3 August, 2017
Driven by consumers’ obsession with smartphones, China’s market for GNSS technologies offers promising business opportunities for European SMEs whose top-notch technology is highly sought after in China. European SMEs wishing to do business in China should however be aware of the fact that IP infringements are still relatively common in China and thus a comprehensive IP strategy is needed in order to succeed in China’s market. Today’s blog post, thus, offers an overview of IP protection tools in China, focusing especially on the GNSS technologies.
GNSS and China
In an increasingly technologically advanced and interconnected world, technology utilising GNSS has risen year on year, with both entirely new applications being developed along with improvements and adaptations to existing technologies.
At present there are two globally operating GNSS systems; the United States’ Global Positioning System (GPS), and the Russian Global’naya Navigatsionnaya Sputnikovaya Sistema or (GLONASS) system. There are also two GNSS systems currently under development; Galileo, a European Union-led initiative and the expansion of the Chinese BeiDou system to the global Compass Navigation System. Both of these systems currently provide incomplete or regional coverage and are scheduled to be fully operational globally by 2020.
GNSS technology has a wide range of applications including LBS, maritime transport, public regulated services, road transport, agriculture, surveying, aviation, civil protection and timing and synchronisation.
These technologies depend on a number of factors, including ‘availability’ i.e. the percentage of time the minimum number of satellites are in view, ‘indoor penetration’ i.e. the ability of signal to penetrate inside buildings, location accuracy, continuity of service and signal reliability. Success in the GNSS market depends on the successful exploitation of technology to maximise the success of devices abilities to transmit and receive in line with these dependant factors. This makes protection of IPR crucial to maintaining market advantage and adequate returns on research investment.
GNSS is a lucrative marketplace with a growing number of applications and market coverage. The primary market for GNSS devices is smartphones, with over 3 billion units in operation in 2016. This trend is expected to grow in the coming years as smartphone penetration continues throughout less economically developed regions.
European companies accounted for just over 25% of the global GNSS market in 2013 and EU SMEs in particular are world leaders in value-added applications and innovative development. Naturally, EU SMEs are attracted by both the opportunities provided by both the sheer scale of the potential Chinese market as well as the opportunities for establishing a cost effective China manufacturing base.
China and GNSS
China has a long history of involvement in GNSS projects and was the first international partner working on the EU Galileo project, with an initial investment of EUR 230 million in September 2003. In November 2006, for a variety of reasons China decided to opt instead for an independent Chinese system which was dubbed ‘Beidou Satellite Navigational Experimental System’ and provided coverage at a national level.
Today, the second generation of the system, named ‘Beidou-2’ or ‘COMPASS’ is undergoing a rapid expansion to provide global coverage. With 18 satellites currently in operation, the new system is already providing services to customers both in China as well as in the Asia-Pacific region; implementers expect full global coverage by 2020.
Government support for the system and associated technologies has stimulated huge growth in GNSS related industries in China with an investment of RMB 10.5 billion to support development of related industries in 2015 according to the China Satellite Navigation Office (CSNO).
As Chinese industry prepares to bring BeiDou products and technology into the international marketplace, the Chinese government is actively encouraging the development of an internationally applicable knowledge base for related Intellectual Property Rights for GNSS related tech. Speaking at the China Satellite Navigation Conference (CSNC 2013), Shunde Li, from the Chinese Academy of Social Sciences’ Institute of Law provided lengthy tutorials for Chinese GNSS industry players on the key differences between national and international patent protection and IPR.
With China’s output of GNSS technologies booming, with an annual growth of 15.7% recorded in 2012 and GNSS market estimates at EUR 47.9 billion in 2020. Much of this income is domestically generated, with over 205 million Beidou receivers in service and over 1.25 billion mobile users the market for GNSS, particularly Location Based Services used in many of the applications on China’s burgeoning app market, the biggest in the world at time of writing. As such the Chinese market is becoming increasingly attractive to outside manufacturers and software developers seeking to take advantage of the potential of China’s GNSS market.
Domestic players are becoming increasingly IPR savvy however, with record numbers of patent applications in the area, it is crucial that potential market entrants develop a comprehensive IPR strategy before jumping on the China-BeiDou bandwagon.
