Intellectual
Property Developments
in the Greater China Region
edited by
Andy Y. Sun,
Executive Director, and
the staff of Asia Pacific Legal Institute
MAINLAND CHINA
 IKEA
Scored A Major Victory in First Name Dispute in China
Beijing
First Intermediate People's Court Conducted Trial on Domain Name Dispute
Over Dupont
Beijing
First Intermediate People's Court Handed Down Judgment on Two Major Copyright
Cases
National
People's Congress Amended Patent Law (with
latest update)
National People's
Congress Amended Product Quality Law
The Chinese Government
Issued Its 1999 IPR White Paper
National People's Congress
Enacted the Legislative Process Law ("Lifa Fa")
National
People's Congress Tabled Copyright Bill
Ministry
of Cultural Affairs Promulgated New Rules on On-line Audio-Video Transactions
Five Agencies Jointly Promulgate
Rules to Award Piracy Reporting
Ministry of Information
Industry Opened Individual and Chinese Domain Name Registration
State
Secrecy Office Promulgated New State Secrecy Rules Concerning the Internet
State
Council's Regulation Seeks to Control Encryption Technology and Distribution
in China
U.S.
Issued Latest Findings on China's Intellectual Property Protection and
Trade Practices
MAINLAND CHINA
On June 20, 2000,
the Beijing Second Intermediate Court handed down its judgment concerning
the domain name dispute over ikea.com.cn. In InterIKEA
Systems (China), Ltd. v. China International Network Corporation, Ltd.
(CiNet), the court handed a total victory to InterIKEA and ordered
defendant CiNet's registration of ikea.com.cn be terminated immediately
because it has violated the plaintiff's well-known mark. Although CiNet will probably
appeal, this case does carry a strong signal that even for a company
that has a strong backing of the government, it is not exempted from
liability. This is the first domain name dispute in China which happens
to involve a foreign firm and the question of well-known mark.
In October 1997, CiNet launched a major campaign whereby a wide variety
of registered domain names were put up for sale, especially terms with
a prefix of "i" or "e," such as ibook, ido,
imusic, etc. So far CiNet has registered more than 2,000
domain names and made it the single largest client of China Internet Network Information Center (CNNIC),
the domain name registrar in China. On November 19, 1997, CiNet
registered ikea.com.cn in China.
On the other hand,
the Dutch corporation InterIKEA
Systems, B.V. began to open its IKEA home furnishing retail stores
in Shanghai and Beijing. When it tried to register ikea.com.cn
as its domain name in China, obviously that was rejected and the case
was brought. The defendant claimed that it never knew who IKEA
was or what it represented. It further argued that the ikea.com.cn
registration was really meant to be "i-kea," as in ibook and
imusic. Whereas "i" stands for "Internet" and "kea" being
a large predominantly green New Zealand parrot that can simulate human
voice. This was meant for the online voice mail services CiNet
was about to engage in.
The court obviously
did not buy any of defendant's arguments. This ruling established at least three precedents: (1) for the
first time, a court in China declares that domain name dispute is a
trademark issue; (2) for the first time, a court in its own rite decides
what constitutes a well-known mark, as opposed to leaving the task to
the authority of State
Administrative Department of Industry and Commerce; and (3) for
the first time, the court combined the application of Article 5, Section
2 of the Anti-Unfair Competition Law, Article 6bis of
the Paris Convention for the Protection of Industrial Property (on well-known
marks), and the WIPO Final Report on Domain Name Process, among other things,
in reaching its conclusion. Although defendant has indicated that it
will appeal, the outcome of this case could open the flood gate of many
other similar cases. In fact, another high profile case concerning duPont.com.cn
is also pending before the Beijing First Intermediate Court (please
see below).
Established in
1995 and with the backing of then Ministry of Post and Telecommunications
(now Ministry of Information Industry),
the Information Office
of the State Council and China Institute of Science and Technology
Net Center, CiNet is among one of the earliest Internet service providers
in China.
