challenges to china’s independent innovation and enforcement of intellectual property by feng,...
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Challenges to China’s Independent Innovation and Enforcement of Intellectual Property
By FENG, Xiaoqing
Vice President, China IP Law Society
Professor of Law, Institute of IP Law, China University of Political Science and Law (CUPL)
Director of the Research Center for Intangible Assets Management, CUPL
Ph. D at law, Peking University.
CONTENTSCONTENTS
I. Introduction: What is independent innovation in China?
II. System Challenges
(a)The management system of science and technology
(b)Legal system
III. Implementation of Intellectual Property Strategy in China
IV. Conclusion
I. IntroductionI. Introduction: : What is independent innovation in China?What is independent innovation in China?
• Independent innovation emphasizes that one enterprise shall rely on its own strength to obtain the right to dispose of and to control innovation achievements. The goal of independent innovation is to improve the ability of independent innovation. The key is to realize the combination of the breakthrough of core technology
• with institutional innovation. Its basic meaning is to emphasize the autonomy of innovation, or to consider that independent innovation is the advanced stage of technological innovation or scientific and technological innovation.
• However, emphasis on autonomy is not self-locked, “technology import is very important for China to realize its independent innovation strategy”;“the independent innovation we address is referred to as the innovation with independent intellectual property rights, rather than the so-called independent, self-innovation”.
• It is a kind of closed idea on independent innovation to consider that everything shall be completed by oneself and depend entirely on oneself to realize the technology leapfrogging. Under an open innovation environment, independent innovation does not rule out using external resources and favorable conditions for cooperative
• innovation. Since China proposed the grand goal to improve the ability of independent innovation and to build an innovation-oriented country in 2006, the policy regarding the independent innovation it has carried out, in fact, is the national strategy based on acquisition and possession of independent intellectual property rights
• to improve the innovation ability of the industry and the nation.
II. SII. System ystem CChallengeshallenges
• In 2006, China enacted the National Intellectual Property Strategy Compendium, and its promotion of the national intellectual property strategy is closely combined with the policy on independent innovation. However, there are still some institutional, legal, empirical and fundamental dissatisfaction. The main targets for an
• enterprise to realize system innovation is to overcome the defects of the old system, and
• to provide system guarantee for improving enterprise innovation ability. Only when these weaknesses were overcome, could Chinese enterprises succeed in promoting independent innovation and intellectual property.
The management system reform of science and technology
• The management system reform of science and technology involves many aspects such as management organization, resource allocation, ownership of scientific and technological achievements, distribution of interests, commercialization and industrialization of achievements, policy regarding science and technology, innovation motivation, environment of science and technology innovation, etc.
• Chinese economic system reform in recent years has undoubtedly laid a good foundation for its economic and social development. The direction and idea of reform of science and technology system is to introduce intellectual property management system, to gradually promote the achievement management to be intellectual property management, and to combine with the goals of technology
• innovation, which is undoubtedly in line with international trends, and adaptable under the intellectual property protection environment. However, owing to the inertia of the system and the pertinacity of the concept “achievement”, we still have obstacles against such reform in terms of independent innovation and enforcement of intellectual property rights, and we have to make efforts on many aspects, such as the evolution of
• concepts, standard of innovation evaluation, and cohesion of the management mechanism, etc.
• LEGAL CHALLENGES • Independent Intellectual innovation itself is not
only the behavior of enterprises engaged in research and development, production and manufacturing, but also a systemic and procedural economic behavior closely related to and deeply influenced by external conditions. Centering round the overall goal
• of motivating and promoting technology innovation, these different legal systems form a mechanism with intrinsic organic connection for the protection of technological innovation.
• However, the Chinese legislation follows the philosophy of “being appropriately coarse but not unfavorably fine”. There are no rules
• and poor systematic coordination on many issues, and intellectual property laws in China focus more on the administration, so that the regulating system that is applied to the independent innovation is not close-knit. Thus further improvement is necessary so as to provide good system guarantee for innovation stimulation and application of innovation achievements.
Examples: Challenges of the Legal System of Intellectual Property
• As can be seen from Chinese existing intellectual property legislation, some important matters can be enacted only in the form of administrative regulations, and the degree of protection is not high enough, therefore it is necessary to enhance the level of legislation. Concerning the structure of legislation , the current decentralized legislation mode of patent, trademark, copyright and other intellectual property.
