IP & TMT Quarterly Review - Mayer Brown

IP & TMT Quarterly ReviewThird Quarter 2017

www.mayerbrownjsm.com

2 IP & TMT Quarterly Review

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23 Navigating the Latest Developments in China’s Cybersecurity Law

Contents

16 An Employer’s Right To An Employee’s Invention: Lessons From The Recent Acron Decision

6 China’s New 5-Year Plan on Developing Judicial Protection of Intellectual Property Rights

4 Trump Administration Initiates Section 301 Investigation of China’s Acts, Policies and Practises Related to Technology Transfer, Intellectual Property and Innovation

By Gary Hnath, Partner, Mayer Brown LLP, Washington D.C. Jing Zhang, Associate, Mayer Brown LLP, Washington D.C.

Trump Administration Initiates Section 301 Investigation of China’s Acts, Policies and Practises Related to Technology Transfer, Intellectual Property and Innovation

On 18 August 2017, US Trade Representative Robert Lighthizer formally initiated an investigation of China under Section 301 of the Trade Act of 1974, as amended. According to the announcement, the investigation will seek to determine whether acts, policies and practises of the Government of China related to technology transfer, intellectual property and innovation are unreasonable or discriminatory and burden or restrict US commerce.

The announcement follows President Donald Trump’s memorandum of 14 August 2017, instructing the US Trade Representative (“USTR”) to consider initiating an investigation. The president’s memorandum emphasised that “the United States is a world leader in research-and-development-intensive, high-technology goods,” and that “violations of intellectual property rights and other unfair technology transfers potentially threaten United States firms by undermining their ability to compete fairly in the global market.”

Section 301 gives USTR broad authority to respond to a foreign country’s unfair trade practises. If USTR makes an affirmative determination of actionable conduct, it has the power to take all appropriate and reasonable action to obtain the elimination of the act, policy or practise, subject to the direction of the president, if any.

The statute includes authorisation to take any actions that are within the president’s power with respect to trade and goods or services or any other area of pertinent relations with the foreign country. Such measures may include, for example, allowing the United States to impose unilateral duties on foreign countries engaged in unfair trading practises.

Intellectual Property

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The United States has rarely imposed unilateral trade sanctions under Section 301 since the World Trade Organisation (“WTO”) began in the 1990s. Administration officials have pointed out that there are “a wide variety of potential responses” to an adverse finding against China in a Section 301 investigation, including the possibility of a negotiated settlement.

As outlined in USTR’s notice, the issues to be investigated under Section 301 include:

• China’s use of a “variety of tools” to “require or pressure the transfer of technologies and intellectual property to Chinese companies.” The notice mentions administrative approval processes, joint ventures, foreign equity limitations and divergent rules between foreign and domestic companies as part of this concern.

• Chinese government policies that “deprive US companies of the ability to set market-based terms in licensing and other technology-related negotiations with Chinese companies.” The announcement cites China’s Regulations on Technology Import and Export Administration that sets terms for ownership of imported technology.

• Chinese government assistance to Chinese companies seeking to acquire US companies for the purpose of technology transfer.

• Whether the Chinese government is supporting hacking of US commercial computer networks to access IP or confidential business information for commercial gain.

Shortly following the 18 August announcement, the Chinese government expressed “strong disapproval” of the 301 investigation. A Ministry of Commerce statement said that “the United States’ disregard of World Trade Organisation rules and use of domestic law to initiate a trade investigation against China is irresponsible, and its criticism of China is not objective.”

Once an investigation under Section 301 is initiated without using the dispute settlement mechanism under a trade agreement, it must be completed within one year, if not even sooner. According to USTR’s announcement, initial written comments regarding the investigation are to be submitted by 28 September 2017. The Section 301 Committee will convene a public hearing at the US International Trade Commission on 10 October 2017. The deadline for submission of post-hearing rebuttal comments is 20 October 2017.

The notice further states that comments may address the acts, policies and practises of China relating to technology transfer, intellectual property and innovation as described in the president’s memorandum and USTR’s announcement; the nature and level of burden or restriction on US commerce caused by those practises and any economic assessment of that burden or restriction; whether actionable conduct exists under Section 301; and what action, if any, should be taken as a result of the investigation.

USTR’s announcement is significant and will be closely watched because Section 301 has not been used in a unilateral manner in recent years, except when a country is designated as a priority foreign country in the annual Special Section 301 Report. That is not the case with the new investigation regarding China. The most recent pure domestic investigation that did not involve a country designated in a Special Section 301 Report was a 1997 probe into Korean barriers to auto imports. Section 301 investigations were conducted more frequently during the Reagan administration, before the United States agreed in the mid-1990s to settle disputes through the WTO dispute settlement system.

By Gabriela Kennedy, Partner, Mayer Brown JSM, Hong Kong Jian Hong Chow, Registered Foreign Lawyer, Mayer Brown JSM, Hong Kong

China’s New 5-Year Plan on Developing Judicial Protection of Intellectual Property Rights

Introduction

China has come a long way in developing an intellectual property (“IP”) protection framework – from the People’s Courts accepting the first patent case in 1985, to the Supreme People’s Court setting up its own intellectual property division in 1995, to China ratifying international IP agreements like TRIPS in 2007.

The number of IP disputes litigated in the Chinese courts is substantial. As of 2016, 224 Intermediate People’s Courts and 167 Basic People’s Courts have been designated as having jurisdiction over the hearing of IP-related matters. Between 1985 to 2016, the People’s Courts accepted 792,851 civil IP cases and concluded 766,101 cases. Between 1998 to 2016, the People’s Courts accepted 77,116 criminal IP cases and concluded 76,174 cases.

As part of its continuing effort to develop IP protection in China, the Supreme People’s Court has released the “Outline of the Judicial Protection of Intellectual Property in China (2016-2020)” on 20 April 2017, which contains a 5-year plan to further develop judicial protection of IP rights (the “Plan”). We summarise some of the key measures set out in the Plan.

