Develop your China enforcement strategy

One-minute read

SPONSOR: The US case against China at the WTO for inadequate criminal IP laws has focused attention on the country's enforcement system. But while the overall rate of IP infringement remains alarming, some say that the government is doing more than ever to protect IP rights and companies need to be more proactive in working with the authorities and pursuing infringers. Participants in this roundtable discussed the importance of: having a properly targeted enforcement strategy supported by business leaders, recent improvements in the system, developing a well-trained judiciary and coordinating enforcement between governments to target the entire counterfeiting network.

PO: Looking at enforcement strategies in China in general, when is the best time to use administrative, civil and criminal remedies?

JC: Looking at patents first of all I would say that civil protection is the right approach. Administrative protection is an alternative but in practice more companies file civil litigation to protect their patents. As in many other jurisdictions patent infringement is not a criminal offence so there's no criminal protection. I will leave more detail to other patent experts here and focus instead on counterfeiting trademarks. There is no such thing as a single best strategy because different industries face different problems. So the proper strategy really depends on the industry. For example in the pharmaceutical industry the main facilitators of counterfeits are the people who knowingly provide the active ingredients and the production facilities to counterfeiters. They should be the targets. But for luxury goods, footwear, clothing - where people are knowingly buying and selling the products - then public education and targeting those who knowingly provide the premises as the distribution outlet is important.

In general I call the administrative enforcement method fire fighting. It is not a solution but a general tool to collect field information. If you do not analyze the field information and turn it into useful intelligence, you end up chasing the number of cases without really improving brand protection. Only after analysing it does it become intelligence. The better intelligence you have the better the chances are that you can start working with the police to begin an effective criminal investigation. I call that hunting the arsonists. And when you build up a criminal case then you participate in the court hearing, hire outside counsel, you can legitimately copy the court file, including the police interrogation report. I come up with a checklist of questions I need answered and give that list to the police and they ask them one by one. When we copy the court file we can see "this police unit has in-depth understanding of our industry and the counterfeit problems–so the police are able to keep on digging into the problem, or this police unit, because of a lack of understanding of industry, failed to ask the right questions and did not really get to the core of the problem."

The more you practise this the more information you collect. You finally end up knowing who is doing what and where in your industry. Then when you sit down with an informant you are no longer just listening to them providing basic information on where the location of the counterfeit site is but are able to ask the right questions to find out who they are and go after the network.

When fighting trademark counterfeiting effectively criminal enforcement is so important. We are not really chasing the number of criminal cases but we are turning the field information into intelligence, which enables us to work with police to start investigation at the earliest stage possible. This is critical to the effectiveness of criminal investigation – I mean to track down the invisible hands behind the operation network and where the money comes and goes.

Traditionally Chinese law enforcement raid first and bring back an inventory of counterfeit goods to try and assess the value of what they have found. If it hits the amount threshold they start an investigation. But by the time the investigation begins, which is normally few weeks or even months after the raid, the main suspect has disappeared and the bank account is closed. You are unable then to track down the invisible hands behind the operation. The key ringleader walks free and the local protection is functioning.

Roundtable participants
	Jack Chang Jack Chang (JC) is senior IP counsel, Asia Pacific, for GE and chairman of the Quality Brands Protection Committee of the China Association of Enterprises with Foreign Investment (QBPC).
	Liu Chuntian Liu Chuntian (LC) is a professor and director of the Teaching and Research Centre of Intellectual Property at Renmin University of China in Beijing.
	James Luo James Luo (JL) is senior IP counsel, North Asia, for Motorola and vice-chair of QBPC’s Customs committee.
	Tina Tai Tina Tai (TT) is a patent attorney, attorney-at-law and assistant general manager at China Patent Agent (HK) Ltd. She is a member of the board of the All-China Patent Agents Association.
	Bob Yoches Bob Yoches (BY) is a partner of Finnegan Henderson Farabow Garrett & Dunner in Washington DC.
	Hu Wenhui Hu Wenhui (HW) is deputy director-general of SIPO’s Patent Reexamination Board.
	Sherry Wu Sherry Wu (SW) is a patent agent and student associate at Finnegan Henderson Farabow Garrett & Dunner in Washington DC.
	Peter Ollier Peter Ollier (PO) is Asia editor of Managing IP magazine.

But if you start an investigation based on a lead at an early stage without being restricted by the amount threshold, the police will have a good chance to lock on the target, the bank account and then hit. When the big boss is put behind bars, even if he is only detained, without his being able to access the resources the whole operation and local protection will not function.

