WORLD TRADE  
ORGANIZATION  IP/C/W/540 
21 October 2009 
 (09-5193) 
Council for Trade-Related Aspects 
of Intellectual Property Rights Original:   English 
 
 
 
TRANSITIONAL REVIEW MECHANISM OF CHINA 
 
Communication from the European Communities  
 
 
 By means of a communication from the Dele gation of the European Communities, dated 
12 October 2009, the Secretariat has received th e following contribution in the context of the 
transitional review mechanism under Secti on 18 of China's Protocol on Accession. 
 
_______________ 
 
 1. The European Communities (hereinafter referr ed to as the "EC") would like to thank the 
People's Republic of China (hereinafter referred to  as "China") for its active participation in the 
Transition Review Mechanism and look forward to the further clarification of the important matter of 
IPR protection and enforcement in China. 
I. GENERAL 
2. The EC notes the initiatives taken by China over the last year aiming at improving the 
situation regarding the protection and enforcement of intellectual property rights.  Since the 2008 
TRM exercise several developments have indeed occurred in China in the field of intellectual 
property, such as for example: 
• On 28 December 2008, the promulgation of th e Third Revision of the Chinese Patent Law 
which entered into force on 1 October 2009;  on 9 March 2009 draft Implementing Rules 
were published for comments; 
 
• On 30 January 2009, the signature of an EU-C hina Customs Action Plan on IPR enforcement; 
moreover, the EC has noted a reduction in num ber of EU customs seizures of counterfeit 
goods coming from China in 2008 (about 54 per cent) compared to 2007 (about 58 per cent); 
on 3 March 2009 a new set of rules were issu ed for the Implementation of the Customs 
Regulations on the Protection of Intellectual Pr operty which came into effect on 1 July 2009; 
 
• In June 2009, the issuance of a new draft of the Chinese Trademark Law revision and the 
SAIC Opinions on Carrying out the Outline of th e National IP Strategy and Implementing the 
Trademark Strategy; this was preceded, in April 2009, by the issuance of a revised 
SAIC/TRAB regulation on the Recognition of Well-Known Trademarks  concerning detailed 
internal procedures for the recognition of we ll-known trademarks and, on 23 April 2009, by 
the adoption of a SPC Interpretation on Certai n Questions in the Application of the Law 
Relating to the Protection of Well-Known Tradem arks in the Adjudication of Civil Disputes 
Involving Trademark Infringements; 
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  • On 22 April 2009, the signature between OHIM and SAIC of a Memorandum of 
Understanding on promoting cooperation in the trademark field, and on the same day the 
signature between OHIM and SIPO of a Memorandum of Understanding on promoting 
cooperation in the design field; 
 
• On 11 June 2009, the adoption of China's Action Plan on IPR Protection  2009 which details 
170 measures in 9 areas and in which China ha s included the revision and formulation of 
23 laws, regulations, rules and administrative measures on trademark, copyright, patent and 
customs IP protection as well as 3 Judicial Interpretations; 
 
• On 1 July 2009, the re-organization by the SPC of the judicial system for handling disputes 
concerning the granting of patent and tradem ark rights with the aim of streamlining the 
Chinese IPR trial system. 
 
