Technology
in China
China has a rather liberal view as to what constitutes "technology".
Under the Technology Import Regulations, "technology" includes
patents, copyrights and other intellectual property rights, know-how
in the form of drawings, data, specifications, and technical services.
There is no requirement that particular "know-how" be patented
or patentable, but rather only that it is proprietary property of
the contributor. Contracts will often define the "know-how"
component of capital contribution or technology transfer very vaguely
as the property knowledge, skill, and experience related to operating
certain equipment or even related to management or marketing.
Regulations
Surrounding Technology Transfer
The Technology Import Contracts Regulations and the related Implementing
Rules cover all acquisitions of technology by entities in China
from abroad. These acquisitions include technology transferred through
joint ventures. The regulations set out a number of broad requirements
concerning technology imports. A technology import must confirm
to at least one of the following conditions:
Be capable of
developing and producing new products.
Be capable of improving quality and performance of products, reducing
production costs, and lowering consumption of energy or raw materials.
Be favorable to maximum utilization of local resources.
Be capable of expanding exports and increase foreign exchange income.
Be favorable to environmental protection.
Be favorable to production safety.
Be favorable to improvement of management.
Be favorable of contributing to the advancement of scientific and
technical levels.
There is an
important distinction between a technology transfer agreement in
China and a technology licensing agreement in the west. Normally,
at the end of the term of a license agreement, ownership and use
rights surrounding the technology in question return to the licensor.
In China, use rights to the technology and know-how usually remain
with the licensee at the end of the term of the technology transfer
agreement. Normally, the term of a technology agreement is limited
to a period of ten years. In cases where the term of the joint venture
is longer than the ten year term or in cases where the technology
is patented and the validity of the patent extends beyond the ten
year term, the term of the technology transfer agreement is extended.
Within the Ministry of Foreign Economic Relations and Trade (MOFTEC)
there is an internal (neibu) regulation covering all of China that
limits the percentage of equity which can be contributed to an equity
joint venture through technology. The technology contribution to
a joint venture may not constitute more than 50% of the foreign
party's contribution. Likewise, the technology contribution of the
foreign party may not constitute more 20% of the total registered
capital.
Intellectual
Property Protection
During the last few years the investment climate for technologically
advanced industries has improved greatly due to the promulgation
of new intellectual property legislation. China has acceded to a
number of international treaties and conventions related to the
protection of intellectual property rights. China joined the Paris
Convention for the Protection of Industrial Property which China
in 1985, the Nice Arrangement concerning the International Classification
of Goods and Services for Registration of Marks in 1988, and the
Madrid Agreement for the International registration of Marks which
China in 1989.
On January 17, 1992 the United States and China signed the Memorandum
of Understanding on the Protection of Intellectual Property. This
agreement required China to make certain changes to its laws governing
intellectual property protection and to accede to the Berne Convention,
the Universal Copyright Convention, and the Geneva Phonograms Convention
before 1994. Since that agreement, China has fulfilled their obligations
and acceded to these conventions.
Copyright
Protection
The China Copyright Law was promulgated in 1991 and has been upgraded
four times since then. In 1991 the China Copyright Law Implementing
Regulations and the Computer Software Protection Regulations were
passed. In 1992 the Computer Software Registration Procedures and
the Implementations of International Copyright Treaties Provisions
were approved.
In 1991 the National Copyright Administration was set up and charged
with responsibility for copyright matters including the formulation
of regulations relating to copyright administration, investigation
of major infringements, administration of matters relating to foreign
copyrights, administration of state owned copyrights, and the supervision
of lower level copyright authorities.
Under China's
copyright law, the owner of a work should receive protection without
being required to register the work with the copyright agency. In
the case where the copyright is held by an individual, protection
is provided during the life of the author and extends fifty years
beyond his or her death. In the case where the copyright of the
work belongs to a company, protection extends for a period of fifty
years from the first publication of the work. The period of protection
for cinematographic, television, video, or photographic works extends
fifty years from the first publication of the work without regard
to the owner of the copyright.
China's copyright
law limits protection to works that cause no harm to China's public
interest and do not violate Chinese laws. There are some "fair
use" situations where a work can be used without permission
or compensation including use for the purpose of education or scientific
research or use by a state entity where such use is for the purpose
of carrying out official duties.
Patent Protection
Patents in China are governed by the China Patent Law promulgated
in 1985 and its Implementing Regulations that were passed the same
year. Major improvements were made to the Patent Law as a result
of the Memorandum of Understanding on intellectual property protection
China signed with the US in 1992. Several amendments to the Patent
Law came into effect in January 1993 as a result.
China amended
its Patent law to extend the duration of patent protection from
fifteen to twenty years. The "Patent Law" amendments also
defined infringement in a broader sense to include unauthorized
sale or unauthorized importation of products which infringe on the
patent or products that were manufactured with the use of patented
processes. Conditions were also placed on the granting of compulsory
licenses and cross-licenses.
