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Tuesday Sep 18, 2012

China’s SAIC Minister Zhou Visits USPTO

Blog by Under Secretary of Commerce for Intellectual Property and Director of the USPTO David Kappos

On Sept 10, 2012 the USPTO was privileged to host Minister Zhou Bohua and his senior delegation from the State Administration for Industry and Commerce of China (SAIC) of the People’s Republic of China. Minister Zhou, visited us for about four hours, as part of a stopover en route to a meeting in Brazil. This was likely the first time that a Minister from SAIC has visited USPTO.  
SAIC remains one of China’s largest ministries, with 364,199 civil servants (according to their 2011 annual report). SAIC houses the CTMO, or Chinese Trademark Office, the Trademark Review and Appeals Board (TRAB), as well as other IP-related agencies. It implements and enforces laws regarding company and enterprise names and business licenses, trade secret, consumer protection, market regulation, and antitrust law. Unlike agencies such as China’s State Intellectual Property Office (SIPO) which has offices in provinces and major cities, SAIC has offices in local governments that reach down to Chinese municipal, county and even sub-county/township level. It is China’s largest IP-related agency in terms of overall employees and penetration into localities.

In the past several years USPTO has worked on several areas of common concern with SAIC, including: training of examiners and translation of our Trademark Manual of Examining Procedure (TMEP) into Chinese; training on three dimensional and sound trademarks; exchanging information on protection of geographical indications; discussion of measures to deal with abusive trademark registrations; discussions on trademark dilution and well-known marks; training in on-line counterfeiting and IP infringement; and encouraging SAIC to develop an on-line trademark database including an English language search interface. Many of these developments took place in the context of the memorandum of understanding (MOU) we signed with SAIC in 2008, and with the assistance of our IP Attaches. Minister Zhou observed that many of these exchanges have helped in not only promoting better understanding of our IP systems, but also in assisting market reforms in China and providing more global opportunities for new businesses.

Minister Zhou toured USPTO headquarters, met on a government to government basis with USPTO and colleagues from Office of the United States Trade Representative (USTR), United States Department of Justice (USDOJ) and Federal Trade Commission (FTC), and later met with representatives from organizations such as the U.S. Chamber, International Trademark Association (INTA), American Intellectual Property Law Association (AIPLA), Licensing Executives Society (LES) and the US-China Business Council. He was extremely candid and helpful in responding in a constructive and informed manner to all the questions we raised, including several pages of questions from industry.

Group shot from SAIC-USPTO meeting

We learned of several important new developments and areas of concern. One key area is improvements in trademark pendency. Although SAIC has succeeded over the past three years in eliminating the huge backlog at the CTMO and TRAB, the rapid escalation in trademark filings may present real challenges in continuing to maintain past improvements. The current goal of the CTMO is “the year you apply for a trademark, is the year you will be granted one.”

Minister Zhou hoped that the revisions to the trademark law, which are now pending at the State Council Legislative Affairs Office (SCLAO) will help in sustaining quality and growth. He noted in particular that the revisions will help with appropriate use and prosecution of trademarks, and he hopes that passage by the NPC may occur as early as next year. He also expected that there would be greater deterrence from the administrative trademark system with higher fines available under the revised law. He also separately noted that new guidelines on referrals of administrative trademark cases to criminal prosecution are being prepared jointly with other IPR and law enforcement agencies. This “referral rate” is often used to measure the deterrence of the administrative system and has traditionally been quite low. Last year the rate of referral from administrative enforcement to criminal prosecution was only 0.61%.

