PANEL REPORT ON US CHINA WTO DISPUTE

On 26 January 2009, the Panel of the Dispute Settlement Body of the WTO (the "Panel") issued its report on complaints made by the US against China in connection with certain measures pertaining to the protection and enforcement of intellectual property rights in China. The Panel was specifically asked to consider: (1) denial of copyright and related rights protection and enforcement in relation to works that have not been authorized for publication or distribution within China; (2) disposal of goods confiscated by customs authorities that infringe intellectual property rights; and (3) thresholds for criminal procedures and liabilities.

Denial of Copyright Protection
In relation to denial of copyright protection to certain categories of work, Article 4 of the Copyright Law states that "Works that are prohibited from publication and/or dissemination, as specified by law, shall not be protected by this Law". Such works include content considered illegal under certain laws and regulations, such as the Criminal Law, the Regulations on the Administration of Publishing Industry, the Regulations on the Administration of Broadcasting, the Regulations on the Administration of Audiovisual Products, the Regulations on the Administration of Films, the Regulations on the Administration of Telecommunication and the other content related regulations.

The Panel found Article 4 to be inconsistent with Article 5(1) of the Berne Convention (1971), which is incorporated by the TRIPS Agreement. Further, as enforcement provisions are unavailable with respect to works being denied copyright protection, Article 4 is also inconsistent with Article 41.1 of the TRIPS Agreement.

PRC Customs Measures

The Customs IPR Regulations and relevant Implementation Measures and Public Notices set out that confiscated goods shall be handled in the following order:

1. donating the goods to public welfare bodies or assigning the goods to the IP rights holder with compensation;
2. auctioning the goods after completely eradicating the infringing features and packaging of the goods; and
3. destroying the goods if the infringing features cannot be eradicated.

In cases where the infringing goods are donated to social welfare bodies, Customs are required to carry out necessary supervision.

The US claimed that these measures are inconsistent with the power to order disposal within Article 46 and Article 59 of the TRIPS Agreement. Specifically, the authorities' power to order disposal of infringing goods outside the channels of commerce in such manner as to avoid any harm caused to the right holder. The Panel found that the US had not been able to establish that the Customs measures were inconsistent with this requirement under TRIPS.

However, Article 46 of TRIPS provides that the simple removal of the infringing trade mark shall not be sufficient, other than in exceptional cases, to permit a release of the goods into the channels of commerce. China responded that in all cases where confiscated goods were auctioned, the infringing features would have been removed. China did not, however, dispute that the elimination of infringing features refers to the mere removal of the infringing trade mark from the goods.

The Panel held that even if an infringing trade mark is removed, the goods may still closely resemble the genuine goods and there is a heightened risk of further infringement by means of re-affixing the infringing trade mark. The Panel found that release of confiscated goods (after removal of the infringing mark) is more than just in "exceptional cases". The Panel concluded that such measures are inconsistent with the disposal requirement set out in Article 46 and Article 59 of the TRIPS Agreement.

Criminal Thresholds
With regard to trade mark and copyright infringement cases, China employs criminal thresholds to define certain acts, which are serious and constitute a crime. Under Article 61 of the TRIPS Agreement, China is obliged to provide for criminal procedures and penalties in cases of wilful trade mark counterfeiting or copyright piracy on a commercial scale.

Offences of trade mark and copyright infringement are defined under Articles 213, 214, 215, 217 and 218 of the Criminal Law. Criminal sanctions are provided under these Articles when, for instance, the circumstances of the offence are serious or the amount of sales of infringing commodities is relatively large. The terms "circumstances are serious" and "amount of sales is relative by large" are further quantified by various Judicial Interpretations issued by the Supreme People's Court. The structure of the thresholds and the method of calculation of some of the thresholds can take account of various circumstances. However, acts of trade mark and copyright infringement falling below all the applicable thresholds are not subject to criminal procedures and penalties.

The Panel found that the information provided by the US was insufficient and too random to demonstrate that Chinese criminal thresholds fail to capture commercial scale infringements.

The Panel Report was adopted on 20 March 2009. China is obliged to bring its policy in line with the rulings and recommendations set out in the Panel Report. China will be given a reasonable period of time to do so before trade sanctions and other measures are imposed.

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DEACONS NAMED MANAGING INTELLECTUAL PROPERTY 2009 HONG KONG FIRM OF THE YEAR FOR THIRD YEAR

At an awards ceremony in London on 31 March 2009, Deacons was awarded the "Hong Kong Firm of the Year" by the international publication, Managing Intellectual Property (MIP).

This is the third year in succession that Deacons has been recognised as Hong Kong Firm of the year.

MIP, published by Euromoney PLC, is widely considered to be the leading international IP journal and the awards event attracted over 250 IP lawyers from all over the world.

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NEW COPYRIGHT REGISTRATION SYSTEM COMES INTO FORCE

After years of development and beta-testing, the China online copyright registration system, administered by the China Copyright Protection Centre ("CCPC") came into operation on 2 March 2009. The aim is to streamline and clarify the copyright registration system in China.