In order to protect our trade mark through criminal enforcement the most critical part is when the police start the investigation. I call that "effective investigation is the key". It really depends on how well you can do your homework. For most brand owners, because they lack local resources and their own local database they file complaints to the administrative agency, but do not take the next step. If you do not analyze you are only spending money on an outside service provider. It will not help. To any brand owner that has been doing this for two years I would say if your outside investigator or law firm still cannot establish several criminal cases you have to ask what went wrong. If you have your own team and after a couple of years they still don't have an idea of names – who is doing what and where – you have to change the way they work. The effective strategy is to know who your targets are and try to get the police engaged.

But before you are able to do that you have to analyze the information collected through raids. Another important thing is to get involved in IP legislative change. You cannot separate legislative change and enforcement. If you get involved you know what IP legislation change is going to come. You will help shape the legal framework and be part of the training programme for law enforcement. China has been very open minded in the last couple of years in terms of inviting information and comment on IP legislative change from industry groups. You can always tag along with industry groups to get involved in the IP legislation change and the following training programs for law enforcement.

JL: I have been dealing with IP problems for over 13 years and I'm in charge of IP enforcement for mainland China, Hong Kong, Taiwan, Japan, Korea and Vietnam so this is my daily work. Different companies have different strategies in China. They have different views about how to use agents. We have an open policy with agents. In China we have 44 including investigation firms and law firms, because we encourage more investigation firms to provide services so we can have more raids done. In Hong Kong we have 3 agents and in Taiwan 2.

Also we want to do it in a more effective and efficient way. Some companies use outside counsel but I have seen more and more companies establish their own brand protection offices in their own companies. We have our own brand protection office and manage the cases independently.

We also have a strategy on how to use outside counsels. A lot of companies ask investigation firms to do not only investigation work but also legal work. But our strategy is that the investigation firm does the investigation work, and the law firm does the legal work - different firms have different expertise. For criminal cases, we ask investigation firms to do investigation work till the cases are concluded by PSBs [Public Security Bureaus]. If the case is transferred to the prosecutor we will ask a PRC law firm to take over.

Administrative enforcement has proved to be quite cost effective and quick. Earlier this year the Supreme People's Court and Supreme People's Procuratorate issued a new judicial interpretation on the criminal liability of IP. This provides that if an infringer has already been punished, no matter whether they are punished by administrative or criminal enforcement agency, they cannot get a suspended sentence [see boxout]. This also means that administrative punishment is useful, meaningful.

For civil cases the court has increased the amount of compensation. We have seen statutory damages of Rmb500,000 ($67,500) applied to some cases in Beijing and Shanghai. We have reason to believe that IP protection from different angles has been strengthened. So far this year, we already have 16 criminal cases, and over 30 suspects detained.

PO: Having heard from two people on the ground in China, how does that tally with the strategies you see in the US?

BY: From the US perspective I think the important thing is to keep in mind that your strategy in China is part of a global strategy in the sense that if you're protecting a trade mark or a design you can't relax in any part of the world. Also you can't get frustrated in China as we have seen with the examples of GE and Motorola, two of the companies that are leading here. The advice we give to our clients is that even though initially you may get frustrated because you don't know the rules or you haven't chosen the right investigators or the right counsel, if you do not maintain diligence in protecting your design, trade mark or copyright, it will get out of control. Invest what you have to, and you have to look long term at the protection of your company's product. Look at people who have been the pioneers in doing that and follow the lessons that they have taught.

JC: For a company it is so critical that the management view counterfeiting as a company threat. If you are fighting legitimate competitors you have marketing departments, sales departments that collect information and analyze the competition. But when it comes to counterfeiters many companies think it is a criminal enforcement issue so they leave those issues to the lawyers and the security people. This is not right. It is the same with the government. If we are counting on a law enforcement agency to take action, while the leaders of the government don't take the issue seriously the law enforcement won't have the back up to do the work. For a company it is a business threat. The company business leader should view counterfeiters as the most dangerous illegal competitors and mobilize resources to deal with this issue. You cannot view this as a China problem – it is a global problem and only when your business leader has the right attitude will you be able to mobilize your resources and come out with a strategy that is cross-functional and target different issues from different angles.

PO: How does GE try to do that?

