Chinese telecom equipment suppliers ZTE Corp. and Huawei Technologies Co. Ltd. have scored a victory in the Section 337 investigation, which claimed they infringed patent rights in the United States. The US International Trade Commission (USITC) ruled recently that ZTE and Huawei did not infringe the patent rights of the three American companies. This victory is symbolic that Chinese companies are now eyeing on oversea markets and patenting abroad through strengthening their capabilities in independent innovation in order to improve their core competitiveness in the international market. Chinese enterprises are speeding up to enhance their intellectual property (IP) capability, according to analysts.

It marked ZTE and Huawei’s second victory in four months. Three American companies asked the USITC to start the Section 337 investigation on Huawei and ZTE’s wireless devices for patent infringement on July 24, 2012. Then the USITC initiated the Section 337 investigation into ZTE and Huawei on the ground of patent infringement on August 24, 2012.

“ZTE attaches great importance to patent layout and houses patent rights in many countries and regions. ZTE are also ranking the top on the list of international patent applications under the Patent Cooperation Treaty (PCT). We have been aware of the Section 337 investigation and are preparing to respond,” a ZTE principal told to a CIP News journalist recently. Meanwhile, Huawei also responds actively to the investigation and expresses that the company has a history of respect for the IPRs of others as well as the protection of its own. What is more, Huawei is willing to adhere to the international IP rules to settle patent disputes with an open mind.

The tips of the two venturing out companies’ success are their considerable IPRs both in quality and quantity. According to SIPO, Huawei obtained 898 invention patents ranking the top of enterprises in the invention patents granted in the first half of this year, followed by ZTE with 846 invention patents. IPR is not only the core competitiveness but also the key to hurdling IPR disputes. The patents ZTE and Huawei obtained in the new generation mobile communication LTE, cloud computing and advanced communication server impose pressure on American companies. Therefore, it is no surprise that ZTE and Huawei respond actively in the legal action.

More and more enterprises have been given increased access to compete on the international markets since China entered the World Trade Organization. However, many Chinese enterprises have suffered a lot from inadequate patent layout and lack of IP capacity. Section 337 investigation has become a tool for American enterprises to set up barriers between the markets. As of the end of 2012, the number of investigation that Chinese enterprises were involved in has been the largest for consecutive eleven years. Some Chinese enterprises were not familiar with the international competition rules and lack of the awareness of patent layout as well as IP. Once encountering the Section 337 investigation, they were hesitated to make response, often lost the foreign markets, and some small and medium-size enterprises were even closed down.

Five years after the implementation of the national IP strategy, Chinese enterprises’ IP capability has been rapidly and significantly enhanced. More Chinese companies have gained perfect victory in the Section 337 investigations.

“Chinese enterprises are not only able to handle the international IP disputes but also respond freely in the complicate circumstances,” said Cao Xinming, executive deputy director of the IPR research center of Zhongnan University of Economics and Law. Although it is just a preliminary victory for ZTE and Huawei, it reflects the competitiveness of Chinese enterprises as well as their IP capability are significantly enhanced, and shows the courage as well as the confidence of developing international market.

China’s legislature on Friday passed a new trademark law to crack down on infringement and ensure a fair market for Chinese and foreign trademark holders.

After three readings over the past two years, the revised law was passed at the bimonthly session of the Standing Committee of the National People’s Congress (NPC), China’s top legislature.

The new law, which goes into effect May 1 of next year, raises the compensation ceiling for trademark infringement to 3 million yuan ( about 500,000 U.S. dollars), six times the previous limit.

The revision was based on comments from lawmakers, experts and representatives of businesses and trademark agencies from China and abroad, said Wang Qing, an official with the Legal Affairs Commission of the NPC Standing Committee.

The law treats Chinese and foreign enterprises equally, said Xu Ruibiao, director of the Trademark Bureau under the State Administration for Industry and Commerce.

“Based on the amendments, it will become easier for foreign trademark holders to protect their rights in the case of infringement,” he said.

