Intellectual Property Provisions in China´s New Civil Law Code

The first ever Civil Code of the People's Republic of China was passed on 28 May 2020 and will go into effect on 1 January 2021.  The new Civil Code, which has been referred to in China as the “Encyclopedia for Social Life” and as a “Civil Constitution of Modern Society” contains 1,260 articles in 7 parts which, relate to (1) general principles, (2) property rights, (3) contracts, (4) personality rights, (5) marriage and family, (6) inheritance, (7) tort liability, along with other supplementary provisions.

The new Civil Code is a compilation of existing General Provisions and Principles of Civil Laws, Rights in Rem Law, Contract Law, Guaranty Law, Marriage Law, Inheritance Law, Adoption Law, Tort Liability Law, and contains significant changes to those provisions.  Indeed, those laws will be superseded by the new Civil Code on 1 January 2021.

Existing laws relating to intellectual property, such as patent, trademark and copyright law, remain as special laws , which are linked to the Civil Law system while not being specifically included in (and therefore replaced by) the new Civil Code.  Even so, the new Civil Code contains approximately 50 articles that relate specifically to intellectual property.  Most of these new articles already exist in some form in the current Rights in Rem Law, especially in the chapter regulating technology transfer and research and development agreements.

Perhaps the most important aspect of the new Civil Code with respect to intellectual property is the introduction of punitive damages for intentional infringement.

• Article 1185 states that if the circumstances of intentional infringement of an intellectual property right are serious, the holder of the IP right which has been infringed has the right to request corresponding punitive damages.

Before the new Civil Law, punitive damages were only available for trademark infringement (Art. 63 Trademark Law) and for misappropriation of trade secrets (Art. 17 Anti-Unfair Competition Law).  Under these provisions, if the infringement or misappropriation has been intentional and serious, the amount of compensation can be increased to up to five times the actual loss of the right holder or the actual gain of the infringer.

While not yet approved, draft amendments to the Copyright Law and Patent Law also include provisions for punitive damage awards.  Article 53 of the draft Copyright Law and Article 72 of the draft Patent Law also provide that the amount of compensation for intentional and serious infringement can be up to five times actual damages.

It is important to understand that in China a special law prevails over general law.  Thus, since the existing Trademark Law and Anti-Unfair Competition Law are special laws, they should apply to punitive damages considerations rather than the new Article 1185 of the new Civil Code.  In light of the above, Article 1185 of the new Civil Code can provide a basis for patent and copyright holders to request punitive damages for intentional and serious infringement if the effective date of the amended and not yet approved Copyright Law and Patent Law is after January 1, 2021.

Notwithstanding existing provisions concerning punitive damage in trademark and trade secret matters and the upcoming availability of Article 1185 under the new Civil Code, in practice, the IP right holder still must demonstrate that particular acts of infringement are “intentional” and “serious”.  The Beijing Higher People’s Court addressed this issue in guidelines it issued on 21 April 2020.

According to these guidelines, a court may conclude that an act of infringement is “intentional” if the defendant, for example:

• repeats or continues the infringement even after an effective judgment or the receipt of warning letters or an administrative decision;
• counterfeits a registered trademark, or free-rides on the plaintiff’s well-known trademark or engages in trademark squatting;
• uses the plaintiff’s well-known trademark on identical or similar goods;
• knows about the existence of IP rights based on, for example, an employment or distribution relationship;
• covers up or destroys evidence of infringement;
• refuses to comply with a preliminary injunctive order.

Further, a court may conclude that an act of infringement is “serious” when, for example:

• the duration of infringement is long;
• infringement is widespread;
• illegal profits are very large;
• there are concurrent violations that could be harmful to personal safety, the environment, or public interests.

These guidelines are only binding on courts in Beijing, but also may serve as a frame of reference for Courts throughout China.

The new Civil Code also contains several provisions relating to technology transfer and licensing which can be found from Article 843 to Article 887.  Some highlights from this section include:

• Article 862 which provides certain definitions for technology assignment and technology licensing contracts.  This article also provides that special equipment, raw materials for the implementation of technology, or the provision of related technical advice and technical services are part of the contract.
• Article 868 which provides that an agreement which transfers know-how via assignment or license should provide sufficient technological information and guidance to ensure the practicability and reliability of the technology.  The assignor or licensor also must maintain confidentiality, but this obligation of confidentiality does not restrict the assignor or licensor from applying for a patent, unless the parties agree otherwise.
• Article 876 which provides for the assignment and licensing of other intellectual property rights such as exclusive rights for integrated circuit layout designs, new plant variety rights, computer software copyrights, etc.
• Article 886 which provides that if a technical consultation contract and technical service contract do not contain an agreement about the bearer of expenses generated from the contractor´s work, or the agreement is not clear, the contractor shall bear the expenses associated with such consultation or service.