Effective and Expeditious Resolution of Disputes

A key goal of the Plan is to ensure effective and expeditious resolution of civil and administrative IP disputes. Cases will be classified by complexity, with hearing procedures and written judgments being simplified or elaborate depending on the nature of the case. Case loads will also be more evenly spread out over designated IP courts. Difficult or complex cases, and cases of public interest, may be escalated to higher courts for adjudication. Judges will also receive greater training to enhance competency in hearing IP matters.


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Revised System for Awarding Damages

China will be introducing a new system for awarding damages for IP infringement. The system will assume a primary compensatory role, with a secondary punitive function. Besides basic compensatory damages, efforts will be made to introduce measures for increased statutory damages, accounts of profit and punitive damages.

Better Judicial Management of Disputes

China will also introduce a centralised adjudication model for IP disputes which will bring civil, criminal and administrative disputes under one roof for better judicial management. The new model aims to resolve coordination problems relating to investigations, approvals for arrests, public prosecution and adjudication. Plans have been made to establish a communication and liaison mechanism for local courts, prosecution, police and IP enforcement agencies to ensure better coordination of the investigation of criminal IP cases.

Enhanced Alternative Dispute Resolution Procedures

China will also be advancing alternative dispute resolution of IP cases. Arbitration, mediation and other dispute resolution methods will be encouraged in resolving IP disputes. Litigants will be urged to settle their disputes through non-litigious methods. Litigation processes will be aligned with mediation and arbitration, and relevant processes and documents relating to alternative dispute resolution processes will be standardised.

Revised Procedural Laws and Evidentiary Rules

China will be reviewing the legal provisions relating to administrative disputes stemming from the granting of patents and trade marks, and in respect of pre-trial injunctive relief. Judicial interpretations will be introduced to provide clarity and uniformity to the interpretation of Copyright, Patent and Unfair Competition Law, and to adjudication criteria and standards.

New evidentiary rules, taking into account the particularities of IP litigation, will also be developed for the disclosure and preservation of evidence, forensic examination, the use of expert assessors at trial, admissibility and probity of evidence, and the allocation and shifting of the burden of proof.

Additionally, a new coordinated system will be introduced to ensure more robust technical fact-finding. The judge’s role as the principal technical fact-finder will be strengthened. Efforts will also be made to improve the scientific rigour, professional quality and neutrality of technical fact-finding by investigators and experts in disputes. Technical investigation opinions which are closely connected with the judge’s decision may, in appropriate cases, be disclosed and explained to the parties.

These new measures reveal a hopeful outlook for the protection of IP rights in China. If China wants to continue attracting foreign investment and to ramp up the protection of local indigenous creations and brands, it will have to continue to enhance its IP protection regime.


By Rosita Li, Partner, Mayer Brown JSM, Hong Kong Jian Hong Chow, Registered Foreign Lawyer, Mayer Brown JSM, Hong Kong

Taking Advantage of Trade Mark and Copyright Protection in China – Perspectives for Foreign Companies

Introduction

China is frequently lambasted for not providing adequate intellectual property (“IP”) protection, especially to foreign owners, who often find their trade marks being squatted by trade mark trolls, or their copyright content being infringed by local Chinese companies.

A closer look at China’s IP landscape will, however, reveal that China takes IP protection rather seriously, and increasingly so. The number of IP cases being filed in the Chinese courts is substantial. For example, according to statistics released by the Supreme People’s Court in April 2017, between 1985 and 2016, the People’s Courts accepted 792,851 civil IP cases and concluded 766,101 of them.

China is taking an increasingly tough stance on trade mark and copyright infringement, and this is reflected not just in the numerous cases litigated, but also the remedies available to foreign trade mark and copyright owners to enforce their rights locally.

Better Enforcement and Increased Damages

The Chinese courts have in recent times, been supportive of foreign trade mark and copyright owners in their battle against pervasive infringement, and have awarded plaintiffs a respectable amount of compensatory damages.

In respect of trade marks, in early August 2017, a Suzhou court awarded US shoemaker, New Balance, a massive US$1.5 million in damages against three defendants who had copied New Balance’s reputable “N” marks on shoes manufactured under the defendants’ brand, “NEW BOOM”, without prior consent. The court, noting the similarity between the original and infringing marks, held that the defendants


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had acted in concert to infringe New Balance’s trade mark rights.

Foreign copyright owners have also been successful in enforcing their rights and obtaining fair damages, not just in plain cases of vanilla counterfeiting, but also in more complex cases of infringement, most notably in the unauthorised streaming of cinematographic films, which is rampant in China. For example, in early August 2017, the Motion Pictures Association of America successfully obtained RMB1.4 million in damages (about US$210,000) against Xunlei Networking Technologies Co. (“Xunlei”) for copyright infringement when Xunlei made over two dozen movie titles publicly available on its websites found at <f.xunlei.com> and <kuai.xunlei.com>.

The Chinese courts have not just protected foreign owners, but also their local licensees. For example, in May 2017, the Beijing Shijingshan District Court awarded Tencent Holdings Limited (“Tencent”) RMB6.06 million in damages (about US$912,000) against Baofeng Group Co Ltd (“Baofeng”) when Baofeng streamed the popular reality singing competition show, “The Voice of China”, in breach of Tencent’s rights. The original Dutch copyright owner of the show, Talpa Global (“Talpa”), had licensed “The Voice of China” to a (former) licensee which subsequently granted Tencent the exclusive right to communicate “The Voice of China” through Tencent’s online network. The Beijing Court held that Baofeng, which had streamed the show without Tencent’s consent, had infringed Tencent’s rights.

Finally, China is looking to ramp up the amount of damages awarded for IP infringement even further. In April 2017, the Supreme People’s Court released the “Outline of the Judicial Protection of Intellectual Property in China (2016-2020)”, containing a 5-year plan to further develop judicial protection of IP rights. As part of the plan, efforts will be made to increase the amount of statutory damages available for IP infringement, and to provide mechanisms to deprive infringers of profits, and to impose punitive damages.

Interim Injunctions

After China amended its Civil Procedure Law in 2012, the Chinese courts were bestowed with the power to grant prohibitory and mandatory interim injunctive relief before trial. Although the Chinese courts do not impose interim injunctions lightly, they have been known to do so where there may be irreparable harm to the owner’s IP rights.

