China Law Insight : China Business and Intellectual Property Lawyers & Attorneys : King & Wood Law Firm : IP, Arbitration, Litigation, Securities, Foreign Investment

In practice, there are some instances in which advertising slogans are granted copyright protection. For example, in the case of Cheng Du Huangchenglaoma restaurant vs. Beijing Huangronglaoma hotpot restaurant, the court held that the slogans used by the plaintiff possessed the originality to qualify as a literal work and thus should be protected under the copyright law. Accordingly, the defendant infringed on the copyrights of the plaintiff in using the same slogans during its daily business. As to how to judge the originality of advertising slogans, the court specifically made the following analysis and statement on the verdict, " 'original' mentioned in the copyright law means that the works are created by the author independently without plagiarism or imitation, which is mainly manifested in the selection, design and composition of certain material. Although the vocabulary which comprises the slogans was not original, through the plaintiff's selection, combination and arrangement, they have reflected certain personalized characters.

Moreover, if advertising slogan has become a symbol or identifier of the company through long-term use and promotion, hence closely associated with the goodwill and the products of the company, it may also seek protection under the Anti-unfair Competition Law against other party's unauthorized use.

Conclusion

In fierce market competition, companies tend to promote their brand and products by adopting unique advertising slogans. Advertising slogans could become a symbolic sign of the company and thereby attain an intangible value just like a trademark. Under the existing legislation and in practice, advertising slogans can 1) be protected under the Trademark Law through trademark registration, as long as it is original and could function as a source indicator. 2) slogans that have built a connection with certain enterprises in the course of business should also fall within the protection scope of the Anti-Unfair Competition Law. 3) original advertising slogans may also be protected under the Copyright Law. Among the three, trademark registration is the most effective means of protection.
 

In paragraph 106, he expanded deductibility as capital expenditure of the purchase of registered trademarks, copyrights, and registered designs. Under the current scheme, only purchase of patent rights and industrial know-how are deductible. The purpose of the expansion is to promote wider application of intellectual property and to help develop the creative industries in Hong Kong. Actual formulation for deductions will be prepared by the Inland Revenue Department. This addition brought in the most common types of intellectual property rights transferred in Hong Kong and will serve as a boon for creative entrepreneurs.

The second item concerns funding for patent applications. Currently, the Hong Kong Government provides funding assistance for Hong Kong inventors and enterprises to help them pay for the cost of filing their first patent application. The current ceiling of such grants and funds is HK$100,000. In paragraph 107, Mr. Tsang raised the ceiling to HK$150,000. Hong Kong has a recordation system for patent registration that requires the granting of a patent in another jurisdiction before a Hong Kong standard patent may be issued. To obtain a Hong Kong standard patent, an inventor must file in an approved jurisdiction where substantive review is conducted and a patent granted before a Hong Kong patent can be registered. In essence, the inventor has to pay for two patent applications to have a Hong Kong patent granted. The increase in the funding should be helpful for small inventors.

Compared to other ‘sweeteners’ offered in the speech, these two additional benefits offered for intellectual property rights are fairly minor but will have a relatively broad application. At least, the topic of IP rights is not completely left out of the speech. A full copy of the Budget report can be downloaded at www.budget.gov.hk.
 

China filed 7,946 applications, an impressive 29.7% increase over its 2008 filings. Two Chinese filers were among the top 100. Huawei Technologies Co., Ltd. came in with 1847 applications, second only to Japan's Panasonic Corporation and ZTE Corporation jumped 15 places to finish 23rd with 502 filings. Together, these two companies accounted for 30% of China's 7,946 filings. For the year, Huawei filed 110 more applications than in 2008, an increase of 6.3% while ZTE increased by 52.6%, submitting 173 more applications into the PCT system than in the previous year.

The prolific activities of these two equipment makers in the telecommunications industry indicate the importance of protecting intellectual property rights in multiple jurisdictions as Chinese companies expand beyond China's shores to become players in the global market. The WIPO statistics indicates that Chinese companies are taking advantage of using PCT applications for international protection.

The PCT procedure gives an applicant the convenience of filing initially only one patent application with one set of papers in one language with a receiving office designated by the PCT. At a later stage, should the applicant desires, it can then choose the jurisdictions where the patent application should be filed. Only at that stage would the applicant have to pay for necessary translations and filing fees of the national jurisdiction where the application is filed. The procedure gives the applicant much more control over the application process. Companies with proprietary knowhow or inventions interested in expanding overseas should consider this option as part of their patent application strategy.
 

Advertising slogans, composed of words in the form of phrases, formally possess both the characteristics of both literal works and trademarks. Therefore, in principle, they can be the protected by the PRC Copyright Law ("Copyright Law") and the PRC Trademark Law ("Trademark Law").

Trademark Protection

The Trademark Law provides that:

"Any visual signs of words, devices, letters, numerals or any combination of the above elements, which being able to distinguish the goods or service of one entity from the others, can be registered as trademarks."