• rights lacks of overall coordination. From the perspective of promoting enterprise independent innovation and industrial development, some basic laws still face challenges.
Patent LawPatent Law
• In terms of Patent Law, the third revision in 2008 was to highlight the important role of the Patent Law and the patent system to enhance innovation ability, and to promote the transformation of scientific and technological achievements and the technology innovation in China. However, only from the perspective of promoting technological innovation, there are still some aspects worthy of further consideration:
• Firstly, the definition of “service invention” is too simple, the current reward magnitude of the reward system of the service inventor is modest, and no corresponding remedial measures have been formulated against the phenomenon that many enterprises do not strictly follow the reward mechanism.
• Secondly, the patent approval procedure is unable to cope with the situation that patent filings are surging rapidly, and cannot serve
• the patent information construction and internationalization.
• Thirdly, the provisions of the current Patent Law on the limitation of right are too brief and too abstract, which are not conducive to be applied in the judicial practice.
• Fourthly, the provisions of the existing Patent Law are obviously insufficient to promote the popularization and application of innovation and to promote the
• commercialization of the invention. There are no relevant provisions on the commercialization issues such as the pledge of patent, patent investment, securitization of patent, so that these issues can only be reflected and carried out through administrative regulations and policy.
• Fifthly, as regards to patent infringement liability, the problems worthy of attention are mainly embodied as follows: we are lack of systematic and strict provisions on injunction that could be taken before the litigation during the whole proceeding of the lawsuit. Such lack results in that the plaintiffs apply for injunction easily and abusively in practice so that the lawful interests of the defendant could be harmed
• and effective remedy is unavailable; as for the patent infringement damages, the provisions of the existing law are still relatively simple and principled which causes diverse judgments in the judicial practice; and as to the criminal responsibility due to the violation of the Patent Law, the scope specified by the existing law is relatively narrow, without covering malicious deception to the authorities during the patent
• examination like the UK and other countries do. In addition, the existing Patent Law has no provisions on abuse of the patent right which is necessary to be clarified in its future revision, so that the effective protection of patent right can coordinate well with the competition law and competition policy, These problems cause that the technology and patent are unable to be timely commercialized and fail to get due protection.
• PS: In order to improve Chinese patent system, the fourth revision of the Patent Law is on the agenda. On January 29, 2013, the State Intellectual Property Office submitted the draft amendment to the Patent Law to the State Council for instructions. The draft amendment made provisions for the reinforcement of the patent protection.
Chinese Trademark Law:Chinese Trademark Law:Chinese Copyright Law:Chinese Copyright Law:
• From the perspective of promoting enterprise technology innovation, there exists a big gap between Chinese Copyright Law and the requirements of promoting the development of copyright industry. Although the Copyright Law has experienced two revisions, it still demonstrates some brands of planned economy. In addition, its response of rapid development of digital technology and internet technology is not
• sufficient.• The challenges faced by Copyright Law include: • Firstly, the provisions on the ownership of works cannot
meet the needs of practice. Secondly, it has not stipulated the special right of database with originality, resulting in the incoordination of database industry development with the public interest.
• Thirdly, the adjustment of the right system, including the transplantation of public lending right, artist’s resale right, etc., needs to be considered in response to the needs of social development.
• Fourthly, in practice, producers of audiovisual products and broadcasting organizations do not enjoy the right of performance, which causes irreparable damage to their interests.
• Fifthly, in some international conventions and foreign copyright laws, there are no such concepts as “video producer” and “video product” as we have, which causes confusion and difficulties in application of law.
• Sixthly, the provisions of the Copyright Law on the limitations and exceptions of the copyright is limited to fair use and statutory license, but there are no provisions
• on private copying, exhaustion of rights, mental rights, etc..
• As for the copyright exception in the digital age, there is a conflict between the judicial interpretation of the Supreme People’s Court and the regulations of the State Council. In addition, the limitation on taking technical measures is relatively few. There are no systematic provisions concerning upload, digital transmission, download by way of technology, the dissemination and utilization of digital works in remote teaching, the public information service of the library in the information society.
• Seventhly, the provisions on the copyright infringement adopt the form of enumeration, and have not refined the general connotation, which causes that new situations cannot be solved in judicial practice. The lack of these specifications makes the development of cultural industry face uncertainty, and makes the creators unable to protect their interests, which fails to meet the needs of the independent innovation.