In respect of potential trade mark infringement, in 2016, the Beijing IP Court granted an interim injunction in favour of Zhejiang Tangde Film & Television Co., Ltd (“Tangde”), Talpa’s current licensee, against Talpa’s former licensee, Shanghai Canxing Culture & Broadcast Co., Ltd (“Canxing”), to cease the use of trade marks relating to the “The Voice of China” show. After its licensing arrangement with Talpa ceased, Canxing continued to produce and broadcast the show using a similar format and “The Voice of China” trade marks. Tangde sued Canxing for trade mark infringement and unfair competition, and sought and obtained an interim injunction against Canxing broadcasting its own version of the show. The Court found, on a balance of convenience, that Talpa owned the IP rights in “The Voice of China”, including the trade marks. Therefore Tangde, as Talpa’s licensee, had an interest in the trade marks of “The Voice of China”. The Court also observed that Tangde would face serious imminent losses if the injunction was not granted.

Similarly, for potential copyright infringement, in 2014, the Guangzhou IP Court granted an interim injunction in favour of renowned US video game company, Blizzard Entertainment, Inc. and its local licensee, against 3 local Chinese companies which were developing, operating and distributing a game titled “Everyone WarCraft”, which copied fictional characters in Blizzard’s blockbuster game, “WarCraft”. The interim injunction required the defendants to immediately cease the operation and dissemination of the infringing game.


Trade Mark and Copyright Monitoring

The monitoring of potential infringement is as key as enforcement against the infringement itself. In respect of trade marks, ‘trade mark watching’ services may be offered by agents to trade mark owners to monitor new trade mark applications with the Trade Mark Office, and to warn owners if any application mark is confusingly similar to their registered marks.

For copyright, the situation is, however, more complicated. Creative works do not need to be registered to receive copyright protection (even though voluntary copyright registration is available in China). As such, unlike trade marks, there is no comprehensive database of creative works, based on which, services relating to copyright monitoring can be provided.

Yet despite these difficulties, China has recently launched in April 2017, a copyright infringement monitoring service managed by the Copyright Society of China Monitoring Centre (the “CSCMC”). The CSCMC, which manages the website “www.12426.cn”, uses artificial intelligence, cloud computing and big data technology to allow registered copyright owners to search and to monitor online content relating to a range of different mediums (e.g. films, music, graphics and literature) for infringement of their rights. The CSCMC also provides services which will assist copyright owners in the removal of infringing links on websites, and on the preservation of evidence of infringement, should the owners choose to commence litigation against the infringer.

Conclusion

In short, China does provide measures for foreign trade mark and copyright owners to detect and enforce against infringement of their rights. What remains essential, however, is for owners to have strong registered rights and legal arrangements in place locally before commencing business.

Foreign companies, which typically prefer to license out their rights (rather than enter the Chinese market directly), should make sure that they have strong licensing agreements in place that set out precisely, the rights being licensed, quality controls, royalty payments, exclusivity arrangements, provisions for early termination and remedies for breach.

Additionally, to prevent local companies (and their own licensees) from exploiting their proprietary works, foreign companies should obtain registered IP protection for their brands and creative works. It would be prudent for foreign companies to obtain copyright registrations for their original works in China (for proof of ownership), and separately, to register their trade marks (and the trade marks’ Mandarin transcriptions and translations) in English, Mandarin and Hanyu Pingyin (the Romanisation of Mandarin marks).

One need only recall, how New Balance was ordered by a Guangdong court in 2016, to pay RMB5 million (about US$760,000) in damages to a Chinese individual for infringing his registered mark “Xin Bai Lun” (a rough translation of “New Balance”), to know that foreign companies who do not obtain adequate IP protection before trading in China, do so at their own peril.

Intellectual Property Cont’d

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PRC Case Update: Under Armour vs Uncle Martian

On 19 June 2017, Under Armour, Inc. (“UA”) prevailed in a trade mark infringement and unfair competition action brought against Fujian Tingfeilong Sports Goods Co., Ltd (“Defendant”), the owner of the “Uncle Martian” brand, in the Fujian Province Higher People’s Court (“Higher Court”). The ruling was handed down following the Higher Court’s issuance of a preliminary injunction in UA’s favour on 2 November 2016. Not only was the Defendant ordered to cease the use of most of the contested trade marks and destroy all infringing products and materials, they were also required to pay RMB 2,000,000 in damages and publish an online statement to eliminate the adverse effect of its infringement.

Background

Under Armour is an internationally well-known performance apparel and footwear brand and UA is the registered owner of the PRC trade marks “ ”,

“UNDER ARMOUR”, “ ”, and “安德玛” (transliteration of Under Armour in Chinese) in Classes 25, 28 and 35 (“UA’s Trade Marks”). Under Armour branded products are sold through a number of outlets in major cities in China and on major online shopping platforms. The brand has also been widely promoted through sponsorships, local and international sports events and media reports for many years.

The Defendant is a company registered in the Fujian province of China. It is the registered owner of the PRC

trade marks “Uncle Martian” and “ ” in Class 25, and claims to be the authorised licensee of the PRC trade mark “ ” in Class 25. On 26 April 2016, the Defendant launched the “Uncle Martian” sportswear and footwear brand in Fujian which featured the following logo:


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By Benjamin Choi, Partner, Mayer Brown JSM, Hong Kong Maggie Lee, Associate, Mayer Brown JSM, Hong Kong


Following the announcement of the launch of the Uncle Martian brand, UA and its local legal advisors conducted an extensive investigation against the Defendant and preserved evidence of the Defendant’s use of its trade marks and logos, including notarisation of the online promotional materials of the Uncle Martian brand; visiting the Defendant’s office with a notarisation officer; notarisation of a telephone conversation between Defendant’s staff and the legal advisors regarding the relationship of the Uncle Martian brand and the Under Armour brand, etc.

Apart from using the trade marks and logos in China, the Defendant’s shareholder and manager incorporated a Hong Kong company under the name “Under Armour (China) Co., Limited 安德玛（中国）有限公司”1 and claimed that the Defendant had been authorised by the Hong Kong company to produce footwear similar to the Under Armour branded footwear. The name of the Hong Kong company had also been printed on the business cards of the Defendant’s employees.

