China consolidates legal instruments for IP dispute settlement

On March 19, 2025, the State Council of China released the Regulations of the State Council on the Settlement of Foreign-Related Intellectual Property Disputes (the Regulations), which will come into effect on May 1, 2025. The Regulations are a significant step in China's efforts to strengthen IP protection, promote the rule of law in handling foreign-related IP disputes, and safeguard the legitimate rights and interests of citizens and organizations.

The Regulations set out rules for governments and parties to mobilize the necessary resources to facilitate the resolution of foreign-related IP disputes. More notably, it consolidates legal authorities regarding the enforcement of trade measures, sanctions and competition laws in the context of foreign-related IP disputes. This detailed introduction will focus on aspects related to trade, investigation, and law enforcement, which are of particular interest to foreign companies, organizations, and governments

1.1 Objectives

The primary objectives of these regulations are four-fold. Firstly, it aims to strengthen IP protection within the context of foreign-related affairs. This is in line with China's continuous efforts to enhance its IP protection regime, a measure not only fosters domestic innovation but also plays a crucial role in attracting foreign investment and advancing international cooperation. Secondly, the regulations seek to streamline the legal process for citizens and organizations in handling foreign-related IP dispute. By providing clear guidelines and standard procedures, the regulations aim to make the dispute-handling process more accessible and predictable. Thirdly, the Regulatioins are designed to protect the legitimate rights and interests of citizens and organizations. Whether it is a Chinese entity facing an IP dispute abroad or a foreign entity involved in an IP-related issue in China, the regulations seek to ensure a fair and just resolution. Finally, the Regulations promote high-level opening-up and high-quality economic development. A robust IP protection system is essential for attracting high-quality foreign investment, facilitating technology transfer, and promoting international trade.

1.2 Scope

The Regulations encompass a broad spectrum of foreign-related IP dispute scenarios. including disputes arising from cross-border trade, technology transfer, licensing agreements, and international cooperation projects. It applies to all types of IP, such as trademarks, patents, copyrights, and trade secrets. The Regulations also involve multiple stakeholders, including individuals, enterprises, IP service agencies, arbitration institutions, and government departments at both the central and local levels.

The Regulations systematize the legal authorities under the Foreign Trade Law pertaining to IP protection and the maintenance of foreign trade order. Under these provisions, Chinese authorities are empowered to conduct various kinds of trade investigations over imported products, foreign exporters/producers, domestic importers, foreign entities and governments and implement remedial and counter measures based on findings. 

2.1 Imported Goods Infringing IP Rights

The Regulations empower the Ministry of Commerce (MOFCOM) to take actions when imported goods are found to infringe IP rights and threaten the stability of foreign trade, in accordance with the Foreign Trade Law of the People's Republic of China. Should such infringments occur, MOFCOM is authorized to launch investigations into the IP violations of imported products and implement remedial measures to address the issues. For foreign companies exporting goods to China, this mandates that they ensure compliance with China’s IP regulations to avoid infringing  existing IP rights in the Chinese market. This provision aims to protect the legitimate rights of IP rights holders in China and maintain a healthy and fair foreign trade environment.

2.2 Unfair Practices in Competition

The Regulations also target unfair practices by IP rights holders in licensing contracts. For example, if a rights holder engages in acts such as preventing licensees from challenging the validity of IP rights in license contracts, imposing mandatory bundled licenses, or stipulating exclusive grant-back clauses in license contracts, and these acts jeopardize the fair competition order of foreign trade, MOFCOM may initiate an investigation and impose corresponding measures as warranted. The Regulations reiterate the rules in the Foreign Trade Law in terms of competition in trade and safeguards of foreign trade orders in China, underscoring the commitment to enforce the Law and relevant regulations in the future.

In addition to the anti-competition instrument, in our understanding, MOFCOM may also invoke the Unreliable Entity List Provisions (UEL Provisions) when such practices constitute a breach of normal principle of market transaction or result in a suspension or termination of supplies to Chinese entities whose legitimate rights were infringed consequently. The UEL Provisions empower MOFCOM to impose bans of trade and/or investment linked to China, close to a jurisdictional sanction against the foreign IP rights holders under investigation.

2.3 National Treatment and Adequate IP Protection

The Regulations require that foreign countries or regions should grant national treatment to Chinese citizens and organizations in matters of IP protection and provide full and effective IP protection for goods, technologies, or services sourced from China. If a foreign country fails to comply with these obligations, MOFCOM may conduct investigations and take necessary measures.

In practice, MOFCOM has two investigative mechanisms available in this context: trade barrier investigations and anti-discrimination investigations. At least the anti-discrimination investigation may result in an imposition of retaliatory tariffs as exampled by MOFCOM’s recent decision of an anti-discrimination on Canadian trade measures.

3.1 Sanction Investigations and Measures 

The Regulations also provide for sanction-related investigations and countermeasures. If the Chinese authorities find that a foreign country violates international law and the basic norms of international relations, uses IP disputes as an excuse to contain and suppress China, takes discriminatory restrictive measures against Chinese citizens and organizations, or interferes in China's internal affairs, China may, in accordance with laws such as the Foreign Relations Law of the People's Republic of China and the Countering Foreign Sanctions Law of the People's Republic of China, include in the countermeasure list the foreign organizations and individuals directly or indirectly involved in formulating, deciding, and implementing discriminatory restrictive measures and take corresponding countermeasures and restrictive measures. 