IPR relevant to GNSS
China’s GNSS IPR landscape
Rapid development of GNSS industries and increasing demand for location based services in China, coupled with government IPR education strategies and an increasingly sophisticated IPR legal framework has resulted in a surge of both domestic and foreign IPR, particularly patent applications in the PRC. According to the Industry IPR platform MIIT, 9,816 satellite navigation patents were registered in China between September 1985 and January 2015, including 7,065 invention patents and 2,751 utility model (UM) patents. There are 2,840 Beidou-related patents globally, of which 566 are registered in China[1]. The top 10 Beidou related patent owners in China are Qualcomm, Beihang University, Southeast University, Harbin Institute of Technology, ZTE, Huawei, Zhejing University, Tsinghua University, Samsung, Toptotech. The top 3 Beidou related patent types are high-precision positioning, data information transfer, and satellite navigation receiver equipment.
IPR and your Company
As in any industry, reputation is key to success for companies looking to operate in China. As such, obtaining protection for your brand and associated products is essential to avoid potential misuse in the Chinese marketplace. As in the EU, this protection is primarily achieved through use of registered trademarks, both for your company name, logo and any tag-lines associated with your brand as well as those relating to individual products or service packages. Trade mark law is territorial so applications must be made separately, either directly with the China Trade Mark Office (CTMO) or through use of the relevant extensions provided for in the international registration system laid out by the Madrid Protocol and administered by the World Intellectual Property Organisation (WIPO).
China operates a strict ‘first-to-file’ system for trademarks so it is essential to register any marks intended for use in China as early as possible, preferably before even entering the market. Companies which have failed to register early may find their trademarks already registered by domestic actors, either to take advantage of the good reputation attached to the mark, or to sell the mark back to the European owner for an exorbitant fee.
In addition to early registration there are some unique features of the Chinese trademark system that must be borne in mind when applying for registration in China:
Perhaps the first consideration is the further sub-division of the categories laid out in the Nice classification system. Companies who are conversant with the EU trademark registration system must remember to specify the sub-divisions relevant to their products, should they fail to do so the trade mark examiner handling the application may simply guess which categories are relevant and could leave important product categories unprotected. For example Class 9 sub-division 0907 covers ‘Electronic communication and navigation equipment’, however sub-division 0905 only protects ‘Measuring tools’.
Secondly, the unique nature of China’s written language and tonal pronunciation make it advisable practice for EU companies to formulate a Chinese language name for both their company and their products. Whilst this is not a legal requirement to do business in China, failure to do so may lead to Chinese consumers imposing their own name on products with only European names. At the very least these names may not be flattering, Quaker Oats and Ralph Lauren being well known examples, now known in China as ‘Old man brand’ and ‘Three legged horse’ respectively. Furthermore, should this name then be left unprotected, competitors may freely adopt it, or even register the trademark rights for their own products and benefit from your hard won reputation. It is also good practice in China to consult with local public relations and marketing experts when choosing a Chinese name as differing meanings of characters can lead to simple transliterated names conveying a negative message to consumers.
IPR and hardware systems
Established developers and manufacturers of GNSS technologies will be well versed in the importance of patent protection for their inventions. However as a separate jurisdiction, prudence dictates that entry into and operation within the Chinese marketplace must be preceded by the development of a comprehensive patent portfolio in accordance with Chinese patent registration procedures.
Once registered, patent owners enjoy similar rights to EU patent owners for the exclusive exploitation of their inventions for manufacture, distribution and sale. China offers different types of patent based on requirements and certain criteria:
Invention Patents
As in Europe, invention patents are granted for new and creative technical solutions or improvements to a product or process, provided that the technical solutions have a practical application. In China patents are not available for if they have been previously disclosed anywhere in the world before the patent application was filed in China.
Registration takes between 3-5 years. Once registration is completed inventions are granted 20 years of protection from the filing date subject to annuity fees.