Relying on the evidence collected, UA applied successfully for a preliminary injunction against the Defendant in November last year, prohibiting the Defendant from producing, distributing and marketing any clothing and footwear bearing “ ”, “ ” and “ ”.

The Higher Court’s Ruling

UA claimed that the Defendant’s use of its trade marks and logos constituted trade mark infringement and unfair competition and asked for, inter alia, a permanent injunction prohibiting the Defendant from using its trade marks and logos, damages in the amount of RMB 100,000,000 and publication of a statement on four major online platforms to eliminate the adverse effect of the infringement.

1 Now renamed as “Uncle Martian (China) Co., Limited 安可玛汀(中国)有限公司

In considering the trade mark infringement claim, the Higher Court recognised that UA’s Trade Marks had obtained a certain reputation in China. The Higher Court found that the Defendant’s “ ”, “ ”,

“ ” and “ ” marks/logos (“Infringing Marks”) were similar to several of UA’s trade marks and were applied on footwear, sports apparel and sports gear, which were similar or identical to the goods registered in relation to UA’s Trade Marks. Therefore, the Defendant had infringed UA’s trade marks by using the Infringing Marks in respect of footwear, sports apparel and sports gear.

However, in the ruling, the Higher Court viewed that the word mark “Uncle Martian” was substantially different from UA’s “UNDER ARMOUR” mark in terms of pronunciation and connotation. Therefore, the Defendant had not infringed UA’s “UNDER ARMOUR” mark by using “Uncle Martian”, and the infringement was only in relation to the Infringing Marks.

As regards the unfair competition claim, the Higher Court held that the Defendant, being a competitor of UA in the same industry, had violated the principles of good faith and fair competition. Interestingly, the Higher Court held that the use of the former Chinese name of the Hong Kong company “安德玛（中国）有限公司” on the Defendant’s employees’ business cards was enough to constitute unfair competition. In this respect, the Higher Court took into account the Defendant’s knowledge of “安德玛” being one of UA’s trade marks and the fact that the Hong Kong company was not in any way related to UA. Therefore, the Defendant’s reference to the Hong Kong company on the business cards was clearly intended to take unfair advantage of UA’s reputation and constituted unfair competition.

In light of these findings, the Higher Court ordered the Defendant to: (1) permanently cease using the Infringing Marks on clothing, footwear, etc.; (2) destroy all products, samples, promotional materials and business cards bearing the Infringing Marks; (3) pay damages in the amount of RMB 2,000,000; and (4) publish an online statement on Sina’s website to


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eliminate the adverse effect of the Defendant’s infringing acts. The Defendant has appealed the case to the PRC Supreme People’s Court.

Takeaway

This is yet another victory for brand owners in China! The Higher Court’s ruling sends an encouraging message to brand owners and those who are looking to expand their business to China. It is encouraging to see a strong judgment in favour of a brand owner coming out of a provincial court. This is a clear indication that brand enforcement is gaining momentum in China.

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By Benjamin Choi, Partner, Mayer Brown JSM, Hong Kong Valerie Chan, Associate, Mayer Brown JSM, Hong Kong

An Update on Recent Practice by TRAB on the Review of Refused Trade Mark Applications

The Trademark Review and Adjudication Board (“TRAB”) of China has issued an internal direction specifying the conditions where suspension of review of a trade mark application initially rejected on relative grounds by the China Trade Mark Office, can be allowed or accommodated.

Under what circumstances will the TRAB suspend the review on a trademark application initially rejected on relative grounds by the China Trade Mark Office?

• The cited mark is pending examination or going through opposition proceedings

• The cited mark has been assigned to the applicant and a copy of the assignment recordal form as filed with the China Trade Mark Office has been submitted to the TRAB for record

• A non-use cancellation or invalidation against the cited mark is pending, which was filed prior to the filing date of the trademark application rejected and under review

Will the TRAB suspend the review if a letter of consent is being negotiated?

No.

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A

A


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Will the TRAB suspend the review if a letter of consent is pending notarisation and legalisation?

The Examiner will have the discretion to suspend the review. If the applicant is able to produce a signed letter of consent (or its copy) and undertakes to file the notarized and legalized letter within a reasonable time, the Examiner will likely defer the examination.

What is the average timeframe for a review decision to be issued by the TRAB?

It is a TRAB performance pledge to complete a review examination within 9 months.

What do we recommend?

• Conduct a clearance search to identify potential conflicting marks at an early stage

• File non-use cancellation/invalidation actions to eliminate a conflicting mark or explore, as soon as possible, the potential of obtaining consent from the owner of the earlier mark

• File a back-up application right after a non-use cancellation/invalidation of the cited mark is filed

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A

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A

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A


By Gabriela Kennedy, Partner, Mayer Brown JSM, Hong Kong Jian Hong Chow, Registered Foreign Lawyer, Mayer Brown JSM, Hong Kong

An Employer’s Right to An Employee’s Invention: Lessons From The Recent Acron Decision

Introduction

An employer’s right to inventions created by its employees is an issue which frequently arises in practice, but is rarely litigated. In the absence of a contractual arrangement between the employer and employee setting out their respective rights of ownership, there are provisions in the Hong Kong Patents Ordinance (Cap. 514) (“PO”) which regulate the conferment of such rights.

Section 57(a) of the PO provides that an invention made by an employee shall belong to his or her employer, if:

a. It was made in the course of the normal duties of the employee, or in the course of duties falling outside his or her normal duties but was specifically assigned to him or her; and

b. The circumstances in either case were such that an invention might reasonably be expected to result from the carrying out of his or her duties.

This section has not been fully considered in Hong Kong jurisprudence until the recent Hong Kong Court of Appeal decision in Acron International Technology Ltd v Chan Yiu Fai [2017] 3 HKLRD 799 (“Acron”) and its corresponding first instance decision. The Acron case and its practical implications on an employer’s right over an employee’s invention are discussed in this article.