JC: We have a dedicated person in our headquarters who handles global anti-counterfeiting. I work with another colleague in Europe but it's not just the lawyers. We work with our security people, our governance people with strong support from our business leaders in China and this is not just GE. In QBPC when you look at the leading companies that really make progress it is never a one lawyer job. It is a company cross-functional team that is basically driven by the business leader.

JL: That is also the case with Motorola. We are going to set up a brand protection office not under the legal department, but under business. Business people need to work together with the law department.

TT: As a patent attorney I really should make a comparison between administrative and civil enforcement and give my suggestions. The administrative route is simple, prompt and inexpensive but the local IP office can only issue injunctions and small fines and cannot make a decision on damages. It can only act as a mediator to push negotiation between parties over damages. The decision of the local IP office is not the final one – the dissatisfied party can appeal to the court.

For the administrative route, the main concerns are local protectionism and a lack of legal and technical education in local IP officials who are handling cases. Also a great concern is a lack of knowledge of how to use evidence in a complicated patent case.

For the court procedure the preliminary injunction is very promising for the patentee. According to statistics, from 2002 to 2006 there were altogether 420 preliminary injunctions requested at the court and the approval rate is about 83%.

Apart from that, in the court procedure, you can raise a request for evidence preservation. You can argue for patent infringement on the basis of the doctrine of equivalents.

For compensation, there are 3 kinds of calculation methods: actual loss of the patentee, benefit made by the infringer, 1-3 times of reasonable royalties. But due to the difficulty in providing evidence, damages are usually calculated on the basis of statutory compensation, which is at most Rmb500,000 [$67,500].

PO: Do you think that is enough?

TT: That is far from enough but it is the situation in China. According to a draft of the third amendment to the patent law, that will be doubled to about $130,000.

For trade mark and design rights maybe the administrative route is better, but for utility and invention patents, due to the complexity for the nature of the case and the need for technical experts we would suggest pursuing the civil route.

JL: I understand that it is quite difficult for the court to issue a preliminary injunction on patent infringement.

JC: If you are facing a legitimate plant that is abusing your trademark you know who the future defendants are. But if you are talking about counterfeiting you are dealing with an underground network of criminals running underground economy. Usually before a raid you do not even know who your defendants are so you cannot go to court and file for an injunction and post a bond without even knowing who the real criminals are. So you have to use administrative raids and police. When the process is started you finally identify the right target. At the later stage while the criminal process is ongoing you can probably file a supplementary civil litigation but again where are the counterfeiter's fixed assets to enforce the unfavourable decision if you have one?

Again criminal enforcement is effective in fighting counterfeiting. You use administrative enforcement to practise your skills. An interesting question is how do you narrow the gap between administrative and criminal enforcement? That is a serious challenge for brand owners and the government. The Shanghai city government recently invited several people to research on how to narrow and eliminate the gap between administrative and criminal enforcement. They want to link the two systems together.

SW: Recently we have hosted various Chinese delegations in the States with various judges and government officers. Many times they have asked how IP enforcement is linked to criminal liabilities in the US system. There is interest in this area not just from Shanghai but in various cities and provinces. There is definitely interest there. The Chinese officers are smart enough these days to look at things comparatively and look at how enforcement is implemented in the other system. They ask why international companies push for more severe criminal liabilities, but on the other side they do see the need

JC: I would encourage brand owners to focus not just on the sourcing country. It is a global problem. You have to work with the sourcing countries, destination countries and the transition ports. If you have a global strategy where your people here focus on the sourcing but you also have counterparts working in the transition and destination countries, then your company is really working on the whole global network.

 

PO: How does the patent reexamination board work with the court in patent enforcement cases?

HW: Talking about patent re-examination I'd like to give some information about what we have done. The PRB has two main jobs; patent reexamination and patent invalidation. On invalidation about 15-20% of the decisions of our board have been appealed to the courts. After court review about 15-20% of decisions have been revoked by the court. The second point I would like to make is that most people complain that the invalidation procedure takes too long. But in my opinion I don't think it's that long. Why? Nowadays from the beginning of invalidation to the end, the total period will take 12 months, and we will shorten it this year to nine months. And this is shorter than JPO, EPO and USPTO. The JPO deals with cases in about seven months. But they only deal with about 300 cases a year while we deal with about 3,000 cases a year.

So the procedure is not that long. But why do people complain? Because when you have an infringement case in the local court, most of the parties will file an invalidation request to our board. Some of them show us that they have an infringement case in the court, but others don't and we don't know whether they have an infringement case in the court or not. So we can't tell the court if we have finished the invalidation case. And they wait and wait. That is the reason why an infringement case takes such a long time. If you have an infringement case and ask for invalidation you should let the PRB know that and you can get the decision as soon as we finish the case.

