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China’s National People’s Congress Passes Amended Criminal Law Adding an Economic Espionage Article and Increasing Prison Time for Intellectual Property Crimes

On December 26, 2020, the Twenty-Fourth Meeting of the Standing Committee of the 13th National People’s Congress of China voted to pass the “Amendment to the Criminal Law of the People’s Republic of China (11)” (中华人民共和国刑法修正案(十一)), which will go into effect on March 1, 2021. The Criminal Law includes several articles for intellectual property crime and the amendments increase the maximum sentencing term. The amendments also add a new article somewhat similar to the US’ Economic Espionage Act potentially in effect if not in wording.

Trademarks

Article 213 increases the maximum fixed-term imprisonment for using the same trademark as a registered trademark on the same kind of goods or services without the permission of the registered trademark owner from 7 years to 10 years when the circumstances are particularly serious.

Article 214 increases the maximum fixed-term imprisonment for knowingly selling counterfeit trademark goods from 7 year to 10 years when the amount of illegal gains is huge or there are other particularly serious circumstances.

Article 215 increases the maximum fixed-term imprisonment for manufacturing counterfeit trademark products from 7 to 10 years when the circumstances are particularly serious.

Copyrights

Article 217 increases the maximum fixed-term imprisonment from 7 to 10 years for copyright infringement for profit-making purposes where the amount of illegal gains is huge or there are other particularly serious circumstances.

Trade Secrets

For criminal theft of trade secrets, the maximum fixed-term imprisonment is increased from 7 years to 10 years in Article 219 if the circumstances are serious.  Article 219 further revises the definition of theft as follows:

(1) Obtaining the right holder’s trade secrets by theft, inducement, bribery, fraud, coercion, electronic intrusion or other improper means;

Commercial Espionage

New Article 219 adds a provision somewhat similar to the US’ Economic Espionage Act and reads as follows:

[Commercial Espionage Crime] Whoever steals, spies, buys, or illegally provides commercial secrets for institutions, organizations, or persons outside the country shall be sentenced to fixed-term imprisonment of not more than five years, and/or a fine; if the circumstances are serious they shall be sentenced to more than five years in prison and fined.

Accordingly, the term for imprisonment is open-ended and hypothetically longer than if the theft of trade secrets was for a domestic beneficiary. 

Note that a key difference between this article and US’ Economic Espionage Act (EEA) is that the beneficiary in the criminal law is any foreign beneficiary while the EEA requires the beneficiary to be a foreign instrumentality – “any agency, bureau, ministry, component, institution, association, or any legal, commercial, or business organization, corporation, firm, or entity that is substantially owned, controlled, sponsored, commanded, managed, or dominated by a foreign government.”

That said, there may be less difference in practice as the Chinese government arguably has substantial investments and/or controls many private tech companies so that the EEA can be applied in many cases.  For example, Huawei, a large Chinese telecom companies, is arguably state-controlled.  99% of Huawei is owned by the Union of Huawei Investment & Holding, which is registered with the Shenzhen city government’s union and pays dues. 

In another example, two men pled guilty under the EEA for stealing trade secrets to benefit Supervision, a Chinese company they founded, which was to have provided a share of any profits made on sales of chips to the City of Hangzhou and the Province of Zhejiang in China, from which Supervision was to receive funding. 

Either way, as Mark Cohen pointed in his blog: 

The greatest risk presented by this provision may be that it could also have a further chilling effect on a range of commercial conduct by foreigners in China.  It may encourage domestic litigants to search for a foreign party in otherwise domestic litigation in order to exert additional leverage on the litigant.   As the crime is also now considered more serious, police and prosecutors may also commit more resources to the investigation and prosecution of foreigners.  Foreign companies investing or collaborating with Chinese counterparts may also now discover that an allegation of trade secret theft is more common in order to exact a commercial advantage in a commercial divorce from a foreign partner, such as when a prospective investment in a Chinese company is rejected, or there is a dispute over ownership of a patent or other technology.   If enacted as drafted, foreign companies may wish to consider adopting defensive measures, including revising their NDA’s and other agreements with Chinese parties, as well as implementing more stringent controls to minimize the risks of such allegations.

 

 

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Author:
Director of China Intellectual Property Practice

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