This is a clear signal that China will implement the sanction-related laws and regulations and will take resolute actions to safeguard its national interests and the legitimate rights and interests of its citizens and organizations. By far, the applicable sanction measures include the Controlled List of export control, Unreliable Entity List and Countermeasure List.

3.2 Blocking Provisions 

The Regulations provide a mechanism functioning similarly to a blocking statute to shield Chinese entities from unfair foreign IP measures and policies. No Chinese entity is allowed to take, implement, execute or assist in executing the discriminatory restrictive measures taken by foreign countries against Chinese citizens and organizations in IP disputes. In addition, the Regulations enable the Chinese entities affected by the restrictive measures to institute legal proceedings against any entities and individuals who have executed or assisted in enforcing the discriminatory restrictive measures taken by foreign countries, seeking redress for the infringement of legitimate rights.

When Chinese organizations or individuals participate in foreign-related IP-related litigation abroad or are subject to relevant investigations by foreign judicial or law enforcement agencies and need to provide evidence or relevant materials abroad, they must abide by the provisions of Chinese laws and administrative regulations on the protection of state secrets, data security, personal information protection, technology export control, and judicial assistance. Therefore, cross-border data and document transmission related to foreign-related IP disputes or investigations may be subject to Chinese legal scrutiny. Foreign companies and organizations that are involved in litigation or investigations with Chinese counterparts need to familiarize themselves with these legal requirements. They should ensure that the process of evidence collection and submission complies with Chinese laws to avoid potential legal risks.

In addition, as provided in laws such as the Civil Procedure Law of the People's Republic of China and the Law of the People's Republic of Chinaon International Criminal Judicial Assistance, the service of documents and the investigation or collection of evidence within China shall be handled in accordance with international treaties ratified or acceded to by China. No organization or individual may serve documents or investigate and collect evidence within the territory of China in violation of domestic legal provisions.

5.1 Coordination among Government Departments

The Regulations highlight the importance of interdepartmental coordination among government agencies. Under the Regulations, the National IP Administration (CNIPA) oversees trademarks, patents and copyrights, and the MOFCOM assume the primary responsibility for resolving foreign-related IP disputes. Meanwhile, other relevant departments of the State Council also have their respective responsibilities. For example, the Ministry of Justice (MOJ) is responsible for overseeing the mediation and arbitration of foreign-related IP disputes. These departments need to strengthen interdepartmental coordination and information communication to collaboratively address foreign-related IP disputes. 

5.2 Overseas IP Information Collection and Warning

CNIPA and MOFCOM are mandated to closely monitor, analyze and assess key developments such as changes in foreign IP legal framaworks and policies. They conduct analysis and research on typical cases and promptly issue risk warnings for entities engaged in cross-border IP activities. This public information service to domestic entities and foreign businesses operating in China ensures all stakeholders can proactively mitigate legal and operational risk in foreign-related IP matters. 

5.3 Encouragement for Alternative Dispute Resolution

Support is provided for commercial mediation organizations and arbitration institutions to participate in resolving foreign-related IP disputes. This fosters cost-effective and streamlined dispute resolution mechanisms for individuals and entities involved in foreign-related IP disputes. The Regulations require MOJ to strengthens regulatory oversight on the mediation and arbitration of foreign-related IP disputes to ensure fairness and effectiveness of these processes.

5.4 Capacity-building of Service Providers

Law firms, IP service agencies, and other relevant entities are encouraged to improve their capacities in foreign-related IP services and establish localized service networks abroad through means such as setting up overseas offices or forming joint operations. This not only benefits Chinese citizens and organizations but also provides more professional and local-level services for foreign companies and organizations operating in China. The Regulations require CNIPA and MOJ, together with relevant departments, to formulate supportive policies for these service providers to strengthen their foreign-related IP-related services, further improving the overall quality of foreign-related IP services.

6.1 Strengthening Internal Management

All enterprises operating in China, including foreign-invested enterprises, are mandated to enhance their awareness of the rule of law, establish and refine internal rules and governance, and strengthen the reserve of IP professionals. When entering foreign markets, enterprises should take the initiative to understand the legal systems and IP protection situations of the target countries or regions, conduct production and business activities in accordance with local laws, and actively safeguard their legitimate rights and interests.

6.2 Government-enterprise Collaboration

CNIPA and MOFCOM are required to focus on the IP protection needs of enterprises in their foreign-related production and business activities. They conduct targeted outreach and training for enterprises around key areas and key links of foreign-related IP disputes and introduce the case-based educational material analyzing foreign-related IP disputes to highlight legal compliance pitfalls. This collaborative effort between the government and enterprises helps foreign companies better adapt to the Chinese market and the international business environment, and also promotes a more harmonious and stable business relationship between Chinese and foreign entities.

The Regulations constitute a comprehensive legal framework addressing trade, investigation, enforcement and dispute resolution mechanisms for foreign-related IP matters. For foreign companies, organizations, and governments, these regulations present both opportunities and challenges. On one hand, they provide entities with acess to uniform legal standards IP protection across China, and also offer channels for resolving disputes in a more efficient and just manner. On the other hand, foreign entities need to fully understand and comply with these regulations to avoid potential legal risks. The regulations also reflect China's determination to safeguard its national interests, promote fair and just international trade, and contribute to the global IP protection system. As the regulations come into effect on May 1, 2025, all relevant parties are expected to closely monitor their implementation and make necessary adjustments to their business strategies and operations.