Enhancing the Value of IPR Assets under the Cross-Strait IPR Protection Cooperation Agreement between Taiwan and China 

Hsiaoling Fan[1] 

The signing of the "Cross-Strait Intellectual Property Rights Protection Cooperation Agreement" (the IPR Agreement) on June 26, 2010 heralds the arrival of a new era of cooperation between Taiwan and the People's Republic of China (China) with respect to intellectual property protection. This IPR Agreement was executed under the regime of the Cross-Strait Economic Cooperation Agreement (ECFA), a preferential trade agreement signed on the same date and aiming to reduce tariffs and other trade barriers between the two jurisdictions.  

Both governments believe that the conclusion of ECFA, together with other ancillary agreements, paves the way for a new dynamic phase of cross-strait cooperative interaction and creates win-win conditions for both Taiwanese and Chinese businesses. Taiwan is recognized as the world's 18^th largest trading economy, the eighth most competitive economy globally in overall competitiveness,[2] and the fourth best investment environment in the world.[3]  Presently, Taiwan is already a world leader in the fields of IC design, sealing and packaging, chip manufacturing, CD-R, TFT-LCD, and many other high tech products. It is believed that ECFA and other agreements will deepen Taiwan's integration into the Asia-Pacific region and that Taiwan's economy will reap substantial benefits as a result.  

The IPR Agreement, for example, recognizes the right to claim priority for patent applications and establishes a cooperative platform for IPR enforcement. Improved and more closely monitored IPR protection and cooperation across the Taiwan Strait is no doubt beneficial to foreign business looking into entering the China market via Taiwan, or setting up their R&D centers in Taiwan while maintaining manufacturing operations in China. Taiwan's close proximity to the enormous Chinese market, makes Taiwan an exceptionally good choice for a global R&D center and pan-Asia trading hub for multinational enterprises. Particularly, it is generally recognized that the legal and judicial environment, which is essential to IPR protection, is relatively more transparent in Taiwan than in China, and thus it might be easier to safeguard R&D achievements in Taiwan. As of 2009, 42 foreign companies maintained R&D operations in Taiwan, including IBM, Ericsson, Motorola, Sony, DuPont, Fujitsu, and ASML. Since formal negotiations on ECFA were launched in December 2009, large corporations around the world have looked at Taiwan as an investment target, encouraged by the improvement in cross-Strait relations and enhanced regional integration. Already in 2010, a record high nine foreign companies have applied to establish R&D centers in Taiwan, including Microsoft, IMEC, Hitachi and Hewlett-Packard, among others. Apparently, many multinational enterprises are taking into account this new environment, in order to better take advantage of their IPR portfolios and to realize the value of their IPR assets.  

This article will introduce the substantive content of the IPR Agreement. The relevant practice in Taiwan and China and respective problems prior to the effectuation of this Agreement will be also described. In light of these problems, the importance and influence of the IPR Agreement will become obvious.  

Mutual Recognition of Priority Rights for Patents, Trademarks and Plant Varieties 

The most significant provision of the IPR Agreement is that Taiwan and China now mutually recognize priority rights of patent, trademark and plant varieties based upon applications filed in each other's jurisdiction.  

Prior to the IPR Agreement, neither Taiwan's Intellectual Property Office (TIPO) nor the State Intellectual Property Office of China (SIPO) accepted applications claiming priority from the other office. TIPO would reject the priority claims if (i) the applicant was a national of China, regardless of which country the claimed application was filed, or (ii) the claimed application was an application filed at SIPO, regardless of the nationality of the applicant. The only exception was where the application was a PCT application that originated from China. Similarly, SIPO would reject the priority claims if a claimed application was a TIPO application, regardless of the nationality of the applicant. As a result, when an applicant desired to obtain patent protection in both Taiwan and China, he would need to file applications simultaneously at SIPO and TIPO in order to avoid the risk that either application would be rejected due to prior art citations. Such simultaneous filings not only incurred additional risks and costs, but more importantly, also ran the risk of violating Article 20 of China's Patent Law, which requires an applicant to file a confidentiality review to China's patent authority for any invention or utility model completed within the territory of China prior to filing any patent application outside of China. Failure to file the confidentiality review in China as mandated could result in SIPO's rejection of the later patent application in China. This peculiar confidentiality requirement in China vividly illustrated the pressing need to resolve the problem of rejecting mutual recognition of priority claims.  