Facts

The Plaintiff, Acron International, was a Hong Kong company engaged in the business of researching and developing air purification and odorising systems. The two Defendants were employees of the Plaintiff. In April 2002, the Plaintiff filed an international patent application for an air cleaner that used molecular


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sieves to filter out contaminant gas, under the Patent Cooperation Treaty (“PCT”) which covered a number of countries. Patents were eventually granted to the Plaintiff in Hong Kong, the United States, Europe, Japan and China. The 2nd Defendant was listed as one of the four inventors of the patented invention.

In August 2004, while still in the Plaintiff’s employ, the Defendants applied for a patent in China for an “apparatus for fluid purification, comprising a … molecular sieve …” (the “First Patent”). The Defendants subsequently left the Plaintiff’s employ in November 2004. Eight days later, they withdrew the First Patent, and applied for (and were granted) a second China patent (the “Second Patent”), claiming priority from the filing date of the First Patent. The Plaintiff sued the Defendants, claiming that the invention protected by the Second Patent belonged to them, and sought, among other things, an order compelling the Defendants to assign the Second Patent to them.

Proceedings Below

The first instance court gave judgment in favour of the Plaintiff and ordered that the Second Patent be assigned to be Plaintiff. The High Court found that the Second Patent was strikingly similar to the subject matter protected in the Plaintiff’s PCT application . The creation and work in relation to the Second Patent was undertaken during the 2nd Defendant’s normal duties which were to innovate, and this took place while she was still in the employ of the Plaintiff. Given the areas covered by the 2nd Defendant’s duties to innovate, the first instance court found that an invention might be reasonably expected to result from her carrying out her normal duties. The findings in relation to the 1st Defendant were not material as he had removed his name from the registration of the Second Patent before trial, and had effectively renounced any interest in the Second Patent.

The Defendants appealed.

Court of Appeal Decision

A . INTERPRETATION OF SECTION 57(A) OF THE PO

The Defendants argued on appeal, that in order to determine whether an “invention” was made in the course of employment, one must first determine what the “invention” was. To interpret what the “invention” was, the Defendants submitted that one had to refer to s 76 of the PO. Section 76 essentially provides that an invention in respect of which a patent application has been filed shall, unless the context otherwise requires, be taken to be specified by the claims, as interpreted by the description and drawings (if any).

Using s 76, the Defendants argued (in summary) that the Second Patent had more claims than the First Patent (which was filed while the Defendants were still employed by the Plaintiff), and therefore, the invention in the Second Patent was different from any invention made in the course of their employment.

The Court of Appeal rejected the Defendants’ argument. The Court held that s 76 and s 57(a) were completely unrelated. Section 76 related to the scope of monopoly conferred on an inventive concept, and was relevant when third parties were challenging the scope of protection conferred by the patent. In contrast, s 57(a) related to the inventive concept itself (not the monopoly conferred on the invention), and related to questions of entitlement between employers and employees over an invention, which could well arise before any patent application (and patent claims) were filed. In simple words, the Court held that the invention must have been made before any patent was even filed. As such, it would be absurd to say that the inventive concept was defined only by its patented claims (for the purposes of s 57(a)).


B. APPLICATION OF SECTION 57(A)

The Defendants also raised multiple attacks on the trial judge’s findings of fact.

In particular, the Defendants argued that the trial judge had overstated the breadth of the 2nd Defendant’s duties. They submitted that the 2nd Defendant’s innovation duties did not extend to innovating the particular type of technology embodied in the Plaintiff’s invention, such that the invention claimed in the Second Patent could be said to have been made in the course of the 2nd Defendant’s duties.

This argument was also rejected. The court held that the law should not be overly precise about how the term “duty” was to be defined. The litmus test was to ask whether the employee was employed to try to innovate, and if so, what general sort of areas an employee’s innovation duties covered. The Court of Appeal held that the 2nd Defendant was employed by the Plaintiff to further the research and development of the technology encapsulated by the Plaintiff’s invention, and her particular field of research was related to such technology. As such, her innovation duties covered the type of technology manifested in the Plaintiff’s invention.

For similar reasons, the Court of Appeal held that the invention covered by the Second Patent might reasonably be expected to result from the 2nd

Defendant carrying out her duties. Section 57(a) did not just confer on the employer ownership rights when the particular invention was made in the course of the employee’s duties, but when an invention might be expected to result from the carrying out of those duties. The Court analogised the situation to a research chemist who worked on a cancer cure for 10 years, but instead, came up with an arthritis cure. The chemist cannot seriously contend that he owned the invention just because he was working day-to-day on a cancer cure, as an employee’s duties are wider than his specific daily work.

Implications on Employers’ Rights over Employees’ Inventions

The Acron case has raises important implications on an employer’s right over an employee’s invention.

The employer’s rights over an employee’s invention have been clarified somewhat with the balance tipping in favour of the employer. The Acron case demonstrates that the courts will avoid a narrow interpretation of s 57(a) of the PO. In other words, so long as the inventive concept in dispute can be said to be made in the course of the employee’s innovation duties (which may be broader than the employee’s daily work), and an invention (not necessarily the particular invention in dispute) might reasonably be expected to result from those duties, s 57(a) will automatically confer the right of ownership over such invention to the employer.

While the Acron case has shed light on the interpretation of s 57(a), there are still uncertainties over its application. Whether an employer can successfully claim ownership over an invention turns on the nexus between the employee’s innovation duties and the inventive concept or technology in dispute. Are the employee’s innovation duties sufficiently related to the invented technology, such that the invention can be said to have been made in the course of carrying out those duties?

The Acron case highlights the need to have clearly set out contractual clauses that cover the rights over intellectual property created during the course of employment. In Acron, the Defendants argued at first instance that the Plaintiff’s representative had represented to the 2nd Defendant that she would own any invention she made during her employment. This argument was eventually rejected under the weight of circumstantial evidence (and not pursued on appeal). If the parties had set out their rights under a written contract, the entire litigation (and the substantial costs involved) may well have been prevented.


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Though not discussed in the Acron case, employers should note that employees may seek remuneration under s 58 and 59 of the PO for an invention they had made, if the patent relating to that invention is of outstanding benefit to the employer. As these provisions cannot be contracted out of, legal disputes may be avoided if employers attempt to pay employees a fair amount for their inventive efforts. What is legally deemed as “fair” depends on various factors, such as the nature of the employee’s duties, the remuneration he derives from his employment (and the invention concerned), the amount of effort and skill the employee has devoted to making the invention, etc. While these factors serve as useful guidelines, what is deemed “fair” remains nebulous at best. These broad guidelines stand in stark contrast to China’s patent provisions, which prescribe precise amounts of remuneration for employees’ inventions.

