Chinese Regime Establishes Supreme Court Body to Resolve Intellectual Property Disputes

New appeals court could address US concerns, but under China’s communist system, its effectiveness is doubtful

Chinese flags and American flags are displayed in a company in Beijing, China, on Aug. 16, 2017. Wang Zhao/AFP/Getty Images

China’s Supreme People’s Court began operating an intellectual property (IP) division as of Jan. 1, the first time a judicial body has been set up expressly to handle IP disputes.

The move has been widely understood as a gesture by Beijing in signaling its willingness to cooperate with U.S. demands for an end to massive Chinese violations of IP theft. However, experts and observers doubt the new appeals court will be able to carry out its functions under the corruption-ridden communist regime.

China’s official judicial news agency reported the day of the IP court’s opening that it was a “major decision and arrangement” by the Chinese Communist Party (CCP) authorities. Luo Dongchuan, vice president of the supreme court, was named chief judge of the division.

The supreme court described the IP division as an appeals court. Its main responsibility is to handle seven types of lawsuits—those concerning invention, design, and plant patents; integrated circuit layout design; technical secrets; computer software; and cases related to monopolies.

The supreme court’s intellectual property division is the first established specifically to handle appeals. It was preceded by existing IP courts in Beijing, Shanghai, and Guangzhou, which were responsible for both courts of first instance and appeals.

The Trump administration has made IP theft a central issue in its ongoing trade row with communist China, which has seen high tariffs imposed on hundreds of billions of dollars’ worth of Chinese exports to the United States.

According to the U.S. government, IP violations—most of it as a result of Chinese action—cost American companies between $225 billion and $600 billion annually, while posing a national security threat.

Voice of America (VOA), the U.S. government-run broadcaster, reported Jan. 1 that “this move by the Chinese authorities is clearly related to the Sino–U.S. trade war.”

On Dec. 1, 2018, Chinese leader Xi Jinping met with U.S. President Donald Trump in Argentina during the G-20 summit, where the two statesmen agreed on a 90-day “truce” to the trade war on condition that China worked toward meeting American demands.

But while the establishment of the supreme court’s IP division is seen as a potential component of Xi’s attempt to keep his end of the bargain, many are skeptical of the court’s ability to enforce regulations: the Communist Party, as opposed to the Chinese state, wields actual power, and regularly flaunts the laws on the books.

Institutional Deadlock

Paul Schmidt, a professional consultant of law faculty at the Chinese University of Hong Kong, told BBC Chinese on Jan. 1 that while the IP court could boost protections, it wouldn’t be quick to solve the fundamental problem.

Schmidt noted that in 2017, 80 percent of counterfeit products discovered by EU authorities had originated in China, and that it would be a long time before Chinese companies would come to respect IP rights. In addition to setting up the appeals court, China would also have to boost its regulatory system, raising penalties for IP violations while substantially reducing corruption, he said.

Haochen Sun, an associate professor of the Faculty of Law at the University of Hong Kong, told BBC that weakness of law enforcement is the main reason IP violations are a major issue in China.

Sun said copyright and trademark cases are handled by the relevant state administrations that serve local Chinese governments, which are entangled in illicit business interests that encourage them to ignore legal regulations. In fact, such cases should be handled by courts, Sun said.

Tang Jingyuan, a U.S.-based China affairs commentator with the Chinese-language edition of The Epoch Times, believes that the court is unlikely to be effective as long as the Communist Party retains its political dominance in state institutions. On Dec. 3, 2018, he told The Epoch Times, “In China, the CCP reigns supreme, and all courts are led by it. In other words, courts rule on cases based on the needs and discretion of the Party.”

“Once an issue touches upon the Party’s sensitive interests, like the ‘Made in China 2025’ effort or companies like Huawei, the court will be obstructed in arriving at a verdict. The Party wouldn’t allow the court to let a Chinese company lose a lawsuit,” Tang said.

Micron Technology, America’s largest memory-chip maker, is a victim of one such case.

In December 2017, Micron sued Fujian Jinhua, a Chinese manufacturer, saying that Jinhua had infringed on its patent for dynamic random-access memory. A month later, Jinhua sued Micron, saying Micron had infringed its patents on DRAM and solid-state drive technology.

In July 2018, the Fuzhou Intermediate Court ruled in favor of Jinhua, and barred Micron’s products from the Chinese market. In fact, Jinhua, a newly founded company, had hired many longtime Micron staff as development engineers.

On Dec. 18, 2018, Xi Jinping, who is also CCP general secretary, delivered an ideologically charged speech at a ceremony marking the 40th anniversary of China’s economic reforms, in which he strongly implied that the regime wouldn’t implement any fundamental systemic changes.

China’s economy has been struggling as a result of a domestic slowdown and the Sino–U.S. trade war cutting into much-needed profits. At the end of December, Trump said that he had concluded a phone call with Xi and that much progress was being made towards a deal between Washington and Beijing.