After the IPR Agreement was signed, Taiwan's Legislative Yuan passed the 17-article IPR Agreement, along with amendments to relevant laws which were entered into force on September 12, 2010. By these amendments, the wording of the laws which required applicants to claim priority to supply documents and proof issued "from a reciprocating country" has been changed to that ��from a member of the World Trade Organization,�� in order to avoid the political issue of non-recognition.  

Subsequently, TIPO and SIPO announced the implementation of mutual priority rights recognition for patents and trademarks on November 11, 2010. Starting from  November 22, 2010, applicants may now file invention, utility model or design patents and trademarks at SIPO, claiming priority from a corresponding TIPO application, and vice versa. Priority can be claimed from applications filed on or after September 12, 2010, the date on which the IPR Agreement was signed.  

As part of a global strategy with respect to establishing IPR portfolios, obtaining patent and trademark protection in China and Taiwan cannot be neglected. In 2010, the number of PCT filings for patents originating from China was as high as 12,337 and ranked number four, only after the USA, Japan and Germany. The number of patent applications filed in 2010 reached a record high of 1.222 million, of which, more than 70% were filed by applicants from China or Taiwan, while the number of the patents granted was 815,000, of which, more than half were owned by applicants from China or Taiwan. In the same year, the number of trademark applications filed in China was historically high at 1.003 million and continued to be the highest number in the world for the ninth consecutive year. The total number of trademark registrations in China was approximately 5.545 million and of these, 4.481 million trademarks remain effective, and both figures were the largest in the world. Currently, the number of Taiwan applicants filing for patents in China, which exceeded 22,000 per year, and Taiwan applicants filing for trademarks in China, which exceeded 10,000 in 2010 alone, is much higher than the number of Chinese applicants filing in Taiwan.[4]  

It is worth noting that the mutual recognition of priority rights invoking the IPR Agreement only applies to nationals of Taiwan and China. For example, if a Japanese company claims priority in China based upon its Taiwan's patent application, the priority claim invoking the IPR Agreement will be rejected; nonetheless, if the Taiwan patent application is filed under the name of a Taiwanese company incorporated under the laws of Taiwan, even if it is a subsidiary wholly owned by the Japanese company, the priority claim will be accepted in China.  

After the IPR Agreement becomes effective, the applicants will enjoy more time and leeway as to when and how to file. To comply with Article 20 of China's Patent Law, applicants can first file the application with SIPO in China and request the confidentiality review. Since the confidentiality review is required to be completed within four months, the applicant shall then be permitted to file in Taiwan claiming priority upon the earlier-filed SIPO application. 

Mutual Protection of Plant Variety Rights 

After the IPR Agreement comes into effect, China and Taiwan will mutually accept applications for plant variety rights and carry out consultation to expand the scope of protectable applications. This will allow major agricultural products from Taiwan to be the subject of applications for plant variety rights in China, and vice versa.   

Taiwan is not a member of the International Union for the Protection of New Varieties of Plants (UPOV), even though its agricultural technology is well recognized internationally. As a result, the protection of plant variety rights can only be pursued through bilateral negotiation with other countries. Currently, Taiwan has bilateral agreements with several nations, including the EU, USA, Japan, and Australia, among others, to accept applications for plant variety rights. Taking into account the geographic closeness between Taiwan and China and the frequent mutual importation of agricultural products, it is indeed essential to develop a system offering mutual protection for plaint varieties.  