Although registration is not a prerequisite to copyright protection in China (China is a party to the Berne Convention), a copyright registration can serve as prima facie evidence of copyright ownership in a dispute.

Registrable Works
Under the Copyright Law of China, the following works may be registered as copyright protected works:

1. written works;
2. oral works;
3. musical, dramatic, quyi* and choreographic works;
4. works of fine art and photographic works;
5. cinematographic, television and videographic works;
6. drawings of engineering designs and product designs, and descriptions thereof;
7. maps, sketches and other graphic works;
8. computer software;
9. Other works as provided for in laws and administrative regulations.

* "Quyi" refers to traditional art forms such as ballad singing, story-telling and comic dialogues.

The following may not be registered as copyright protected works:

1. Works prohibited from publication or dissemination;
2. Laws, Regulations, Decisions, Judgements, Orders of National Authorities, other documents relating to the promulgation of laws, administration and the judiciary, and other official translations;
   
3. News;
4. Calendars, mathematical lists of general use, forms of general use and formulas;
5. Works where the copyright protection period has lapsed.

Online Procedure
Applicants can login to the www.ccopyright.com.cn website and complete an online copyright registration application form. The website is in Chinese only and users will be required to apply for a username and password. The completed application form should be printed and forwarded to the CCPC along with the following documents as stated on the website:

1. Proof of identity of the applicant;
2. Proof of copyright ownership;
   
3. Instruction manual;
4. Sample of the protected work;
5. Power of Attorney; and
6. Proof of identity of the agent.

Applications will be assigned a serial number upon submission of the online application form and applicants can keep track of the status of the applications online.

Generally, a registration should be completed within 30-120 working days from the receipt of the application. For simple cases, the registration may be completed within 30 working days. In cases where further supporting materials are required, the CCPC will inform the applicant upon receipt of the application and the applicant will need to supplement the required materials within 2 months. The CCPC will then complete the copyright registration within another 30 working days upon receipt of the required materials.

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CHINT V SCHNEIDER PATENT INFRINGEMENT CASE SETTLES FOR US$23 MILLION

The long-running patent infringement dispute between French Electronics company, Schneider Electric, and its Chinese competitor, the Chint Group, has settled. On 15 April 2009, shortly before the appeal case at Wenzhou Higher People's Court was due to be heard, Schneider Electric agreed to pay Chint an amount of RMB157.5 million (US$23 million). This is about half of the amount awarded at the first-instance ruling. The original award of RMB334.8 million (US$48.6 million) is still the largest damages award ordered by the People's Court for patent infringement.

The patent in dispute is a utility model patent owned by Chint. In China, patents are divided into invention patents, utility models and designs. Utility model patents are subject to less stringent patentability requirements and are not subject to substantive examination. The technology involves a miniature low-voltage circuit breaker.

In 2006, Chint claimed that Schneider Electric Low Voltage (Tianjin) Co. Ltd. ("SELV"), a joint venture of Schneider Electric, had manufactured 5 types of products that infringed its utility model patent.

Schneider Electric did make a separate application to the Patent
Re-examination Board with a view to invalidating Chint's utility model patent. The Patent Re-examination Board found Chint's utility model to be valid. Schneider Electric appealed this decision to the Beijing No.1 Intermediate People's Court. However, in March 2009, the Beijing Higher People's Court issued a decision agreeing with the judgment of the Patent Re-examination Board and upholding the validity of Chint's utility model patent. In September 2007, the Wenzhou Intermediate People's Court found SELV liable for patent infringement and ordered it to cease manufacture of the infringing products and pay record damages to Chint.

SELV appealed the decision of the Wenzhou Higher People's Court in November 2007. With mediation from the Court, the parties have reached a global settlement which will bring an end to a number of worldwide infringement disputes between Schneider Electric and Chint.

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NEOPLAN DESIGN INFRINGEMENT CASE

In January 2009, Neoplan Vehicle Co. Ltd. ("Neoplan"), a German bus manufacturer was awarded damages of 21.16 million Yuan (US$3 million) against two Chinese companies, in a design patent infringement case.

The dispute concerned Neoplan's design patent for the external design of a coach named "Skyliner" which was granted on 23 September 2004. In 2006, Neoplan accused Yancheng Zhongwei Coach Co. Ltd. and its parent, Zhongda Industrial Group Ltd. ("Zhongda") of manufacturing and selling vehicles which infringed its patent. Neoplan sought damages of RMB40 million. In order to preserve an infringing product as evidence, Neoplan raised RMB934,100 to purchase an infringing vehicle.

The Beijing No.1 Intermediate People's Court considered that the defendants had failed to submit sufficient evidence to prove that their product was independently designed. No evidence showing prior use was available. Zhongda's own design patent of a coach similar to "Skyliner" filed after the application date of Neoplan's design patent did not, in the Court's view, assist Zhongda in defending its case.

This decision is the latest in a series of cases brought by foreign auto-makers and is one of the first to be successful. Zhongda is apparently intending to appeal.

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Whilst every effort has been made to ensure the accuracy of this publication, it is for general guidance only and should not be treated as a substitute for specific advice.