Header graphic for print
China Law Blog China Law for Business

An ABC To Losing Your China IP

By Dan Harris on Posted in China Business, Legal News

Fascinating article up on the Wall Street Journal, written by Geoff Nairn and entitled, “Patents are a Virtue,” and subtitled, “China is a land of opportunity for business, but it is also a land of counterfeiting and intellectual property theft.” The article is on counterfeiting in China and the various innovative ways companies act to prevent it. 

The article has a sidebar, entitled, “An ABC to Losing Your IP,” that lists out three things companies often do to cause them to lose their intellectual property in China. The Journal attributes this list to our blog, but because it has been so modified for the article, I am not even sure from what post(s) they came. In any event, I love the list, so here goes:

A: Failing to use employee invention agreements. These specify that any invention made using the company’s time, material or facilities belongs to the company, not to the employee.

B: Thinking that patents are the only IP that matters. Western companies underestimate the importance and value of trademarks and trade-secret agreements in China.

C. Neglecting the three Ns. Non-disclosure agreements stop suppliers disclosing IP to third parties. Non-use agreements stop Chinese contract manufacturers setting up as your competitors. Non-circumvention accords stop contractors selling direct to your customers.

What do you think?

  • Paul Frankenstein

    There might be a fourth “N”–non-compete clauses in employee contracts, though I have no idea how Chinese courts view them and their enforceability.

  • jacob b.

    Good post. My question is, what do domestic and foreign law firms do to protect their IP in China?

  • HI

    This all assumes that people respect their contracts in China. The reality is that contracts are viewed very differently from the West. If Cosco, one of China’s largest companies, defends with a straight face reneging on their contracts as a way to “enhance shareholder value,” what can you truly expect from a smaller company when circumstances change? It’s nice to read about things that on the surface sound a lot like what one might do in the US, but anyone sending IP to China would be well served by the basic understanding that contracts mean something very different over there.

  • Ben L.

    Non-competes exist in the Chinese Labor Contract Law. Scope is limited by duration, etc, but that’s the same here in the U.S. My understanding is that the law requires an actual severance payment that’s fair in light of the salary during the non-compete period, unlike US practice where the compensation for the non-compete can be paid as part of the salary.
    “Contracts mean something very different over there.” True but the absence of contract means something very similar–nothing. And even in China, having contract is still different from not having a contract, regardless of whether it is enforced to a letter.

  • Paris Painter

    I really like this also, but how about you do an article listing out exactly what we should be doing to protect our intellectual property in China.