China has also become a member of the “TM 5” in Trademarks, much as it has been a member in patents, and Minister Zhou indicated an interest in participating in an ID List Project of the TM 5, which could help in insuring harmonization of sub-classifications of goods and services.
Trade secret matters have been a hot topic of discussion between the U.S. and China, with several high profile cases that have brought considerable media attention. Our focus with Minister Zhou was on two key areas of his responsibility: administrative enforcement of trade secrets and revisions to the rather old law governing trade secrets, the Anti Unfair Competition Law (AUCL) (1993). Minister Zhou was candid in acknowledging that theft of trade secrets affects Chinese and foreign companies alike and due to restrictions on evidence gathering and other compulsory measures by administrative agencies, SAIC’s administrative enforcement cases to date have been relatively modest matters brought mostly against small companies or individuals. Under current Chinese law, he believed that the courts and police are better equipped to handle complex trade secret theft cases.
SAIC has been discussing means to improve the Anti Unfair Competition Law with the SCLAO. On our suggestion, Minister Zhou said he would look into recommending that the AUCL be amended to clarify that preliminary injunctions, evidence and asset preservation measures would be available in the new law, as they are already provided for in the trademark, copyright and patent laws. Minister Zhou quickly recognized that immediate provisional relief is critical in trade secret matters in order to prevent further loss to rights holders. He also welcomed further exchanges on trade secret matters, which we plan to follow-up on.

SAIC also discussed the fifth draft of its guidelines on handling of IPR in antitrust matters. We urged that these guidelines will be available for public comment. On the substance, Minister Zhou did state that SAIC did not view intellectual property and antitrust law as contradictory concepts; both laws have a goal of promoting market efficiency and innovation. Minister Zhou advised that SAIC would only investigate licensing transactions that hurt competition, and that his agency has not yet had one case in this area since the law’s passage (2008), although it had prosecuted 16 antimonopoly enforcement cases. Minister Zhou welcomed the USPTO’s participation in this area, and noted that he was working closely with our colleagues from USDOJ and FTC on the IPR guidelines. 
Industry also raised a question concerning SAIC’s role in enforcing trademark rights when the local trademark owner asserts the rights against a foreign trademark owner who has commissioned the manufacture of products in China, as was the case in the recent Proview/iPad dispute. Minister Zhou said the iPad issue was raised by many local AIC’s after the initial trial court decision in Shenzhen that was adverse to Apple. His Ministry’s position was not to take any administrative enforcement action until a final decision from the Guangdong High Court on appeal. One of the key reasons for this was that any action could adversely affect Apple and the iPad trademark at a time when matters had not been settled.

The volume and variety of work handled by SAIC is indeed staggering, and Americans have important interests in these developments. SAIC has been the largest trademark office in the world for the last 10 years based on their data of trademark applications. We were told that there are 206,000 registered American-owned trademarks in China, and 120,000 new foreign trademarks are filed each year in China. With approximately 1,500,000 trademark applications expected this year, and with 68,836 reported administrative trademark enforcement actions last year, engagement on trademark office related matters has been especially important for Americans. Of particular note, there were 17,022 administrative trademark enforcement actions taken by SAIC on behalf of foreigners in 2011, which was nearly 14 times the number of all foreign-related civil litigation involving all types of IP rights that were disposed of by the China courts in 2011 (1,321).

We highly valued this exchange with Minister Zhou and his delegation, and we hope we can have more exchanges with SAIC in the future. 

(This blog was jointly written by Director Kappos and Mark Cohen, Senior Advisor to Director Kappos on China matters.)


High level communication with Chinese trademark/trade secret administration officials is nice to see. The number of administrative trademark enforcement actions (17,022 on behalf of foreigners) is at once impressive and indicative of the level of rampant trademark piracy in China. We hope this truly is "on behalf of" and not "against." It is to be expected that as Chinese industry matures, Chinese trademarks of importance will be deemed worthy of protection and that will lead to better enforcement of trademarks of foreigners, as well. It is disappointing to hear an admission by SAIC that is has not had one licensing antitrust case, indicating what we surmise that Chinese industry is allowed to engage in restraint of trade and price fixing and price discrimination that would be illegal in the US. Let's hope for progress there. It was also disappointing to hear that SAIC admit it does nothing effective against theft of trade secrets. In a closed, government controlled society it is primarily foreign secrets that get disclosed and stolen as there is no incentive to protect them. It was also disappointing to hear no mention of patents, although it appears that SAIC is not charged with any responsibility in patents, that being handled by a different agency.

Posted by Bruce E.Burdick on September 19, 2012 at 02:32 PM EDT #

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