By Gabriela Kennedy, Partner, Mayer Brown JSM, Hong Kong Karen H.F. Lee, Senior Associate, Mayer Brown JSM, Hong KongData Privacy

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The XXX Files: Privacy Implications in Hong Kong

A recent case in Hong Kong has highlighted the courts’ willingness to impose harsher sentences for the unsanctioned disclosure of private recordings of intimate acts. Sadly, the uploading of videos or photos of former partners in explicit and compromising situations, otherwise known as revenge porn, has become a more and more common way for jilted lovers to take revenge after the break-up of a relationship. This is not only a breach of privacy, but in many jurisdictions it may also be a criminal offence. On 23 June 2017, the defendant in the Hong Kong case HKSAR v. Wong Ngai Sang1 was sentenced to 20 months imprisonment for covertly recording and uploading on the internet a video of himself and his former lover having sex (“WNS Case”).

Access to a Computer for Dishonest Gain

Under Section 161(1)(c) of the Crimes Ordinance (Cap. 200) (“CO”) in Hong Kong, it is an offence for anyone to obtain access to a computer with a view to dishonest gain (either for himself or another). Such an offence can attract a sentence of 5 years imprisonment.

In the WNS Case, the defendant had filmed himself having sex with the victim, without her knowledge or consent. After the victim ended their relationship, the defendant decided to get revenge by uploading the video on the internet together with personal details of the victim (her name and home address). The victim learned of this from a work colleague and reported the matter to the police. The defendant pleaded guilty to one count of obtaining access to a computer with a view to dishonest gain for himself.

Section 161(2) of the CO provides that “gain” does not need to be money or other property, and may include getting something that the defendant did not have previously, or keeping something that they already had. “Gain” has generally been interpreted quite broadly,

1 [2017] HKEC 1578.


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and has previously been found to include obtaining photos or recordings. The WNS Case appears to widen the definition further to include the revenge obtained by the defendant in uploading the video, though unfortunately this was not discussed in detail in the judgment, as the defendant had pleaded guilty.

It is interesting to note that obtaining access to a “computer” is not limited to obtaining access to a laptop or desktop. In Secretary for Justice v. Wong Ka Yip Ken, the Court of First Instance determined on appeal that a smartphone could amount to a “computer” for the purposes of Section 161(1) of the CO. This point was taken for granted in the WNS Case, where the defendant had used his smartphone to record the footage at issue.

During sentencing, the judge emphasised the “gross violation” of privacy involved and the fact that the sentence should reflect the “public’s abhorrence of the defendant’s shameless conduct” and should serve as a deterrent to others. The defendant was sentenced to 20 months imprisonment. The only substantial mitigating factor taken into account by the judge was his guilty plea.

The sentence imposed in the WNS Case is a much harsher sentence when compared to other similar cases. In September 2012, a tutor was sentenced to only 4 months imprisonment for taking upskirt photos of his students. Even in the infamous case involving local celebrity Edison Chen, the defendant received a much lesser sentence. The computer technician who stole over 1,000 sexually explicit photos from Edison Chen’s computer, and subsequently made the photos available on the internet and through other media, was only sentenced to 8 and a half months’ imprisonment.

The harsher sentence in the WNS Case may reflect the courts desire to send a strong message to offenders, especially where covert photos or videos of the most intimate nature are uploaded on the internet. The damage that is done can never be undone, even if the photo or video is taken down, as cached copies of the uploads will continue to be available.

Data Privacy Complaint or Prosecution under CO?

Whilst a violation of privacy is clearly a significant concern for victims of revenge porn or covert recordings, such acts may not in themselves amount to an offence under the Personal Data (Privacy) Ordinance (Cap. 486) (“PDPO”). The PDPO regulates the collection, use and transfer of personal data by data users in Hong Kong. A photo or video taken by a data user may amount to personal data for the purposes of the PDPO, if it is possible to directly or indirectly identify the individual featured in it, and if the purpose of collection was to identify the individual in question.

Any explicit video recordings or photos obtained without the knowledge or consent of the relevant individual should not be taken or uploaded on the internet. This seems to go hand-in-hand with common sense and morality. But failing to do so, does not in itself amount to an offence under the PDPO. Such acts will merely constitute a breach of a data protection principle, the remedy for which is a complaint to the Privacy Commissioner followed by an enforcement notice if an investigation by the Privacy Commissioner finds a breach to have occurred. Given the complexities of making a case to the Privacy Commissioner and the nature of the remedies available, reporting such a case to the police for prosecution as a criminal offence under Section 161(1)(c) of the CO is a surer way to obtain commensurate punishment for a reprehensible deed.

While no precedent exists, it is likely that victims of revenge porn may also start civil proceedings especially after a criminal conviction is secured, as damages for injury to feelings can be sought under the PDPO.

The WSN case has highlighted the inadequacy of the PDPO. Section 64 of the PDPO which was introduced when the law was last amended in 2012, makes it an offence for anyone to disclose personal data of an individual obtained from a data user, without that data user’s consent with the intent to obtain gain (either for


Data Privacy Cont’dHONG KONG

himself or anyone else) or to cause loss to the relevant individual in the form of money or other property. The offence can incur a maximum fine of HK$ 1,000,0000 and 5 years imprisonment. Unlike Section 161(1)(c) of the CO, Section 64 of the PDPO only applies where the “gain” or “loss” is in the form of money or other property, and where personal data is taken from a data user without their consent. A classic example is where an employee discloses or sells personal data held by its employer, without their employer’s consent.