Accordingly, advertising brand names consisting of words are acceptable for trademark. As to whether registration is granted, all trademarks go through an official examination to determine if they possess due distinctiveness and can function as indicators the products they represent. In terms of common word marks, the trademark law does not require a word mark to be original or coined in order to achieve distinctiveness. Generally, as long as the words used by a trademark are not the generic name of the goods or does not directly indicate the features of the products, they are considered distinctive and capable of distinguishing its origin. Hence, "Apple", "Great Wall" and other dictionary words possess just as much distinctiveness as the coined words "NEC", "TCL".

Second, the words used by a brand trademark need not be totally unrelated to the features of the products. For instance, "Safeguard" indicates the features of the products in certain a way, but as long as the indication is not a direct description, the mark does not typically lose its distinctiveness.

However, the examination on trademarks for slogans tends to be more stringent both in terms of the examination criteria employed and in its application by the trademark authorities. According to the Examination Criteria issued by the Trademark Office, a slogan that does "not indicate the characteristics of the products" is one of the most elementary requirements for the registration of a slogan trademark. In addition, slogan trademarks should be original and non-popularly used, which sets a higher threshold in the judgment of their distinctiveness and thereby greatly increases the difficulty in getting them registered in the PRC.

As to whether a trademark is original, it is not difficult to judge in the case of common word marks. Non-dictionary words can most easily be regarded or alleged as "original" words, such as "Haier", "Canon" and "Philips". It seems that applying words in a non-dictionary or non-traditional way, an applicant can relatively easily meet the "originality" component.

The originality of slogans, on the other hand, is not so easy to ascertain. As a short phrase consisting of words, the purpose of slogan is to promote the concept, culture and image of the enterprises and their products, which requires it to be expressed in a way familiar and comprehensible to the general public. Hence, slogan trademarks cannot differ far from the language used by people in daily life. There may be some uniqueness in the sentence structuring, but the slogan ultimately cannot avoid being tinted with a sense of popularity. As such, the originality of a slogan is intrinsically hard to demonstrate.

As different people can have different views and feelings on what is popularly used, this makes Trademark Office's examination subjective and uncertain. The following slogans have previously applied for registration as trademarks: "The world swings with me", "Inspiration lights life", "Your vision, Our future", "Listening creates the future", "Sense the world, foresee the future" and "Share the moment, share the life" of which the Trademark Office directly approved the registration for "The world swings with me", "Inspiration lights life" and "Your vision, Our future", while rejecting the rest for lack of distinctiveness. The Office even makes a contradictory conclusion to the same slogan applied for different goods. For example, the Eastman Kodak Company's slogan "Share the moment, Share life" was approved in for pictures, but was denied in for cameras.

However, Article 11 of the Trademark Law provides that slogans that lack distinctiveness cannot be registered as trademarks with the exception of "those that have acquired distinctiveness through use ". According to this provision, if the slogans have established sole association with certain enterprises in the public recognition through use and are capable of functioning as a distinguisher of their source, they can be granted with trademark registration. As this exceptional provision further increases the threshold of registration, meanwhile it has opened a new path for the registration of slogan trademarks. Having met the requirements of this provision by proving the acquired distinctiveness through use, the slogans mentioned above, i.e. "Listening creates the future" of KENWOOD, "Sense the world, foresee the future" of OMRON and "Share the moment, Share the life" of Kodak, which were preliminarily rejected by the Trademark Office, have eventually all been approved for registration.

As such, several guidelines have been issued to explore the possibility of establishing specialized IPR Tribunals which would hear all types of IPR-related cases. In this regard, on June 5, 2008, the “Outline of the Nation's Intellectual Property Rights Strategy” promulgated by the National Council requested that courts “look into the establishment of specialized IPR tribunals and IPR appellate courts which have jurisdiction over all IPR civil, administrative and criminal cases.” Furthermore, on March 23, 2009, the Supreme People;s Court promulgated the ”Opinions of the Supreme People;s Court on Several Issues Regarding the Implementation of the National Intellectual Property Strategy” (hereinafter, the “Opinions”) which provided that “research shall be carried out regarding the appropriate adjudication model for IPR-related cases; research on the establishment of specialized IPR tribunals to hear IPR civil, administrative and criminal cases”.
 

In line with the Opinions noted above, at the “China High-Level Forum on IPR Protection” held on April 24, 2009, the Chief Justice of the IPR Tribunal of the Supreme People’s Court announced a list of test courts for the establishment of specialized IPR Tribunals to hear IPR civil, administrative and criminal cases. This list includes three (3) High People’s Courts (in Chongqing, Jiang and Fujian), twelve (12) Intermediate People’s Courts and fifteen (15) District Courts.
 

On July 1, 2009, the Supreme People's Court (“SPC”) released a Circular providing guidelines for courts exercising jurisdiction over cases involving patent and trademark rights grants and rights determinations (hereinafter known as the “Circular”). From July 1, 2009, IP Tribunals of intermediate courts in Beijing and the Beijing High People’s Court will have exclusive jurisdiction over IPR administrative cases of the First and Second Instance for rights grants and rights determinations for patent, trademark, layout design of integrated circuit and new varieties of plants cases. If parties are dissatisfied with the rulings after they have been rendered, parties may file a re-trial application to the court of the next higher level. The re-tried case shall be examined and heard by the IPR Tribunals of the court of the next higher level.
 

