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China has concluded more than 35 bilateral negotiations with World Trade Organization (WTO) member countries. A barrier to China’s membership was overcome recently when the United States and China reached an agreement regarding accession. It is possible that China will complete all negotiations for entry by the November meeting of WTO ministers in Qatar. Once China accedes to the WTO, the United States will grant China permanent normal trade relation status, although the U.S. trade representative will be required to continue to monitor China’s compliance with its WTO obligations. [FOOTNOTE 1]Specifically, the trade representative will focus on China’s compliance with the Agreement on Trade-Related Aspects of Intellectual Property Rights (the TRIPS Agreement) and will provide annual reports addressing this issue. [FOOTNOTE 2] China has amended some of its patent laws in an effort to comply with the requirements of the TRIPS Agreement. This article considers the adequacy of these amendments and sets forth areas that require change in order to bring the patent system into TRIPS compliance. China offered no patent protection before 1985, the year its Patent Law took effect. Until then, if the state found an invention “useful,” an inventor’s certificate and a cash award was given the inventing party, although the state retained ownership. [FOOTNOTE 3]This early, pre-patent-law form of protection proved inadequate from the perspective of Western trading partners such as the United States. [FOOTNOTE 4] While having several limitations including prohibitions against the patenting of food, beverages, flavorings, pharmaceuticals and substances obtained by chemical processes, [FOOTNOTE 5]the Patent Law was largely based on the standard practice of the time for a developing country. But, in any event, the existence of a patent system does not itself guarantee that rights will be protected. In March 1991, the National Trade Estimate Report on Foreign Trade Barriers of the Office of the U.S. Trade Representative cited certain Chinese practices as affecting U.S. exports, [FOOTNOTE 6]including the failure to protect intellectual property. In April 1991, China was put on the Special 301 list of “priority foreign countries.” [FOOTNOTE 7]Among the reasons for being so identified was inadequate patent protection and inadequate enforcement. In retaliation, the United States was prepared to begin collecting duties on a large number of Chinese imports on the deadline, Jan. 16, 1992, if no progress was evident. Shortly thereafter, and under threat of sanctions, the Chinese negotiators agreed to a Memorandum of Understanding [FOOTNOTE 8]under which China agreed to improve its system of protecting intellectual property. In response to the memorandum and in an effort to comply with TRIPS, China revised its original 1985 Patent Law for the first time by way of an amendment that took effect in 1993. [FOOTNOTE 9]The changes included the removal of prohibitions against the patenting of chemical and pharmaceutical products as well as food, beverages and flavorings. This change is consistent with Art. 27(1) of the TRIPS Agreement, which provides “patents shall be available for any inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application.” Limited permissible exceptions to this broad rule are set forth in arts. 27(2) and (3). The amendments of 1993 also included an extension of protection from 15 years to 20 years from the date of filing, thus meeting the term of patent protection specified in Art. 33 of the TRIPS Agreement. THE 2001 AMENDMENTS There were several provisions of China’s Patent Law that still did not comply with the TRIPS Agreement after the 1993 amendments. Some of these provisions were the subject of the second amendment to China’s Patent Law, which was approved by the National People’s Congress on Aug. 25, 2000, and took effect on July 1. The Patent Law as amended in 1993 failed to endow the patent owner with the right to exclude others from offering for sale the patented products or products directly obtained by patented processes. Art. 28 of the TRIPS Agreement defines offering for sale as an exclusive right conferred on the patent owner. Art. 11 of China’s Patent Law, originally amended in 1993, was amended again in 2001 to include offering for sale as a patent holder’s right. Art. 31 of the TRIPS Agreement expressly permits the grant of compulsory licenses under reasonably well-defined circumstances. Two provisions of China’s Patent Law were amended to effectively limit the situations in which compulsory licensing would be available. Specifically, amendments were made to more clearly define the relative value and subject matter of a patent for which a compulsory license could be granted. More particularly, Art. 53, of the Patent Law — governing compulsory licensing — was amended. The previous version read, “Where a patented invention or a patented utility model for which the right of patent was granted is technically more advanced than another invention or utility model for which a right of patent was granted earlier, and the exploitation of the later invention or utility model depends on the exploitation of the earlier invention or utility model, the Patent Office may, upon the request of the later patentee, also grant a compulsory license to exploit the earlier invention or utility model.” The new version begins, “Where a later invention or utility model represents an important technical development with particular economic significance in comparison with another invention or utility model …” and finishes with the above language. The new language is almost identical to the language of Art. 31(l)(I) of the TRIPS Agreement, thus effectively removing any inconsistency of this aspect between that agreement and the Patent Law.In addition, specifics as to time, duration and scope