JL: I have a question. I have heard that the success rate in invalidation cases is around 90% - meaning the applicant who files for reexamination wins 90% of the time, as there is no substantive examination upon application for design patent. What is the situation now?

HW: The situation is almost stable. The rate is near 50% for invention and also for design and utility model. For invention it is lower than 50% and for utility model and design, it is a little bit higher than that. The reason for this is that if you file for invalidation you will have already thought through whether or not you will win. I think that 50% is fair.

JL: How quickly can you finish a reexamination case? Could you reduce it to 6 months?

HW: We are aiming to reduce it to 6 months for invalidation during the 11^th five year plan.

TT: The complexity of patent invalidation cases makes it difficult to process them more quickly. Recently some courts have decided not to suspend the case to wait for the decision of the PRB. According to the regulations for invention patents, the court has the discretion on whether or not to suspend the case. For utility models or designs the court should suspend the case if the defendant files an invalidation request within the one-month response period. Recently, however, even for utility models and designs, the courts tend to decide whether or not to suspend the case on a case by case basis.

JL: That is the problem. Flexibility is a problem

BY: I'm not sure from US experience that flexibility is bad. Let me explain why. In the US it is the same as China, which means the judge has the discretion to decide whether or not to stay the case, depending on a request for reexamination, which sounds similar, at least for utility patents. And the judges look at several things in deciding that. One thing is that there are two different kinds of re-examination in the states. If you do the contested form, the defendant can no longer argue invalidity at trial on the basis of prior art known or discoverable during the reexamination. So if you choose the contested reexamination route, the case is more likely to get stayed. On top of that, if the defendant delays too long in asking for reexamination, he has to have a very good explanation for the delay, or the judge will likely not stay the case. Many judges use that flexibility to encourage settlement. The enemy of the litigant is uncertainty and judges know that. The flexibility could be used by informed and experienced judges to ensure that justice is done within the law but in a way to encourage settlement out of court.

SW: I think flexibility favours larger companies who can afford experienced lawyers who can understand how to manoeuvre in different situations.

TT: I agree and I believe this flexibility can also expedite the court hearing procedure. I don't think the discretion is without any legal basis. The judge will examine the case, and only when he finds a strong case for validity of the patent will he decide not to suspend the case and to conduct the patent infringement hearing directly. I don't think that is bad.

LCT: There will always be the problem as to who profits, no matter whether the courts or PRB make decisions. The problem does not lie in who makes decisions, because the examination of cases is subjective. Facts are primary. The identification of facts is to be decided by certain procedures. It is most important to find out what facts there are. Usually, there are few disputes on primary facts. Disputes mainly lie in the identification of facts. However, all identifications and verdicts are subjective.

Accordingly, all decisions made by courts are subjective, not objective. For example, the decision will read "this court deems that... and decides that...". Thus, decisions of either the courts or PRB are decided by the judges' or examiners' expertise and their professional integrity. Both expertise and professional integrity can result in unfair decisions. Therefore my opinions are that those having a higher level of expertise can make relatively fair decisions, not considering their professional integrity, and which authorities make decisions is not so important.

The functions and pursuit (of the courts or PRB) are identical, no matter what kinds of cases they deal with. That is to say, the pursuit of IP cases and other civil cases are the same. Differences mainly lie in that IP cases, especially patent cases, relate to more technical aspects. Technical aspects are actually identical with the identification of facts in other civil cases. Differences also lie in that some IP cases might be more difficult to review.

No matter how difficult or how easy cases are, as long as the facts are objective, they can be properly reviewed. Presently, in China, it is better that those who have a higher level of expertise should review IP cases. So, I think that PRB is more professional. It is appropriate now to abide by PRB's decisions. If interested parties are not satisfied with PRB's decisions, they can file appeals with the courts which will improve their ability to review IP cases and be trained to some extent.

JC: Before we get into the issue of working with Chinese judges I would like to go back to the litigation case. The Supreme People's Court issued an interpretation for handling patent disputes in 2001. For utility model and design infringement cases the courts in principle put the litigation on hold pending the outcome of invalidation actions. But this does not count for invention patents, because they have to go through a substantive examination. A utility model is only examined on formality. So when I file a utility infringement case against you, you will challenge the validity and then the court in principle will put the case on hold. Even though there are a couple of conditions when the case may not be put on hold, normally the court will not want to take responsibility for not following the practices so they will put the case on hold. Then to try and stop a company infringing your utility model or design you try an injunction order. So for this particular issue if you can enforce an injunction order you should be able to stop the continuous infringing activities.

