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China IP Protection. Deja Vu All Over Again.

Posted in Legal News

When we first started this blog way back in 2006, we would constantly tout how if you want to protect your IP in China, you have to register your IP in China.  Our thesis was (and is) that if you don’t bother registering your IP in China, you really have no right to complain about someone using “your” IP in China.  For a representative article with these thesis, check out, China Trademarks — Do You Feel Lucky? Do You? The flip side of this thesis is that if you do register your IP in China (i.e., your trademark, copyright or patent), your chances of protecting it will go up exponentially.

Back in 2006 and 2007, the media was constantly writing about U.S. companies with IP problems in China. The amazing thing about virtually all of those articles, however (especially the ones in the local press) was that they never mentioned one way or the other whether the complaining American company actually had any legal basis for its complaints. In other words, they were completely silent as to whether the American company had actually registered its IP in China. I must have called at least a half a dozen reporters behind stories like those and in every single instance, they admitted it had simply never occurred to them to ask whether the subject of their stories had actually registered its IP in China or not. It had never occurred to them because, without even thinking about it, they had just assumed that what is good in the United States is good for the world; if you have a trade name in Peoria, that alone ought to be enough to prevent anyone in Timbuktu or Tianjin from using it. WRONG.

What virtually all of these articles had in common though was that they would quote the “offended” American company as though it were spouting gospel and blame the Chinese company as though it was solely responsible for the American company’s problems.

I thought of those good/bad old days today after reading an excellent post over at the Learn China Business Blog, entitled, “Are Chinese Copycats Convenient Scapegoats for Poor Preparation?” The post is about a USA Today article, entitled, “Chinese copycats challenge U.S. small businesses.” The article highlights a U.S. recreational camper trailer company called SylvanSport. SylvanSport professed “shock” at learning that a product very similar to its own was being made in China and sold in Korea and Japan, two countries where SylvanSport had been seeing strong sales.  Syvlan’s owner seems to see SylvanSport’s legal problems as a political matter:

“Our politicians, when they describe the companies that are necessary for the economic recovery, (they are talking about) companies like ours,” he says. But because of SylvanSport’s lost sales, “There’s a very real chance that the Chinese company could be the survivor here and we could go out of business.”

The USA Today article does NOT make the mistake of failing to investigate the IP protections secured by its subject company and, in fact, it flat out notes that SylvanSports did not file for a China patent and that its Chinese competitor, Wuyi Tiandi, did:

Wuyi Tiandi received a patent on its camper in China in November, according to Tang. SylvanSport received various U.S. patents for its product between 2008 and 2010, Dempsey says.

While Wuyi Tiandi might not be able to sell its products in the U.S. because of SylvanSport’s patents, Tang says, “We can still sell our trailer everywhere else.”

The article goes on to describe SylvanSport’s case as a “cautionary tale about small businesses’ need to protect their intellectual property” and notes that “only 15% of small companies that do business overseas realize that U.S. patents and trademarks protect them only within the U.S., according to the U.S. Patent and Trademark Office.” The article rightly points out the need for US companies to “file patents and trademarks in countries where their products will be made and sold, as well as where they’re based.”

Sylvan’s owner never contests his lack of legal standing, but instead puts forth the vague notion that things ought to be different:

While Dempsey realizes the limits of U.S. patents, he says that Wuyi Tiandi should not be able to get a patent in China based on his product.

I’m sorry, but color me skeptical and indifferent.  Heck, I’ll even go a step further than that and flat out blame the “victim” here and say that whatever SylvanSport is going through is its own fault.

I deal with companies like SylvanSport every day and here is how my conversations with those companies often go:

Company: I have a great product and I am not sure what sort of IP protection I am going to need for it.

Me: Where are you making this product and where will you be selling it?

Company: I am making it in the United States, but I am selling it throughout the world.

Me: Do you have any patents or trademarks or copyrights related to the product?

Company: Yes.  I just filed for a patent here in the United States and I also have registered trademarks here too. One for my company name, one for the product name and our logo.

Me:  Good.  Ummmmmm. Okay. Let’s talk about your sales. You say you are selling your product all over the world, but can you break that out for me a bit more.

Company: Yes. Right now, about 70% of our sales are in the U.S., 10% are in Canada, 5% are in Australia, 5% in England, and maybe 5% in France, Belgium and Germany combined.

