IP Protection in China and Taiwan:
A Comparison by Laura W. Young, Partner, Wang & Wang
China, darling of the American business world of the 80's, is undergoing something akin to teenage rebellion. The current pending trade war with the US is at least partially the result of China’s increasing boldness. Taiwan, on the other hand, has been sort of a secret child made good; its existence officially denied by the US, now cited as a model of economic growth and democracy. Despite the difference in their relations with the US, both have adapted their laws to create an intellectual property system that responds to US demands and meets international standards.
Both China and Taiwan have grown economically, and in so doing, have created a local market and effective export competition to US companies. As the US grew to recognize the value of intangible assets like trademarks and copyrighted goods, international relations became more economic that a matter of political (e.g., pro- or anti-communist) orientation. The US put tremendous pressure on both China and Taiwan over the past ten years to bring their IP regimes into line with world standards.
II. US China and US Taiwan Bilateral Trade Relations
China and Taiwan have both been targets of US trade pressure since the first USTR Watch Lists appeared. They have see-sawed up and down the list, usually in inverse relation to each other.By early 1992 losses due to copyright piracy were estimated at US$669 million. The US designated Taiwan as a Priority Foreign Country and initiated an investigation into its trade practices, a process that can end with trade sanctions against the listed trade partner. Under this pressure, Taiwan’s Legislative Yuan passed the new copyright law within two months, and the investigation was terminated. Taiwan executed a bilateral Memorandum of Understanding (“MOU”) with the US in 1989, in which Taiwan agreed among other things, to promulgate a new Copyright Law. That MOU relieved pressure for 2 years, and Taiwan rested on the Watch List, while China was designated a Priority Foreign Country in 1991. During the investigation, China executed a MOU with the US, agreeing to protect US software as literary works under its Copyright Law, etc. China was reduced to Watch List status for 1992 and 1993, while focus was put on other countries, such as Taiwan. The Copyright Law had not moved through Taiwan’s Legislative Yuan (“LY”) by early 1992, prompting US action.
Meanwhile, estimates of trade losses in China increased tremendously, largely due to the increased number of personal computers and other electronics, without corresponding to increases in sales of legitimate software, music tapes and CDS, and videos, etc. Estimated losses ran to US$866 million, and China was again designated a Priority Foreign Country. An investigation was initiated, and trade sanctions were averted only by a new bilateral agreement in early 1995. In that agreement, China promised to initiate an Action Plan to reduce or eliminate piracy. Trade losses from copyright piracy are currently estimated at US$2.32 billion, and China was once again designated a Priority Foreign Country in 1996. The US has published a list of goods to In 1993 and 1994, Taiwan’s LY passed a new Trademark Law as well as a new Patent Law. Estimates of trade losses due to piracy are notoriously controversial; however, they are the closest anyone can come to approaching actual figures for nonexistent transactions. The figures are based on industry figures and certain economic assumptions. (They are akin to the IRS determining what your income would have been had you not been unemployed and sold your stock at the bottom of the market.) Most industries have simply been unable to estimate losses. Thus, the US government has relied upon figures produced by the copyright industries, and through their trade association, the IIPA. be targeted for trade sanctions. China has published its own list of goods to receive counter-sanctions.
Where ten years ago, gross differences separated the two regimes, such as no protection for American computer software in China, or no patent protection for foods or beverages in Taiwan, now the two regimes are substantially similar. Through the course of the past ten years, they have both adopted IP regimes which can be characterized as meeting international standards, if not Lex Americana. There are variations of course, particularly in administrative and enforcement details. However, the purpose here is to identify general areas of similarity and contrast in their statutory regimes, not to detail the minutae or compare enforcement practices.
III. A Comparison: China and Taiwan’s IP Laws
Copyright includes rights to reproduce, distribute, perform, and adapt a work under both China’s and Taiwan’s current laws. Both China and Taiwan grant a copyright term of the author’s life plus fifty years, or fifty years for corporate authors. Authors’ moral rights are provided for in both statutes.