The section could not be invoked in the WNS Case or other typical revenge porn scenarios, as the data user is the person who took the videos or photos and uploaded them on the internet (i.e. they did not steal them from another person), and no money or other property is usually sought by the culprit or is lost by the victim. The section can apply to situations that are similar to the Edison Chen case. The Information Leaflet issued by the Privacy Commissioner2, expressly cites the uploading of a celebrity’s intimate photos on the internet by an employee of a laptop repair company without the celebrity’s permission as an example of an offence under Section 64, which was in fact brought in as a result of the Edison Chen case. Anyone who disseminates videos or photos on the internet or through other media, without the consent of the person who captured such videos or photos, in return for, say money (e.g. blackmail, selling the images to the press, etc) may be found guilty under both Section 64 of the PDPO and Section 161(1)(c) of the CO. But anyone who takes such pictures or makes such recordings themselves and disseminates them on the internet, cannot be caught by this provision in the PDPO.

Other jurisdictions, have introduced specific laws to target revenge porn after having found that their existing legislation was insufficient to protect victims and tackle the growing trend. For example, in England and Wales, the distribution of private sexual images of an individual without their consent, and with the intent

2 Information Leaflet on the Offence for Disclosing Personal Data Obtained Without Consent from the Data User, issued September 2012.

of causing distress, is a criminal offence3. This applies to distribution both online and offline, by any means. The sanctions imposed for such an offence are only 12 months’ imprisonment and/or a fine on summary conviction, or 2 years’ imprisonment and/or a fine on conviction on indictment, which are less severe than those provided under Section 161(1)(c) of the CO and Section 64 of the PDPO. However, courts in England have also issued orders to ISPs to block access to offending material and preserve the anonymity of victims4.

Conclusion

The unsanctioned disclosure of intimate recordings or photos is being taken more seriously by the courts in Hong Kong, and harsher punishments can be expected in the future. How will we deal with inadvertent recordings and equally inadvertent disclosure of intimate household scenes by IoT enabled devices? Given the rapid development in technology, the ever changing nature of offences is likely to render obsolete any amendment to the legislation by the time it is brought in.

3 Section 33 of the Criminal Justice and Courts Act 2015.

4 AMP v Persons Unknown [2011] EWHC 3454.

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By Gabriela Kennedy, Partner, Mayer Brown JSM, Hong Kong

Karen H.F. Lee, Senior Associate, Mayer Brown JSM, Hong Kong

CHINA

CybersecurityNavigating the Latest Developments in China’s Cybersecurity Law

On 1 June 2017, China’s new Cybersecurity Law (“CSL”) came into operation. A series of draft measures, guidelines and regulations have been issued by the PRC government in an attempt to provide further clarity on the application of the CSL, but many ambiguities and uncertainties still remain. To help navigate them, a brief summary of several of these measures, guidelines and regulations issued over the last few months, is set out below.

Background

The CSL imposes restrictions on operators of critical information infrastructures (“CIIs”) and network operators, and has been seen as a barrier to the free-flow of data and contrary to current business practises. The most controversial provisions concern data localisation requirements, cross-border data transfer restrictions, the implementation of cybersecurity measures, and compliance and certification measures for security products and equipment. The broad definition of network operators (with limited clarification from the government) has meant that any entity that operates a Chinese website, conducts business activities through networks in China, or provides online services to customers in China, may be caught by the CSL restrictions.

In addition to the above requirements which have received the most media attention, the CSL places a large burden on network operators to screen and “police” users of their services, including messaging platforms, blogs and social media platforms. Network operators are not only required to ensure that users provide information concerning their true identity (thereby eliminating the possibility of users posting information anonymously), but they are also required to stop the public dissemination of any information transmitted by their users, which are illegal (e.g. online posts that are seen as a criticism or threat to national security or the socialist system).


Cybersecurity Cont’dCHINA

The Cyberspace Administration of China (“CAC”) has already started taking steps to crackdown on network operators. In August 2017, the CAC commenced investigations against 3 popular social media platforms. Users had allegedly been using the social media platforms to disseminate information that was seen as challenging national and public security, as well as public order, and the operators of the platforms were accused of failing to takedown such information in breach of the CSL. The platform operators have indicated that they will cooperate with the CAC to rectify the issue. This is likely to just be one of many investigations initiated by the CAC as part of the government’s cybersecurity initiative, which has included a crackdown on virtual private networks and online news.

Cross-Border Transfers and Data Localisation

The revised draft of the Security Assessment Measures for the Cross-Border Transfer of Personal Information and Important Data (“Cross-Border Measures”) was issued on 19 May 2017. Even though the Cross-Border Measures came into effect on 1 June 2017, a final version still needs to be issued by the CAC, and due to a backlash of concern raised by foreign entities on their ability to comply with the Cross-Border Measures, an 18 month grace period was granted, giving network operators until 31 December 2018 to comply with the newly introduced cross-border data transfer rules.

Unlike the earlier drafts, express reference to the data localisation requirements in respect of network operators has been removed from the current version of the Cross-Border Measures. It would be naive to draw the conclusion that the data localisation requirements do not apply to network operators (only CII operators as per the CSL), as network operators are still subject to restrictions under the Cross-Border Measures on the overseas transfer of personal information and “important data” collected or generated during business operations in China. Important data is broadly defined to include information that relates to national security, economic development, or social or public interest.

No personal information or important data may be provided by a CII operator or network operator to anyone outside of China unless:

• They have completed the required security assessment set out under the Cross-Border Measures;

• The data subject has been notified of the purpose and scope of the transfer, and the country in which the recipient is located; and

• The data subject’s consent has been obtained (which can be inferred based on the data subject’s actions), save when there is an emergency that may jeopardise the life or property of the relevant data subject.

Notwithstanding the above, no transfer of personal information or important data may occur if it will violate any laws or regulations; the transfer may result in risks to national security and public interest, or cause harm to the government system, economic security, scientific or technological security, information security, national defense, etc; or if any relevant regulator deems the transfer to be inappropriate.

Both a self-assessment and an official security assessment from the local authorities must be carried out and obtained before a CII operator or network operator can transfer personal information and important data outside of China. The self-assessment no longer needs to be carried out on an annual basis thereafter (as was originally required under previous versions of the Cross-Border Measures), but it must be conducted upon any significant amendment in relation to a cross-border transfer (e.g. change in scope or type of data). An official security assessment from the relevant local authorities must also be obtained in certain situations, such as where more than 500,000 individuals’ personal information are being transferred, or the data concerns public health or national security sectors, and so on.