The relevant laws for plant variety protection in Taiwan and China differ substantively, as Taiwan's Plant Variety and Plant Seed Act adopts the 1991 version of UPOV, while China's Plant New Varieties Protection Act adopts the 1978 version of UPOV. First, the 1991 version of UPOV protects all plant genera and species ten years after accession, while the 1978 version protects a minimum of 5 plant genera and species on accession and 24 after eight years. Second, the 1991 version of UPOV offers protection against production or reproduction, conditioning for the purpose of propagation, offering for sale, selling or other marketing, exportation, importation, and stocking for any of the above purpose, while the 1978 version only offers protection against the production for the purpose of commercial marketing. Third, with respect to the rights to harvest materials, the 1991 version of UPOV provides that the breeder's right extends to harvest materials, if (i) the material is obtained through the unauthorized use of propagating material, and (ii) the breeder has not had a reasonable opportunity to exercise his right. In contrast, the 1978 version retains the option for the States to extend protection to the harvest materials through their own national laws. Fourth, with respect to the exemption for farmers' self-use, the 1991 version of UPOV only applies to the specific plant genera and species that have been published, while the 1978 version applies to all plant genera and species. The 1991 version of UPOV, which Taiwan has adopted, offers broader protection for right holders than the 1978 version adopted by China.  

Notwithstanding the considerable differences in the levels of legal protection for plant varieties available in Taiwan and China, the mutual protection under the IPR Agreement will help to safeguard plant seed technology and R&D achievement, as well as to prevent a technology drain.  

Authentication of Taiwan's Audio/Visual Works via TACP in Taipei 

To foster cross-Strait transactions related to copyrighted work, the IPR Agreement allows the authentication of published audio/visual works such as CDs, tapes, VCDs, and DVDs, but not including movies, owned by Taiwanese right holders directly via related associations in Taiwan. Publishing overseas audio/visual works in China requires relevant license agreements and related materials to be submitted to the Copyright Protection Center of China and then approved by the National Copyright Administration of the PRC. Furthermore, the publisher must provide the certificates of rights issued by officially appointed authentication institutes such as MPIA (the Hong Kong, Kowloon and New Territories Motion Picture Industry Association Limited) or IFPI (International Federation of the Phonographic Industry) in Hong Kong.  

The IPR Agreement indeed shortens the time that it takes for Taiwanese audio/visual works to reach the Chinese market. Before the IPR Agreement was signed, a Taiwanese recording company needed to obtain the certificate of rights from the IFPI, Hong Kong before any audio product could legally enter into the China market. It was even more complicate if this Taiwanese recording company was not a member of IFPI, as the certificates of rights issued by institutes other than IFPI had to be transferred by the National Copyright Administration of the PRC to IFPI Hong Kong, and IFPI Hong Kong would then transfer the same to IFPI Taiwan for authentication. In practice, it could take as long as three to five months to complete the procedure, which would impose substantial costs upon players in the Taiwanese cultural industry. After the IPR Agreement was signed, the National Copyright Administration of PRC on December 16, 2010 has officially appointed TACP (Taiwan Association for Copyright Protection) located in Taipei as the only authentication institute for Taiwanese audio/video works. Now, the publishers of Taiwanese audio/visual works may obtain certificates of rights directly from TACP located in Taiwan within as short as three days.  

Cooperation in Law Enforcement against Piracy and False Labeling 

The IPR Agreement specifically mandates official cooperation to combat piracy and false labeling of origins for fruits or agricultural products. Taiwan and China agree to cooperate in law enforcement efforts against websites that offer or assist to offer pirated books, audio/video products and computer software on line, as well as investigating the pirated products circulated on the market. 

Due to a shared language and culture, Taiwan's entertainment programs are generally quite popular in China. It is common for popular Taiwanese TV shows or movies to appear on China's illegal websites immediately after they are publicly broadcast in Taiwan, or even before where illegal release is involved. It is therefore essential for the cultural or entertainment industry to be able to timely forestall illegal downloading or distribution of copyrighted works such as music, movies, and TV programs.  