Me:  Okay, you said “right now.” Do you anticipate those numbers changing?

Company:  Yes.  We have been getting a lot of interest from Japan and Korea and we are about to sign a deal with companies in both of those countries to distribute our product there.

Me:  Okay. So here is how I see it. If you were an Apple or a Microsoft, this would be easy. I would just tell you to register your trademark and your patent in pretty much every country in the world, including South Sudan and Afghanistan, figuring your product will eventually go everywhere and figuring you can afford it. But that doesn’t make sense here.  So here is what I tentatively suggest, subject to our talking further and our getting back to you on registration pricing for each country.

What will probably make sense is for us to look into the most cost effective way to get you trademark and patent protection in the United States (where it sounds like you are probably already completely covered), Canada, Australia, England, France, Belgium, Germany, Japan and Korea. It will probably end up making sense for you to do an EU filing to cover all of the EU countries, not just those we have already discussed.  Do you have any plans to manufacture your product outside the United States?

Company:  No immediate plans, but I as this thing really takes off, I could see us looking at China, Vietnam or maybe even Indonesia for manufacturing.

Me: Okay. Well then we should get back to you with pricing on those countries as well. By the way, who did your United States patent work?  I ask this because I will want to talk with them about exactly when your patent was filed and what sort of filing was undertaken because that will impact whether or not you are too late to file patents on your product in any other countries. We don’t do patent work, but we can recommend patent lawyers to you in the relevant countries, though I am guessing that your patent lawyer can probably do so as well and we find it generally makes sense to have your US patent lawyer head up and oversee your foreign patent filings as well.

The point of my setting out the above is to show the basics of what companies typically go through in determining what to do to protect their IP around the world. SylvanSport should have gone through the same sort of thing with its lawyers and if it did and then chose not to register its patent in Korea or Japan (where it is now complaining of lost sales) or in China (where it is now complaining of a copied product), it made its own choice. If SylvanSport was advised on what it needed to do to protect its IP and then chose not to spend to do so in China, Korea or Japan, then it appears it made a cost-benefit analysis that it now regrets. If Sylvan was never advised on what it needed to do to protect its IP around the world, then it made the decision not to bring in counsel capable of assisting it with this issue.  Either way, it was SylvanSport’s choice not to spend the money it needed to spend to secure the IP protection it now seems to wish it had.

One more thing about the article that struck me. SylvanSport might be right to complain about how Wuyu Tiandi should not have been granted a Chinese patent. Patents in China require, among other things, “novelty” and if something has already been patented, it probably is not novel. Invention patents in China are substantively examined but utility patents are not. If SylvanSport is concerned about Wuyu Tiandi having a Chinese patent, SylvanSport should retain a Chinese lawyer versed in China patent litigation to figure out whether it has grounds to challenge Wuyu Tiandi’s patent and invalidate it. It is probably too late for SylvanSport to secure its own patent in China but invalidating Wuyu Tiandi’s patent would at least allow SylvanSport to manufacture and sell in China some day, if it so wishes.

Learn China Business raises THE important question: “In SylanSport’s case, how can they feel victim to any Chinese company selling a product similar to theirs without coming to the table with a Chinese patent protecting their ownership interests?” I’d like to know the same thing.

  • Guan Yang

    For the confused, the might be worth noting that “invention patents” in China are more like utility patents in the US, and what you call “utility patents” in China are often called “utility model patents” and are not quite like a US utility patent, but closer to a US design patent.

    Of course there are also Chinese design patents; those are even more like a US design patent.

  • Yven

    The capability for small businesses to file patents on a global basis is more or less dependent on their revenue/profit and what lawyers charge.  Like you said, Apple and MS don’t even have to think about it.  A mom and pop company selling a few dozen custom designed products for a niche market?  It’s not an easy decision.  

  • StopChinesePiracy

    Violating a patent by making a similar version, such as Samsung has done with their Series 9 aluminum chassis laptop vs. Apple’s MacBook laptops (the originator of aluminum chassis laptops) is one thing. Purchasing somebody’s product, shipping it to China, pulling it apart piece-by-piece and cloning it… stealing it!… is QUITE another. In what universe is this acceptable behavior?