TT: The change is that for utility model and design the court has more discretion on whether to suspend the case or not.

JL: I have a question for Professor Liu. How can industry help train judges in the administrative chamber so they are more comfortable dealing with IP cases?

LCT: In my opinion, it is not necessary to train judges of the administrative courts to review IP cases. All IP cases should be reviewed by IP courts. The present situation is caused by the fact that the courts have to find a way of making a living. Administrative courts do not have a lot of cases to review. Therefore some IP cases are transferred to the administrative courts. In short, IP cases should be reviewed by the IP courts.

JL: I agree with the proposal that all IP cases should be dealt with in one chamber. Pudong court in Shanghai already handles civil, criminal and administrative cases. In that case the same judge can handle civil and criminal cases. This avoids the problem of judgments by different chambers of the same court contradicting with each other.

HW: I'm afraid I can't agree with you. The administrative chamber also deals with IP cases. Comparing the cases they deal with, according to this year the cases in the two chambers are almost the same. Actually in recent years, the administrative chamber had even more cases than the IP chamber.

And, as I know from 1985 when we introduced our patent law, the total number of cases appealed to the court was less than 300 by the end of 2000. Last year we had more than 600 cases appealed to the court. If we compare the total number which the two chambers deal with, they are almost the same – there is not that great difference so it is hard to say which one is more experienced.

JL: But my point is that in the same court different people in different chambers are dealing with similar cases. QBPC sometimes sits in on the training of judges but it would be easier if all the judges that deal with IP were in one chamber. What is the difference between administrative and civil proceedings? It is simply the application of law.

JC: I think it would be very interesting to research whether China would be better off with an IP court. The Supreme People's Court is also interested in this topic. Vietnam and Thailand have IP courts, Taiwan is getting one. In March Taiwan released a law governing IP trials and another law that deals with IP court structure. In that law there is even an incentive programme for judges to become IP court judges.

These countries and regions are trying to improve their business environment by promoting a better IP protection system. QBPC is interested in the possibility of an IP court for China. No legal professional, including judges, can have full knowledge of criminal, administrative and civil IP enforcement, given the short history of IP enforcement in China and other Asian countries. The criminal judges who handle all kinds of criminal cases, when they see an IP case, will they decide that it is really serious enough to cause harm to the national interest or brand owners' interest? Specially trained IP court judges shall have better knowledge about IP, as it is a tool for them to enforce the law.

BY: Recently there have been instances where Chinese companies have been enforcing their IP rights. In Germany with the cyber squatting domain name case and in China with the Schneider judgment. Is this movement of Chinese companies to becoming IP owners and enforcers having an effect on the environment? Are they more pro enforcement because their own companies have IP rights?

JC: After all these years of government and industry promoting IP awareness, yes, the awareness of Chinese companies is higher than ever. Without commenting specifically on the cases you mentioned, I think it is a good sign that Chinese companies have higher awareness of IP protection. Now we have to let the Chinese domestic companies know that legitimate companies are all in the same boat. Sometime we have seen battles between domestic companies and international ones, but we are all in the same boat fighting the infringers. If the domestic and foreign invested companies can all work together to make the IP enforcement system more transparent and functional then all the legitimate companies, be they domestic or foreign invested, will benefit.

Even in the western countries you see legitimate companies filling patent litigation against each other, sometimes the compensation is huge, but that is how the system works. The problem occurs when multinational companies think the Chinese IP environment completely sucks, while the domestic companies view the multinational companies as a greedy invader trying to dominate the local market - neither thinking is right.

 

PO: What changes would you like to see to further improve IP patent and trade mark enforcement in China?

LCT: First, our legal system needs to be adjusted to some extent, relating to properties, application and authorities. In my opinion, the reason why there is so much confusion as we just discussed is that we seemingly agree that IP rights are private rights, but this principle has not been thoroughly realized in legislation, trials and enforcement. The properties of these rights decide the properties of the enforcement of laws. If these rights are private rights, what should be applied should be civil laws, and then authorities that apply the laws should be civil courts. All confusion comes from the recognition of the rights.