The “Circular” is a first step in legislation to establish specialized IPR Tribunals to hear IPR civil and administrative cases, while the “test courts”, as designated by the IPR Tribunal of the Supreme People’s Court, will address, concurrently, civil, administrative and criminal claims. Based upon the success of the adjudications in the “test courts”, IPR criminal cases will be exclusively adjudicated by IPR Tribunals throughout China. With the guidelines set forth in the Circular, as well as the establishment of the “test courts”, the judiciary in China is taking steps towards improving the efficiency of adjudication in IPR cases and unifying the judicial practices.
 

知识产权民事、行政、刑事案件“三审合一”审判模式
徐静 张海若
在中国，传统上知识产权民事、行政、刑事案件分别由知识产权庭、行政庭以及刑事审判庭审理，其中，针对专利、商标授权确权类知识产权行政案件，北京市第一中级人民法院行政庭及知识产权庭均有权受理。上述知识产权案件的审理模式容易出现裁判标准不一的问题。
为解决上述问题，国务院以及最高院先后出台文件，要求探索设立知识产权三审合一的法庭。2008年6月5日，国务院出台《国家知识产权战略纲要》，要求法院“研究设置统一受理知识产权民事、行政和刑事案件的专门知识产权法庭。探索建立知识产权上诉法院”。2009年3月23日，最高院出台《最高人民法院关于贯彻实施国家知识产权战略若干问题的意见》（“意见”），提出要“积极探索符合知识产权特点的审判组织模式，研究设置统一受理知识产权民事、行政和刑事案件的专门知识产权审判庭”。
为贯彻上述“意见”，2009年4月24日举行的中国知识产权高层论坛上，最高院知识产权庭审判长颔中林公布了三审合一试点法院的名单，进行“三审合一”试点的高院有3个：重庆市高级法院、江苏省高级法院、福建省高级法院。中院“三审合一”的有12个，基层法院进行“三审合一”的有15个。
2009年7月1日，最高院出台《关于专利、商标等授权确权类知识产权行政案件审理分工的规定》（“规定”），明确规定“专利、商标、集成电路布图设计和植物新品种案件4种授权确权类知识产权行政案件，自7月1日起将统一 由知识产权审判庭审理。”根据该规定，北京市有关中级人民法院知识产权审判庭将作为专利、商标等授权确权类知识产权行政案件的一审法院，北京市高级人民法院知识产权审判庭作为此类案件的二审法院。同时，该规定还明确了专利、商标等授权确权类知识产权行政案件再审分工，即当事人对于人民法院就此类案件所作出的生效判决或者裁定不服，向上级人民法院申请再审的案件，由上级人民法院知识产权审判庭负责再审审查和审理。据悉，对于7月1日之前已经受理的案件，原由行政审判庭审理的，将继续由行政审判庭审理完结，如上诉，也仍然由上级人民法院的行政审判庭审理。
此次最高院正式发文，确定知识产权行政案件和民事案件统一由知识产权审判庭审理，已经迈出了三审合一的第一步。同时，最高院指定的试点法院也已开展了三审合一的审判试点工作。基于试点结果，最高法将考虑是否将刑事案件统一归属知识产权庭审理。上述规定的出台以及试点法院的建立，有助于法院逐步提高知识产权案件审判效率、实现知识产权审判标准的统一。
 

“Legal Entity Work”
The NCA Circular recognized a three-point standard concerning “legal entity work.” I.e., creation of a “legal entity work” should at least satisfy three conditions: (i) supervised by the legal entity; (ii) developed according to the intentions of the legal entity; and (iii) the legal entity is responsible for the work.

This standard sheds some light on the issue but is far from clear. Point (ii) is especially difficult to apply due to uncertainties regarding a legal entity's intention. Three issues are often considered in practice to identify the existence of a legal entity's intention:
 

(a) Signature on the work. According to Article 11 [paragraph (4)] of the Copyright Law, so long as the legal entity’s name is mentioned in connection with a work and there is no proof to the contrary, the legal entity should be deemed to be the author of the work and therefore the work should have reflected the intention of legal entity.
 

(b) Content of the work. Does the content of the work likely reflect the legal entity’s intention or only the employee's own creative expression?
 

(c) The nature and purposes of the work. Given the nature and intended purposes of the work, in which party’s name will the work be published? For example, the advertising and explanatory materials created by a governmental agency for policy making, or an agency’s declaration or statement on certain events or actions (such as the “China's Situation in IPR Protection” issued by the Press Office of the State Council of PRC)—are all considered having reflected the intention of the legal entity.
 

“Occupational Work”
According to the NCA Circular, “occupational work” should meet two criteria: (i) the citizen who created the work should have an employment relationship with the legal entity; (ii) the work is created to fulfill tasks assigned by the legal entity employer. While criterion (i)--existence of employment relationship is to be decided in accordance with the labor law of China, Article 11 of the Implementation Regulations interpreted the term “work assignment” in criterion (ii) as –“a work within the scope of the duties that a citizen should fulfill for the legal entity or body.”
 

