While some IPR issues are common to all types of European companies doing business in China, others are specific to the information and communication technology industry (ICT) industry. In the following article the China IPR SME Helpdesk outlines appropriate patent and trade secret strategies, the type of patents particularly relevant to ICT companies and suitable IPR enforcement measures.

Developing a patent and trade secret strategy

Patent protection

China has three types of patents: invention patents, utility model patents, and design patents. For a hardware invention all three should be considered, as each will help to protect your product in different ways.

Invention patents cover products that provide solutions to technological problems – they are more ‘inventive’ than utility model patents, which essentially provide protection for technological upgrades. Companies developing software inventions should consider filing for protection under an invention patent. The Chinese patentability standards for software inventions are similar to those in Europe so a software invention that is patentable in Europe should generally be patentable in China, although the patents should also be registered separately in China. Since the duration of a utility model patent is only ten years and the ‘novelty threshold’ for utility model patents is lower than that for invention patents, utility model patents are suitable for incremental inventions and technologies with a shorter life span. An invention patent lasts twenty years and should be used to protect inventions with a relatively long life.

Since Chinese companies can freely access patent information in Europe and the USA, companies are advised to register their invention and utility model patents in China before their inventions are released anywhere in the world. If your invention or utility model is disclosed to the public before it has been patented (i.e. it is no longer ‘novel’), it is no longer possible to apply for a patent.

In the EU, designs are automatically protected for three years. This is different in China, where if you do not register your design patent before you disclose it to the public in any way (anywhere in the world), it can no longer be protected by a design patent.

Trade secret protection

Trade secrets include confidential business information that may provide your company with a competitive advantage over others. Unbeknown to many, trade secrets can be extremely valuable IP. However, since they are not registerable rights, protection strategies adopted by EU SMEs should be considered carefully.

Trade secrets can include a myriad of technologies, including source codes (to the extent that they cannot be reverse engineered).

A trade secret is defined as:

1. technical and business information that is unknown to the public;
2. information that has economic value and practical utility; and
3. information that the trade secret owner has palpably protected – the owner should have undertaken (demonstrable) measures to ensure its confidentiality.

Although trade secrets can be protected by a confidentiality agreement—as in Europe—it is also recommended that recipients of confidential information should sign an acknowledgement prior to receiving such information. If it later becomes necessary to file a misappropriation action, a trade secret owner must provide appropriate evidence to show that the trade secret meets the abovementioned definition, in addition to proving there has been misappropriation of the trade secret by a wrongdoer or a third party.

Although prevention is the best strategy in the case of trade secrets, companies that take enforcement actions can, and have, received positive outcomes from Chinese courts.

FRAND: Interface of standards and patents

While in the past it was viable to obtain patents according to industry standards, recent developments in the law on standard essential patents (SEPs) have changed this. A SEP is a patent that claims that an invention must comply with a technical standard.

Standards for different industries are set by regional organisations, such as The European Telecommunications Standards Institute (ETSI), which among other standards covers wireless communications. Due to inter-operability requirements of this technology certain ETSI standards are adopted in China.

Generally the ETSI does not determine whether a particular patent is essential to a standard. Rather, it provides a mechanism by which the patent owner themselves can make a declaration of essentiality, coupled with a commitment to license any SEPs on fair, reasonable and non-discriminatory (FRAND) terms and conditions. Therefore, where a European patent is declared by the patent owner as essential to an ETSI standard, the Chinese patent corresponding to the European patent is also considered essential in China and thus FRAND terms and conditions will also apply.

If a patentee engages in standard-setting or agrees that a patent should be incorporated into a national, industrial or local standard, this permits others to exploit the patent for implementation purposes. Those using the patented technology to implement the standard may be charged royalties by the patentee for use of the patent, but are not deemed to be committing an infringement.

SEPs versus implementation patents

Implementation patents refer to patents that are not incorporated into a standard but facilitate the implementation of the standard. For example, although a patent on a new form of touch-screen glass is not essential to the 5G wireless standard, if the innovation was considered superior to the extent that all 5G phones incorporated it such a patent would be invaluable.

As implementation patents are not incorporated into standards they are not subject to FRAND obligations, so customary infringement damages and injunctive relief are available. Therefore, due to the lower royalties available due to FRAND conditions, implementation patents are often more valuable to EU SMEs.

Enforcement

China is the most litigious country for IP disputes in the world in absolute terms. There were 87,419 IP suits filed in Chinese courts in 2012. However, out of these only about 1,400 foreign companies were involved, which is less than two per cent of the total.

The reluctance of foreign companies to enforce their IPR in China is largely due to the perception that China does not protect IPR and that foreign companies won’t get fair treatment. However, such reluctance is misplaced: evidence suggests that case outcomes are not affected by litigants’ nationalities.

Enforcement cases concerning ICT technology in China can be very complex, though, given the consideration of individual IPR and industry standards that is often required. Therefore, it is beneficial for an ICT company that deals predominantly with incremental technology development to consider their rights and how they may conflict with certain competitive market laws.

IP lessons and key take-aways

• FRAND is not an essential patent holder’s friend.
• Software inventions can be protected in China, as in Europe.
• Utility model patents can play an important role in your Chinese patent portfolio.
• Implementation patents are much more valuable than standard essential patents.
• Trade secret protection should be complimented by additional confidentiality measures that require signed acknowledgements.
• IP enforcement in China is improving, though cumbersome evidence rules make it difficult to enforce.

For more detailed information on the topic, please see the China IPR SME Helpdesk guide China IPR Considerations for the European businesses in the ICT industry.

The China IPR SME Helpdesk is a European Union co-funded project that provides free, practical, business advice relating to China IPR to European SMEs. To learn about any aspect of intellectual property rights in China, including Hong Kong, Taiwan and Macao, visit our online portal. For free expert advice on China IPR for your business, e-mail your questions to us. You will receive a reply from one of the Helpdesk experts within three working days. The China IPR SME Helpdesk is jointly implemented by DEVELOPMENT Solutions, the European Union Chamber of Commerce in China and European Business Network (EBN).