Utility Model Patents
As in certain EU member states (Germany, Austria, Italy etc) Utility Model Patents or ‘UMs’ protect products which have a new shape or physical structure. As UM registrations are often granted on a shorter timescale than invention patents and require only a ‘formality’ examination, it is common practice to make a parallel application for an invention and a UM patent simultaneously, thus benefiting from the short term protection of the UM until the invention patent is granted.
UM patent applications in China are usually granted within one year and offer 10 years protection from the filing date subject to the payment of annuity fees.
Design Patents
Design patents protect a product’s physical appearance, shape, colour, pattern or a combination of these features. It is worth noting that colour must be in conjunction with another feature in order to be registrable as colour alone cannot be registered.
Similarly where the colour constitutes the natural colour of the raw material of the product it will also not be able to form a part of the registrable design.
Design patents are applicable primarily to aesthetic features of products. Where the shape of a product serves a practical purpose, i.e. not just as an aesthetic feature, design patents may be vulnerable to invalidation; in these cases it is advisable to apply instead for an invention patent or UM patent. In recent years design patents have also been extended to cover Graphical User Interfaces (GUIs), even where these interfaces are not visible when a device is switched off.
As with other forms of patent, design patents have a requirement of novelty, and disclosure elsewhere, either outside or within China prior to filing for registration will render the patent invalid.
Design patent registrations are usually granted within a year of application and are valid for 10 years from the date of filing, subject to annuity fees.
Semiconductor Topography
Registration of integrated circuit layout-design is available in China through the provisions laid out in the 2001 Regulations on the Protection of Layout-Design of Integrated Circuits (ICs). Registration must be made with the State Intellectual Property Office (SIPO) and once granted, protection is valid for 10 years from the date of application or of the first commercial exploitation of the IC. No extensions are available for such registrations and requests for registrations can only be made up to two years after the first commercial exploitation of a layout-design.
It is important to note that registrations made by foreigners will only be accepted by SIPO if the IC is first exploited either in China or in a signatory state to the TRIPS agreement. Once granted the rights holder has the exclusive right to reproduce the protected layout-design or any component part of it and commercially exploit it as they see fit.
Software IPR
Chinese copyright law provides specific protection of computer software. Copyright protection in China is automatic upon creation of the software in the public domain. However, whilst this protection is theoretically extant from time of creation, Chinese courts will only accept physical, notarised evidence of copyright and will disregard any verbal or unwitnessed physical testimony. As such, it is generally advisable to register copyrights with the Copyright Protection Centre of China (CPCC), which will grant a certificate of copyright.
For rapidly developing software which undergoes fundamental changes on a regular basis, for example web based software and applications or programs in ‘beta’ development released to a limited number of users it is often impractical to apply for registration for each iteration of the software, a process which itself takes 30 days. As an alternative software producers can have their software updates witnessed by a notary public who will prepare a document which constitutes valid evidence in Chinese courts. Where this document is generated outside of China however the claimant must legalise and domestically notarise the document for use in China.
Development, Research, Partnerships and Trade Secrets
Following market entry it will be necessary for EU companies to source distribution partners within China, as well as manufacturing partners and perhaps research and development staff etc where appropriate. It is important to ensure that throughout dealings with any domestic partners and staff that the IPR of your company and products remains protected and enforceable.
Contracts, properly drafted and translated can provide comprehensive protection against partner infringement and leakage of trade secrets to competitors or the general public. Trade secrets in China are defined as:
“Any non-public technical or business information with commercial value that is guarded by confidentiality measures.”
Trade secrets are only protected under Chinese law if the claimant company is able to show that it had implemented a trade secret protection policy involving physical, technical and contractual measures. This must consist of physical barriers such as marking documents as confidential and locking them away when not in use, technical barriers such as IT security, and contractual barriers with the appropriate terms of non-disclosure.
Contracts are key, both for protecting against leakage of trade secrets in the event of employee transfers to competing companies, as well as the protection of core IPRs when engaging with manufacturing and distribution partners.
Proactive protection of IPR in China
Unfortunately, even comprehensive IPR protection consisting of registered company and product trademarks, an extensive patent portfolio and expertly drafted, bullet-proof contracts is but a deterrent to infringers unless the market is monitored for IPR misuse and counterfeiting and proper enforcement action is taken against infringers.