Two issues are often considered in practice to identify whether a work falls within the scope of the duties to be fulfilled by the employee: (a) whether the duties are specified in the employment contract or labor rules & regulations of the company, or reflected in the company's long term work planning; (b) whether the work has significant and direct correlations with the normal business of the legal entity employer.

2. Simplifying and Improving Flexibility of Litigation Procedures

For example, on December 17th of 2008, the Supreme Court promulgated the Circular on Application of the Provisions on Time Limit for Evidence Production under Several Provisions on the Evidence for Civil Actions. Such an interpretation allows for more flexibility on the time limits in evidence production and requires the court to adjudicate cases in a more just and efficient manner. This development is also applicable to all types of IPR litigations.

At the recent National Symposium on the Court Trial of Intellectual Property Rights held at the end of November 2008, the Supreme Court specially held a discussion on how to make it more convenient for plaintiffs (especially foreign plaintiffs) during legal proceedings, and clearly indicated that all the cases which meet the acceptance requirements shall be heard in a timely manner in accordance with the law. Currently, foreign rights owners usually delegate a representative within China to initiate the legal proceedings, and the court has a more complex set of procedures for such an arrangement. Some courts even require the rights owners to sign on the bills of complaints personally, and prohibit the local representative to sign on their behalf. The Supreme Court now, however, has standardized the process, allowing authorized delegates to initiate legal proceedings on behalf of foreign rights owners. Thus, the inconvenience currently faced by foreign rights owners may be minimized in 2009.

3. Taking into Account the Interests of All Parties and Carefully Sustaining Claims for Injunction

It is foreseeable that in 2009, the courts will place a stronger emphasis on the balance between the interest of the rights owners and the interest of the public, and prevent IP right owners from abusing their power. This means that the standards applicable to patent infringement determination, especially to equivalence infringement, may be tightened; in cases where the rights owners have allowed their rights to be infringed and take no action over a lengthy period of time, should they finally do take action and seek an injunction and if the order of injunction could potentially tip the balance between the interest of the parties, or impact economic activity so as to go against the public interest, the court may consider not granting the injunction. For some infringing acts, if public interest may be affected, the court may rule for compensation to be paid rather than grant the injunction. At present, the application for injunction can usually be granted by the court if the claim of infringement may be established by the rights owners.

In summary, it is foreseeable that due to the publication of the Outline of the National Intellectual Property Strategy in China, judicial protection will play a leading role in safeguarding IPRs. Furthermore, China’s intellectual property rights protection policy is undergoing change and adjustment in order to integrate further with the development trends of global IPRs protection.
 

在2009年即将到来、而全球经济危机正给世界大部分国家造成巨大影响的时刻，中国最高人民法院正在研究调整知识产权的司法政策。这些新的政策导向为我们勾绘了2009年可能出现在中国知识产权司法保护领域的一些新气象：

一、 加大知识产权侵权赔偿力度，贯彻全面赔偿原则

最高人民法院近期数次强调，在知识产权审判中，应运用灵活多样和合理可行的损害赔偿计算方法，使权利人受到的损害获得足够的赔偿，彻底剥夺侵权行为人因侵权而获得的利益，切实提高侵权代价；对于受害人正当合理的维权成本要给予赔偿；在适用法定赔偿时，对于合理的维权成本应另行计赔，不列入法定赔偿额之内。而目前，中国的法定赔偿最高额是五十万元（于2008年12月27日颁布、2009年10月1日生效的第三次修改后的《专利法》已将最高金额调整到人民币一百万元），并且包含了对权利人因维权所发生的费用的补偿。由于损害赔偿的举证难度较大，而法定赔偿的金额较低，不能得到足够的、实质性的赔偿是权利人普遍面临的难题。这一问题可望在2009年得到改善。

二、 简化或放宽诉讼程序

例如，今年12月17日，最高人民法院颁布了关于适用《关于民事诉讼证据的若干规定》中有关举证时限规定的通知，该通知对举证期限等问题做出了更加灵活的规定，有利于人民法院以更加公正高效的方式进行案件的审判。该通知同样适用于各类知识产权诉讼。

最高人民法院在此次全国法院知识产权审判座谈会上特别讨论了如何便利当事人（尤其是外国当事人）诉权的行使，并明确指出符合受理条件的起诉均应依法及时受理。目前，外国权利人通常授权我国境内代理人代为提起诉讼，法院的相关程序性要求比较繁琐。部分法院还要求权利人必须在起诉书上签章，不得由代理人代为签署。此次最高人民法院明确统一，凡经权利人明确授权代理提起诉讼的代理人，均可以权利人名义提起诉讼。因此，该等不便可望在2009年得以免除。

三、 兼顾社会各方利益，审慎适用停止侵权责任形式

可以预计，在2009年，法院在知识产权案件的审理中将更加注重知识产权权利人与社会公共利益的平衡，防止知识产权权利人滥用权利。这体现为，专利侵权的判定标准，尤其对等同侵权的情况，可能会适度从严掌握；权利人长期放任侵权、怠于维权，在其请求停止侵权时，倘若责令停止侵权会在当事人之间造成较大的利益不平衡，或者影响经济活动从而违反公共利益，法院可以审慎地考虑不再责令停止行为；对于一些侵权行为，如果要求其停止侵权可能导致违反公共利益，则可能仅判令侵权人承担损害赔偿，而不必停止侵权。而目前，如果权利人提起的侵权诉讼可能成立，则停止侵权的申请一般能获得法院支持。