“We have provided protection for nearly all the well-known foreign brands in China,” Xu said. “Foreign enterprises should be confident in the fairness of trademark protection in the Chinese market.”

The law adopts the principle of good faith during the registration and use of trademarks. Infringement of the trademark rights of others could result in fines worth five times the sales volume resulting from illegal business.

The new law also mitigates trademark holders’ responsibility in providing proof of infringement, saying the alleged offenders shall provide their account books or other materials for investigation. Otherwise, compensation amounts could be determined according to the amounts proposed by trademark holders.

This could reduce litigation costs for trademark holders and increase the costs and penalties infringers have to pay, said Li Shunde, an intellectual property professor with the Chinese Academy of Social Sciences.

The new law also says that trademark agencies cannot accept entrustment if they know or should know that their clients are conducting malicious registration or infringing on the trademark rights of others.

Agencies violating the law will face fines and credit score penalties filed by industrial and commercial authorities. Those involved in serious cases will have their businesses suspended.

The new law offers protection for well-known trademarks, giving owners the right to ban others from registering their trademarks or using similar ones — even if similar brand names are available. However, the words “renowned trademark” shall not be used in promotions or advertising.

The amendment also changes clauses regarding the examination period for trademark applications to make the process more efficient.

China adopted its Trademark Law in 1982 and made amendments in 1993 and 2001.
As of June this year, China held the world’s largest number of registered trademarks and valid trademark registrations, at 8.17 million and 6.8 million respectively, according to the latest official statistics.

In anticipation of the opening of a free trade area in Shanghai at the end of September, local authorities are considering a new mode of intellectual property administration in the experimental area, according to a senior governmental official.

Lyu Guoqiang, chief of the Shanghai Intellectual Property Office, said that the area will break from the conventions observed in most major cities.

“We are considering integrating enforcement forces of patent, trademark and copyright into one special team,” Lyu said.

“We will try offering one-stop service.”

Globally, the trend is that free trade areas tend to have higher standards for intellectual property protection, he said.

Han Zheng, Party chief of the city, said that for the Shanghai free trade area, “the key is innovation in terms of the mechanism rather than favorable policies”.

The 28.78-square-kilometer area, the first of its kind on the Chinese mainland, comprises four existing bonded zones in the metropolis. Local authorities predict it will trigger a series of reforms in such sectors as finance, trade, tax and government administration, analysts said.

And it will allow wider access to the service industry, they added.

Asia-Pacific IP center IP protection is a priority not only for the free trade area but also for the entire city, according to the local government.

Shanghai aims to be the IP center of the Asia-Pacific region, according to the city’s development outline for the decade beginning from 2010.

“It is not just a concept, but a physical plan that we can turn into reality,” Lyu said.

The chief said his team will foster 600 IP pilot and demonstrational companies before 2015, which will play a leading role in improving IP creation, use, operation and protection in the local business community.

And annual government expenditures in this regard will be some 100 million yuan ($16.33 million).

“We hope that Shanghai will become a top patent examination site in Asia and the first choice for settling IP disputes in the event of litigation and arbitration,” he said.

Yet currently, the city is still short of “high-end experts and specialists”, he said.

“In transnational IP disputes, few domestic agencies can represent clients in courts,” Lyu said.

Wang Hongxiang, managing director of the Shanghai Patent and Trademark Law Office LLC, said human resources are the key to the IP service industry.
Generally, it takes five years for a new patent agent to grow into an independent practitioner, Wang said. It takes about 10 years to become full-fledged agent and around 20 years to be an expert.
In his company, the majority of the staff members are aged around 30. The young employees know about the latest technological trends.

Rotating in different positions, they are encouraged to develop a versatile set of skills while maintaining an edge in a specialized field, he said.
Zong Gang, president of Sinoipro IP Management and Technology Transfer Co Ltd, also noted the shortage of professionals in the industry.
“Despite heavy R&D investment, the massive scale of academic theses and an influx of returned overseas Chinese researchers, there is a lack of a crucial link – management of patent quality,” Zong said.

