Archives: intellectual property in China

I am constantly telling our clients that just because something happens one way in Shanghai does not mean it is going to happen the same way in Datong.  It is more than cliche to say that China is a big and diverse country.  Shanghai has some of the most sophisticated infrastructure in the world, while some people still live in caves in rural Henan.

But people often forgot that this applies to the Chinese legal system too. Some courts use strong international standards, while some…not so much.  When helping our clients decide where in China (or even Vietnam or elsewhere in Asia) to locate their businesses, the quality of the legal structure is a factor, the extent of which is going to depend on the nature of the business.  We have talked a number of software and gaming companies from locating “out in the provinces” to save money by convincing them that they need to balance their intellectual property risks against those savings.

I was starkly reminded of that the other day after learning the details of an IPR dispute ongoing in China right now that underscores how much the location of your court can influence the court decisions rendered.

The case involves Knowles Electronics, a US company that makes many of the components in the smartphone or tablet you’re reading this on now. They are the company that made the microphone used by Neil Armstrong during the moon landing.

The other company is GoerTek, a Chinese competitor from Weifang, Shandong.

The case involves competitors fighting with each other in courts from Suzhou to Weifang over the IP to tiny microphones. And also unidentified men accompanied by armed police officers who are alleged to have come to the factory and caused disruption of operations.

We’ll get there.

I won’t bore you with too many of the details. If you are a regular reader you probably get the gist. I’ll just lay out a few to set the stage:

  • Knowles began filing Microelectromechanical Systems (“MEMS”) patents in the US the early 2000s and beginning in 2003, it sold millions in the highly popular early Motorola RAZR phones.
  • Nearly all high-end smartphones in the market—Apple, Samsung, Blackberry—today use Knowles MEMS technology.
  • Major competitors in the market, like Chinese company AAC Technologies Holdings, Inc., license the technology from Knowles, indicating there is little dispute in the market about who owns the technology.
  • Knowles has a major MEMS manufacturing facility in Suzhou and it sold its 15 millionth microphone produced in China in 2004, and 100 millionth the next year.
  • In 2008, GoerTek began producing products similar to MEMS microphones.

So it appears GoerTek is claiming to own technology that either Knowles pioneered or that was in the public domain before GoerTek sought patents, and the two companies have been disputing the IP for some time.

Knowles filed suit in the US and has also taken action at the US International Trade Commission. GoerTek countered by filing suit in its hometown of Weifang.  Knowles sued GoerTek in Suzhou, where Knowles has major operations.

This using multiple lawsuits to jockey for position/best venue is nothing new.  We lawyers even have a name for it: forum shopping.

Here’s the rub.

In its Weifang home court, GoerTek procured an Evidence Preservation Order and a Property Preservation Order within five days of filing the case, which is “highly unusual,” particularly given the complex nature of the claims.

Then on July 31, Weifang officials went to Knowles’ factory in Suzhou to execute the preservation order, which normally would mean securing just enough evidence to show infringement.  But in this case, the Weifang officials allegedly seized a large number of Knowles microphones in what seems to have been an effort to disrupt Knowles’ operations.  The Weifang court also imposed restrictions on the disposition of some of Knowles’s Suzhou assets, even though there was little chance Knowles would just up and leave a country in which it had been operating for twenty years.  Are you getting the picture here?

But China is a big country, and Suzhou — a hotbed of foreign investment — is not Weifang.  Officials in places like Suzhou oftentimes understand that if their region/country is going to move from being the factory to becoming a sophisticated and high-end research and manufacturing country, IP rights will need to be respected.

Many top-tier companies have set up shop in Suzhou and the way that Suzhou courts tend to handle their international cases is one of many reasons why it remains a prime investment destination, even though its costs are on the high side for China.

Knowles brought an action before a Suzhou court and filed a petition for an Evidence Preservation Order against GoerTek. The Suzhou court spent about a month examining Knowles’ petition and then issued its own Evidence Preservation Order.  A representative from the Suzhou court then went to Weifang to execute the order against Goertek, but Goertek denied him entrance.

In the meantime, the Weifang court fined Knowles RMB 1 million for having failed to comply with the earlier Suzhou raid that involved the seizure of so many Knowles microphones.