Therefore, you see, as we just discussed, disputes over private rights are reviewed by both civil courts and administrative courts. This is not advantageous to the rule of the nation according to law. Interested parties claim substantive rights, i.e. private rights. They are not interested in whether law enforcement procedures are defective. If the procedures are defective, cases should be reviewed by the administrative courts. If not, cases should be reviewed by the civil courts.

In my opinions, law enforcement in China has the following characteristics. 1. There are many administrative departments which conduct the enforcement, which is confusing. 2. There are many different ways to conduct law enforcement. 3. The ability of law enforcement is low, and the enforcement is also conducted at a lower level of legal recognition. 4. Many people who enforce IP laws do not know what intellectual property rights are at all. They conduct enforcement, because they can benefit from it and exercise their power. As a result, I think that administrative law enforcement is confusing.

Therefore I suggest that first at all we should make clear the properties and application of the laws, and the authorities conducting enforcement. In my opinion, the administrative law enforcement should be conducted by professionals and by an individual department. This might be helpful in changing the present confusing situation. I do not want to denigrate the present system of administrative law enforcement, I just wish that it were conducted by professionals and by a single department. That is, to remove the four defects I just mentioned and enable the law enforcement to be conducted at a higher level. Some departments, I would not name them, do not know why they conduct law enforcement at all. They do it just because they are told there are things to do.

HW: Talking about patent rights, Professor Liu was mentioned it is a private right. But in my opinion a private right does not have to be a civil right. A patent right is different from copyright in that it is not a natural right. If you want to have a patent right you have to provide a lot of information on the novelty, inventive step and other requirements. A patent right has to be confirmed by administrative authorities. It is not the same as copyright. In our legal system this patent right can also follow the administrative legal system, as well as the civil system.

TT: To improve the IP environment, I think the consistency of the courts should be improved. I also agree with Jack Chang and James Luo that a consolidated court should be established. Our firm was once invited by SIPO to make a comparative study on the situation in the US, UK, Germany and Japan and give our suggestions on what an IP court should look like in China and what should be the position of PRB. But I was informed that it is not a proper time to consider this issue in the new draft of the 3^rd amendment to the Patent Law. Also, there is a lot of work to be done on educating judges and the public

Recent improvements

PO: Earlier James mentioned a new judicial interpretation by the Supreme People's Procuratorate on suspended sentences*. This interpretation also lowered the threshold for criminal prosecution and was followed by a Customs regulation that dealt with the destruction of counterfeit goods. How much effect have these had? JC: Getting rid of the different thresholds for business unit offenders and individuals has really helped. In the past we have been frustrated that a case being handled by the police or administrative agency cannot be followed. Why? Because the counterfeiters learned to go to a different county to set up a company and position themselves as investors. If they have a legal identity as a shell then when local protection starts functioning they are positioned as a unit offender so the threshold is three times higher. The judicial interpretation released in April disarmed this artificial protection shield. With the other one, if you have a prior record then you don't get a suspension of the sentence. This is also helpful. JL: We have been involved in two cases this year affected by the rule changes. In one, the probation rule applied, but the suspect was not a repeat offender. In another case near Shenzhen the case value was around Rmb200,000 and the defendant got 14 months in jail with no probation applied. So I would say criminal protection is increasing. TT: I can also talk about new changes in patent enforcement. The Bolar exemption has been added to the draft of the third amendment to the patent law. But the Bolar exemption has been applied by the courts. Several years ago if a pharmaceutical company manufactured patented drugs to get approval from the Food and Drug Administration, this act would be deemed to be an infringement. But according to the latest draft of the patent law and a series of recent court decisions, this is no longer the case. This change may not be good news for patentees, especially those in the pharmaceutical field. The Bolar exemption is a very hot issue. Many pharmaceutical companies have raised their concerns over this exemption being put into the new patent law. But in practice, the courts have already applied it. Also, according to a report issued by the Beijing High Court, a prior art defence can be applied even when there is literal infringement. This was not the case a few years ago. Previously, if you argued that you are making use of prior art that means the patent in dispute may lack novelty. In that case the court would suspend the case and request that the alleged infringer file an invalidation request before the PRB. But according to the latest decision by the Beijing High Court it appears that the courts will not suspend the case and will issue a decision on non-infringement directly. * Effective on April 5 2007, the interpretation contained three important changes. Article 1 reduced the criminal thresholds for illegally reproducing musical, cinematographic, television and video recording works to 500 and 2,500 units (for serious and exceptionally serious circumstances respectively). Article 3 stated that suspended sentences should not be applied to repeat offenders or cases where the offender refuses to give up the illegal income or shows no remorse. Article 6 said that if a business engages in counterfeiting it will be convicted and sentenced on the same criteria as an individual offender.