The Beijing First
Intermediate People's Court on April 19, 2000 conducted a trial on a
domain name dispute, E.I. duPont deNemours & Co. (China),
Ltd. v. China International Network Corporation, Ltd. (CiNet),
over the registration of dupont.com.cn.
Plaintiff E.
I. duPont DeNemours (China) claimed that it has duly registered
its trademark in China since 1976. In early 1999, the company filed
an application to the China Internet Network Information Center (CNNIC)
in an attempt to register dupont.com.cn
as the domain name for its Chinese website, but only realized that the
same name has already been registered by the defendant, an Internet
service provider and domain name service company. Claiming an outright
cybersquatting, duPont sued for damages, immediate and permanent
halt of defendant's use of the domain name in dispute, litigation costs
and a public apology.
Defendant denied
engaging in cybersquatting. It claimed that a trademark registration
does not automatically bestow priority over a domain name registration
with the same name. Arguing that domain names should not be treated
as equivalent to trademarks, it pointed out that there is no law in
China that prohibit defendant's first registration of dupont.com.cn.
Noted that the defendant did not provide any evidence concerning its
genuine or legitimate usage of that domain address during the trial.
The presiding
judge was Mr. Luo Dongchuan, a renowned and respected Deputy
Chief-Judge of that court's Intellectual Property Division/Chamber.
No date is set for the issuance of judgment. China thus far has
seen more than a dozen cybersquatting cases being filed around the country,
with most of which being brought in Beijing and Shanghai. While
there is no legislation to tackle the issue of cybersquatting directly,
the closest statute may be found in Article 5 of the Anti-Unfair Competition
Law, which provides, among other things, that no businesses may pirate
other's registered trademarks or use the specific trade names, packages,
or decorations of other businesses' famous/well-known marks. Thus, the
key question here is whether domain names ought to be treated the same
as trademarks.
While the court
is still pondering the issues, lively discussions have already taken
place within the Chinese intellectual property circle concerning whether
there is an urgent need to amend the existing Trademark Law and/or the
Anti-Unfair Competition Law (both were last amended and enacted in 1993),
and if so, whether China should adopt the approach of either the United
States (with an outright prohibition and legal liabilities) or the WIPO Final Report on Domain Name Process (followed by the recognition
of ICANN Uniform
Domain-Name Dispute-Resolution Policy, URDP).
It appears dupont.com.cn
is off-line because of this litigation. E. I. duPont DeNemours & Co.
has offices over 70 countries worldwide and separate/regional websites
in Canada, Mexico, and South America. Note that .cn is the country
top-level domain name for China.
(1) Wang
Meng, et. al. v. Beijing Online:
The Latest development concerning online service providers' copyright
liability in China. This is by far the most high-profile case of
its kind, and debates (sometimes highly charged) continue despite
the court's final adjudication. See APLI Update,
vol. 1. No. 1 for a detailed introduction
and analysis.
(2) Microsoft (China) Ltd. v. Yadu Group: The on-going debate concerning the software end users'
copyright liability and Microsoft's disastrous public relations in China
-- are or should the Chinese consumers presumed to be thieves who like
to pirate Microsoft's software products, as Bill Gates so argued in
a widely publicized interview? See APLI Update,
vol. 1. No. 2 for a detailed introduction
and analysis, including the development of another major software end
user's copyright liability case, Pacific Unidata v. Avon Products
(Guangzhou), Ltd. (the largest amount in a copyright dispute thus
far in China).