Works for hire are presumed under Taiwan law to be copyrighted by the employee or the individual author, and not the employer or commissioning party. In China, there are two competing concepts: 1) that an employer who sponsors a work, directs the work, and bears responsibility for the work is the author, and 2) that a citizen fulfilling his job is the author of a work. For certain types of works created with an employer’s materials and resources, including computer software, maps, engineering drawings, and product designs, the author enjoys only the right of authorship, while the employer enjoys all other rights in the copyright. Read together, these provisions mean that unless stipulated otherwise by contract, the creator of an artistic work will be found to be the author, not the party which merely paid for the work. The key distinction is not compensation, but whether the employee or the employer is directing the work. This distinction will leave plenty of room for argument. If the employee is found to be the author, the employer obtains a two-year priority right to exploit the author’s work within the employer’s scope of business. As in Taiwan, the presumptions can be reversed or modified by written agreement of the parties in either jurisdiction.
Both Taiwan and China now recognize copyrights upon creation of an original expression. China does so under its Berne membership, Taiwan does so due to US pressure to reform its Copyright system. As a member of Berne, China’s copyright regime is fairly straight-forward. The Taiwan copyright regime is more idiosyncratic. Taiwan grants national treatment under several bilateral agreements, thus allowing copyright upon creation to US, UK, Spanish and Hong Kong nationals. Works by nationals of other countries are not protected in Taiwan. However, such works may be protected if assigned to a US national within one year of creation of the work.
Computer software is protected as a literary work in both Taiwan and China. While China has a sui generis software law, American software is protected as a literary work subject to a bilateral MOU of 1991, the Berne convention in 1992, and the Regulations on Interpretation of Foreign Agreements. While American software could not be protected under China’s laws merely a few years ago, it is now protected by statute, although enforcement is not yet effective.
Both Taiwan and China allow fair use for education, quotation, broadcasting, and library use. China also allows a very broad fair use exception to government entities using a copyrighted work to transact their official business. Taiwan’s Law, in contrast, shows significant American influence. Taiwan’s Law limits government use of a work where the quantity and method of reproduction will prejudice the owner of the property rights, or where the work is a computer program. The Law states four factors used to evaluate fair use in any of its many enumerated circumstances. Regardless of whether the use is for schools, libraries, or personal private use, the nature of the work, the purpose of the use, the quantity and quality of the use compared to the entire work, and the effect upon the potential market are all taken into consideration.
Both Taiwan and China protect inventions for a 20 year patent term. China protects utility models and designs both for 10 years. Taiwan grants a slightly longer term of 12 years for utility models, and 10 years for designs. China and Taiwan exclude many things from patent protection, including methods for diagnosing and treating diseases, scientific discoveries, animal and plant varieties, and mental games and activities. In addition, Taiwan excludes rules and methods for games and sports, which bars the new golf-swing and basketball-shot patents that are gaining popularity in the US. China only excludes mental activities from patents, so a new basketball shot is not barred, unless it could be argued that the physical activity is only the product of a mental process. China also excludes substances resulting from nuclear transformation and animal and plant varieties, although not their processes. Taiwan does not protect new species of microorganisms, and will do so only if it is admitted to the World Trade Organization (“WTO”).
Both Taiwan and China require practical utility, nonobviousness and novelty as necessary elements of a patent. The novelty requirement is similar in both countries, in that prior publication any time after six months prior to the application date of the PA will result in a statutory bar. There are several exceptions, including government exhibits, and limited academic meetings. China also grants an exception for unauthorized disclosure.
Taiwan grants a six month patent priority to nationals of the US, Australia, Germany, Switzerland and Japan, and is in the process of negotiating such an agreement with France. China grants a six month priority to other member nations of the Paris Convention.
Both Taiwan and China generally meet the Trade Related Aspects of Intellectual Property (“TRIPS”) standard on compulsory patent licenses. Such licenses are generally allowable only in circumstances such as national emergency, or cross-licensing new with necessary prior patents. Taiwan and China also allow compulsory licenses for non-profit use to benefit the public interest. Such licenses are limited by both China and Taiwan law to meeting the needs of the local market. Taiwan also allows compulsory licenses where the licensee can demonstrate it made reasonable efforts to obtain permission. While Taiwan’s Law clearly contemplates commercial compulsory licenses, the language generally meets the requirements of TRIPS, except that there is no provision for judicial review of royalties in such situations.
