China bolsters toolbox for international IP disputes

Category
China Dispatch
Date
March 27, 2025

New regulations give Beijing trade war tools, but also show growing emphasis on protecting homegrown innovation overseas

By Jake Schindler

According to an article published by the Financial Times last week, BYD is struggling to win Chinese government approval for a planned factory in Mexico. The reason? Authorities fear the automaker’s technology and know-how could pass to rivals, potentially even to car companies across the Rio Grande.

There may be a bit of posturing behind this press leak, but the Shenzhen-based company has lots to be proud of and plenty of valuable IP to protect. Last Monday, it unveiled a charging platform that can deliver 400km of range in only five minutes. Just weeks earlier, it rolled out its self-driving feature to all models free of charge.

For years now, Chinese tech companies have talked up their growing international patent portfolios to an often sceptical global audience. Increasingly, though, they can now point to fully commercialised innovations in category-leading products. That has also upped the stakes for Chinese IP departments as both sales and production increasingly globalise.

The Chinese state is closely attuned to these issues. It showed that again last week through the release of a State Council regulation on ‘foreign-related’ IP disputes. In part, the document is a trade war toolbox, giving authorities new powers to counter what they see as the pretextual use of IP to contain China.

But it’s also an alert to Chinese firms that they must take IP risks and compliance seriously as they expand overseas – as well as a directive to government, industry bodies, law firms and service providers to lend a hand in this area.

Supporting China Inc’s global expansion

Roughly half of the document is dedicated to strengthening the capacity of China’s government bodies, industry groups, service providers and enterprises to understand and navigate foreign IP systems and cross-border IP disputes.

Various Chinese government departments collect and publish information about foreign IP laws and regulations. They’re responsible for following changes in overseas law and policy, identifying and communicating risks and providing assistance to individuals or organisations that need it. This work is given priority in the new regulation.

Law firms and IP service providers in China are directed to strengthen their ability to support overseas operations of Chinese companies, including by establishing offices or partnerships abroad. Industry groups are encouraged to offer consulting, information hotlines and related services. There is also discussion of IP insurance cover.

But the longest article in this section is dedicated to enterprises themselves, which are expected to take the initiative for their own IP management. The regulation makes clear that Chinese companies operating overseas must understand the local legal environment, establish internal compliance, follow the law and protect their own IP rights. To do this, the IP talent pool within the corporate sector must be strengthened. This is validation, from the highest level, of the rapid growth and maturation of Chinese IP departments, a theme that has been playing out for many years now.

State-level countermeasures

The regulations were published in draft form in July 2024. According to reports, the final version added a new element: countermeasures against unfair treatment of Chinese nationals and organisations.

For example, China IP commentator Michael Ma has translated Article 15 as follows:

If a foreign country, in violation of international law and the basic norms of international relations, uses intellectual property disputes as a pretext to contain and suppress China, adopts discriminatory restrictive measures against Chinese citizens and organizations, and interferes in China's internal affairs, the relevant departments of the State Council may, in accordance with laws such as the "Law of the People's Republic of China on Foreign Relations" and the "Law of the People's Republic of China on Countering Foreign Sanctions", include organizations and individuals that are directly or indirectly involved in formulating, deciding on, and implementing such discriminatory restrictive measures in the countermeasures list and take corresponding countermeasures and restrictive measures.

This could give the Chinese government more ways to respond to trade complaints or investigations centred on intellectual property, at least those it considers pretextual, discriminatory or interfering in its domestic affairs.

There is a significant amount happening on the IP and trade front. The EU is currently pursuing a WTO consultation over Chinese courts’ practice of setting, without the consent of both parties, binding worldwide licensing conditions for SEP portfolios including non-Chinese patents.

It remains to be seen what role IP will play in the second Trump administration’s trade approach. A 2018 Section 301 investigation of tech transfer and IP practices in China was the centrepiece of the first Trump administration’s trade confrontation with China. Earlier this month, China responded to an initial round of tariffs with export controls on several US defence companies and the addition of some US entities to its ‘Unreliable Entity List’.

It is also worth noting that intellectual property protection has been used to justify some US legislative proposals to restrict, for example, the ability of Chinese nationals to study at American universities. Howard Lutnick, the Secretary of Commerce, said in his confirmation hearings that he would tackle alleged “abuse” of the USPTO by Chinese applicants. It remains to be seen what steps will be taken, but all this forms the backdrop to the addition of language on countermeasures.

Licensing-related provisions

The regulation also contains language about some specific types of licensing provisions. The State Council’s foreign trade department is empowered to investigate and take necessary measures in cases:

Where an intellectual property right holder engages in any of the acts such as preventing the licensee from challenging the validity of the intellectual property rights in the license contract, imposing a mandatory package license, or stipulating exclusive grant-back conditions in the license contract, and such acts undermine the fair competition order in foreign trade.

As China IP experts Mark Cohen and Susan Finder have pointed out, this is very similar to language in the 2023 Foreign Trade Law of the PRC, which provides for the same remedy – measures to be taken by the relevant State Council department.

The penultimate article is worth noting, as it suggests that the state-to-state issues and the more commercial-focused licensing issues are on different ‘tracks’ with different remedies. Here again is Michael Ma’s translation:

In case of acts that undermine China's sovereignty, security, and development interests by taking advantage of intellectual property disputes, corresponding measures shall be taken in accordance with laws such as the National Security Law of the People's Republic of China, the Law of the People's Republic of China on Foreign Relations, and the Law of the People's Republic of China on Countering Foreign Sanctions. In case of acts such as abusing intellectual property rights to exclude or restrict competition or engaging in unfair competition, they shall be handled in accordance with laws such as the Anti-monopoly Law of the People's Republic of China and the Law of the People's Republic of China against Unfair Competition.

Nevertheless, the regulations themselves are a reminder that IP issues have become entwined in some of the most important international relationships. In the US, China and Europe, it appears to be firmly on the agenda at the highest levels of government.

Jake Schindler is Senior Content and Strategic Communications Manager at Sisvel.

This article was prepared by him in a personal capacity. The opinions expressed within it are the author’s own and do not necessarily reflect the views of Sisvel. The content is for informational purposes and should not be taken as legal advice.

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