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US-China Phase One Trade Deal: Stronger China IP Regime in the Making

After almost two years of hostilities, on 15 January 2020, China and the US signed an agreement on a Phase One trade deal easing tensions between the world’s two biggest economies. Intellectual property issues form an important part of the Agreement. The very first chapter of the Agreement addresses some inadequacies in China’s IP regime, aiming to establish and implement a comprehensive legal system of IP protection and enforcement in China. The Agreement states that China recognizes the importance of IP protection and believes that enhancing IP protection and enforcement will boost innovation, grow innovation-driven enterprises, and promote high quality economic growth.

Some specific IP concerns addressed by the Agreement are trade secrets, pharmaceutical-related intellectual property, patent term adjustment and extension, and enforcement against pirated and counterfeit goods.

Crack Down on Trade Secret Theft

Trade secret theft has been a longstanding concern for international entities doing business in China. The Agreement states that “the US emphasizes trade secret protection” and “China regards trade secret protection as a core element of optimizing the business environment”. To better protect trade secrets and confidential business information, China will:

  • shift the burden of proof or burden of production of evidence, as appropriate, to the accused party to show that it did not misappropriate a trade secret;
  • identify the use or attempted use of claimed trade secret information as an “urgent situation” that provides its judicial authorities the authority to order the grant of a preliminary injunction based on the specific facts and circumstances of a case;
  • provide criminal procedures and penalties to address willful trade secret misappropriation.

More Pharmaceutical Patent Rights

China agrees to provide “effective protection and enforcement of pharmaceutical-related intellectual property rights, including patents and undisclosed test or other data submitted as a condition of marketing approval”.

The Agreement requires that China change its current practice to permit pharmaceutical patent applicants to be able to rely on supplemental data to satisfy relevant patentability requirements, including sufficiency of disclosure and inventiveness. This change will bring China in line with practices in other countries such as the US and Europe, although such data is not currently admissible in Canada, and may help pharmaceutical patent applicants to secure patent protection in China.

The Agreement also requires that China establish an effective mechanism for early resolution of patent disputes, which includes a system to provide notice to a patent holder that another company (likely a generic drug company) is seeking approval of a version of the patented drug. The notice should be provided before the generic drug company receives regulatory approval, so that the patent holder would have adequate time and opportunity to pursue “judicial or administrative proceedings and expeditious remedies, such as preliminary injunctions” to resolve disputes over infringement or the validity of the patent.  Such a regime would be similar in concept to the Patented Medicines (Notice of Compliance) regime that exists in Canada.

Patent Term Adjustment and Extension

China agrees to provide (i) patent term adjustment to compensate for unreasonable delays that occur in granting the patent and (ii) patent term extension to compensate for unreasonable delays during pharmaceutical product marketing approvals.

Patent term adjustment is not available in Canada but patent term extension of up to two years has been available since 2017 for patents pertaining to new medicinal ingredients or new combinations of medicinal ingredients for human or veterinary use.  Canada will have to add provisions relating to patent term adjustment to comply with its obligations under the Canada-US-Mexico Free Agreement.

Patent term adjustment and extension are particularly important for pharmaceutical patents because it often takes a long time to bring a drug to the market.

Combating Piracy and Counterfeiting

In order to promote the development of e-commerce, China and the US agree to strengthen cooperation and jointly and individually combat piracy and counterfeiting.

China also agrees to introduce a “notice and takedown” regime that is likely to be similar to the US regime where when an online service provider receives a notice that infringing content has been made available on its service, the service provider will move expeditiously to take down the infringing content from the Internet. The Agreement specifies that China will:

  • require expeditious takedown;
  • eliminate liability for erroneous takedown notices submitted in good faith; and
  • ensure validity of takedown notices and counter-notifications.

Concluding Remarks

The Agreement appears to import some IP protection mechanisms from US law into China’s IP regime. The next step will be for China to implement these western IP protection mechanisms in practice through structural reforms to China’s current IP regime. No one knows how long it will take for China to craft the new IP regime, but if it is anything similar to Canada’s journey to modernize its trademark law, China’s new IP regime will take at least five years.


*This article was originally published by The Lawyer’s Daily (www.thelawyersdaily.ca), part of LexisNexis Canada Inc.

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