3. However, despite these developments and Ch ina's efforts to address problems in its 
intellectual property system, European companies con tinue facing serious IPR difficulties in China, in 
particular the lack of proper access to the legal system and effective IPR enforcement.  Criminal 
prosecution remains little effective.  Sanctions agai nst IPR infringements remain insufficient to deter 
infringers.  Administrative enforcement procedures are still subject to discretion in many areas.  Civil 
procedures against infringing activities remain difficu lt to obtain, often expens ive and in comparison 
to domestic cases more time consuming.  This situati on is reflected in the last IPR Survey that the EC 
has carried out in third countries
1.  The EC therefore urges China to  actively pursue and intensify its 
efforts towards an effective intellectual property protection and enforcement system. 
4. The EC is also concerned about official stat ements and internal notices in China aiming at 
mitigating the impact of the financial crisis with  consequences for the e ffective enforcement of 
intellectual property rights. 
5. On the basis of the cooperation established betw een the EC and China in the context of the 
EU-China IP Dialogue and IP Working Group, and in  the light of the above -mentioned developments, 
the EC would like to take this opportunity to rai se a number of questions regarding areas of concern, 
many of which were already raised during the previous TRM exercise without any satisfactory 
answer. 
II. IPR PROTECTION 
1. Patent Issues, Technology Transfer and Protection of Confidential Data 
(a) Third Patent Law Revision 
6. The EC welcomes the revised Chinese Patent La w and appreciates the opportunity to provide 
comments in the revision process, including on the Impl ementing Rules.  The EC takes note of several 
positive developments in the new Patent Law.  Howe ver, a number of provisions continue to be a 
matter of concern to the EC and require further clarification. 
7. Article 10(2) of the revised Patent Law stipulates th at transfer of a patent  or patent application 
from a Chinese entity or individual to a foreigner,  foreign enterprise or other foreign organisation 
must be done "in accordance with other administrative procedures" .  The current draft Implementing 
Rules to the Patent Law do not contain further rules clarifying the procedure.  In particular, it is unclear to what extent under the new regime of te chnology transfer SIPO will require applicants or 
                                                     
