Challenges of Protecting IPR in China Knut K. Wimberger | emage Austrian Patent Office,

austria wirtschaftsservice 2 aws Innovation Protection Program Protecting IPR in China - Challenges Chinas IPR system & policy

austria wirtschaftsservice 3 aws – Austrias promotional bank a bank 100 % owned by the Republic of Austria (AAA) limited liability company (GmbH) develops and implements programs according to the economic policies of the Austrian government Focus: Financial and Service Support of investment projects of Austrian companies in Austria and abroad.

austria wirtschaftsservice 4 aws Innovation Protection Program: Increase awareness about the importance of IPR protection Support development of a global IPR strategy and IPR portfolio Encourage the registration of IPR in emerging countries Support enforcement of IPR in case of infringement Overall goal: The protection of IPR of Austrian companies in emerging markets. Strategy:

austria wirtschaftsservice 5 IPP Service Network Local partners: Patent agents Law firms Investigators Patent Offices Administration for Industry and Commerce Supreme Courts The provinces: 90% of Austrian companies in China are located there Most of the IPR cases take place there

austria wirtschaftsservice 6 IPP Financial Support For SMEs, aws subsidizes up to 50% of the registration and enforcement costs. IPR Registration Patent registration in China (without translation): ~ 500 Trademark registration: ~ 500 Utility model registration: ~ Patent registration from Austria (PCT, including translation): ~ IPR Enforcement Administrative proceedings: Civil action:

austria wirtschaftsservice 7 aws Innovation Protection Program Protecting IPR in China - Challenges Chinas IPR system & policy

austria wirtschaftsservice 8 Why companies do not register their IPR in China: Doubts that IPR in China represent rights that can actually be protected Corruption Bureaucracy Language barrier Resources (time, money, people)

austria wirtschaftsservice 9 Counterfeiting in China: Seven in ten European companies doing business in China say they have been victims of IPR theft. In 2006, European manufacturers estimated that IPR theft cost them one dollar in every five they made in China.

austria wirtschaftsservice 10 Most of the European Brands are counterfeit…

austria wirtschaftsservice 11 Bags & baggage…

austria wirtschaftsservice 12 Anoraks…

austria wirtschaftsservice 13 Shirts…

austria wirtschaftsservice 14 Shoes…

austria wirtschaftsservice 15 Ties…

austria wirtschaftsservice 16 Cosmetics…

austria wirtschaftsservice 17 Watches…

austria wirtschaftsservice 18 Genuine/Counterfeit Drugs

austria wirtschaftsservice 19 Pens, lighters, razors…

austria wirtschaftsservice 20 Oils…

austria wirtschaftsservice 21 Cigarettes...

austria wirtschaftsservice 22 Toys…

austria wirtschaftsservice 23 Counterfeit Luxury goods…

austria wirtschaftsservice 24 Child shoes…

austria wirtschaftsservice 25 Candies…

austria wirtschaftsservice 26 Fake car parts, including brakes…

austria wirtschaftsservice 27 … and even entire cars designs

austria wirtschaftsservice 28 Typical Trademark Infringement Original

austria wirtschaftsservice 29 Trademark Infringsments

austria wirtschaftsservice 30 Infringing TM Application

austria wirtschaftsservice 31 Its not only about the Chinese market: Chinas exports to the EU grow significantly

austria wirtschaftsservice 32 Not only exports, but also FDI: Chinas FDI outflows reaches new records Source: Economist

austria wirtschaftsservice 33 China – the no. 1 in counterfeiting?

austria wirtschaftsservice 34 Amount of seized goods at AT borders

austria wirtschaftsservice 35 Corruption remains a major problem: Corruption Index 2006 (Transparency International) Rank Country Singapur9,4 9,3 11Austria8,68,78,4 20USA7,37,67,5 42South Korea5,15,04,5 45Italy4,95,04,8 70China3,33,23,4 70India3,32,92,8 121Russia2,52,42,8 156D.R.Congo2,02,12,0 RankCountryScore 1Switzerland7.8 2Sweden7.6 3Australia7.6 4Austria7.5 5Canada7.5 6United Kingdom7.3 7Germany7.8 8Netherlands7.3 9Belgium, U.S Japan7.1 12Singapore6.8 13Spain6.6 14UAE6.6 15France6.5 18Hong Kong6.0 26Taiwan5.4 29China4.9 30India4.6 Bribe Payers Index 2006

austria wirtschaftsservice 36 Bureaucracy: Government institutions responsible for IPR

