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What do “Made in China 2025” and “One Belt One Road” Mean for Foreign Companies’ China IP Strategy?

Since President Xi Jinping proposed a new 'economic belt' along ancient silk roads and a 21st century maritime road in 2013 (known as the 'Belt Road Initiative' or 'BRI'), and the State Council of the People's Republic of China launched its "Made in China 2025" National Initiative ('MiC 2025) in 2015, there has been a lot of discussion about what these initiatives mean for industry in western economies, and for global trade. This piece, focuses on what these initiatives could mean for foreign companies' China (and indeed global) IP strategy.

What these Initiatives mean for IP developments in China?

Continuing growth in domestic filing. The Chinese government continues to support the generation of domestic IP, whether by subsidies, favourable tax status, or by reducing official fees (China's Trade Mark Office having halved some official fees in the recent past, is just one example). While filing figures continue to climb record highs, this momentum is expected to continue both (i) on the trademark side - as China encourages its national champions to 'develop global brands' (one of the 9 strategic tasks underlying the MiC 2025 Initiative), and (ii) on the patents side – where the various manufacturing sectors are encouraged to go 'high tech, high quality, high efficiency and green' and where filing is set to increase materially in the 10 'priority sectors'.

Increase in the quality of domestic filings, and increases in inventiveness standards. As the Chinese government continues to fine-tune its innovation incentives, expect to see an increase in the quality of Chinese patent filings (both filed in China and overseas). This 'fine-tuning' is already showing an effect – 2017 having seen the first decrease in utility model grants (which are generally reputed to consist of lower levels of inventiveness than patents), since 2001.

Streamlining of IP prosecution system – In March 2018 the Chinese government merged certain functions, including the prosecution / granting function, of China's Trademark Office (CTMO) and Patent Office (SIPO). While the precise structure is not yet entirely settled, expect a streamlining of certain filing / prosecution functions – the CTMO having already undercut the mandated time for examination of trademark applications (9 months) by one month to 8 months and having confirmed a further cut to 6 months by the end of 2018.

Continuing growth of domestic enforcement both via (i) administrative enforcement routes; and (ii) IP civil litigation – Chinese courts have seen a record 213,000+ IP civil litigation cases filed in 2017 – an increase of 150% in just 5 years. This trend of IP enforcement growth, is expected to increase both in the case of civil litigation, and IP administrative enforcement (with additional enforcement powers in the patent field expected to accrue to administrative authorities under the pending new patent law). Given the heavy workload on the enforcement system, unsurprisingly the system is starting to 'groan' under the load, meaning that courts are becoming more circumspect in accepting jurisdiction over cases, they are starting to further reduce the grant of preliminary measures (injunctions, evidence preservation orders, and property preservation orders), and ultimately the quality of judgements may suffer – not surprising when some judges reputedly have over 200 cases per year on their docket.

What the Initiatives mean for IP developments outside China?

Expect greater number of Chinese IP filings internationally. Chinese companies will continue to grow their international filing volumes, especially in the 65 countries along BRI routes, as well as in the 10 priority sectors of the MiC 2025 Initiative. Increased IP filings will be seen both in the trademark field (note the Government's call in the MiC 2025 for 'greater interationalisation of Chinese brands') as well as patent field. The filings will result in increased need for well-measured trademark as well as patent watching both along BRI countries and in market regions like Europe and the United States.

Expect greater involvement of Chinese interests in standard setting. As a result of the Initiatives, expect China to increase its involvement in bi-lateral and multi-lateral standard setting processes, and this to extend from the industrial and manufacturing sectors (the focus of the MiC 2025 Initiative) to other sectors. Indeed this process is already on the way with key Chinese players active in international and regional standard setting fora – one recent illustration being the 2018 China-UK Standardization Cooperation Commission meeting on 10-11 April in Hangzhou, China.

Expect potential increase in IP infringements. With increased trade along the BRI routes and greater outward projection of the Chinese economy, expect IP infringements to follow, and thus expect growth of infringements along BRI routes. Moreover, given the proliferation of bilateral and regional trade/customs agreements between countries such as Russia, Khazkstan and Belarus, increased pressure will be put on the eastern borders of the EU, where a number of the trade routes are planned to lead.

