China Says It Will Blacklist and Sideline Repeat Intellectual Property Right Violators

On November 21, 2018, the Chinese National Development and Reform Commission (NDRC) published a Memorandum of Cooperation on Joint Disciplinary Actions Against Seriously Untrustworthy Parties in the Field of Intellectual Property Right (Patent) (the Memorandum) directed at curbing misconduct by companies or individuals with respect to intellectual property rights.

The Memorandum prescribes up to 38 stiff administrative and economic penalties for repeat IP-related offenses, to be meted out with support from the People’s Bank of China and multiple government bodies, such as the Ministry of Finance (MoF), General Customs Administration (GCA), State Administration of Taxation (SAT), and State Administration of Foreign Exchange (SAFE), inter alia. The enforcement measures available to the agencies expressly include:

• restrictions on advertising, issuing corporate bonds, obtaining government subsidies and financial support, purchasing real estate, participating in government procurement;
• lowering of one’s enterprise credit rating;
• temporary suspension from manufacturing and selling exports; and
• scrutiny and placement of the offender on various watch lists.

Although the Memorandum primarily focuses on patent-related offenses—such as repeated instances of patent infringement or dishonesty during the patent application process—it potentially implicates misbehavior with respect to trade secrets as well. For example, “irregular patent application activities,” such as submitting patent applications to copy or cover existing technology, equally triggers the enumerated sanctions. See amended Provisions of the National Intellectual Property Bureau on Regulating Patent Application Activities (Guo Jia Zhi Shi Chan Quan Ju Ling 2017, Order No. 75), Article 3(2). In cases where one seeks to patent a company secret stolen from a third party or competitor, the Memorandum appears to authorize government authorities to punish such activity.

The Memorandum marks a significant step by the Chinese government to address growing concerns about intellectual property rights. Nonetheless, to the extent that the administration intended the Memorandum to signal a rapprochement with the U.S., the effort is likely to be dampened by the recent arrest and planned extradition of Huawei’s CFO Wanzhou Meng. That lightning rod issue aside, it is yet to be seen whether China will actually follow through with these measures in practice.