American patents
must be registered in China in order to enjoy protection under Chinese
law. The priority date of a patent application for an invention
or utility model filed in China less than twelve months after the
filing of the original application in the United States will be
deemed to be the date of original application in the United States.
For design patents application in China must be made within six
months from the date of original application.
The "Patent
Law" requires that foreign parties utilize the services of
a registered Chinese Patent Agent to submit the patent application.
Preparation of the application may be done by foreign attorneys
or by the Chinese Patent Agent. The approval process for a patent
application normally takes from twelve to twenty-four months to
complete.
Trademark
Protection
Legislative protection of trademarks in China has made great advances
during the past few years. The China Trademark Law was promulgated
in 1983 and followed by the China Trademark Implementing Regulations
in 1988. Significant revisions were made to the Trademark Law and
came into effect in July 1993.
Trademark registration
in China is an integral part of the initial entry of any company
into the China market. Often a foreign designed jointly manufactured
product becomes so popular in the Chinese market that a competitive
entity will copy the product and seek to trade based on consumer
goodwill towards the product.
There are no
legal restrictions regarding the use of an unregistered trademark
on telecommunication products and appliances in China. Registration
provides a number of advantages including exclusive right to use
the mark and the right to indicate that the mark has been registered
with the Chinese government. China has not yet adopted the common
law concept of use giving rise to trademark rights. According to
the Chinese "Trademark Law", prior use of a trademark
in China will not provide the user with exclusive rights to the
mark.
The Paris Convention
for the Protection of Industrial Property grants rights to trademarks
based on use but is limited to "well-known" trademarks.
The Chinese government has not been consistent in their interpretation
of the definition of "well-known" with respect to foreign
trademarks. Trademark rights should be secured through registration
in China with this in mind. Trademarks are best protected by registration
in both a block letter form of the mark which will protect the trademark
in all styles as well as the stylized form in case the block letter
form is rejected on the grounds of lack of distinctiveness.
Chinese and
English versions of trademarks should be registered simultaneously.
The inclusion of English in the trademark is crucial to emphasize
the involvement of a foreign partner and the higher quality of a
foreign designed product. Consumers in China generally only recognize
that the English name is foreign and make purchase decisions based
on the associated Chinese character trade name.
When a product
has no associated Chinese character mark, a Chinese "nickname"
usually results. Depending on how the associated nickname is chosen,
the name can be very flattering, or somewhat less than flattering.
The Chinese name for Coca-Cola in Chinese means "Thirsty Mouth,
Happy Mouth". On the other hand, the word "pro" would
most likely be pronounced by the Chinese tongue as "puo"
meaning "broken down" in Chinese. Companies planning to
do business in China should choose their trade name carefully, before
some less than flattering nickname is chosen by the Chinese.
Amendments to
the China Trademark Law made in 1993 permit registration and provide
protection for service marks. Supplemental provisions which impose
criminal sanctions for trademark infringement were also enacted
to China's Criminal Law which added some teeth behind the Trademark
Law.
China's Trademark
Law requires that foreign companies utilize the services of registered
agents to submit trademark applications. The trademark applications
can be prepared by foreign attorneys or the Chinese agents. Trademark
registration process usually take from nine months to a year.
Trade Secrets,
Confidentiality, and Non-Disclosure Agreements
In September 1993 the Chinese government adopted the "Law against
Unfair Competition" which became effective in December 1993.
Local unfair competition regulations also exist in many provinces
but primarily concern false advertising, profiteering, and consumer
protection and do not protect trade secrets.
China is already obligated to protect trade secrets under the Paris
Convention for the Protection of Industrial Property, however, the
lack of national legislation in this area has made it difficult
for foreign companies to protect their trade secrets. Most firms
currently rely upon confidentiality clauses in contracts to protect
business or technical information. Trade secrets are most often
protected through the use of Confidentiality Agreements or Non-Disclosure
Agreements with the key personnel in the joint venture. These agreements
are crucial and are usually initiated as a condition to the disclosure
of any technical information during negotiation of technology transfer
agreement.
Confidentiality
agreements and non-disclosure agreements do not require the approval
by the authorities and are not subject to the same ten year limit
which the technology transfer agreement is confined to. A confidentiality
agreement can cover trade secrets for an indefinite period of time.
However, a non-disclosure agreement with regard to technology revealed
during negotiations is superseded by the provisions governing confidentiality
in the technology transfer agreement if the negotiations are successful.
The confidentiality provisions in the technology transfer agreement
are subject to approval.
Most western
companies set up strict procedures to ensure the protection of their
confidential and proprietary information. Appropriate materials
are marked "Confidential" or "Trade Secret"
and personnel are assigned to update and reclassify such materials
when no longer proprietary in nature. Individuals with access to
such information are required to sign a confidentiality agreement
and the materials are stored under lock and key when not in use.
The number of individuals with access to the information is kept
to a minimum. These policies assist in the prosecution of parties
that breach a confidentiality agreement.
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