A claim of Patent infringement is barred in both China and Taiwan if it is brought after two years from the time the patent holder learned of the infringement. However, Taiwan has an additional time limit. Even if a rights holder did not know of any infringement, any claim is barred if the infringement has occurred for over ten years. Both allow for judicial appeal of patent decisions, thus both comply with TRIPS. However, China allows for review by Intermediate People’s courts located in provincial capitals and special economic zones. And Taiwan allows for review by the Administrative Court, a special body separate from the regular court system.
C. Trademark Both Taiwan and China protect trademarks on a first to file basis, modified by protection of famous, although unregistered trademarks. Taiwan also protects a bona fide good faith prior user, but the prior user is prohibited from expanding the trademark’s use. Both protect only marks famous within their own borders, although China has contrary obligations under the Paris Convention. Despite its obligations under the convention, China’s Trademark office requires evidence of fame in China before it will grant protection to an unregistered trademark. Given the requirement to prove fame in China, many products available and advertised around the world cannot meet the standard. For example, Burger King was denied protection as a famous mark. From the Chinese point of view, such international products are generally luxury products, and thus are naturally unknown to the great majority of Chinese.
China grants priority of six months to any applicant who first filed in another Paris Convention country. Taiwan is not a member of any trademark convention. However, in 1996 it signed bilateral agreements with the US and Australia which grant six months’ priority to those nation’s nationals.
Both China and Taiwan allow registration of service marks, collective and certification marks. Both China and Taiwan allow a similar range of actions and appeals. Invalidations of existing marks, cancellations of existing marks, and oppositions to pending approved but not yet registered marks are all available. Both jurisdictions follow the international class system, although in practice Taiwan’s and China’s examiners do not agree with US examiners as to the proper classification of goods under the International Class System. Thus the same goods may end up in three different international classes if filed in all three jurisdictions.
Both Taiwan and China exclude from registration as a trademark any facsimile of their national flag or emblems of their governments. Among many other exclusions, Taiwan excludes images from trademark if they are detrimental to “good morals,” or if they are the image of another person or a famous person or pseudonym, but only for the class in which such image is famous. China also reflects its own political history, excluding those marks which are detrimental to socialist morals, and those discriminating against any nationality, among other things. Both China and Taiwan tend to confuse suggestive marks with descriptive marks, so foreign trademark owners should expect to explain why the mark is not actually descriptive. A showing of substantial advertising and sales in Taiwan or China can overcome a rejection of a suggestive mark.
D. Business Secrets, Unfair Trade Laws
Both Taiwan and China have enacted Unfair Trade statutes and regulations protecting business secrets. Taiwan’s Fair Trade Law has been in force for nearly five years, and has proved to be mostly an administrative vehicle for the protection of consumers. It includes many provisions against tying arrangements and monopolies, as well as prohibiting use of improper means, such as coercion to obtain trade secrets.
While Taiwan’s Unfair Trade Law has been used to prohibit imitation of unregistered trademarks and trade dress, it is not the best vehicle, since the Fair Trade Commission (“FTC”) has occasionally decided that trademark infringement is not necessarily against the interest of consumers. In 1994, the FTC found that certain knock-off handbags were so much cheaper than legitimate ones that they did not mislead consumers. Therefore, consumers were not injured under the statute, and the infringer could not be punished. China’s statute also prohibits monopolies and tying arrangements. It also explicitly prohibits “dumping,” the practice of selling for less than one’s own cost in order to drive competitor’s out of the market.
Taiwan recently enacted a separate Trade Secrets Law. A very short statute, it details and defines concepts such as reasonable efforts to keep confidential, etc. Taiwan’s statute seems to meet the requirements of TRIPS. China currently has regulations protecting Trade Secrets, and expects to pass a statute as well. China’s statute is expected to meet the requirements of TRIPS.
IV. Conclusion: The Future and WTO
Both China and Taiwan have shown that they are capable of amending their laws and regulations to meet international standards. They have largely done so, and are far ahead of many other nations. There still remain a few issues for each to address should they be admitted to the WTO. However, the greatest challenge will be for them to routinize effective enforcement procedures to protect IP. Taiwan has largely done that, although occasional policy and administrative hurdles remain. China has further to go to achieve that goal, and political complications and transparency issues will remain substantial hurdles in the near future.