Further Discuss: Challenges to the Finance and Taxation Legal System
• For a long time since its reform and opening up, China has carried out a series of preferential tax policies and established a system applicable to foreign enterprises in order to attract foreign investment, which objectively caused inequality or even too large difference with regards to the tax burden between the domestic enterprises and foreign enterprises. Such difference formed the unfair super-national treatment, and weakened the market competitiveness of domestic enterprises. With China’s accession to the World Trade Organization (WTO),
• under the condition that foreign multinationals in China have more intellectual property resources and advantages than Chinese domestic enterprises, a series of preferential policies which were carried out before for the sake of foreign companies need to be reevaluated, otherwise it will intensify inequality of competition between domestic and foreign enterprises in the market. Study shows that the average rate of tax burden of China’s foreign enterprises is 11%, while that of domestic enterprises is 22%, and that of large State-owned enterprises is 30%. A series of preferential policies,
• cheap resources and the vast Chinese market, are favorable to the multinational companies developing business in China. For instance, the production of Volkswagen Company in the Chinese market accounted for just 14% of its global production, but its profits in Chinese market accounted for 80% of its total profits; the United States GM production in China accounts for only 3% of its global production, but its profits obtained from Chinese market accounted for 25% of its global profits. Of course, we cannot deny the positive effects that the tax preferential policy has attracted foreign investment
• to set up factories in China, but in reality a country’s preferential policy on foreign-invested enterprises has its specific historical conditions and backgrounds. Now China’s market environment and competition structure is not the same as that at the beginning of reform and opening up. Especially under the system of the WTO, full attention should be paid to how to reform the tax preferential policies on foreign-capital enterprises which have continued in China for many years.
Challenges to the Investment Legal Challenges to the Investment Legal System System
• In China, there is a gradual improvement for the policies and regulations on venture capital investment. An empirical research pointed out that China’s risk investment has not played a significant role in technology innovation, and venture capital investment has not stimulated substantively the technological innovation as expected. Instead, most of domestic patents are generated by the R&D investments. This means that we still have a long way to go to make full use of the venture capital in reality.
(d) (d) The Government Procurement Legal The Government Procurement Legal System System
• Government procurement is not only an effective tool to promote technology innovation, but also a measure which is not bound by the related agreements of the WTO. However, neither Chinese current government procurement law nor Chinese product procurement practice has demonstrated full support to the independent innovative products. Main problems are as follows:
• Firstly, the support of the government procurement to products of independent innovation mainly stays at policy level, but it is not involved at all in the Government
• Secondly, compared with the developed countries, China’s government procurement legal system is not sound, and the proportion of the products procured by the government in GDP is too small. Research data shows that the proportion of the government procurement in the GDP of a country is about 12% -20% on the average. China’s GDP in 2011 was 45.8 trillion. If estimated in the proportion of 20%, Chinese public procurement market would be about 9 trillion, but China’s government procurement was RMB 1.13 trillion. Even if all government procurement is to support technological innovation, the effect of the Chinese government procurement on technology innovation is very limited.
• Thirdly, to a great extent, the public still have doubts and prejudices against government procurement of independent innovation products and other similar forms. An example shows that the government departments care more about the brand of products rather than the price. Since “foreign” brand has superiority in the mind of some government officials, the national products are ignored even though they are with independent intellectual property. This tendency has adverse impact on government procurement, because it may set a negative guide to ordinary people, and thus the enterprise independent innovation in China will be finally
• damaged. Based on these problems existing in practice, further policy and regulation are necessary in order to ensure the preferred support of government procurement for products with independent intellectual property rights.
Implementation of Intellectual Property Strategy in China: Problems and Challenges
• Since the national intellectual property strategy compendium has been enacted since June 2008, it has caused a huge public response, and played an important role in the construction of an innovative country and in the transformation of the pattern of economic development. In the process of advancing the national intellectual property strategy, the current outstanding problem is weak consciousness. In the fields of economy, science & technology, and foreign trade, the management of intellectual property and the establishment of the intellectual property system and so on, leave much to be desired;
• and the core technology and key equipment of most industries depend on foreign countries.
• The national intellectual property strategy has the defects that the focus of policy is deviated and supporting measures of government for the implementation is inadequate. These problems constitute long-term and profound barriers for China to carry out its intellectual property strategy.