综上，可以预见，由于中国《国家知识产权战略纲要》的颁布，司法手段将成为知识产权保护的主导角色。而中国知识产权保护的司法政策正在酝酿着调整和转变，更融于全球知识产权保护的发展趋势。
 

B. Corporate sales model

Since corporate users usually need a large number of licensed copies of the software, the suppliers do not usually provide corporate users a CD-ROM for each of the copies. Instead, corporate users are provided with a master copy and a certain number of licenses. From the view point of the Copyright Law, this sales model does not affect the relevant legal relationships which refer to the transfer of ownership of the medium, the transfer of the copy of the software and copyright licensing.

Under the corporate sales model, software is usually resalable as in the traditional sales model, if the sale involves the transfer of the medium carrying the software such as a master copy on a CD-ROM. However, if the corporate client only purchased the license right to use the software -- for example, only paid for an increase in the number of software users -- based on the current practice, it would be difficult to implement a lawful resale. In practice, the judges may also evaluate a sales activity according to the PRC Anti-Monopoly Law or the PRC Anti-Unfair Competition Law on a case-by-case basis.

C. Online sales model

The increased usage of the Internet and the expansion of bandwidth have caused fundamental changes to the sale of software. Software suppliers do not need to provide CD-ROM for their products; instead, they may direct their clients to the designated websites where the clients can download the software. After downloading the software on their computer, the clients can install and activate the software with the registration code or serial number provided by the software suppliers. Compared with the first two sales models, the possession of the medium containing the software does not shift from the suppliers to their clients. Therefore, this type of sale only involves transferring the copy of the software and licensing.

Online sale of software is merely an act of licensing. According to the Regulations on the Protection of Software Copyright, the copyright owner is entitled to all copyrights which are not clearly mentioned otherwise and the licensee shall not sub-license such rights. Therefore, unless otherwise specifically stated in a written agreement, reselling software by transferring registration codes or accounts infringes the copyright of the software owners and is prohibited by the existing PRC laws.

D. Sales of distributed software

As the Internet evolves, software no longer runs on stand-alone computers, instead, the actual running of software requires simultaneous running of both server software and the client software. A typical example of distributed software is online game software, where the distributors of online game software are also acting as server providers. These companies only provide clients with the installation software for clients' computer with related use right license for logging on to the server. The sale of this type of software involves the license of the client terminal software and the server software, and the scopes of the said two licenses are also different. The license of the client software includes the authorization for client terminal software installation, copying and operation, and the license of the server software only grants the clients use right to access the server from their terminals. In other words, the former license grants the client's use right under the Copyright Law, and the latter license merely allows the functional use of the software for the purpose of visiting a server.

The scope of license for distributed software varies since such software usually differentiates between client terminal software and server software. Therefore, whether distributed software can be resold and to what extent it can be resold should be decided on a case-by-case basis.

Theoretically, the exhaustion of rights is equally applicable to software, which is a form of work. In practice, however, problems arise when the software is "licensed" to public users, since the "doctrine of exhaustion of rights" only applies to the distribution methods of "sale" or "gifting". Under such circumstances, software licensing will not trigger the exhaustion of distribution rights. However, the sale of software will inevitably involve licensing and is usually subject to software licensing agreements. Therefore, the key factor which determines whether the exhaustion of distribution rights occurs depends on when a sale of software constitutes "sale" and when it constitutes "license"; this factor also determines whether a resale of software constitutes copyright infringement. Different jurisdictions have developed their own approach towards this issue.

In the United States, for example, ProCD Corp. v. Zerdenberg, the United States Court of Appeals for the Seventh Circuit established three criteria on how to distinguish a sale activity from licensing:

1. Purchasers of mass-market software pay a single purchase price rather than a series of royalties;

2. The software publisher does not retain title to the "product" as a security interest; and

3. The rights of the licensee to the software copy are perpetual, like the rights of a purchaser pursuant to a sale

China has developed its own criteria for the applicability of the doctrine of exhaustion of rights with a reference to the theories and laws of other jurisdictions. Under Chinese criteria, the rights are exhausted if the software is distributed by way of transfer of ownership, otherwise, it should be deemed as "license" only.  On May 14, 2008, the Shanghai High People's Court rendered the final decision in respect of copyright infringement on Shanghai Shanjun Industrial Ltd., Zheng Feng v. Shanghai Jiliang Software Technology Ltd. In this case, a third party legally acquired a set of copyrighted software by Shanghai Jiliang Software Technology Ltd. ("Jiliang") and resold it to Shanghai Shanjun Industrial Ltd. ("Shanjun"). Shanjun later resold the software to another company, which is also a third party to the case. Jiliang sued Shanjun for copyright infringement.

The court held that "the copyright owner enjoys the right to distribute the original work or copies of such work by transferring proprietary rights to the public. However, once the copyrighted work or the copies are initially sold or gifted to the public under the license of the copyright owner, the copyright owner will no longer enjoy the right to control further resale of the work or its copies. In other words, the party that legally acquired the ownership of the original copyrighted work or its copies may resell or gift such work or copies or provide them to other parties without seeking further license from the copyright owner.”