of the compulsory license have been transported from former Art. 68 of the Implementing Regulations [FOOTNOTE 10]into Art. 52 of the Patent Law. The effect of this modification is to bring China’s Patent Law more in line with Art. 31 of the TRIPS Agreement. Beyond providing better definitions to compulsory licenses, other changes to the Patent Law were made in 2001. Art. 57 of China’s Patent Law has been amended to shift the burden of proof of the infringement of a process to the defendant. Amended Art. 57 provides that “[f]or any dispute as to infringement regarding the patent for invention which relates to a process for the manufacture of a new product, the entity or individual that produces the same product has responsibility to provide evidence demonstrating that its process is different from the patented process.” A major barrier to the effective use of the judiciary in dealing with patent infringement in China has been the absence of injunctive relief. Art. 44(1) of the TRIPS Agreement requires that judicial authorities “have the authority to order a party to desist from an infringement.” In response to this critical requirement, Art. 61 of the Patent Law has been amended to provide a mechanism for injunctive relief. PERSISTENT DEFICIENCIES The amendments made to China’s Patent Law in 1993 and 2001 bring the law more closely in line with the requirements of the TRIPS Agreement. Even as twice amended, however, the Patent Law is still not entirely in compliance with the TRIPS Agreement. Noncompliance is a concern in the areas of limits on patent right entitlement, compulsory licensing and enforcement. Art. 5 of China’s Patent Law provides against the grant of patent for inventions that violate the laws of China, that are contrary to social morality or that may prejudice the public interest. This broad provision violates Art. 27(2) of the TRIPS Agreement, which provides: “Members may exclude from patentability inventions, the prevention within their territory of the commercial exploitation of which is necessary to protect ordre public or morality, including to protect human, animal or plant life or health or to avoid serious prejudice to the environment, provided that such exclusion is not made merely because the exploitation is prohibited by their law.” The language “violate the laws of China” and “prejudice the public interest” may be relied on to justify the exclusion from patentability of an invention that would otherwise be patentable under Art. 27.2 of the TRIPS Agreement. The above-noted changes with respect to compulsory licensing notwithstanding, the Patent Law still fails to specify clearly the efforts required by the proposed user to obtain authorization from the right holder as required under Art. 31(b) of the TRIPS Agreement. Adequate assurance must also be made that any use of the patented product by way of a compulsory license will be made “predominantly for the supply of the domestic market of the Member authorizing such use” as required by Art. 31(f) of the TRIPS Agreement. Finally, the Patent Law must also be amended to specify that the right holder will be paid “adequate remuneration in the circumstances” as required by Art. 31(h). These modifications are particularly important to patent holders of higher technology, such as pharmaceutical patents. Amendments are necessary for clarification and to provide assurance to such industries that their investments will be protected. ENFORCEMENT ISSUES Perhaps the most difficult aspect of complying with the TRIPS Agreement by developing countries is in meeting the general obligations regarding the enforcement of intellectual property rights. China is no exception to this. Specifically, Art. 41(1) of the TRIPS Agreement provides: “Members shall ensure that enforcement procedures as specified in this Part are available under their law so as to permit effective action against any act of infringement of intellectual property rights covered by this Agreement, including expeditious remedies to prevent infringements and remedies which constitute a deterrent to further infringements.” This article, perhaps more than most, represents a great challenge to China, as there is a relatively long history of poor mechanisms to counter infringement. [FOOTNOTE 11]As recently observed by the U.S. trade representative, “the underlying problem of obtaining effective enforcement remains.” [FOOTNOTE 12] China has created a two-track system for responding to acts of infringement. One track is an “administrative” system under which the aggrieved party seeks redress by filing a complaint with the local administrative office responsible for patent affairs. These offices have the power to enter premises and seize goods, to order infringing acts to be stopped, to order delivery to authorities or destruction of infringing products, to order an accounting of profits and to levy fines. The administrative approach is frequently selected because it is readily available and fast, culminating in a raid within days of the filing of a complaint. The administrative approach, however, is burdensome to the party seeking relief and often does not have lasting benefits. The authorities do not conduct pre-raid investigations, nor do the authorities involve themselves in the preparation and filing of the complaint. These measures are left to the aggrieved party or to agents for the party. In addition, the administrative approach all too frequently results in only temporary relief in that the source of the infringing product is usually not the victim of the raid, which is typically the distributor. Furthermore, damages are not available through this avenue and administrative sanctions are light. [FOOTNOTE 13]Consequently, recidivism rates are high.The other course of redress is the judicial approach. This avenue may be taken as an alternative to administrative action, or it may be undertaken simultaneously