PO: I hear a lot of people saying that awareness of IP needs to be increased, not just in China but in other countries. How exactly can this be done?

JC: One thing I would like to raise is that in developed countries like Japan, the US and EU, many IP disputes relate to patents, technology or standards. In China the key IP issues people talk about are counterfeiting trademarks and copyright piracy. They are run by the underground economy operators or organized crime gangs. Many of the cross border counterfeit cases actually involve foreign traders bringing genuine product samples to China, and now other Asian countries, to have them made by local outside employed manufacturers. That is the reason why in the west when people talk about IP enforcement it is usually about civil enforcement. But when IP experts, who rely on civil enforcement in their home countries, come to China they get frustrated because people here are talking about criminal enforcement and they don't have the relevant investigation experience and know very little about China's criminal enforcement legal framework let alone the lack of field experiences. They don't know how to deal with international organized crime. So that's the unique situation in China and perhaps in other Asian countries. But in the future in China you are going to see more patent disputes, especially over technology and standards.

That will be the new area where the industry needs to build capacity together with civil court judges. Changing the mindset is so important. If you get frustrated by the current counterfeiting situation in China, think about the future from a positive perspective. China is probably the only country where government and industry can work together hand in hand to achieve legislative change and jointly conduct training programs for law enforcement. Organizing training programmes, formally meeting national agencies and discussing issues. We should give the national government the credit they deserve, including the law enforcement agencies, for example the Ministry of Public Security and General Administration of Customs. Separately, QBPC recently launched the patent law revision international programme with the State Council Legislative Affairs Office (SCLAO). Many people came from different countries and SCLAO ended up giving us the kind of immediate and candid feedback that I could never have imagined - they gave us their comments on the spot. There are officials who are willing to step forward and make changes – they need to be recognized. Of course the IP infringement situation in China is serious at the moment, facilitated by illegal foreign traders and lack of the awareness of respecting each other's IP, but if we do not recognise the efforts of these people then no-one will be a hero.

If I may use the WTO case as an example. Before the WTO case IP enforcement was simply a matter of right from wrong, after the WTO case it became a matter between some patriotic Chinese and patriotic Americans. People are now choosing sides rather than finding solutions through building trust and cooperation and this is dangerous. We need to put the political issues aside and come back to right from wrong – how to work together hand-in-hand. We should focus on the challenging areas at the local level and give the government agency at the national level credit. That is why QPBC has nominated the General Administration of Customs of China in 2006 and the Economic Crime Investigation Dept. of Ministry of Public Security in 2007 to compete for a global anti-counterfeiting group government award. The two Chinese agencies won the highly commended government award in 2006 and 2007 respectively.

We also need China to come up with an incentive programme with more resources and a measurable outcome. Because at the moment when you see the foreign customs seizure data everyone will see that it is terrible. But because we have been on the ground for over 10 years we have the benefit of knowing what evolves in the history and can see that China's IP environment is much better than it was five years ago.

When people are looking at foreign IP data they will say "this is terrible". So how do we come up with a measurable outcome? Can China, the US and EU, starting with a small city or province, come up with a system with a case filing track record. This may then be presented to different governments so they may work on those cases and then let's see what happens in six months.

If you file 100 cases and 50 proceed satisfactory then at least you have a measurable outcome and can think about how to improve this. You are going to see more and more foreign Customs seizures but if there is still no measurable outcome the foreign community will keep on blaming China. People at the national government level, who think they have been doing what they can, cannot tell the local level what to do to improve IP protection without having a mechanism where different governments and industry groups may share lessons learned, best practices and resources to deal with the growing global problem together. These law enforcement people may get frustrated and may be unwilling to listen to our comments any further. Then we have no-one to listen to us.

China really needs to come up with an incentive programme for law enforcement. When you see law enforcement agencies are working on a case they don't get a recognition as the people's hero – they get blamed by local counterfeiters and those who work for the counterfeiters. QBPC has come up with a ten best cases award since 2002, which serves a purpose. But if the government introduces an incentive scheme that would be better.

