Foreign companies in China are becoming a major target for the increase in intellectual property proceedings filed by Chinese companies. The strengthened intellectual property law has opened the door to proceedings, resulting in large damages for violations granted by the courts.
The number of intellectual property-related proceedings filed in China in 2020 has more than tripled in 2016 as Chinese companies have become more protected in their intellectual property rights.
This trend, for example, adjusts China’s intellectual property strategy, where Japanese companies have traditionally focused on dealing with infringements involving Chinese companies to prepare for the risk of being sued by Chinese competitors. It means you have to.
One of the Japanese companies involved in the intellectual property law dispute with a Chinese company is Ryohin Keikaku, a Tokyo-based company that operates a chain of MUJI household goods stores.
After the company’s victory in a trademark proceeding filed by Beijing Cottonfield Textiles and other Chinese companies in July, Kenko Kikuchi, head of the company’s legal and intellectual property division, said, “We will continue to attract attention. “. The court battle lasted two and a half years.
However, Ryohin Keikaku has been involved in more than 10 legal disputes with companies over the “MUJI” trademark written in Chinese characters used in some textile products such as bedspreads and towels. increase. There is no end to the battle for trademark protection of Japanese companies.
Ryohin Keikaku is on the list of foreign companies that have been filed in IP-related proceedings in China. Apple has been sued by a Chinese artificial intelligence company that claims that Siri, a voice recognition technology from a US technology group, infringes its patent.
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“Traditionally, intellectual property proceedings involving Chinese and foreign companies have primarily been related to allegations of infringement by Chinese parties,” said Yoshifumi Onodera, a Japanese lawyer. “But the number of opposite cases is increasing. There are more and more requests for legal advice from Japanese companies (which do business in China),” he says.
The number of IP proceedings in China is on the rise. In 2020, a total of 28,528 cases of infringement of intellectual property rights in fields such as patents, utility models, and designs were heard in the court of first instance in China. This is a 28% increase over the previous year. Copyright and trademark proceedings are also on the rise.
Two important factors are behind the surge in intellectual property proceedings. First, the amount of IP owned by Chinese companies is increasing. China was once famous for its surge in knockoff products and was known as a “counterfeit paradise.” China is not yet short of counterfeit goods, but Chinese companies now have more of their own intellectual property rights to protect.
In 2020, China was the world’s largest source of international patent applications for the second consecutive year, with a total of 68,720 applications. The growing number of technology-oriented companies in China sees IP protection as an important element of their business strategy.
Another factor is the strengthening of intellectual property law. The Chinese government amended trademark law, patent law, and copyright law in 2019 and 2020. The amendment has increased the maximum amount of damage the court can tolerate in these cases. This change also introduced punitive damages. This is given in addition to the actual damages in certain circumstances. Currently, in the case of a serious breach of intellectual property rights, five times the actual damages may be granted.
The revised patent law has reduced the burden of proof of plaintiffs in patent infringement proceedings. According to lawyer Makoto Endo, this will increase the benefits of filing a patent infringement proceeding. In other words, Chinese companies are more likely than ever to sue foreign competitors for IP violations.
This trend has a particularly significant impact on two areas of technology: fifth-generation wireless communication technology and artificial intelligence. The Chinese government is promoting innovation in these areas as it promotes national technology development.
Many Chinese companies are adopting world-leading 5G or AI technology. Mr. Onodera predicts that the number of Chinese lawsuits against foreign companies related to these technologies will increase sharply.
“Japanese companies tend to take longer to strengthen their defenses against the potential risks of litigation,” says Rieko Michishita, a US registered lawyer working in China. According to Mr. Michishita, many Japanese companies that have sued Chinese companies for intellectual property rights infringement are having difficulty defending in court in intellectual property rights proceedings.
When they are proceeding, they can collect evidence and develop strategies for legal struggle at a pace that suits them. However, when they are being sued, they must respond promptly to the actions taken by the plaintiffs. Japanese companies are generally not good at this.
In many cases, Japanese companies do not give significant authority to their local offices in China. These companies can be at a disadvantage while spending time consulting with the Japanese headquarters.
“It’s not uncommon for Japanese companies to panic if they are sued in China and fail to take appropriate action under the law,” says Michishita.
In such cases, Japanese companies embark on a desperate pursuit of wild geese in an attempt to find a local politician or business person who can help them in the proceedings.
Mr. Ichishita warns that companies need to at least perform internal simulations and develop manuals to deal with the proceedings. It is essential to study the relevant Chinese legal process. She says Japanese headquarters and local units need to be jointly responsible for verifying issues that require internal approval and allocating the time needed to address them.
A major Japanese manufacturer with little experience in proceedings in China has filed several patent infringement proceedings against its Chinese rivals. Regarding changes in intellectual property issues, executives at a Japanese company said the proceedings were partly intended as a learning step to prepare for being sued. By working with a local lawyer who has a reputation for intellectual property litigation capabilities, the company aims to become accustomed to the legal process and prompt legal response of Chinese companies.
China has become known as a litigation-oriented society and tends to spread to IP issues. Foreign companies can be the preferred target of proceedings if they tend to be over-prepared to make concessions in business disputes or seek financial solutions to avoid escalation.
It is becoming increasingly important for Japan and other foreign companies, whether plaintiffs or defendants, to plan effective and viable plans and strategies for proceeding with IP proceedings in China. One of the key elements of this is to clearly define the roles played by headquarters and local units.
Version of this article First published by Nikkei Asia on September 22, 2021. © 2021 Nikkei Co., Ltd. All rights reserved.
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