The above analysis of the Court of the Second Instance has great significance for software related copyright matters in China. It not only defines the doctrine of exhaustion of distribution rights for the first time in China, but also confirms that the application of the doctrine should be determined by whether the distribution involves the change of the ownership of software. Instead of following the traditional method of merely distinguishing "sale" from ‘license", the Court instead uses a more pragmatic approach.

Perfect 10, the Plaintiff, is a publisher of an adult entertainment magazine and the owner of a pornographic website. The Plaintiff has created approximately 5,000 images of models for display on its website and magazine and holds registered copyrights for these images. However, the Plaintiff found that a large number of the images later appeared on the adult websites of its competitors.

CCBill LLC, the Defendant, and its affiliated companies, provides web hosting and online credit card payment services for such adult websites. For example, if a user wants to log-on to a particular adult website, he would need to provide his credit card number to the Defendant. Only after the Defendant contacts the credit card company on behalf of the website operator and a fee is paid will the Defendant connect the user to the gateway of the adult website.

The Defendant was found providing this service to many of the websites which posted copyrighted images. Therefore, the Plaintiff sued the Defendant and other infringing website owners ( collectively " Defendants " ) for contributory copyright infringement.

During the proceedings, the Defendant successfully argued that it only provided hyperlinks towards the infringing adult websites and, according to the Safe Harbor Principle under the Digital Millennium Copyright Act ("DMCA"), it was not liable for infringement as proper notice was not provided.

In China, a principle similar to the Safe Harbor Principle (the "Chinese Safe Harbor Principle") is established by Article 23(4) of the Regulations on the Protection of the Right of Information Network Dissemination of China (The “PRC Regulations”). Under this principle, an ISP is immune from liability if the ISP removes the links to the infringing work, performance, and audio or video products upon receiving notice from the right owner. Article 14(5) of the PRC Regulations requires the notice issued by the copyright owner to include the following information:

1) the right owner's name, contact information, and physical address;
2) the description and network address of the infringing work, performance and audio or video products that are required to be removed; and
3) the preliminary evidential materials that prove the alleged infringement.

The PRC National Copyright Administration (the "NCA") provides on its official website a standard format of the Notification for Requesting Removal or Disconnection of Internet Links which Containing Infringing Contents. This form requires information from the copyright owner such as the name, domain name and IP address of the infringing website.

Accordingly, it is clear that Chinese laws and regulations have also set forth a reasonably complete provision regarding the formality requirements of a notice by the owner. If a copyright owner fails to provide a notice that satisfies all the requirements, such notice will be regarded as ineffective. The ISP may refuse to remove or disconnect the links to the infringing content on the grounds that the information provided by the notice is incomplete.

The purpose of the Safe Harbor Principle, which defines clearly the rights and obligations of copyright owners and ISPs, is to balance the interests of the said two parties. The key point is that the Chinese courts should consider carefully whether effective notification is given by the copyright owner to the ISP, and whether the ISP removes the hyperlinks to the infringing contents promptly once the notification requirements are satisfied.

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 Lack of Policy Incentives

Currently, the 《清洁发展机制项目运行管理办法》[Measures for Operation and Management of Clean Development Mechanism Projects] (the “CDM Project Measures”) are the only specific “CDM project” related legislation in China. The CDM Project Measures have set out related procedures and requirements but with respect to technology transfer, however, these Measures only specified a general principle that “CDM project activities should promote the transfer of environmentally sound technology to China.” Notably, these provisions did not impose any mandatory obligations or incentives to the foreign party and Chinese project owner to include technology transfer factors in proposed CDM projects.
 

Economic Barriers

Many Chinese enterprises are not interested in introducing technology transfer into CDM projects. For most Chinese enterprises, equipment and technology provided by foreign parties indicate longer cooperation terms and are associated with bigger risks. In addition, project owners normally will consider the payment of operation fees and maintenance fees once the clean technologies and equipment are put into use. If the technology transfer is free of charge but the operation and maintenance fees are expensive (the assumption of Chinese companies is that technical teams from western countries charge very high fees for remedial services), this may not be a good deal for the Chinese party. For Chinese companies, it is important to make sure that technology transfer does not impose large up-front costs.

Intellectual Property Concerns

Companies from developed countries are also concerned whether their intellectual property rights can be effectively protected should the technology transfer be implemented. As such, “some of the technologies imported under the CDM projects are second or third class in exporting countries. It is not possible [for Chinese enterprises] to touch the newest emission reduction technologies.”
 

Solutions

The UNFCCC and Kyoto Protocol are subject to adjustments or even drastic change after 2012. Before the CDM system is rescinded in multinational negotiations on climate change, China should fully use these valuable opportunities to gain access to more advanced emissions reduction technologies from developed nations to achieve sustainable development through the following means.
 

(1) Legislation.
Amend the CDM Project Measures to mandate a certain degree of technology transfer involved in each of the CDM projects, unless the particular types are unsuitable for technology transfer. Technical standards and criteria should be set out to screen the out-dated technologies. More legislative efforts should also be made to promote the activities of technology transfer under the CDM projects, such as providing taxation incentives and favorable treatment to both Chinese and foreign participants.
 