He criticized the excessive pursuit of patent numbers.

“IP is a sheer business tool,” he emphasized, adding that patent applications and management require cost considerations.
Some inventions with great potential are stifled due to the poor quality of the patent application, he said.
“Badly written documentation cannot provide enough protection and no one is willing to take it over. It damages inventions’ commercial value and future potential.”

To guarantee patent quality, He Rongming, president of Shanghai Micro Electronics Equipment Co Ltd, said his company’s in-house experts file patent documentation themselves rather than outsourcing the business to agencies.

“Few local agencies have the ability to do that,” He said.

The company specializes in manufacturing facilities and systems that are used to produce chips.

Integrated circuit products were among China’s largest imports in 2012. Production methods, machinery and materials are essential to drive the domestic circuit industry, He said. A leader in the domestic lithography industry, the company has more than 1,300 patents, including some 450 granted abroad.

Unlike overseas agents, many of whom previously worked as a head of an R&D team, most domestic practitioners lack technological expertise and cannot provide effective protection, he said.

“Thus we have to nurture our own patent engineers. But when some of them quit our company, they are also a source of the expert pool in the society.”

“We are lagging behind developed countries 10 to 20 years,” Zong said. “That is actually a time for fostering our own qualified human resources.”

A total of 2,176 suspects were arrested for intellectual property rights (IPR) infringements in China in the first half of 2013, the Supreme People’s Procuratorate (SPP) said Thursday.

Procuratorates nationwide prosecuted 3,805 people involved in 2,253 IPR violation cases in the same period, according to the SPP.

The SPP said IPR-related crimes have increased gradually and trademark infringement has become the most serious violation, accounting for 80 percent of the total cases.

The difficulty in cracking down on IPR violations has increased as sophisticated means are being deployed by suspects, said the SPP, adding that IPR crimes committed in economically-developed regions remain at a high level.

Procuratorates across the nation arrested 19,786 suspects in 11,723 cases concerning IPR infringement, and prosecuted 29,481 people involved in 17,062 cases from 2008 to 2012, the SPP said.

According to the latest statistics released by SIPO, China received a total of 256,000 invention applications from home and granted 73,000 invention applications, up 27.6% and 4.3% respectively. The steady fast growth in invention filings reflects that the structure of patent application is now being further optimized.

In the first half of 2013, the top five provinces in invention patents filings are Jiangsu (49,756), Guangdong (29,833), Beijing (27,655), Zhejiang (18,949) and Shandong (18,533); The top five provinces for invention patent granted are Beijing, Guangdong and Jiangsu, Shanghai and Zhejiang with 10,726, 10,148, 8,499 , 5,614 and 5,437 respectively. Compared with the list last year, Guangdong, usually ranking the first on the patent grants list, was replaced by Beijing, and the tenth place was replaced by Anhui, Tianjin entered the top 10 provinces in patent applications.

The provinces in China hold on to last year’s higher rankings. The first-tier of the province are from east-coastal developed area like Jiangsu, Guangdong and Beijing which reflects the patent the regions owned are directly proportional to regional economic development; in the second tier, Sichuan, Hubei and Shannxi the provinces in the Midwest of China maintains a rapid development in patent application and grants. For instance, Shannxi province makes efficient use of science and technology research resource to help quantity and quality of the patent be increased.

Most of the cities in China also remained in positions in the ranking of patent filings and grants. Beijing paces all cities in patent application and grants followed by Shanghai which shows that the more innovation companies the region owned, the higher ranking the cities held.

All rankings of the provinces and municipalities of patent application and grants in China nearly remained the same in recent years. The 12th Five-Year Plan clearly defines the main objectives for China’s patent development in the next five years that the main target is to increase every 10,000 people to 3.3 invention patents. After the government stresses implementation of the innovation driven development strategy in the 18th CPC National Congress, many provinces and municipalities now are attaching more importance to patent quality. The steady fast growth in invention filings from home reflects that China are now eyeing on enhancing patent quality, according to analysts.