Those views may still hold true today in some quarters, but the tide is turning in China and washing away many of the Western criticisms. Slowly but surely, the fear and frustration have been replaced by a greater trust in China’s IP system and a willingness to maximise the benefits it offers.

Testament to this change, Microsoft opened its first ‘innovation centre’ on the Chinese mainland this year. The World Intellectual Property Organization, eyeing the explosion of IP rights in China, is planning to open a new office there within two years.

China has made a huge effort to shore up its IP system. Next year we can expect new trademark laws which, in their current draft, will double the level of damages for infringement to 2 million RMB ($324,000). Single colours and sounds will be protectable as a trademark. There will be stricter deadlines for reviewing applications and oppositions. Damages will be tripled for wilful infringement. 

Bad faith rules

The “huge” change under the draft law, says Catherine Wolfe, president of the UK-based Institute of Trade Mark Attorneys who has worked extensively in China, is on bad faith filing.

“This in itself is perhaps not game-changing, but how it is implemented could be. What do we mean by bad faith? Do we just mean your agent—who really ought to know—filing in bad faith? In which case, that is not such a big change. Or do we mean, it is bad faith to file if you happen to discover that a company hasn’t yet filed in China in a particular class?

“At the moment there is absolutely nothing wrong with noticing that famous company X has filed all the way through from numbers 1 to 19 but hasn’t filed in number 20, and saying ‘oh look, an open slot, I’ll have that, then’. That entrepreneurial filing, if you will, is not a bad faith action.

“If the new law says that this entrepreneurial filing is bad faith, then at a stroke it is going to produce a very large number of oppositions, not only Western companies opposing Chinese applications but Chinese companies opposing Chinese applications.

"This will have fundamental changes in the way the system works. If bad faith filing is interpreted to read on to entrepreneurial applications, then I would imagine some high profile rulings will make that known very, very quickly. That is a very exciting thing.”

Gloria Wu, partner at law firm Kangxin in Beijing, says that while the new trademark law bring welcome news for rights owners, it will take time before we can fully understand its benefits.

“We are going in the right direction, but it will still take a long time. It will take a while for examiners and judges to get used to the new practices and rules, for example on bad faith. The change of law is just the beginning.”

China is going places, but the improvements don’t end in the trademark world. The government is concentrating on improving the quality of patent examiners and the Chinese patent profession, as well as reinforcing to local companies that “coming up with innovations that are going to sell around the world” is important, says Gwilym Roberts, council member at UK group the Chartered Institute of Patent Attorneys.

“Across the board, the government has identified that merely setting targets for patents isn’t enough, so they are looking to really stimulate innovation.”

Goal setting

In 2011, China began setting specific goals for improving the patent landscape. As figures by Chinese law firm Beyond Attorneys at Law show, the government’s aim for 2015 was for annual patent applications to exceed two million, the number of patent examiners to stand at 9,000 and the number of practising patent attorneys to number 10,000.

China already surpassed some of these expectations last year. As the figures show, in 2012 there were 2.05 million patent applications, or 26 percent more than the previous year, handled by the patent office. Chinese companies, which receive government subsidies for filing applications as well as state funding for research and development, accounted for the vast majority—1.9 million—of last year’s applications.

But Roberts, a regular on business trips to China, says one of the effects of setting so many targets was that domestic companies were filing patents merely to receive the relevant subsidies.

“It wasn’t really the point,” he said, noting that this was one of two factors behind the government’s drive to focus on boosting the quality of examiners and attorneys, and encourage Chinese companies to produce better products.

“Second, they want to move from a manufacturing country where people look for cheap labour to being a centre of excellence—and China is now outsourcing manufacturing to other countries.”

As a massive centre for manufacturing, China has historically been the launch pad for huge numbers of counterfeit goods. This is turn has forced the customs department to sharpen its focus, says Wolfe, choosing to thoroughly inspect exports as well as imports.

