Fundamental Factors

Moving to fundamental factors, the most significant in 2005 were found to be the lack of awareness of IP rights, local protectionism and a lack of consistency in enforcement. These factors were broadly still at issue in 2015, although significant progress appears to have been made in all three areas. In particular, a noticeable improvement from 2005 was the increase of awareness of IP rights generally in China:

For the public side, for normal people they have more understanding of the IP system. Or I believe today if you asked the normal people, at least they heard of patent or IP but ten years ago there only were a few people who heard of these kind of words. So this could be some improvement.³⁵

In the 2005 study, respondents to the questionnaire were asked to choose from a list of possible improvements to the IP system those improvements that they felt would make the most significant difference to the current system of protection. Unsurprisingly, given that a lack of public awareness was selected as the most significant contributory factor to the system in 2005, campaigns for greater public awareness were highlighted by most respondents to the 2005 questionnaire as the most important potential improvement that they wished to see.³⁶

Consequently, it is clear that there was a need for awareness of IP rights to be significantly improved and such an increase in awareness was clearly perceived by respondents in the 2015 phase of the study both amongst the general public and amongst domestic Chinese enterprises, who “when they are talking about IP they are quite positive because they can see the benefit from it.”³⁷ This recognition by domestic companies of the importance of IP for future sustained economic growth was recognised as a key change from just ten years earlier when IP rights were often ignored by local Chinese businesses in the pursuit of short-term profits. Awareness through education in schools was also mentioned by one respondent who mentioned that their child of around 10 or 11 years “drew a picture of how to play a game like chess, kind of chess, how to play, have some rules how to play, and write a lot on the picture. And [they] said ‘It’s designed by me, and the other person cannot copy the design of me, so the copyright belong to me.”³⁸ Consequently, this respondent was optimistic that by inculcating knowledge and awareness of individual intellectual property rights from such a young age that, in time, respect for IP would naturally become more widespread and ingrained within Chinese society.

However, although such an increase in awareness was widely applauded by respondents, a note of caution was sounded by several who distinguished between awareness of the key words or concepts associated with IP such as “patent” or “‘trademark” and awareness of the full potential or commercial value of such concepts. This was perceived to be a problem within the general public: “a taxi driver would know what intellectual property is, what copyright is, but they just don’t (care).”³⁹ Perhaps more worryingly, this lack of full understanding of the nature and value of intellectual property rights was also recognised within domestic Chinese rights-holders:

The major purpose is to get a [letters] patent, to get the certificate maybe for owners or for advertisements or for maybe to tell their clients ‘Oh, we have patents’. But nowadays, a small percentage of Chinese companies realise the real value of patents.⁴⁰

In other words, many domestic companies are perceived as seeking to register their intellectual property rights (IPR) not as part of a wider IP strategy, but rather just to “attract the consumers, to attract the investor.”⁴¹ This perception was also mirrored by my personal experiences attending a trade fair in Shanghai in March 2015 at which numerous local small- and medium-sized enterprises (SMEs) were using the number of registered patents and trademarks that they held in their promotional material as some kind of “trophy” or signal that they were a successful and ambitious company. However, there was little corresponding sense of awareness of such IP as strategic tools to further develop and expand their business. Thus, increased awareness, both amongst the general public and amongst local businesses, was widely recognised and praised by many respondents, but there was still a lingering sense that many Chinese rights-holders still did not either truly value or seek to fully exploit their IP.

The second significant fundamental factor, local protectionism, was also independently mentioned by some respondents as still a persistent and major concern preventing rights-holders from effective enforcement across the whole of China. For example, 15LUX01 highlighted problems experienced in Guangdong province as a regional economy focused on the manufacture of cosmetic products and fast-moving consumer goods: “the local government, they want to protect the economy, you know... the local development is their priority.” Local protectionism was also experienced through inconsistent levels of transparency demonstrated by local AICs, with some issuing detailed notifications following a raid whilst others did not. Equally, another respondent from a multinational electronics company highlighted local protectionism as the biggest challenge facing companies operating in China:

[The biggest] challenge is how to convince not the central officials, central government but more important is local officials, why it is important for their local economy rather than ... they are not talking about the whole of China but they are talking about my province, my city, my employment, my tax, my GDP.⁴²

Local protectionism is also frequently recognised by external commentators as the primary obstacle to effective IP enforcement in contemporary China (Mercurio 2012). Nevertheless, local protectionism was also identified as an area in which noticeable improvement had been made over the past 10 to 12 years:

I think local protectionism is getting less and less influential on the whole system; okay? So ten years ago, see ten years ago you see, if you are a foreign company, probably ten years ago is a little bit better, let’s say 12 years ago; 12 years ago if a foreign company is suing you know, a Chinese company, then it is very likely ... of course the local court tends to protect the Chinese company, particularly in those medium-sized cities or small cities.⁴³

In addition, as stated above, both Beijing and Shanghai were praised as cities where local protectionism was no longer a concern and where the relevant administrative authorities were thought to act more professionally and transparently than in other less prosperous provinces, often located in the Western or inland regions of China. For example, in terms of judicial expertise and consistency, one respondent reported that “judges, especially in Beijing and Shanghai. is very experienced. They have very high level, very experienced. And they can provide quite deep comments on the merits of the case.”⁴⁴

Closely linked to the issue of local protectionism is the problem of inconsistent enforcement. Again, respondents report such inconsistency manifesting in higher levels of administrative enforcement in some more developed regions with lower levels of administrative enforcement in less developed inland areas. However, inconsistent enforcement is also experienced in judicial enforcement: “all IP judges realise that we are on the same law, one law in China, we need you know more consistent judgment to be made in different ... by different courts,”⁴⁵ as well as in dealings with customs enforcement, with some customs officials involving trademark owners to a greater extent than others when, for example, verifying the seized goods as counterfeit.⁴⁶

The wider issue of inconsistency within judicial decision-making has also been addressed through the introduction of the Guiding Cases System in 2010.⁴⁷ Although not formally binding, People’s Courts at all levels are now required to refer to relevant Guiding Cases when adjudicating similar cases according to Article 7 of the 2010 Provisions of the Supreme People’s Court concerning Case Guidance Work (Supreme People’s Court of the PRC 2010). As of July 2016, the Supreme People’s Court (SPC) has issued 64 guiding cases in 13 batches (Supreme People’s Court of the PRC 2016b). However, the SPC was slow to begin to select cases relating to intellectual property issues as Guiding Cases. The first IP-related Guiding Case (No. 20) involving a patent infringement dispute was only issued in late 2013. However, despite a slow start, “the SPC’s confidence in providing guidance in intellectual property and unfair competition through GCs seems to have grown” (Gechlik 2015). Consequently, since then, a further nine Guiding Cases have been issued which deal with issues broadly related to intellectual property rights, including patent infringement, copyright, trademark and unfair competition.⁴⁸ However, there is still some scepticism about the significance of the Guiding Cases on judicial practice and it is likely that some degree of inconsistency will continue to exist in judicial decision-making for the foreseeable future.