China offers IP rights holders four main enforcement options:
Administrative actions:
The Chinese administrative bodies are the Intellectual Property Offices (IPOs), the Administrations for Industry and Commerce (AICs), the Quality and Technical Supervision Bureaus (QTSBs), along with relevant local administrative departments for copyright and local government cultural enforcement departments or copyright bureaus. Between them these entities are empowered to raid defendant’s premises, seize and destroy infringing items, Impose injunctions against infringing activities, and to levy fines on infringers of trademarks, copyrights, as well as counterfeiters of patent certificates.
Administrative bodies offer a fast and cost-effective way to deal with trademark and copyright infringement, and to gather evidence for patent infringements. However it should be noted that there is no provision for claimants to recover economic losses or accounts of profits through administrative procedures.
Civil litigation:
Civil litigation is the equivalent of court action in the EU. Usual remedies include injunctions, damages, delivery up and destruction of tools and/or products. Civil litigation is variable in time-frame with no fixed case length. Specific IPR courts have been formed in Beijing, Shanghai and Guangzhou however these are relatively new institutions and it is unclear what effects they will have on the IP litigation process.
Furthermore, civil actions are the only procedures via which claimants can recover economic losses or accounts of profits. However these awards have historically been low compared to those awarded by courts in EU jurisdictions.
Both civil and administrative actions require claimants to provide evidence which has been witnessed by a notary public and any verbal testimony or evidence is generally disregarded (unless recorded in the presence of a notary public). It is essential therefore that sufficient evidence is gathered using the correct procedures and the appropriate documents are provided, together with the sealed evidence box prepared by the notary public when initiating the action.
Criminal sanctions:
Criminal IP actions are rare, however where counterfeiting of patent certificates has taken place, or infringement of goods or trademarks has reached a certain threshold, defendants will also be liable for criminal sanctions.
Customs seizures:
Unlike many EU jurisdictions, China’s customs authorities have the power to inspect and seize not only goods coming into the country, but also any goods due for export. These authorities will also proactively monitor for infringement of trade marks which have been registered with them, seize potentially infringing goods and contact the rights holder. Owners of IPRs can also contact customs authorities in the event of individual infringing shipments and request the seizure of these goods. In practice, this does of course require extensive use of private investigators to discover both the original infringement, as well as the movement of the goods and the precise container number they are due to be shipped in.
Summary of key points
In summary, China is clearly a growth market for GNSS technology, with applications varied across many sectors from smartphone location based services to the growing interest and development of ‘smart city’ technologies. Furthermore, China provides an excellent base of operations for further expansion throughout South East Asia, a market tipped to be the largest growth market in smartphone and portable technologies in coming years.
Brand owners must take care when entering the Chinese market however, ensuring that key company and product names and materials are protected by adequate trade mark registrations. This basic layer of protection enables companies to develop reputation for their brand but must be registered early due to the operation of China’s ‘first-to-file’ system. Once complete this protection leaves companies are free to trade without fear of encroachment or market exclusion at the hands of infringers.
Timely protection of core patents and copyright for accompanying materials and software is also essential to avoid infringement. Patents must be applied for prior to public disclosure of products to avoid risks of invalidation and possible infringements.
Copyright need not be registered to qualify for protection. However it is recommended to register and obtain copyright certification for key materials to ensure that ownership can be proved should infringements occur.
Trade secret protection in China is only given if companies can show that they have physical, technical and contractual barriers in place to prevent leakage of confidential information. It is also essential that companies insist on the signing of Non-Disclosure Agreements (NDSs) when dealing with local partners to prevent the dissemination and subsequent (lawful) use of shared secrets in competition with the original owner.
In the event of infringement, Chinese authorities offer a variety of options for enforcement. SMEs should consider these carefully before taking action, ensuring adequate evidence has been collected and seeking local expert legal advice where appropriate.
[1] Thomson Reuters Corporation’s presentation in 6th China Satellite Navigation Conference
Helika Jurgenson, China IPR SME-Helpdesk