 
1 This survey is available on the DG Trade website at the following address: 
http://ec.europa.eu/trade/issues/s ectoral/intell_property/index_en.htm  IP/C/W/540 
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  patent holders to submit proof of registrati on or approval by MOFCOM and MOST under the TIER 
system, and thus link two previously separate ad ministrative procedures.  If made mandatory, cross-
border transfer of patents will be seriously delayed in time and may substantially implicate the process 
of international innovation chains using China for part of its R&D.  Can China clarify the rules 
applicable in the matter? 
8. Article 20 of the revised Patent Law puts in place a new confidentiality examination.  It is not 
targeting explicitly technology export transactions or contracts, but rather all filing for patents abroad 
for inventions made or completed in China.  R& D Centres in China, technology cooperation projects 
and other business models employing or using Chinese inventors will have  to deal with another layer 
of government control before they are able to use in ventions made in China abroad by filing for patent 
protection outside China.  It appears unclear how th is system will be applied to inventions where a 
part of it is researched in China, yet other parts ab road by other team members.  This new system will 
create new questions once implemented.  Can China clarify what is regarded as "substantial part 
researched in China" ?  Can China indicate whether third parties will be allowed to attempt 
invalidation of patents in China based on an alle ged violation of the conf identiality examination? 
9. The revised Patent Law strengthened the po ssibility to grant compulsory licenses, in 
particular where a patented technology is not suffi ciently exploited (Article 48 (1) of the revised 
Patent Law) or where the "public interest requires"  (Article 50 of the revised Patent Law).  In cases 
where an injunction would lead to significant imbala nce of interests between the parties, harm public 
interest or otherwise deemed inappropriate to Chinese interests, only compensatory rights should be 
granted.  In essence, such practice would grant au tomatic compulsory licens es wherever a need is 
perceived to prevent exclusionary rights.  Can China clarify whether this interpretation of the 
provisions of the revised Patent Law is correct? 
10. Recent data on filing of utility models (225,586 utility model applications in 2008) and design 
patents (312,904 design patents applic ations in 2008) show a strong increase in number, with the vast 
majority of filers being Chinese enterprises.  Ma ny companies, including Chinese ones, have voiced 
the difficulty to enter the Chinese patent system as they are confronted with utility models and design 
patents protecting copies or non-inventive modifications  of prior art.  Later on legitimate right holders 
face very costly and lengthy procedures to revoke these invalid rights ("easy to get in, hard to get 
out").  Article 62 of the revised Patent Law tries to address this problem by making the enforcement of such invalid rights dependant on a search report.   Can China indicate whether there are any further 
mechanisms foreseen to compensate right holders fo r the sometimes significant costs to get rid of 
invalid rights, in particular as regards invalidation procedures? 
(b) Protection of Confidential Information 
11. In various sectors, where companies are require d to apply for the technical and/or regulatory 
approval for services/products or for the authorization to  build a plant, such companies are required to 
entrust Chinese governmental or official agencies or in stitutes with highly confidential information. In 
many cases, it is felt that the information require d goes beyond the scope necessary for approval or 
authorization.  Does China intend to adopt clear in structions to restrict the disclosure of technical 
know-how to what is strictly necessary for the requi red authorisation or appr oval relating to import of 
a product, commercialisation of a product or the cons truction of a plant, especially for type-testing, 
certification (e.g. China Compulsory Certification or  certificate from the Office of State Commercial 
Cryptography Administration - OSCCA) and standardisation? 
12. Often, such information is not kept confid ential but seems to be leaked to Chinese 
competitors or even made public and, in certain instances, data have been published on the internet 
before regulatory approval for such a product is gran ted.  Is China prepared to clearly define the IP/C/W/540 
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  obligations of all governmental officers and their related institutes, and enforce the liability and 
sanctions against those officers who disseminat e confidential information without permission? 
(c) Protection of Test Data for Pharmaceutical Products 
13. The regulatory framework in China provides fo r six marketing authorization categories. 
Depending on the marketing authorization category,  the type and extent of information to be 
submitted to the registration authority varies.  Drugs first marketed outside China are normally placed 
in a category which allows generic products to be registered with only a limited data set, which can 
include literature instead of test information.  This  practice might give rise to the conclusion that the 
provisions on data protection formally in place in Ch ina are nullified by the possibility to refer to less 
comprehensive data which are often in the public do main, with the public domai n often interpreted in 
a broad way including data provided by third parties for market approval.  This would undermine the 