What does all of this mean for you and your intellectual property in China? What does all of this mean for your plans for doing business in China? It means that just as you need to think long and hard about taking your IP overseas at all and just as you need to think long and hard about taking your IP to China, you also need to think long and hard about where you operate in China.

Cause like we are always saying: China is a big country, and that means that you can end up in an innovative, forward-looking jurisdiction or you can end up in a city from old China where friends and guanxi still trump the rule of law.  It also means that a lot more than costs should go into your decision on where to locate.

The good news is that by-the-book efforts like those of the Suzhou courts do show that slow but sure progress is being made in China’s legal system, but partly cloudy skies/areas clearly do remain.

What do you think?

We here at China Law Blog constantly emphasize the need to secure trademark registrations in China, as evidenced by the China trademark posts below:

But it just occurred to me this morning (upon seeing an email from one of our China attorneys to a client) that we have never written anything about what a company should do with its China trademark once secured.  So here goes, in the form of the fairly standard email we write to our clients once we have received notification from the China trademark office that the trademark application we filed for our client has been accepted and that the trademark has now been registered in China.

I am pleased to report that the following China trademarks have been registered for Class 25 goods (i.e., clothing):

(1)    [Brand name]
(2)    [Brand name] logo

Attached please find a scan of the Certificate of Trademark Registration (along with an English translation) for each of the above-referenced trademarks. Please also note the following:

1.    If ______[client] LLC (i) changes its name or address; (ii) licenses any third party to use either trademark; or (iii) assigns either trademark, it must file an application with China’s Trademark Office to that effect.

2.    Each trademark will be valid for a period of 10 years, starting on the official registration date of June 21, 2013, and ending on June 20, 2023. If you wish to renew the trademarks, you may do so any time within six months before the expiration date.

3.    Each trademark will be presumptively valid throughout its term, but if a trademark is not used in commerce in China at least once every three years with respect to the covered goods, then it is at risk of cancellation for non-use.

We are still waiting to receive the original trademark certificates. Upon receipt, we will send them to you.

As I noted in my previous email, we should discuss some other ways to protect your intellectual property in China. Registering your trademarks is the first and most important step, but there are two additional steps that we recommend to our clients, especially those who manufacture goods at risk of counterfeiting, like branded clothing. First, monitor China for possible infringement of your marks (including but not limited to monitoring third party applications for similar trademarks). Second, register your trademark with Chinese Customs. The latter is an essential step if you believe counterfeit product may be coming from China, because Chinese Customs will not seize any allegedly counterfeit products unless you have a registered trademark in China AND you have separately registered that trademark with Chinese Customs.

The Hollywood Reporter recently did a story, entitled, “China’s Looming Entertainment Problem: Not Enough Lawyers,” discussing, among other things, intellectual property in China. Our own Beijing-based China entertainment lawyer, Mathew Alderson, was interviewed for that story and The Hollywood Reporter has kindly agreed to allow us to run a post based on the original interview.

 

Hollywood Reporter:  We’d like to first give a general overview of the state of entertainment and IP law in China.

Alderson:  There is no separate body of entertainment law as such, but it helps to understand how China generally views foreign investment. China limits the industries in which it accepts foreign investment or foreign business operations.  Foreign involvement in Chinese industries is categorized as “encouraged,” “permitted,” “restricted” or “prohibited”. Industries move between, or appear within, the various categories from time to time depending on the changing requirements of the Chinese authorities and the economy they oversee. An awareness of these categories not only assists foreigners to avoid illegal or unwise investments, it allows us also to understand the level of regulation to be expected in a particular industry as well as the business entity prescribed for that industry. Foreign involvement in the entertainment business in general, and the business of operating cinemas in particular, is “restricted” in China. It follows that there are substantial barriers to entry into the cinema business and the China film production business. These businesses are heavily regulated. Foreigners cannot operate in these areas independently of Chinese partners, so a co-production is required to make a film and a joint venture is required to set up a movie theatre.

As far as intellectual property is concerned, at first glance China’s legislative framework is world-class. This is largely because such a framework is a requirement of China’s WTO membership. The trouble is that this framework has been grafted onto a society with little frame of reference for its underlying concepts and the level of protection of intellectual property rights in China is often less than satisfactory despite the generally good quality of the laws themselves. I give some examples of current problems below.