In addition, right before the Microsoft judgment,
EMI, Sony Music, Universal Music, Warner Music, and China Record Company
(Guangzhou), jointly and under the banner of the International
Federation of the Phonographic Industry (IFPI), brought suit against
two Chinese web sites, "My Web" in Beijing and "Tekson" in Guangzhou,
before the Beijing First Intermediate People's Court, challenging the
legality of unauthorized reproduction of MP3 files. Recognizing the
current law lacks clear guidance on the issue, the plaintiffs sue only
$1 for nominal damage. The real purpose, to infer from plaintiffs'
claims, may be to seek a declaratory judgment on the scope of plaintiffs'
rights. If the outcome is indeed favorable to them, real court
battles are almost certain to follow. Stay tune.
In its 27th
Standing Committee Meeting on March 31, 2000, the State Council approved
the Patent Law Amendment bill and submitted it to the National People's
Congress Standing Committee (NPCSC) for further review and formal legislation.
On
August 25, 2000, the 9th Standing Committee of the National
People's Congress enacted the Patent Law Amendments and President Jiang
Zeming signed it into law immediately thereafter (Presidential Order
No. 36). The new law will take effect on July 1, 2001.
Thirty-six out
of a total of sixty-nine provisions are revised. Highlights of
the Patent Law Amendments include, among other things, --
(1) further clarification of rights
in the situation of "work made-for-hire." Unless otherwise agreed
upon, a service invention/creation by a person in execution of the tasks
of the work unit to which he/she belongs or made mainly by using the
material means of the work unit, the entity or work unit has the right
to prosecute patent application and shall retain the patent right if
and when it is approved (Article 6).
(2) the broadening of scope for joint
inventorship to include individuals (current law only stipulates collaboration
between work units or entities) (Article 8);
(3) changing the effective date of
alienation of rights (right to prosecute patent, the patent itself and
licensing) from the date of public announcement to the date of registration
(Article 10);
(4) the addition of "offer for sale"
to the scope of protection (Article 11);
(5) the addition of a duty of confidentiality
on patent agencies to the content of their clients' inventions, except
those being published; the State Council is also formally authorized
to implement rules for the management of patent agencies (Article19,
Paragraph 3);
(6) for any application/prosecution
that is first filed outside of China, the State Intellectual Property Office (SIPO) now has the authority
to provide a specific timeframe within which the applicant must provide
the file wrapper for foreign filing; delay without justification is
deemed to have withdrawn the Chinese patent prosecution (Article 36,
Paragraph 2);
(7) invention patent becomes effective
as of the date of public announcement (Article 39);
(8) repealing Articles 41, 42 and
44 under the current law on post-grant third-party revocations; instead,
as of the date of public announcement (of patent granting), any third
party may petition to the Patent Reexamination Board any time to invalidate
that patent (Article 45, a make-over of Article 48 of the current law);
(9) providing more safeguards to
patent right holder in the event of compulsory licensing (Article 52);
(10) granting more administrative
enforcement authority to SIPO
so that it can make public announcement of the infringement, demand
correction/rectification from the infringer(s), confiscate all illegal
gains, fine the infringer(s) up to no more than three times of the illegal
gains (or no more than ¥50,000 Renminbi if there is no illegal
gains), and prosecute the infringer(s) criminally if there is cause
for such an action (Article 58);
(11) stipulating the civil damage
be based upon the loss profit or the gains from the infringement; in
the event such loss cannot be determined, the patentee may be awarded
up to twice the reasonable royalty under a licensing arrangement
(Article 60);
(12) expressly granting the patent
right holder the right to seek preliminary injunctive relief, provided
that all the stipulated conditions are met (Article 61);
(13) clarification on non-infringement
issues, such as exhaustion of rights (the new amendment adds importation
and offer for sale as grounds for exhaustion, thereby indicates that
China is now adopting the principle of international exhaustion),
prior user rights (as long as necessary preparation is made,
no requirement of prior commercial use), temporary transit or passage,
scientific research, and "innocent infringement" (i.e., no knowledge
of unauthorized license, as long as with proof of legitimate product
source).
By Chinese standard,
it is highly unusual for the NPC to revisit and revise a basic legislation
twice in 15 years. The Chinese Patent Law was first implemented
on April 1, 1985 and has gone through one major amendment on September
4, 1992.
[Chinese text of the Patent Law Amendments (HTTP version)]
On July 8, 2000,
the NPCSC at its 16th Meeting enacted the Product Quality
Law Amendments. This set of amendments will take effect on September 1, 2000.
Most noticeable
changes are:
(1) county authorities
(normally local Product Quality Supervisory Bureaus) have the authority
to conduct on-site inspection (or raid) on any suspicious, illegal production
or distribution and confiscate such products (Article18);
(2) clarification
of labeling requirements, such as warning notice, expiration date, etc.
(3) product liability
for harms resulting from product defects, such as medical expenses,
lost income, living subsidy in case of disability and funeral costs
in case of death (Article 44);
(4) administrative
authority to fine those who manufacture or distribute counterfeiting
or inferior or passing-off goods from 50% to no more than three time
of the total value of such goods, to confiscate such goods and to revoke
business license (Article 50).
[Chinese text of the Product Quality Law Amendments (HTTP version)]
The
State Intellectual Property Office
formally released a report entitled On the Status
of Intellectual Property Protection in China, 1999 (in Chinese,
the English version is expected to be available later on). This
is a follow up to an earlier report entitled Intellectual Property
Protection in China, issued by the Information Office of the
State Council in June 1994 in light of China's tense bilateral negotiations
with the United States and the European Union on the issue. This
latest report offers an across-the-board survey and statistics on the
progress of intellectual property protection in China. Specially
worth noting are: (1) the formation of eight provincial anti-counterfeiting
coalitions, designed to fill the void created after the dismantlement
of regional "Intellectual Property Working Conferences" and the manpower
shortage seen at the State Copyright Administration; and (2) the implementation
of the Plant New Variety Protection Statute on April 23, 1999.
On the same day, China formally accessed to the International
Convention for the Protection of New Variety of Plants (UPOV).
Not surprisingly, this latest White Paper focuses exclusively on the
positive development without offering much insight into the actual piracy
situation and specific measures to overcome several enforcement obstacles
cited by various articles, books and reports.
[Chinese text of On the Status
of Intellectual Property Protection in China, 1999 (HTTP version)]
From December
17 to 25, 1999, the 9th Standing Committee of the National
People's Congress (NPCSC) conducted its 13th Meeting in Beijing. Highlights
of this conference include the passage of the Company Law Amendments,
the Criminal Law Amendments, the Ocean Environment Protection Law Amendments
and the Maritime Litigation Procedure Law. Another important development
is the Standing Committee's formal resolution to recommend that the
draft Lifa Fa (Legislative Procedure Law) be reviewed and enacted
by the 3rd full Congress due to convene in Beijing on March
5, 2000.
As of now, there is not a well-defined
or stratified hierarchy in the Chinese legal authority, often causing
confusions, administrative difficulties, waste and abuses. For
example, a provincial administrative agency and legislative body may
both promulgate certain local regulations contradicting each other or
the national law or exceeding the authority granted to them (such as
imposing unauthorized fees or fines). Different national or provincial
ministries having overlapping jurisdictions over the same matter from
time to time issue conflicting, if not outright contradicting rules
or interpretations. Moreover, the court does not necessarily have
the final say on the meaning of a statute. Although Article 7
of the 1999 Administrative Review Law provides a ground-breaking rule
that citizens and organizations may now challenge the legality of administrative
regulations or interpretations, it does not provide any criteria to
clarify the confusions. The Lifa Fa seeks to unify the
jurisprudence and to redress these problems.
On March 15, 2000, the NPC formally enacted the bill in its Third
Meeting. The law has six chapters and 94 articles. It now provides
much better defined roles and legislative process for the NPC and its
committees. Noticeably, Article 13 permits the submission of a
bill to the full Congress by a provincial delegation as a whole or by
an individual delegate with 30 endorsements. Under normal circumstances,
a bill will go through three readings or review sessions by the NPCSC
before formal legislation (Article 27). However, without any doubt
it is the chairman of the NPC who retains the ultimate authority on
the legislative agenda and other critical procedure matters.
For the first time, Lifa Fa seeks to clearly establish the legal
hierarchy amongst the Constitution, laws, various administrative orders,
rules, regulations at the national level and local legislations (Articles
78-88). As a matter of principle, all laws and regulations shall
be non-retrospective (Article 84). All administrative regulations
must expressly identify their legal authority (Articles 71-73) and be
published on designated official publications (Article 77). All legislative
procedures, from national to local, must follow certain "due processes"
(such as timely notification, quasi-public hearings or discussions,
and "three-readings" before the committee(s) and the full legislative
body).
As far as statutory interpretation is concerned, only the NPCSC has
the authority to do so from now on (Article 42), although the full NPC
may override its decisions (Article 88(1)). In fact, under
Articles 88, only NPC and/or NPCSC may declare a law or regulation
unconstitutional or invalid because of contradiction with a higher statutory
authority. The State Council (the Cabinet) may modify or repel those
administrative regulations it considered "inadequate." The Supreme
People's Court, the State Council, various Ministries under the State
Council and local agencies may no longer interpret the constitutionality
or validity of a statute in its own rite (Article 90). It is not
clear what statutory interpretation authority remains to the Supreme
People's Court or its subsidiaries in light of this legislation.
Also to be noted is Article 93, which provides a much broader rule-making
authority to the Central Military Committee and it is up to that committee
itself to determine whether a certain military regulation should be
submitted to the NPCSC or NPC for a determination of its validity or
constitutionality. In addition, the Lifa Fa is silent on
the question of whether the entirety of a statute or regulation may
be invalid or unconstitutional by the declaration invalidity or unconstitutionality
of a single or multiple provisions therein. Nor is it clear what
will happen once a statute or regulation is declare unconstitutional
or invalid.
This law is to take effect on July 1, 2000 (Article 94).
A 1981 NPCSC resolution which granted extensive legal interpretation
authorities to various agencies will be abolished by then.
[Chinese text of Lifa Fa (The Legislative Procedure Law)
(HTTP version)]
At its 10th Executive Meeting on November 18,
1998, the State Council approved a new draft bill entitled Copyright
Law Amendments and transmitted it to the National People's Congress
(NPC) for further review and approval. The related NPC committees then
began an extensive consultative process across the country. Soon the
NPC officials found themselves often engulfed in heated local debates,
mostly concerning software and other high-tech issues and the scope
of "fair use." The NPC then fell back on a more conservative approach
by addressing only the "unequal" or "inferior" copyright protection
Chinese nationals and entities received then their foreign counterparts.
The bill left other issues (such as digital protection, with the exception
of databases) open until the dust is settled. Initially the plan
was to have the bill formally enacted by the end of 1999. However, in
light of Wang Meng v. Beijing Online
and Microsoft (China)
Ltd. v. Yadu Group, among other developments, there is growing
dissatisfaction with the bill within the ranks and files of the NPC
and the State Council. So the NPC eventually put the brake on
the process and quietly sent the bill back to the drawing board, with
special instructions that rules be formulated to deal with emerging
technology issues. Ironically, when the bill was first drafted, the
Chinese National Copyright Administration proposed the inclusion of
rules the NPC now demands and the approach of a comprehensive consolidation
and streamlining of other existing special copyright regulations, noticeably
the controversial 1991 Regulations on Computer Software Protection,
into a single statute. Yet the State Council did not accept that. Now
the whole process travels a full circle.
On March 28, 2000, the Ministry of Cultural Affairs formally promulgated
a new Notice on Related Issues Concerning On-line Audio-Video Business
Transactions.
In the name of preventing on-line piracy activities,
the Notice prohibits any and all unauthorized or unlicensed on-line
transactions involving audio-video products. To gain such authorization
or business license, applications should be made to the cultural affairs
office or bureau at the provincial level. However, on-line services
involving foreign investment or joint venture are prohibited from engaging
in audio-video commercial activities or transactions on-line.
Moreover, the Notice expressly prohibits any and all transactions involving
foreign-imported audio-video works and downloadable MP3 musical or audio
files. For all those who have already engaged in business transactions
as such, they have until May 1, 2000 to get their license being
approved or disapproved or risk penalties thereafter.
[Chinese text of Notice
on Related Issues Concerning On-line Audio-Video Business Transactions
(HTTP
version)]
The Asia Pacific Legal Institute learned that four agencies, namely,
Ministry of Finance, Ministry of Public Security (Police Department),
State Information and Publication Bureau (SIPB), State Copyright Administration
(which, in fact, is technically a part of the SIPB), and the State "Sao
Huang" (Anti-pornography) Task Force, have just jointly issued a
rule entitled Awarding Measures for the Reporting of Manufacturing
and Selling of Pornography, Piracy and Other Illegal Publishing Activities.
Any reporting that results in the actual crack-down on pornography
or piracy will be awarded in accordance with this rule. For the
reporting of illegal publications, the prize will be no more than 2%
of revenues from that publication. For the reporting on the equipments
involved in the production, distribution and transportation of illegal
publication, the prize will be no more than 10% of the combination of
the total fine and confiscated amount. The prize will be between Renminbi
¥150,000 to ¥300,000 (People's Dollar) per line with regard to imported
laser-generated diskette production lines used for the manufacturing
of illegal CDs, VCDs, or DVDs. For reporting of assembly of equipments
for the purpose of making illegal CD-related production line and/or
illegal reproduction, the prize will be Renminbi ¥30,000 to ¥100,000
per assembly line. In special cases where the reporting lead to
extraordinary results, the reporting person(s) may, with special approval,
be awarded more than the statutory limits.
The Chinese Ministry of
Information Industry (MII) has just revised the rules concerning
the management of domain name registration and opened the process for
individuals and Chinese language domain names as of January 18, 2000.[2] The first six months has been designated as the
trial period and all administrative charges (including registration
fees) are waived. Any interested party may contact the China Internet Network Information Center (CNNIC)
for more information (cn is the country code for China).
"Overwhelming" is certainly an understatement
to describe the public's reaction to this new policy. According
to Mr. Mao Wei, Director of CNNIC, his center accepted more than
36,000 applications on the very first day the new policy took effect.
In 1995, CNNIC opened its door for the registration of all .cn
general top-level domain names (gTLDs). As of the end of 1999,
it has registered 48,695 gTLDs. While the
public reaction may be overwhelming, the CNNIC, on the other hand, is
completely overwhelmed. According to Mao, the first few days'
businesses have already topped the total volume of his agency's entire
workload in the past five years combined and there is no sign that the
inflow of applications is decreasing. As a result, some of these
applications may not get to see the light of the day for quite some
time (the current regulation requires that the process should take no
longer than 10 days since the date the application is filed).
Mr. Zhao Xiaofan, Deputy Director for Digitization Promotion
of MII, predicts the Chinese web users will top 61 million by the year
2002 and becomes the second largest market in the world for e-commerce.
He also indicates that the government will take a more hands-off approach
in the future in managing the Internet domain name issues. Until
recently, only legal entities may register their domain names and they
must be in English.
Apparently to avoid possible abuses and to seek a more balanced allocation
of resources, Article 4 of the new regulation nevertheless puts a limit
of no more than five (5) Chinese gTLDs per agency or organization per
day in terms of application and a total cap of fifty (50) gTLDs per
entity or individual.
It is widely expected that the opening of Chinese language and individual
domain name registration will assist the growth of e-commerce now that
the vast majority of population who are not familiar with English commands
can also surf on the Internet at ease.
[2] Provisional
Regulation on Chinese Domain Names Registration, January 18, 2000, text
available at http://www.cnnic.net.cn./cdns/policy.html
(in Chinese).
While the MII may be loosening its control over domain
names, the State Secrecy Office (SSO), on the other hand, formally released
to the public a new set of rules entitled Regulations on the Management
of Internet Computer Information System on January 25, 2000. This
latest addition constitutes the 19th member to the family of regulations
set to control different aspects of information flow via the Internet.
On a technical note, while eight out of these nineteen
rules are entitled "provisional regulations," including the very foundation
Regulation upon which the others are based, this new rule is not "provisional,"
and is apparently designed to deal primarily with the software issue
derived from the use of Internet (a previous Rule promulgated by the
SSO in 1998 was designed for the control of hardware that produces information).
Also should be noted is that the Regulation was quietly promulgated
in October 1999 and has become effective as of January 1, 2000, not
the date it was released to the public.
Perhaps the most far-reaching provision is Article
8, which requires that any and all information must first be
approved by the SSO before it may be distributed or posted on the "international
network." Article 2 specifically defines "international network
of computer information system" as those domestic computer information
systems that connect to foreign information networks and for the purpose
of realizing international exchange of information. Article 10 further
requires all entities and users who intend to create electronic bulletin
boards, chat rooms or Usernet must also seek prior approval from their
local SSO offices.
Given the
track record from the implementation of past Internet control regulations,
how these rules can realistically be enforced remains to be seen. Here
the rule makers clearly want to have a clear-cut division between "domestic"
and "foreign" flow of information on the Internet, but the rules themselves
are vague and over-reaching at best. Does Article 8 mean as long
as there is the slightest possibility that a domestic server may connect
to another server which in turn has some kind of connection with a foreign
server, then all the bits and bytes of information that ever flow through
the local server will nevertheless be subject to prior censorship, regardless
of the nature or destination of a particular piece of information may
be only for "domestic" consumption? Regardless of what the answer may
be, the reality is that all Internet service/content providers better
submitted their information for this new censorship beforehand just
to avoid any potential troubles.
On the other hand, the government's own statistics show
that in the last six months of 1999 alone, the Chinese Internet population
has grown from 4 million to 8.9 million. It is of course still too early
to tell how this Regulation may affect the over-all growth rate in the
long run. But many firms (domestic and foreign) have already voiced
their concerns over the future of e-commerce in China, including the
possible revelation of a company's trade secret (by yet another regulation,
the company must disclose its source code for any encryption technology
used), among other things.
Although many believe this new Regulation is probably
designed primarily to deal with political and religious organizations
such as the now outlawed Falun Gong, only time will tell how
far-reaching an impact this regulation has created to the growth of
the Chinese economy.
[Chinese text of Regulations
on the Management of Internet Computer Information System
(HTTP version)]
The State Council (the Cabinet) on October 7, 1999 issued
a 27-article regulation, entitled Order No. 273: Commercial
Encryption Management Statute. This regulation seeks to control
all aspects of the encryption technology, from development to distribution
and final disposal.
Article 7 provides that no individual or work unit may
produce or manufacture any commercial encryption domestically without
prior approval and proper license from the government. Article
12 further requires that all purchasers, licensees or users must register
their names, contact information and the purpose of usage before they
may acquire the encryption. Article 16 prohibits the free alienation
of encryption technologies by their users; all repair works must
be conducted by the government designated personnel and the final disposal
of any product having encryption inside must be reported as well.
Article 14 expressly precludes the use of any self-developed or imported
encryption in any product unless approved by the government. Article
15 then requires all foreign-manufactured encryption technologies be
approved prior to their importation into China (with the exception of
diplomatic agencies). Violators may be fined up to three times of the
"illegal gain," result in the products being confiscated, revocation
of license and prosecution for crimes against the revelation of national
secrecy (Articles 20-23 ).
The State Encryption Management Commission has been designed
as the authority to oversee the enforcement of this statute. The
commission, in turn, is heavily influenced by the State Secrecy Office
(SSO) and other members of the Chinese intelligence community.
This commission subsequently issued a circular designating January
31, 2000 as the deadline to submit all encryption technologies
for registration and approval.
Not surprisingly, many foreign firms, especially those
in the computer software area, expressed their deep concerns over this
development. To begin with, they are fearful that the registration
and licensing requirement naturally entails the revelation of the source
code of their software, the single most important trade secret businesses
intend to protect. For major software manufacturer such as Microsoft,
this rule may also signal a significant delay of its Windows 2000
release. It is unclear how this rule will impact the market.
What is certain, however, is that it has at least raised one new barrier
and perhaps a major one in the Western world's (particularly the
U.S.) quest for opening the China market.
UPDATE: Quoting sources from the U.S.-China Business Council, the
Associated Press
reported from Shanghai on March 14, 2000 that Order No. 273:
Commercial Encryption Management Statute will not apply to telephones,
Internet browsers or computer operating systems after all. However,
the rules still cover software and equipment meant primarily to encode
data. In respond to the strong outcry by many foreign firms in China,
the State Encryption Management Commission apparently backed down from
its earlier stance and issued a "clarification" to the regulations,
exempting mobile phones and some software. This clarification
has not made public and it is not exactly clear what products are still
covered by the regulations. Click here for the news report. (March 14, 2000)
[Chinese text of Commercial Encryption Management
Statute (HTTP version)]
On March 31, 2000, the United States Trade Representative (USTR) issued
its 2000 National Trade Estimate on Foreign Trade Barriers (NTE)
report, which includes, among other things, the latest U.S. official
findings on China's intellectual property protection and trade practices.
While the USTR praises many progresses China has made
in its legislative and enforcement efforts on the protection of intellectual
property rights, including an on-going national anti-piracy campaign,
several remaining problems have nevertheless been identified.
They are: counterfeiting of brand name products, software piracy, and
more recently, piracy of Internet domain names. Local protectionism,
corruption and inadequate number of criminal prosecutions as well as
penalties being imposed on infringers are also mentioned in the report.
In addition, the report raises particular concerns over delays and other
inadequate practices in various administrative processes which result
in domestic imitation of U.S. pharmaceutical products, passing off of
well-known trademarks, and corporate end-user software piracy. Not surprisingly,
the report also raises a number issues concerning the development of
electronic commerce in light of the uncertainties created by the recent
Chinese administrative actions.
This finding serves as the basis for USTR's annual "Special 301" identification
due out by the end of April. "Special 301" refers to Section 182
of the U.S. Trade Act of 1974. It stipulates that the
USTR must identify, within 30 days after submission of the NTE report
to the Congress, i.e., by
April 30, those foreign countries that (a) deny adequate and effective
protection of intellectual property rights or fair and equitable market
access to U.S. persons that rely upon intellectual property protection,
and (b) those countries under (a) determined by the USTR to be "priority
foreign countries." The USTR is to identify as priority countries
only those that have the most onerous or egregious acts, policies or
practices with the greatest adverse impact on the relevant U.S. products,
and that are not entering into good faith negotiations or making significant
progress in bilateral or multilateral negotiations to provide adequate
and effective protection over intellectual property rights.
[Text of USTR's 2000 National Trade Estimate Report
on Foreign Trade Barriers: People's Republic of China  (PDF
version)]
*This list is
intended to serve as a starting point for those who wish to conduct international
comparative researches on intellectual property and/or trade law issues.
As many of these sites also provide extensive links to other sites, our
list is not an attempt to duplicate their efforts, rather to compliment
them. Special indications are made for sites that are bilingual, multilingual
or in foreign language.
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