objective of an effective data protection.  Does Ch ina intend to review the six registration categories 
to ensure non-discrimination and create an environm ent in line with the sprit of the Chinese legal 
provision on data exclusivity? 
(d) Patent Enforcement  
14. With a view to helping patent holders prev ent infringing pharmaceutical products from being 
put on the market the regulatory framework incl udes reference to a notification system and the 
possibility of initiating legal action during registra tion.  Can China indicate if and how this 
notification system works in practice?  Can Chin a also indicate whether detailed guidelines exist to 
interpret the timing of publicati on and which details are published? 
(e) Protection of Products Subject to Marketing Authorisation  
15. As some specific products require long additiona l periods for their development and in order 
to obtain marketing authorizations, a number of  countries have decided to compensate for these 
periods during which the patent can not be exploite d by an additional protection mechanism (e.g. in 
the EC with the creation of Supplementary Protec tion Certificates for pharmaceutical products and for 
plant protection products).  The revised Patent Law is silent on this point.  Does China plan to grant 
additional protection – in the form of patent term restoration or su pplementary protection certificates 
– to products that cannot be marketed before a sp ecific marketing authorization has been given (such 
as pharmaceutical products)? 
(f) Relations between IP Rights and Standards 
16. Both IP rights and standardisation encourage innovation and facilitate the dissemination of 
technology.  As they contribute to these common obj ectives by different means, a fine balance needs 
to be struck which respects the rights of IP holders , ensures an efficient functioning of standardisation 
processes, and facilitates that standards are open for access and implementation by everyone.  Recent 
developments of the case-law in China aiming at li miting patent rights have raised concerns among 
the European industry.  Can China clarify the situat ion in China regarding the legal consequences of a 
patented technique being required for th e implementation of a certain standard? 
2. Trademark Issues 
(a) Trademark Law Revision 
17. The EC welcomes the new draft of the revision of the Chinese Trademark Law, in particular 
the possibility to participate in the consultation pr ocess initiated by the Chinese authorities.  However, 
a number of provisions require further clarification.  IP/C/W/540 
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  18. The new draft does not follow up on the previous  attempts in the initial drafts to modernise 
the registration procedure, giving the possibility to abandon the ex officio  examination on relative 
grounds for refusal and leaving space for trademar k holders and/or other prior rights holders to 
directly settle any possible conflicts with new tr ademark applicants. In practice, the mandatory 
examination of relative grounds increases the workload of trademark examiners and further delays the 
registration process. Can China indicate whether it intends to amend its  draft on this point? 
19. Article 13 relates to prohibition to register  and use well-known trademarks.  Although this 
provision is welcome it still maintains some confusion in this very important matter and appears to be 
inconsistent with the above-mentioned SCP Interpre tation of 23 April 2009.  More clarity should be 
introduced in the law. In particular, it should make  a clearer distinction between trademark dilution 
(taking undue advantage, weakening the distinctiv eness) and of trademark tarnishing.  Does China 
intend to improve the draft law on this point? 
20. Article 34 introduces the concept of bad faith in  the law.  This is a positive development 
which will increase the quality of the trademark sy stem and enable trademark examiners to contain 
malicious applications that may damage the interest s of the parties concerned.  However, providing a 
legal definition of bad faith in one or two circumstances may have the indirect adverse effect of 
exonerating other behaviours, not identical or similar to those defined in the law, and leave them out 
of reach.  Is China ready to cl arify the concept of bad faith? 
(b) Counterfeiting at Retail and Wholesale Markets 
 21. Although some improvement has been reported in the retail and wholesale markets – notably 
thanks to the new guidelines issued by Beijing City  aiming at establishing clearer legal obligations on 
landlords in order to prevent IP violations from occurring – counterfeit products continue being sold 
on a large scale.  Can China indicate which action it inte nds to take to definitely clean out the markets 
from counterfeit products, especially in the Beijing Silk  Market.  Does China agree that police (Public 
Security Bureau) should be active in pursuing crimin al liability for the storage of counterfeit goods in 
warehouses in order to re-establish market order and enable fair competition?  Does China agree that 
the degree of infringements may require revision of onerous formality requirements for enforcement, 
in particular by administrative authorities?  Does China agree that action by the authorities should not 
be limited to trademark infringement, but also encompass withdrawal of business licenses in case of repeated infringements? 
22. Local administrations of industry and commer ce (AIC) have actively explored a long-term 
mechanism to control trademark infringement.  Many markets in Beijing have implemented the 
"trademark authorization management system."  Ca n China inform of how this programme is being 
introduced and implemented at the local levels? 
(c) Trademark Infringements on the Internet 
 