• First, the consciousness of intellectual property strategy is poor.
• Second, in the field of economy, science & technology,
• and foreign trade, the intellectual property management and the intellectual property system leave much to be desired.
• Third, national intellectual property strategy in foreign trade is missing. Data shows that at present, the number of Chinese companies which have own brands accounts for only about 20% of the total amount of enterprises engaging in foreign trade, and the amount of exported products with own brands only accounts for about 11% of the entire amount of exports.
(d) The Problems and Challenges Faced by the Enterprise Intellectual Property Strategy
• The enterprise’s weak awareness of intellectual property rights has influenced the actual effect of the strategy system. The enterprises in China have obvious shortage in utilization of intellectual property rights to improve their own advantage and management level. The State-owned Assets Supervision and Administration Commission (hereinafter referred to as the SASAC), in a survey regarding intellectual property among 2716 enterprises, found that only 347 enterprises, less than 13%, have their intellectual property strategy or planning, even fewer have made specific programs
• to apply the strategy. Even among those having the programs to commercialize their intellectual property achievements, most of them did not closely combine the patent strategy and the brand strategy with the enterprise development strategy.
• The enterprises have some difficulties in implementing all levels of intellectual property strategy. They fail to notice that intellectual property can increase their market competitiveness. They think that to formulate the intellectual property strategy is just to satisfy the inspection of the competent authorities, and to demonstrate a good
• impression to the authorities for their excellent intellectual property management.
• The implementation of the enterprise intellectual property strategy faces severe international competition. For example, Chinese international enterprises have met with technology barriers and intellectual property blocks in the United States, and the 337 investigation suffered by Chinese enterprises in the United States is becoming
• more and more serious in recent years. From 2002 to 2010, 337 investigation cases against Chinese enterprises in the United States grew by an average of 18% a year and it caused huge market pressure and economic loss to Chinese enterprises.
• Many Chinese enterprises lack core technology, and they depend highly on foreign technology, and thus they are greatly restricted by the foreign policy regarding
• export of advanced technology and the control of key technology, which is also an important bottleneck for implementing intellectual property strategy. Core technology and intellectual property rights are linked together. Since Chinese enterprises lack core technologies, foreign enterprises implements strict control over their core technology, and even abuse intellectual property right such as refusal of licensing,
• Chinese enterprises will have trouble to carry out the strategy of independent innovation.
CONCLUSIONCONCLUSION
• In the process of implementation of intellectual innovation, Chinese enterprises are facing many challenges. Because of the difference between Chinese tradition of science and technology management and the modern intellectual property system, it is inevitable to follow the double tracks in the system reform, which is not conducive to the industrialization of patented technology. The lack of market incentives is not only
• unfavorable for the transformation of patented technology, but also unfavorable for attracting funds for enterprises to conduct research and development.
• The intellectual property laws, Tax Law, Investment Law and the Government Procurement Law of China follow the legislative principle of “being rough rather than fine”, and thus a clear system for incentive innovation is absent. Such
• deficiency has not been fully realized in all previous legislative revisions. There are deviations from the policy goals in the process of law enforcement. Although China’s Science and Technology Parks have played a significant role in the stimulation of innovation, but due to unbalanced economic and technology development, the quality of Parks is variable and further adjustment is necessary to meet the needs of independent
• knowledge innovation.• Chinese enterprises also lack experiences in
independent innovation, which means insufficient enterprise intellectual property strategy experience, lack of supporting system for implementation of the enterprise intellectual property strategy, insufficient enterprise independent innovation ability, the imbalanced confirmation of enterprise intellectual property rights, the poor
• industrialization and marketization of enterprise innovation achievements, and the severe international situation faced in the implementation of enterprise intellectual property strategy. This makes the enterprise involved into a vicious cycle of independent innovation: insufficient motivation on independent innovation causes insufficient supporting fund and experience which conversely causes insufficient capacity for
• independent innovation. • However, although China has met with
challenges and problems arising from system, mechanism, cultural awareness, and external environments in the implementation of the policy of independent innovation and the intellectual property strategy, its determination to establish an innovative country is unwavering. With the gradual internationalization, only to vigorously
• promote independent innovation and utilize the intellectual property as a competition tool can Chinese enterprises stand steadily in the world. The fundamental key is to overcome the deficiency in systems, laws, supporting facilities and business operation.