In order to complement the Cross-Border Measures, on 27 May 2017 the draft Guidelines for Cross-Border Data Transfer Security Assessment were issued, with an updated version released on 31 August 2017 for

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public consultation (“Draft Cross-Border Security Guidelines”). The Draft Cross-Border Security Guidelines sets out how a security assessment should be carried out prior to the cross-border transfer of any personal information or important data by network operators. This includes a requirement to have in place a data export plan and to assess the legality and appropriateness of the cross-border transfer, and the level of risk involved. The latest draft appears to indicate that network operators who are not based in China, but who conduct business or provide services or products within China, will still be caught by the security assessment requirements. Any personal information or important data that is remotely accessed outside of China (even though it is not physically stored or transferred outside of China) may also fall within the scope of the requirements. The consultation period will expire on 13 October 2017.

Security Review of Network Equipment and Cybersecurity Products

CII operators that procure network products and services that might impact national security must undergo a national security review organised by the relevant local authorities. On 2 May 2017, the Cyberspace Administration of China issued the Security Review Measures for Network Products and Services (Trial) (“Security Review Measures”). Article 10 of the Security Review Measures clarifies that products and services purchased for public communication and information services, energy, transport, water conservancy, finance, public services and electronic government affairs or other operators of CIIs are all significant network products and services that may affect national security, and are therefore subject to the national security review under the CSL. Whether these products or services affect national security is to be determined by government departments responsible for the safety of the CII. A cybersecurity review committee and cybersecurity review office will be set up by the government.

In addition, the CSL requires dedicated cybersecurity products and critical network equipment to obtain a

certification issued by qualified institutions before they can be sold or distributed in China (“Certification Requirement”). Such products and equipment must also be in compliance with national standards. The CAC has the obligation to establish a catalogue of critical network equipment and cybersecurity products that will be subject to the Certification Requirement.

On 9 June 2017, the CAC, Ministry of Industry and Information Technology (“MIIT”), Ministry of Public Security and Certification and Accreditation Administration, released an Announcement of the Issuance of the Catalogue of Critical Network Equipment and Dedicated Cybersecurity Products (First Batch) (“First Catalogue”). Despite being issued on 9 June 2017, the First Catalogue took effect as of 1 June 2017. So far, 15 items have been identified in the First Catalogue as critical network equipment or dedicated cybersecurity products, which are subject to the Certification Requirement. These include firewalls, security audit software, routers, switches, servers, intrusion detection systems, etc. The scope of the Certification Requirement therefore remains quite broad, and the CAC has the flexibility to issue further catalogues of equipment and products.

Uncertainty remains as to what steps need to be taken in order to obtain relevant certification and the “qualified institutions” that will be responsible for reviewing the equipment and products. In particular, concerns have been expressed in relation to the nature of proprietary information (such as source codes) that needs to be disclosed.

Draft Regulations on Critical Information Infrastructures

The Cyberspace Administration of China published the Draft Security Protection Measures for Critical Information Infrastructures (“Draft CII Measures”) on 10 July 2017, in order to provide further guidance in relation to CIIs. The Draft CII Measures were open for public consultation until 10 August 2017. Under the Draft CII Measures, the CIIs are further defined to include government departments or any entities in the


Cybersecurity Cont’dCHINA

energy, finance, transportation, water, health, medical, education, social insurance, environmental protection or public affairs sectors; scientific research and manufacturing entities, radio stations, television stations and news agencies; information networks, including telecommunication, broadcasting, internet cloud computing, big data and other large-scale public information network services; and other important entities, if they have the potential to damage national security, national economy and people’s livelihoods and public interests. In addition, the Draft CII Measures state that the government will establish further guidelines to help identify CIIs and, in accordance with such guidelines, the government authorities for each relevant sector will identify the CIIs in their industry. This provides the government with a broad discretion to determine who will fall within the scope of a CII and be subject to the CSL.

The Draft CII Measures prescribe further responsibilities on CII operators, including implementing technical measures to prevent cyber attacks and monitor cybersecurity incidents; keeping relevant network logs for at least 6 months; appointing qualified cybersecurity staff; arranging regular training and testing of its staff; establishing cyber incident response plans; carrying out regular back-ups of important data; carrying out regular comprehensive security and risk assessments, rectifying any identified vulnerabilities and reporting such results to relevant industry authorities, etc. The maintenance of the CII itself must also be carried out within China. Such maintenance can only be conducted overseas if necessary due to business needs, and subject to providing advance notice to the relevant government authorities.

Further, under the Draft CII Measures, the government is required to organise regular security assessments on CIIs, which may include reviewing security related documents and records, and interviewing staff of CII operators. However, much of the CSL requirements and other obligations under the Draft CII Measures relating to CII operators still remain unclear. For example, the Draft CII Measures require operators of IT and cloud computing services to comply with requirements laid down by the CAC – what these requirements are remains uncertain.

Takeaway

After wading though the various measures, guidelines and interpretations, a reader is likely to feel more confused than enlightened, especially given the constant cross-referencing amongst these documents that is needed in order to understand extent of the obligations imposed on CIIs and network operators. Additional or revised interpretations, measures and guidelines will be issued by the government over the next year, which may scatter the clouds of uncertainty and ambiguity surrounding the CSL.

For now, companies that have a link to China (e.g. business operations in China, networks in China, Chinese-hosted website, etc) should as a minimum conduct privacy and security audits to map out how they could comply with the CSL and the related measures; implement a cross-border transfer of data plan; and start conducting self- assessments pursuant to the Cross-Border Measures.

Mayer Brown JSM is part of Mayer Brown, a global legal services organisation, advising many of the world’s largest companies, including a signifi cant proportion of the Fortune 100, FTSE 100, CAC 40, DAX, Hang Seng and Nikkei index companies and more than half of the world’s largest banks. Our legal services include banking and fi nance; corporate and securities; litigation and dispute resolution; antitrust and competition; employment and benefi ts; environmental; fi nancial services regulatory and enforcement; government and global trade; intellectual property; real estate; tax; restructuring, bankruptcy and insolvency; and wealth management.

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