23. Unauthorized use of IP rights on the in ternet is becoming increasingly common and 
widespread in China.  In fact , there are many possibilities to obtain counterfeit goods via internet 
portals by phone or mail order.  Right holders are facing a plethora of agencies and ministries both at 
central and local level that are competent for some part of the enforcement action.  In addition, a 
number of legal and technical issues need to be clarified.  For example, the Trademark Law forbids the unauthorized "use" of a registered trademark.  The question is whether the mere display of a 
trademark on a website can be defined as "use" and fa ll within the scope of infringing acts punishable 
accord to the law.  The scope of ISP liability also need s to be clarified.  This situation, combined with 
complex formality requirements when it comes to  IPR enforcement before the courts, makes it 
difficult for right holders to defend their rights eff ectively.  Can China indicate whether it intends to 
establish a clear and transparent government structur e for administrative enforcement on the internet, IP/C/W/540 
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  clarifying responsibilities and enha ncing powers of investigation and seizure as well as powers to cut 
off websites offering counterfeited goods?  Is China ready to enact necessary regulations in order to 
define the term "use" of a trademark on the intern et?  Is China ready to enact necessary regulations 
defining the responsibility of the ISPs and their ob ligations to disclose the identity of trademark 
infringers who are using the internet? 
3. Copyright Issues 
(a) Tariff Rates 
24. Article 9(1) of the TRIPS Agreement imposes an  obligation to comply with Articles 1-21 of 
the Berne Convention. Article 11bis of the Berne C onvention prescribes that at least an equitable 
remuneration is payable to the author for the broad casting of their works.  It appears that since the 
amendment of the Chinese Copyright Law in 2001, no remuneration has been paid to right holders for 
the use of music in their broadcasts, as the rate of remuneration, or tariff, has not been set by the State 
Council.  What measures will China ta ke to ensure a speedy resolution of this problem?  When will 
the tariff rates be set by the State Council?  Will ri ght holders be compensated for the years when their 
music was being broadcast prior to tariff rates being set? 
(b) Online piracy 
25. Unauthorized downloads of music, software and literary works are widely available, and that 
there are endless possibilities to obtain pirated goods not ably via the internet.  The application of the 
internet regulations raises many complicated lega l questions for the relevant authorities who have 
been identified as being responsible for their enforcem ent causing them to hesitate in taking action.  
This only benefits the infringers and allows piracy to become endemic if not contained at this stage. 
Can China clarify the issue of the proper jurisdic tion for taking action?  More specifically, can China 
clarify which ministry or agency is res ponsible for shutting down infringing websites? 
26. Right holders, who wish to serve a notice of infri ngement to a website or to the relevant ISP, 
in the case where the operator cannot be identified, ar e currently confronted with overly complicated 
and burdensome procedures.  Can Ch ina indicate which measures it has taken or intends to take to 
clarify and simplify the situation where a website operator or ISP refuses to respond or delete the 
infringing content, or where they provide a res ponse that does not accept responsibility for the content 
and subsequently allows for the infringement to continue? 
4. Plant Variety Protection 
27. The EC welcomes the improvements in the plan variety protection system in China.  
However, loopholes still remain such as the fact th at only a limited number of plant species are 
protectable in China - patent protection for plan ts not covered under the Chinese system cannot be 
obtained - and that the so-called "farmer's exemption"  applies also to ornamental and fruit plants. In 
addition, the system does not cover harvested an d processed material neither imported protected 
material.  How does China intend to resolve th ese issues?  Does China intend to accede to the 
International Convention for the Protection of New Varieties of Plants of 1991 to resolve them? 
5. IPR and Competition Law 
28. The EC welcomes the new Chinese Anti-Monopoly La w.  This new legislation refers to the 
concept of "abuse of intellectual property rights" in particular in Article 55.  Can China clarify what 
this concept means in practice?  Can China confir m that this concept does not go beyond what the 
TRIPS Agreement considers as abusive practices under Article 31(k) (compulsory licensing) and 
Article 40 (competition)?  Can China confirm that  the Implementing Rules of the Anti-Monopoly  IP/C/W/540 
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  Law will clarify this concept?  Internal SAIC gui delines on the concept of abuse of IP rights and the 
application of the Anti-Monopoly Law would be in pr eparation?  Can China explain how this concept 
is addressed in these guidelines?  Does China intend to publish them? 
29. The Anti-Unfair Competition Law does not cont ain any provisions prohibiting the slavish 
copy of the shape of a product.  Does China consider issuing a SPC Opinion stating that copying 
