On December 26, 2020, China passed the 11th Amendment to Criminal Law (the "Amendment") which will be effective on March 1, 2021. The Amendment makes significant changes to crimes associated with intellectual property (IP) (except for patent counterfeiting). It shows the Chinese government’s commitment to continuously improve IP protection, particularly in compliance with the U.S.-China Phase One Trade Deal signed in early 2020.

Except for patent counterfeiting, the Amendment removed the two lenient penalties including detention and public surveillance for all IP crimes, and increased the imprisonment length. For regular “serious circumstances,” the penalty is still up to 3 years in prison while as a new change it can be up to 5 years for knowingly selling pirate items with great illegal income (Art. 218) and for committing economic espionage (Art. 219.1). For “especially serious circumstances”, the maximum prison term is increased from 7 years to 10 years. Particularly, for an especially serious crime of economic espionage, i.e., misappropriating trade secrets for any foreign parties, the imprisonment penalty will be more than 5 years with an open end.

It is worth noting that the term “not less than”, or “not more than” under Criminal Law includes the given figure. The penalty difference between “serious circumstances” and “especially serious circumstances” for most IP crimes is still three years. In the past, judges have sentenced a three-year imprisonment in some “especially serious circumstances” cases, which left room for probation (applicable for any sentencing of 3 years or below) so the infringers eventually didn’t have to stay in jail. Too much suspended sentencing with probations apparently will not deliver sufficient deterrence to criminals and some right holders raised complaints about it. The previous relevant judicial interpretations have stipulated the specific circumstances where no probation can be granted. We hope that Chinese courts will follow the legislative spirit of increasing penalties against IP crimes in the Amendment, and will not grant probation in “especially serious circumstances”.

According to Article 213, using the same trademark on the same kind of services without the registered trademark owner's permission constitutes a crime if the threshold is met. Previously, criminal liability applies only to trademark counterfeiting on goods. The Amendment now adds service marks to the protection scope which means counterfeiting a service mark can also be prosecuted under Criminal Law.

This is great news to those companies in the service industry. We are in a digital economy era and a considerable number of services are provided on the Internet. Making criminal prosecution clearly possible against service trademark counterfeiting under the Amendment will apparently improve the protection of service businesses.

The Amendment changed “film, television and video works” to “audiovisual works”, which is in line with the Copyright Law revised in November 2020.

The Amendment increased types of criminal acts that constitute copyright infringements, and added “disseminating through the information network” to “reproducing and distributing”. The Amendment will strengthen the abatement of copyright infringement in the Internet environment.

Under the Amendment, “intentionally avoiding or destroying the technical measures for copyright protection taken by the right holder without the permission” will constitute a crime and be sentenced accordingly. The Amendment will particularly benefit the copyright protection of cultural creativity, software development and service enterprises, mobile multimedia, animation games, software database, and other strategic information and cultural industries.

The Amendment revised the criminal threshold from “causing significant losses to the right holder of trade secrets” to “if the circumstances are serious”. The criminal protection further expands the dimension of trade secrets. With the revision, the penalty is based on the severity of the circumstance rather than just the amount of the monetary losses.

The Amendment refers to the Anti-Unfair Competition Law on the expression of the infringement of trade secrets. The modifications include: (1) added three types of crimes that constitute an infringement of trade secrets, including electronic intrusion, bribery, and fraud; (2) clarified that the disclosure or use of trade secrets in violation of the duty of confidentiality might constitute a crime; (3) for subjects who do not have a duty of confidentiality, amended the subjective aspect of "knowingly or should know" to "knowingly," reflecting the principle of compress and modesty of the Criminal Law.

This is probably the most concerning new change. The Amendment introduced the so-called “commercial spying” crime, similar to the “economic espionage” defined by the Economic Espionage Act of 1996 (EEA) 18 USC Sec. 1831. The Amendment extended the application of the trade secret infringement to stealing commercial secrets for foreign agencies, organizations, or individuals. Chinese governments imposed severe penalties on leaking trade secrets to foreign countries (higher sentences than other IP crimes). However, it should be noted that different from “foreign instrumentality” in EEA, the foreign beneficiary under the Criminal Law can be very broad, which can 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”, Mark Cohen explains in his blog. All Chinese or foreign companies/individuals in China that exchange information with foreign countries should adopt a higher compliance standard. Particularly, foreign companies/individuals may consider defensive measures, including revising their confidentiality agreements and other agreements with Chinese parties, and implementing stricter controls to minimize the risk of such allegations.