(2) Provide incentives to the private sector both domestically and abroad.
From the standpoint of Chinese enterprises, the current mechanism for allocation of revenues from CERs under the CDM Project Measures can be adjusted by reducing the portion of the cake taken by the government. In addition, the Chinese government may require that, as a contractual condition, “the foreign companies executing CDM projects should be responsible for costs incurred until the anticipated improvement in emissions is achieved.” As such, the economic concern of Chinese enterprises may be largely eliminated.

In order to encourage more foreign companies to do technology transfer, in addition to the legislative efforts, the government may popularize a “bundled CDM project package”. In this way,“[a] consortium of advanced technology equipment manufacturers and the GHG emission reduction credits buyers may obtain the purchase order and GHG emission reduction credits respectively by providing advanced equipment and advanced technology transfer and carbon funds accordingly.” This is a new “kind of CDM cooperation mode with complementary advantages” - several examples in China proved its feasibility and popularity.
 

B. IPRs and abuse of dominance

Article 55 also subjects the exercise of IPRs to the abuse of dominance conduct rule (Article 17 of the AML). This is similar to the approaches of the competition laws of the US, Singapore, EU and Australia.

The key phrase is “abusing… intellectual property rights”. However, this phrase has not been defined in the AML.

This phrase, is, however used in Article 40 of the World Trade Organisation’s (WTO) Agreement on Trade Related aspects of Intellectual Property Rights (TRIPS). Article 40(2) may shed some light in relation to the AML phrase “abuse of intellectual property rights”:
“…nothing in this Agreement shall prevent Members from specifying in their legislation licensing practices or conditions that may in particular cases constitute an abuse of intellectual property rights having an adverse effect on competition in the relevant market …a Member may [however] adopt, consistently with the other provisions of this Agreement, appropriate measures to prevent or control such practices, which may include for example exclusive grantback conditions, conditions preventing challenges to validity and coercive package licensing, in the light of the relevant laws and regulations of that Member.”

China acceded to the WTO in 2001 and as such has an obligation to comply with all WTO agreements including TRIPS. In paragraph 286 of the Report of the Working Party on the Accession of China, some members of the Working Party expressed some concern as to the compatibility of China's rules on control of anti-competitive licensing practices or conditions with the corresponding obligations under Article 40 of TRIPS. Notably, the representative of China stated in response that China's legislation would comply with these obligations. The representative of China stated that these rules would apply across the board to all intellectual property rights. The Working Party on the Accession of China took note of this commitment. Hence, there is some suggestion that Article 55 of the AML may not stray too far from Article 40(2) of TRIPS.

On October 11, 2007, the European Communities raised the following question with China during a WTO Council for TRIPS meeting: “…[t]he EC welcomes the recently adopted Chinese Anti-Monopoly Law. This new legislation refers to the concept of ‘abuse of intellectual property rights’ in particular in Article 55. Can China clarify what this concept means in practice? Can China confirm that this concept does not go beyond what the TRIPS Agreement considers as abusive practices under Article 31(k) (compulsory licensing) and Article 40 (competition)?” This question may be indicative of concerns from other WTO members as to whether China will ignore Article 40 of the TRIPS Agreement when defining the term “abuse of intellectual property rights”.

Dominant entities exercising IPRs may still have to be concerned about the following provisions: (a) the prohibition against refusal to deal (without justification) ; (b) the prohibition against exclusive dealing (without justification) ; (c) the prohibition against tying ; and (d) the prohibition against applying differential treatment to parties . In a typical IP licence, it is common to find tying and exclusive dealing provisions. It is also common for IPR owners to refuse to deal with certain entities for various reasons.

Given that no guidelines or regulations have been issued in relation to the AML, there is much uncertainty as to how the dominance provisions (or the rest of the other provisions) of the AML will operate.

In relation to Article 55, the following questions arise: Should dominant entities (exercising IPRs) be subject to the same competition scrutiny as dominant entities selling other goods or services? Or would Chinese competition regulators apply a different standard in relation to IP licences and assignments, in recognition of the fact that IP differs from all other forms of property? Does the Chinese government intend for there to be transitional provisions in relation to the AML? Will the AML apply to IP licences and assignments entered into after 1 August 2008 (the date in which the AML will come into effect) or will it apply retrospectively to IP licences and assignments entered into before 1 August 2008?

C. The Article 15 “improving technology, research and new products” exception

If entities are somehow not able to get their IP related agreements exempt from the AML pursuant to Article 55, then there is a possibility that these agreements may be exempt pursuant to Article 15. Specifically, Article 15 of the AML exempts certain categories of agreements from the “monopoly agreements” conduct rule (located in Article 13 and 14). However, it is important to note that Article 15 does not exempt an agreement from the abuse of dominant position conduct rule (located in Article 17).

The most relevant Article 15 exemption in relation to IP related agreements is the “improving technology, research and new products” exception located in Article 15(1). Specifically, Article 15(1) exempts agreements made “for the purpose of improving technology, researching and developing new products” from the monopoly agreements conduct rule.