So how best to adapt your IP strategies to deal with the MiC 2025 and BRI challenges?

1. Adopt a longer time-line for your business strategy, and thus also for your IP strategies in China. The MiC 2025 Initiative is actually somewhat of a misnomer as the Initiative extends all the way to 2049. While it is impracticable for companies (unlike governments) to have quite such a long-term view, foreign companies have to extend their IP strategy beyond their typical 3-5 years horizon. In relation to brands, they have to consider how the Chinese market will adapt new products and the potential for brand-extensions into adjacent and complimentary products and trademark classes. For example, In 2000, relatively few Chinese enjoyed drinking coffee. In 2018, in first-tier cities, coffee has supplanted tea as the hot beverage of choice for many millennials; likewise a number of brands that were known for a single product group (for example writing instruments), have since grown into various other product and life-style categories. In relation to patents, while a number of technologies may become obsolete, others will prove more enduring, and given that patents have a potential term of 20 years in China, and that the Chinese government has given domestic companies a clear technology 'roadmap' to 2049 (at least in the industrial and manufacturing sector), it makes sense for foreign companies to adapt their strategies accordingly.

2. Reviewing filing strategies with a view of protecting "what I cannot afford for another to take", rather than "filing what I need". Companies should start with a China-oriented filing strategy, rather than "we file in China everything we file in, for example, Germany". On the trademark side, this means making defensive filing core to strategy – for example, if your main business is supplying products, consider also protecting your applicable trademarks for related services. On the patent side, companies should consider making China a 'default' filing jurisdiction, and where their technology provides scope for it, should file utility models as well as patents (especially given China recognises a reduced inventiveness threshold for utility models). Finally, companies should look carefully at how their business may fall within the 10 strategic 'priority sectors' in the MiC 2025 Initiative, and the countries China contemplated in the BRI, and consider bolstering filing in those sectors and countries, respectively.

3. China Enforcement strategies should be focused on and adapted to changing environment. If one looks at the other 65 countries falling within the BRI, it becomes clear that China is one of the better IP enforcement jurisdictions. This means that companies should set themselves up for more and more effective IP enforcement and litigation in China. On the administrative enforcement side, companies should focus on their Customs and border enforcement measures, both in China and where the BRI routes abut Europe. However, whichever enforcement option and jurisdiction is selected, companies must invest sufficient time and effort into securing / formalising evidence, pre-litigation preparation, selection of venue, etc. as Chinese court-resources are becoming increasingly stretched.

4. Invest in preparation and advocacy. With greater IP assertiveness in China, foreign companies will increasingly find resistance to IP protection and enforcement efforts. For foreign companies to level the playing field in jurisdictions where Chinese competitors may have a 'home town advantage', they have to actively engage in advocacy for their company, their brands and their cause. Whether this takes the form of working with (i) NGOs like the British Chamber of Commerce in China, AmCham, or the European Chamber of Commerce in China, or Quality Brands Protection Committee (QBPC), (ii) with national governments (the United Kingdom, France, Germany and the United States are just a few countries that have dedicated IP-attachés in Beijing), or even (iii) the European Union Delegation, it is key to marshal support well before it becomes needed.

The way ahead

Whether or not the global economy is heading for a trade war, matters only marginally given China's 'long game' espoused in the China's MiC 2025 and Belt Road Initiatives'. China has no choice but to continue to look and project outward, along the Belt and Road, and to foreign markets beyond. Likewise, has China little choice but to move up the manufacturing value-chain: given the explosion in labour-costs in China, the only way that China can remain competitive is by increasing value-added production and to achieve that, China must invest in innovation and intellectual property. In order for foreign companies to not just survive but to thrive in this environment, they in turn must continue to invest in their China IP, take a long-term view of the Chinese market, and, if nor already doing so, start respecting Chinese companies as global competitors - not to be underestimated.