False labeling of the origins of fruits or agricultural products in China is a major concern of Taiwan's agricultural industry. Taiwan's fruits and agricultural products enjoy an outstanding reputation and are very popular in China's market. It is not uncommon to discover that fruits or other agricultural products not from Taiwan are falsely labeled as products of Taiwan. This not only affects the rights and reputation of Taiwan's farmers, but, also misleads consumers in China. Under the IPR Agreement, stronger supervision and investigation of the fruits and agricultural products market will be implemented to alleviate this situation.   

Cooperation in the Protection of Well-Known Marks 

The IPR Agreement mandates cooperation of law enforcement in the protection of well-know marks, geographical indications and product origins labeling and the prevention of malicious squatting. When applying for trademark registration in China, Taiwan's well-known trademark owners often encountered the difficulty posed by individuals in China "squatting" on the rights to the mark by obtaining a registration in advance. In these cases, well-known mark owners were forced to file an opposition or to seek a revocation in China against the registered mark squatter and to request a suspension of the examination of its own application pending the decision in the opposition or revocation action. In order to deal with instances of squatting, both Taiwan and China protect unregistered foreign well-known marks but require evidence showing that the fame of such marks is recognized locally. As cross-Strait interactions have become increasingly more frequent, it is much easier for Taiwan's well-known trademark owners to provide evidence showing that the fame of their marks is recognized by Chinese consumers as a result of cross-Strait advertisements, surveys, publications, websites, tourism, and other ways.  

Another difficulty that Taiwan's mark owners often encountered was, because of cultural and background differences, China's trademark registration authority may hold a different view in terms of distinctiveness, and thus dismiss applications filed by a Taiwan owner for a mark that is well-known in Taiwan. For example, "TAIWAN BEER" was a longstanding well-known brand name for beer in Taiwan, for which the secondary meaning required for a geographic name to establish distinctiveness had no doubt existed in Taiwan. However, it took ten years to persuade China's trademark authority to grant a registration for the TAIWAN BEER mark. It is believed that the cooperation required under the IPR Agreement will help to bridge the cultural differences and greatly benefit cross-Strait business.  

Notably, the IPR Agreement itself does not create additional legal remedies, procedures or causes of action for private parties. The IPR protection will still be handled by Taiwan and China respectively in accordance with the applicable laws and regulations effective in their separate jurisdictions. A Taiwanese private party may only, when pursuing a remedy according to the laws of China and encountering unreasonable or illegitimate difficulty, request TIPO to assist in accordance with the principles of the IPR Agreement to communicate with the relevant Chinese authority. In no event, however, may TIPO directly take action with respect to any matter occurring in China.   

Platform between IP Administrative Authorities 

The IPR Agreement also establishes a platform for direct communication and an implementation mechanism of collaboration, coordination, disposition and consultation for IP administrative authorities in Taiwan and China. This includes facilitating meetings among personnel of the relevant authorities, visits and study tours, exchanges of experience and technology, promotion of the mutual use of patent searches and examination results, and variety right examinations and testing. The establishment of this platform and the cooperation enabled thereby marks a new milestone in cross-Strait IPR protection and exchange. 

Conclusion: A New Era is Arriving  

The IPR Agreement under the ECFA regime heralds the arrival of a new era, in which the establishment of IPR portfolios, IPR enforcement, and the realization of the value of IPR assets will all be considered on the cross-Strait horizon. The successful implementation of this Agreement will result in more efficient and effective solutions for Taiwan's IP rights-holders who have long faced numerous and difficult obstacles in China.  

More importantly, the signing of ECFA, IPR Agreement, and other related accords, shows that Taiwan is now a preferential trading partner that is specifically protected and encouraged by China for policy reasons, so that Taiwanese companies or Taiwanese subsidiaries of foreign companies may now enjoy treatment in China that might be better than that afforded to a foreign company directly invested in China. Multinational enterprises would be very wise to take into account such new competitive advantage when entering China's market, and prudently consider investing in China via Taiwan.