbers bear this out. In 2023, China saw a huge growth in copyright registrations. The total number of registrations reached 8,923,901, a 40.46% increase from the previous year. Of these, 2,495,213 were for computer software copyrights (a 35.95% increase) while non-software copyright registrations reached 6,428,277 (+42.30%).

Specifically for software, there were 361 copyright pledge registrations (+28.01%), covering 361 contracts (+28.01%) and 2032 software works (+39.85%). For non-software works, there were 50 copyright pledge registrations, a 26.47% decrease, but the number of contracts involved increased by 133.33% to 21.

These are all signs that imply China’s IP protection systems have been formalised and operating successfully in Chins is no longer about “who you know.” Indeed, Shan said foreign companies can expect to deal with high-quality IP courts in Beijing, Shanghai, Guangzhou and other major cities.

These courts are trained to deal specifically with IP matters, and their creation has led to quicker rulings and deeper expertise in adjudicating cases. Since 2014, China’s IP courts have become somewhat reliable for foreign companies seeking justice for infringement.

“Because things are getting better in the cities, Chinese competitors will want to drag you to a small town or a rural court. They know judges in those places won’t have the confidence and experience in patent litigation at the same level as their peers in the cities. But this problem can be avoided with good lawyers.

“Generally, Chinese IP courts no longer go out of their way to favour local Chinese companies. They are much more neutral and modern in that respect,” Shan said.

In fact, Apple and Tesla have both won significant IP cases in China recently, illustrating that the system can be fair to foreign businesses that are properly prepared. But preparation is important.

It’s important to know that even if a company holds trademarks or patents in other countries, these may not automatically be recognised in China. The China National Intellectual Property Administration (CNIPA) manages IP rights within the country, so registering directly with this body is essential. Also, China’s first-to-file system means that companies risk having their IP rights claimed by another party and courts are under no obligation to reverse this.

Another promising development in China’s IP protection landscape is its tweaks to the Anti-Unfair Competition Law.

These reforms, passed in 2019, have expanded defences for foreign companies operating inside China, particularly concerning their trade secrets. Foreign tech companies will benefit greatly from these changes since they simplify legal action against entities that unlawfully acquire or use trade secrets, an area that has historically been difficult to enforce in China.

Finally, the stick of enforcement is getting heavier, too. After all, enforcing the law will be a significant deterrent against infringement by sending a clear message to snooping IP thieves that their violations will not be tolerated. Chinese courts are ready to impose hefty penalties to show they are serious about upholding their new IP systems.

China is still finding the best balance for its IP laws to protect intangible assets, but the system has come a long way since the strange days of the 1990s.