I was very happy to see the Ministry of Public Security came out with a monetary award and the medal of outstanding agency and outstanding individual in the MPS July annual IP criminal protection forum supported by QBPC. We need to see more of that. The types of IP infringement will keep on changing and we need to keep on developing our partnership so the government will be willing to listen to us when we provide them with field intelligence and constructive recommendation. And for those unsuccessful cases, if we have a transparent case track record then the Chinese national government will know better what is going on in the field at local level.

LCT: The Chinese government's pursuits in protecting IP rights are in line with foreign countries and enterprises. Compared with other countries, intellectual property rights are an advanced culture. One of the characteristics of this advanced culture is that it comes from developed countries to developing countries, and from developed regions, cities, of developing countries to their developing regions, rural areas. Twenty years ago, we did not have intellectual property rights. But now, intellectual property rights have become very popular in China. In my opinion, in order to make China and Chinese enterprises aware of intellectual property rights and respect others' intellectual property rights, they should realize the value of their own intellectual property. Only when they realize the value of their own knowledge, can they respect others' intellectual property rights. You can visit enterprises in Shenzhen, such as Huawei and Zhongxing. Their executives' recognition of intellectual property rights and desire to protect them are not inferior to their foreign counterparts. This is because they have their own intellectual property rights and know their value.

Second, I think it is also very important to educate society as a whole. Intellectual property rights are a game that the entire society takes part in. No one is outside the rules of this game. Therefore all the people should raise their awareness. Take a football game, for example. If only the referees know the rules, and the players do not, it is not going to be a good game. This is a task that needs to be fulfilled in the long term. Therefore, foreign governments and companies must believe in China, and be active and patient. Every country's efforts in protecting intellectual property rights have their own course.

HW: China protects IP rights not because of outside pressure but because we need to do that for ourselves. That is a very important point. Some foreign companies always think that they are not equally treated. They always complain if they fail, but if they win they never say anything! We have had patent rights and a patent system only about 20 years but in western countries such as US and UK they have had it more than 200 years. So I agree with professor Liu

TT: One recent provision issued by the Chinese government is that local IP strategy and local IP portfolio will be a criterion of the evaluation of local official's achievements.

JL: Also there is a government strategy to reward those whose trade marks get well known.

JC: In the knowledge-based economy era, we are going to be facing new IP issues coming up for the rest of our lives. Building up the right partnerships so you can get the right people hearing our recommendations and test them out is the only way we can keep on dealing with new IP issues.

But if people are going to take an overly confrontational approach against China now we are going to see counterfeiting activities spreading, not just in China but in other Asian countries. Are people going to pressure all the developing countries? No. But if you can build up a good model in China of collaboration between public and private sectors we have a good chance that it will be accepted by other Asian countries. I've been promoting this idea for a long time and I'm delighted to see in India that the CII and QBPC have now set up a joint working group to identify common concerns and share best practices. When the Indian companies said that confrontation doesn't work in their country they said that working together can work in India as well. IP issues are complicated and you need to have partners at a local level. IP is such a sensitive issue that it has political, social, economic, cultural sensitivities. So we need to work together with local partners to build trust and keep on extending the pool of decent officials.

JL: I also think international cooperation is quite important. Lots of governments claim that China is the source of counterfeits but I have not seen any data from local officials form US or EU on whether their local sellers and buyers have been prosecuted. If other countries can provide data on whether local buyers and sellers are being pursued that would be very helpful.

JC: According to data on the US homeland security website, 81% of infringing goods come from China. One question I cannot get answered is: within these 81% of seizures, how many criminal cases has the US government agency initiated? The US government agency didn't have an answer. But when I saw a US Homeland Security Enforcement press release, in one case the agency spent 19 months investigating, arrested 29 people all the way from importer, customs forwarders, and warehouse manager – the whole network was wiped out. This is a great investigation model to be replicated in China. In the past even the FBI told us they had limited resources, their priorities were anti-terrorism and child pornography and IP came third. But now they have started revising their priorities and because they have a well established mechanism and capacity, their experiences in investigating international network will definitely provide best practices to China. We have seen here more criminal cases in China against the manufacturers. But what about the trading companies? Sharing information goes both ways. We would like to get the US information on criminal prosecution against the importer and distributor and to share the best investigation practices regarding international supply and demand network with China and other sourcing countries. As to China, we would like to see more criminal prosecution against counterfeit manufacturers and exporters as well as those, who facilitate the cross-border trade of counterfeits. If we work on the destination country as well as the source country the whole international supply and demand network may be destroyed. And if a successful cross-border enforcement model can be established in the developed countries but copied in the developing countries, we will see the light at the end of the tunnel.