The EU has a similar exemption in the form of a block exemption entitled “categories of research and development agreements”. However, in order for an agreement to fall under the EU block exemption, there are several conditions which need to be fulfilled, including the condition that, if the agreement only provides for joint research and development but excludes joint exploitation of the results, then each party conducting the research must be free to exploit the results and any necessary pre-existing know-how independently. In addition, agreements exempt under this block exemption are immune from competition law only for a limited period of time (usually 7 years) and the market share of the participant undertakings must not exceed a particular threshold (for non-competing undertakings, the threshold is 25%).

It is unclear whether the Article 15 exemption will apply in a similar way as the EU’s “categories of research and development agreements” block exemption.

There are still many grey areas to iron out in relation to Article 55 and Article 15 of the AML. Hopefully guidelines or regulations, which are able to shed light on some of the issues and questions above, will be issued before the AML comes into effect.

1. According to the decision, “a generic term” that cannot be trademarked is defined as “a product name which is set out in the national standard and/or industry criteria, or accepted by common use”. The Examiner held that “解百纳” is not the name of a grape variety published in the national standard nor the generic term of a wine regulated by the applicable “wine” related industry criteria and standards. 

In addition, “解百纳” was not deemed as the generic term accepted in common use. As a generic term, it must explicitly refer to one product and reflect the essential differences between one product from another. However, “Cabernet” has been translated into “解百纳”, “加本力”、“加本纳特”、“卡贝奈特”. The Chinese wording “解百纳” does not establish a substantial and clear relationship with “Cabernet” as it would in English since there are other equally valid translations. Secondly, three grape varieties contain the word “Cabernet”, i.e. Cabernet Sauvignon; Cabernet Franc; Cabernet Gernischt which are translated as “赤霞珠”; “品丽珠” and “蛇龙珠” respectively leading one to conclude that the wording “Cabernet” is merely a prefix to the name of grape varieties. The above three grape varieties are not translated into “解百纳” and thus are not the common use terms.

2. As for the second issue, the TRAB held that “解百纳” originated from Changyu’s first use beginning in 1936.  “解百纳” was registered as a part of Changyu's trademark and was recognized as Changyu's trademark by wine magazines, the authorities, as well as the China national food industry association. Through its long term use, “解百纳” has become a trademark for Changyu's wine and identifies the origins of the wine products. Therefore “解百纳” has developed its distinctive use by Changyu's over its 70 year history.

However it is obvious that the 6-year dispute regarding the mark “解百纳” has not come to an end since as many as 12 competitors including China Great Wall Winery, Dynasty Fine Wines Group Limited and Yantai Weilong Grape Wine Co., have all claimed to have filed lawsuits against the TRAB with the First Intermediate People's Court of Beijing. It remains to be seen to what extent the court's decision will influence the wine industry in China by this case as well as how the court will set an interesting precedent for judging what constitutes a “generic name”.

The Chinese Supreme Court further clarifies, under such circumstances, that the Patentee is allowed to demand exploitation fees from the users, however, such fees are to be much lower than the licensing fees which could be obtained through normal commercial dealings.

It is worth mentioning that neither a patent disclosure system nor a patent exploitation system exists in China during the process of standard formulation. China's Supreme Court, as the highest judicial authority having the authority to interpret laws and regulations in judicial practices, filled in rules where the law itself was silent. Though its opinion is made upon a specific case tried in Liaoning Court, this posturing will be a guide for inferior courts nation wide and will be binding on similar cases.

Patent holders in China would be wise to exercise caution when participating in the formulation of industry standards. Taking part in formulating standards could potentially result in the patentee forfeiting its chance to bring a claim for patent infringement and fees collected for exploitation will likely be significantly lower than those gained through market-based licensing agreements. Given the impact which this opinion could potentially have on protecting and profiting from one's patent rights, we suggest that patent holders weigh the benefits of participation in industry forums with the risks inherent in the process.
 

专利权人参与标准制订将面临风险

2008年7月8日，最高人民法院在答复辽宁省高级人民法院请示的案件时明确批示：“专利权人参与了标准的制定或者经其同意，将专利纳入国家、行业或者地方标准的，视为专利权人许可他人在实施标准的同时实施该专利。他人的有关实施行为不属于专利法第11条规定的侵犯专利权的行为。”最高人民法院还进一步明确，在这种情况下，专利权人可以要求支付技术使用费，但专利权人要求实施人支付的使用费数额应当明显低于正常的许可使用费。

在中国专利法尚未建立有关标准中专利信息的公开披露以及使用制度的情况下，最高人民法院作为中国的最高审判机关以及具有司法解释权的机关，对该问题的上述态度在一定程度上补足了立法空白。该批示尽管是对辽宁省高院作出的个案批复，但批复内容对于类似案件以及对于下级人民法院的审判工作均具有指导意义。

对于最高人民法院作出的上述批复，专利权人应当引起高度关注。对于是否参与标准制定以及是否将自己的专利纳入标准，专利权人应当持格外审慎的态度。专利权人的上述行为很有可能导致其丧失主张专利侵权的机会, 同时专利权人可以取得的使用费也会相应降低。