slavishly the shape of a product may be considered as an unfair act, in the same way as copying its 
packaging or decoration?  Where is China with the revision process of the Anti-Unfair Competition 
Law? 
III. IPR ENFORCEMENT 
1. Information of IP Right Holders 
30. Under the current system in China the IP right holder has no binding right to be involved in 
the proceedings.  Once the claim of IP right holder has been accepted, most law enforcement agencies 
are not obliged to inform him of the results of th e action.  On the other hand, the infringer has the 
right to defend his case and appeal to a higher auth ority.  Can China indicate:  (1) how it intends to 
ensure that IP right holders are adequately in formed of the development and results of the 
enforcement procedures, and (2) if it is intended to give IP right holders a right to be involved in 
proceedings they initiated?  Is Ch ina ready to issue internal instru ctions to administrative, public 
security and judicial enforcement authorities, authorising the IP right holder as a " concerned party " to 
participate in all stages of the procedure, from the raid to the decision concerning the disposal of the 
seized goods? 
2. Customs Measures 
31. Statistics provided by EU customs show that  the majority of counterfeit and pirated goods 
entering the EU territory come from China.  In 200 8, about 54 per cent of the total counterfeit and 
pirated goods seized by EU customs authorities came from China.  While this figure has decreased 
compared to 2007, counterfeiting and piracy remain s a common challenge that needs to be addressed 
effectively.  The issuance of a new set of rules for the Implementation of the Customs Regulations on 
the Protection of Intellectual Property as well as th e signature of an EU-China Customs Action Plan 
on IPR enforcement are positive signals towards better customs enforcement of IP rights.  What other 
measures does China intend to ta ke to tackle this problem? 
3. Notarisation and legalisation of Power of Attorney and evidence 
32. Foreign companies which wish to initiate le gal proceedings in China but do not have a 
registered branch office or an investment presence in China, are required to produce a notarised and 
legalised Power of Attorney in favour of a register ed practising Chinese lawyer.  They also need to 
notarise and legalise any document justifying thei r incorporations.  Similarly, all documentary 
evidence produced in administrativ e or judicial litigation needs to  go through the same notarisation 
and legalisation process when they originate from a foreign country.  This is cumbersome and time consuming for foreign right  holders and can constitute an obstacl e to any urgent proceeding.  Can 
China indicate whether it intends to simplify the rul es of representation before the courts as well as 
evidentiary requirements? 
4. Level of Fines 
33. 
There are wide disparities in the value of fines imposed by the Administration of Industry and 
Commerce (AIC) between different cities and different  regions.  In many cases, local protectionism 
results in very low fines. As a result, it is very difficult for the right holders to rely on administrative IP/C/W/540 
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  sanctions as an effective deterrence tool.  Does Chin a intend to adopt instructions in order to better 
harmonise the approaches of cities and regions when applying fines? 
5. Calculation Methods 
34. The existence of three possible calculation me thods for the criminal thresholds creates 
uncertainty and lengthy discussions with local aut horities.  This delays and makes it difficult to 
transfer cases from the administrative authorities to th e police.  In particular, the artificial distinction 
between the criminal thresholds for "producers" , based on the "value of the goods", and of the 
criminal thresholds for the "sellers", based on "sales revenues", makes it practically impossible to 
implement the law when counterfeit goods are sei zed in shops or warehouses.  These goods are not 
considered by the authorities as relevant for th e purpose of establishing the illegal "sales revenues".  
This is an obvious loophole.  A retailer / seller / distributor should be just as guilty as a "producer / 
manufacturer".  The "value of the goods" should be the only means to calculate the criminal threshold. Can China indicate whether it intends to revise the SPC and SPP Interpretation on thresholds in order 
to simplify the calculation methods along the above-described lines? 
6. Case Transfer 
35. The transfer of cases between administrative aut horities and the Public Security Bureau (PSB) 
is often delayed because the administrative aut horities often insist on first handing out an 
administrative sanction, and then transferring the ca se to the police.  By the time the case is finally 
transferred, it has gone 'cold' and the counterfeiters  have disappeared.  Does China intend to instruct 
the local administrative authorities not  to issue an administrative pena lty when the criminal threshold 
has been reached but rather to immediately transfer  the case to the PSB?  Is China ready to create an 
efficient and quick procedure for raising difficultie s relating to the transfer of cases to the higher 
administrative echelon or the central authorities? 
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