In China, authority to adjudicate infringement and damages is vested in the courts and administrative agencies. So you have a situation in which the Chinese Patent Office, for instance, can make its own infringement determinations, award damages and issue injunctions without the need for a complaint filed in court.

One of the big issues at present is that foreign technology transfer is sometimes a pre-condition for market access. Trademark piracy remains a persistent and serious problem. Local businesses routinely register enterprise names that use famous US trademarks in misleading ways, often in conjunction with goods or services for which the US brand is famous. What we Westerners would see as Bad faith filings and trademark “squatting” are commonplace. And, as everyone is aware, DVD and online piracy are rampant. The Chinese government itself reckons that 15-20% of all products made in China are counterfeits accounting for around 8% of gross domestic product.

 

Hollywood Reporter:  Is this field developing fast enough to serve the booming Chinese film industry (expected to eclipse North America as the world’s largest film market in 5-10 years, as I’m sure you’re aware — the impressive growth numbers abound)?

Alderson:  I think it is developing steadily, but whether it serves any particular industry is another question.

 

Hollywood Reporter:  Is it reasonable to assume that more legal disputes will arise in the film and entertainment sector as the stakes rise and the value of the business grows?

Alderson:  Yes. That is a straightforward outcome of the sort of growth we are seeing. More business means more disputes in any market.

 

Hollywood Reporter:  This piece covering the “Lost in Thailand” suit quotes a consultant who suggests many studios are ill-equipped to handle IP protection issues (“Practitioners in the film industry have relatively weak awareness of intellectual property rights protection and very few companies would equip themselves with a complete team of lawyers in a film project or seek professional legal advice in advance.”) Do you agree with that assessment?

Alderson:  That may be the case with certain purely Chinese studios but I do not think it applies to everyone else.

 

Hollywood Reporter:  What kind of legal issues/problems/complaints do you think Hollywood parties are most likely to encounter/make in China?

Alderson:  It is generally assumed that China’s quota on foreign films is the biggest challenge but the quota has no application to domestic Chinese films or to official co-productions because these are regarded as domestic films. The biggest challenges are getting films approved by the Chinese censors and then getting paid a full share of box office. Foreign films must be cleared by the censors before they can be considered for the quota. Censorship comes first. China’s lack of any age rating system provides it with a useful and additional justification for censorship decisions. Censorship is a key issue because during the first 30 years or so of the PRC, foreign films were entirely banned and the film medium was seen mostly as a means of achieving “social enlightenment”. The government remains determined to subordinate the growth of the film industry to outcomes such as social stability and morality.

 

Hollywood Reporter:  What legal and other protections could and should a Hollywood studio seek when doing business in China?

Alderson:  There is a tendency to assume that US law and jurisdiction should apply to all contracts in all circumstances.  US law and jurisdiction are of little value unless the Chinese party has assets in the US. Just getting this jurisdiction piece right can be a critical form of protection.

 

Hollywood Reporter:   Are legal protections likely to be weaker for foreign parties than local counterparts in Chinese courts?

Alderson:   These days, foreign companies seeking to enforce contracts can often obtain good results in Chinese courts if the contract was written with the Chinese courts in mind and if the other party is a private company of a similar size. Having said that, it certainly is more difficult when you are suing a State Owned Enterprise (SOE) or a Government Agency.

 

Hollywood Reporter: Given that foreign (Hollywood) investment into China’s film industry, and partnership with local players, is continually increasing in scale, is it realistic to hope that new IP protection regulations might soon be passed and enforced in China?

Alderson:  Yes. Improvements are occurring all the time.  But at this point, the problem is not so much the laws and regulations, but rather, their enforcement.

 

This is a guest post from Gilman Grundy. Gil is a senior IP advisor for Tieto. I know Gil from his many years before that as an IP advisor in China. The views expressed in this post are Gil’s own.

When I received Dan’s invitation to write an “in the trenches” piece on intellectual property in China I was a bit hesitant. Given all the commentary already out there on IP in China written by folks older and wiser than me there wasn’t anything left to write about on the subject.  Then I read this article at China Debate comparing China’s current patenting boom to the Mao-era Great Leap Forward, where Mao attempted to transform China almost overnight into a leading steel producer by mandating the production of steel in small furnaces at workplaces, schools, and hospitals, most of which turned out to be of very low quality:

According to the Wall Street Journal article, “China as an Innovation Center? