Developments in Protection of Foreign Intellectual Property in China

04 August 2020


The Foreign Investment Law of the People's Republic of China ("Foreign Investment Law") was formally adopted on 15 March, 2019 and entered into force on 1 January, 2020. 

The legislation also establishes specific requirements for the protection of trade secrets from the perspective of the Chinese administration and aims to dispel any concerns held by foreign investors. The Implementation Regulations for the Foreign Investment Law of the People's Republic of China ("Implementation Regulations"), also in force since 1 January 2020, further highlight the solutions available for infringement of intellectual property rights.

Forced technology transfers shall be prohibited

In response to foreign investor complaints, Article 22 of the Foreign Investment Law stipulates that governments and government employees are prohibited from using administrative means to force any technology transfers. Moreover, under the principle of fairness, the conditions for technical cooperation are set out by equal negotiation between both parties to the investment.

This new legislation aims to ensure the fair treatment of foreign investors and establishes a cooperative environment for those investors entering the Chinese market. This further emphasises China's commitment to technical cooperation based on the principles of free will and commercial trade underpinning foreign investment.

Emphasis on the protection of trade secrets

When foreign investors enter the Chinese market, they may be concerned with the confidentiality of their trade secrets. Such trade secrets could include technical schemes and application methods that operate within their respective projects.

For the ease of this concern, the Foreign Investment Law aims to protect trade secrets by requiring that, under Article 23 of the Foreign Investment law, the Chinese administrative organs and their employees keep confidential all trade secrets of foreign investors and foreign-invested enterprises disclosed to them during the performance of their duties.

In addition, the Implementation Regulations request that administrative organs adopt effective measures to protect the trade secrets of foreign investors. Where it is necessary for foreign investors to provide materials and information involving trade secrets to the Chinese administration, the information shall be limited to the required scope for performance of duties. Moreover, the scope of persons privy to such materials and information shall be strictly controlled. As such, any persons who are not related to the performance of the required duties shall not have access to the relevant materials and information.

Although the Foreign Investment Law does not provide prescribed methods for the protection of trade secrets, the measures enforced so far do dispel the concerns of foreign investors to some degree. The Foreign Investment Law also acts as an authoritative guidance for the Chinese administrative work and any further administrative based legislation.

Increasing penalties for intellectual property infringements

The new foreign investment law

Article 22 of the Foreign Investment Law stipulates that any infringement ofIntellectual Propertyrights shall be investigated for legal liability. Moreover, Article 39 of the Foreign Investment Law provides for additional penalties, including criminal liability for non-compliance, to be imposed on government employees.

Not only that, the Foreign Investment Law is likely to be applied as a form of guidance in practice. Accordingly, Article 23 of the Foreign Investment Law stipulates that the government shall: impose more robust penalties for the infringement of Intellectual Property rights, continuously strengthen the enforcement thereof and promote collaborative protection mechanisms for Intellectual Property rights.

Related intellectual property laws

The other newly amended laws also revealed an initiative for the mechanism of punitive damages for Intellectual Property rights in China. According to the Trademark Law revised in November 2019, the maximum multiplication of punitive damages is raised to five times(of the actual losses suffered by the right holder or the gains derived by the infringer)instead of three times in the past. The planned amendments to the Copyright Law and the Draft of Revised Patent Law are also believed to raise the punitive damages.

Although the effect of these legislative changes remains unclear, these developments undoubtedly promote a greater standard of protection for Intellectual Property rights in China and indicate the start of an improved landscape for the foreign Intellectual Property rights owners.

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