austria wirtschaftsservice 37 Language barriers and costs: Chinese lawyers charge fees that are comparable to European amounts Multi-lingual Chinese staff is expensive to hire (and to retain) Interpretation of laws and regulations often vage and depending on regional interpretation

austria wirtschaftsservice 38 Risks of having no IPR in China: No legal basis to defend IPR against infringement Collateral damage in third party countries (Chinese exports) Less competitiveness in China Potential IP attacks from Chinese competitors

austria wirtschaftsservice 39 aws Innovation Protection Program Protecting IPR in China - Challenges Chinas IPR system & policy

austria wirtschaftsservice 40 Past and Future of the Chinese IPR System Patentapplications Invention Utility Model Design Patent Law Amendment of Patent Law (TRIPS) 04 New IP Customs Regulations 1985 Accession to Paris Convention 1995 IP – Customs Regulation Chamber Introduced To courts 05 New penal Regulations regarding IP 1997 Penal Law Amended for IP matters of fact 2003 Umsetzungs- verordnung tritt in Kraft Amendment To Patent Law WTO Accession 1994 Accession to PCT Patent Duration 06 IP Complaint and Service Centers present Currently 3. Amendment In the works – no reaction to comly with International treaties, but implementation of national IP policy 06 11th 5.year program Contains separate IP chapter 2006 Patent Applications at largest Patent Offices: 1. JP US CN KR EP DE TW AT 2.505

austria wirtschaftsservice IP lawsuits in the making Patent Applications, Source: SIPO Source: Economist

austria wirtschaftsservice 42 Dual Track IP-Enforcement

austria wirtschaftsservice 43 Enforement Methods MethodDecisionDis-Advantage 1Cease & Desist LetterIPR owner / infringer + affordable, without public involvement ( ) - No enforcement possible; Risk of losing the choice of court location and risk of losing important time 2Private CommunicationIPR owner / infringer 3Administrative EnforcementLocal IPO (AAPA, AIC) + without public involvement ( ), extensive enforcement competences (seizure, destruction, closure, etc), simplified evidence preservation - no damage reward, civil proceedings as last instance, limited penalties without impact on infringers, local protectionism 4IPR Registration with Chinese Customs Local Customs Authority + since 2004 authorized to perform custom seizures, IPR registration required and infringments should be indicated - Prevents export only, no action against infringer 5Civil Enforcement44 Middle, 32 High, 1 Supreme Court+ preliminary injunction possible; efficient enforcement - Slower than administrative enforcement, public proceedings, not all court have IP experienced judges, comparatively high costs 6Criminal EnforcementMPS; Procuratorate, Police+ highest degree of determent, > 5000 IP convictions in Thresholds are difficult to be reached; police is busy with other crimes 7Political LobbyingGovernment Authorities (SOIPP, MOFCOM, State Council, etc) + measures are imposed top bottom – efficient - High impact that may require public trade off, access to political groups difficult 8WTO ProceedingsWTO+ extensive consequences - No method for individual companies

austria wirtschaftsservice 44 Public & Private IP Policies …future competition in the world is IP competition… | Wen Jiabao, Prime Minister (June 2004) The country's top leadership is committed to building China into an innovation nation in 15 years… | Bo Xilai, former Minister of Economy (April 2006 ) Some Chinese entrepreneurs tell me: If foreign companies dont respect their IP in China, I wont respect it neither. | Wang Xiang, JD, PhD., Patent Attorney, Jones Day (December 2006)

austria wirtschaftsservice 45 Aiming at the pole position - again: Chinas share of world GDP Source: Economist

austria wirtschaftsservice 46 Chinas IPR strategy: Chapter 7 of the 11th Five-Year-Plan: Promoting independent innovation Enhancing the capability building of independent innovation Strengthening the role of enterprises as main entities of technological innovation Intensifying IPR protection Deepening the institutional reform of the sci-tec system

austria wirtschaftsservice 47 China is creating a hi-tech environment: Graduates of engineering universities: China: (2004) Source: Ministery of Education/China US: (2004) Source: Dept. of Education EU25: (2003) Source: Eurostat China will be the location for R&D: Approximately 50% of all planned R&D facilities of Western companies will be located in China. Source: Booz Allen Hamilton & Business School Insead (2006) R&D expenditures: In 2006, for the first time China has spent more on R&D than Japan. Source: OECD 100 Mrd. USD PPP 200 Mrd. 400 Mrd. 300 Mrd.

Thank you for your attention.