with or subsequent to such action. Damages are available, but the procedure is slow, and except for the few specialized courts in the largest cities, [FOOTNOTE 14]judges are poorly versed in patent matters. Compromising this approach further is the fact that complaint filing fees are based on the requested amount of damages. This places a large financial burden on the party bringing the action. Foreign businesses question the effectiveness of this approach, and they most often take the administrative route. As noted above, Art. 41(1) of the TRIPS Agreement requires a system of enforcement in which remedies are available “which constitute a deterrent to further infringements.” Civil penalties for patent infringement are usually thought of as inadequate. As set forth in arts. 213 to 220 of the Criminal Code of China, criminal sanctions are available only in cases in which the conditions are “serious” or in which sales by counterfeiters have been “relatively large.” Neither “serious” nor “relatively large” is defined in the Code. Complicating matters is the fact that the definitions of these requirements are not adequately set forth in the statutes and are not established in case law. [FOOTNOTE 15]The lack of clear guidelines and the relatively low levels of punishment [FOOTNOTE 16]contribute to the frequency of repeated offenses. Finally, the relatively high threshold value of infringing goods that must be met ($6,000) before criminal sanctions can be brought results in many acts of infringement being committed for which there are no criminal sanctions. By increasing criminal penalties and reducing the threshold for minimum damages, China will take a great step toward compliance with the TRIPS Agreement. These measures will also lend further credence to the commitment of the Chinese government toward responsible participation in the WTO. In recent amendments to its Patent Law, China has taken several positive steps toward compliance with the TRIPS Agreement. These steps are particularly impressive in light of the fact that China’s Patent Law is only in its second decade. A sustained, continuous effort on behalf of China’s government, however, will be required if its patent laws are to reach full TRIPS compliance. Thomas T. Mogais a partner in the Washington, D.C., office of Atlanta’s Powell, Goldstein, Frazer & Murphy. He is the author of Patent Practice & Policy in the Pacific Rim (1995) and is a former Fulbright Scholar to China (1997). He recently returned from China as part of a U.S. State Department delegation on intellectual property enforcement. ::::FOOTNOTES:::: FN1Public Law 106-286, signed into law on Oct. 10, 2000. The Office of the U.S. Trade Representative has, since 1991, identified “priority foreign countries” that do not maintain proper intellectual property protection. Sanctions may be imposed for countries failing to meet specified standards. FN2The TRIPS Agreement, an achievement of the General Agreement on Tariffs and Trade during the Uruguay Round, “requires all WTO members to provide certain minimum standards of protection for patents, copyrights, trademarks, trade secrets and other forms of intellectual property. The agreement also requires countries to provide effective enforcement of these rights. The TRIPS Agreement is the first broadly subscribed multilateral intellectual property agreement that is enforceable between governments, allowing them to resolve disputes through the WTO’s dispute settlement mechanism.” 2001 Special 301 Report, Office of the U.S. Trade Representative, released April 30, 2001, at 5. FN3Industry and Trade Administration, U.S. Department of Commerce, “Doing Business with China,” at 19 (1979). FN4Patent protection was needed for several reasons: “First, the lack of available patent protection in China increased the cost of imported technology to China. Second, Chinese inventors tended to keep their inventions secret, therefore, underutilizing the benefits and denying the knowledge to others.” Unclassified telegram from the U.S. Embassy, Beijing, to the U.S. Department of Commerce and other embassies and Far East consulates (March 1984). FN5Art. 26 of the Patent Law of the People’s Republic of China, adopted on March 12, 1984, effective April 1, 1985. FN6Lucille A. Barale, “Special 301 Investigations: Using U.S. Laws to Address China’s Unfair Trade Practices,” East Asian Executive Report, Oct. 1991, at 18. FN7“U.S. China Agreement on Intellectual Property Ends Retaliatory Duties Threat,” Pat. Trademark & Copyright J. (BNA) No. 1065, at 238 (Jan. 23, 1992). FN8U.S.-China Intellectual Property Agreement, East Asian Executive Report, January 1992, at 4. Other signatories to the memorandum include the European Union and Japan. FN9Amendment to the Patent Law, promulgated on Sept. 4, 1992, effective Jan. 1, 1993. FN10Implementing Regulations of the People’s Republic of China, adopted on Jan. 19, 1985, as amended on Dec. 12, 1992. FN11The pharmaceutical industry has expressed concerns that China encourages patent infringement. See, e.g., PhRMA Special 301 Submission Priority Watch List Countries, March 2001, at 35. FN12 See2001 Special 301 Report, supra, n.2 at 16. FN13Generally, administrative sanctions amount only to relatively low fines and the loss of infringing inventory. FN14Since 1992, specialized intellectual property courts have been established in Beijing, Shanghai, Guangzhow, Shenzhen, Zhuhai and Santou. FN15The laws are clearer with respect to counterfeit drugs insofar as they have the potential of affecting the health of the consumer. New interpretations of arts. 140 to 148 of China’s Criminal Code that entered into effect on April 10, call for strict punishment if certain physical harms are caused by, for example, counterfeit drugs. FN16The maximum imprisonment is seven years, although this term is rarely applied.

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