"Whether the new law can produce the desired effect of a better trademark environment will depend on local officials' willingness to change old perceptions and actively apply it."
“The customs department is phenomenal. Many countries are very good at examining imports, but because China has been such a massive centre for manufacturing, it has become very good at looking at exports.

“This was driven by a number of companies lobbying for changes of practice. It’s a pretty good way of dealing with things because no change of the law is required, just a change of practice, to keep the overseas investors happy. Clearly, blocking exports is not a direct benefit to the Chinese factory—it has manufactured the product—but it is for the overseas countries,” Wolfe says.

Chinese and US customs officials teamed up in July to seize hundreds of thousands of counterfeit goods, in what was a positive show of cross-border cooperation. While the recovered goods might be described as only a drop in the ocean, the operation is an example of how China is committed to cracking down on IP infringement and, overall, stepping up its enforcement efforts.

Off to court

Statistics from the Supreme Court reveal that in 2012 the number of criminal IP cases increased by a whopping 129 percent from the previous year, with many related to counterfeiting.

Rights owners, showing an increased faith in China’s ability to enforce their IP, flocked in their masses to court in 2012. The figures show that Chinese courts handled nearly 84,000 civil IP lawsuits, a 44 percent increase on the previous year. Copyright cases were up 53 percent, trademark cases 52.5 percent and patent cases 23.8 percent.

Roberts says the improvements show that China is keen to be recognised globally as a country that takes IP seriously and where it is “worth obtaining IP protection”.

“Not only are they strengthening the creation of innovation but also the enforcement of the IP thereafter, for local and overseas companies.”

China’s increased respect for both IP protection and enforcement should be a bare minimum for a country signed up to an international trade agreement such as the WTO’s TRIPS Agreement. It should be normal and completely uncontroversial for a member state to implement rules and practices that seek to maximise the value of innovation.

But China is different. It’s a country that has long struggled to shake off its reputation as a copier rather than a creator, where Western rights owners have often struggled to navigate, as well as one that offers so much to businesses and traders.

There was a certain view 10 years ago, says Wolfe, that Western party A would see no point in filing IP in China because “I won’t get it protected and if I do I can’t enforce it. And I don’t care that Chinese party B can file in China because he can’t use it to stop me”.

“Now, all those sentences are wrong,” she says. “The very fact that we are talking about improvements shows how far China has come. They’ve done more in IP in the last 15 years than we in Britain have.”

Roberts adds: “China is pulling itself into line with the global standards, and the positive spin is that they have managed to do it in less than 30 years. It’s taken Britain since 1624. People have been critical, but the important thing is that China has listened and responded.”

Of course, there are outstanding worries for rights owners. There should be better communication between the IP offices and attorneys, says Wu, “because in lots of other countries there are routine meetings between examiners and attorneys, discussing core issues and whether there should be changes in practices—that is very helpful”.

Despite being heralded as IP owner-friendly, the new trademark law will be seen as successful only if it is applied properly and fairly. The increase in damages and other provisions are a step forward for prominent problems such as tackling infringement and squatting, but in reality fines, especially against domestic infringers, tend to be low and much is left to the discretion of local officials, says Thomas Pattloch, partner at Taylor Wessing LLP.

“Whether the new law can produce the desired effect of a better trademark environment will depend on local officials’ willingness to change old perceptions and actively apply it,” he says.

While most Chinese companies would quietly admit that Western companies get a level playing field in the major cities—Beijing, Shanghai and Guangzhou—Roberts says that when you get outside these places the outcome of a case is still “a little bit up in the air”.

“China knows it has to deal with that,” he says.

No IP system is perfect and China’s, like all others, will always have its faults. What is encouraging is that China has made great strides to improving its stance towards IP and swatting the stigma about infringement. More importantly, and in the face of the constant hurling of insults, China has done this relatively quickly.

It has a huge potential as a stronghold for IP owners seeking to unearth lucrative business opportunities. The future is bright; the question is: how far can China go?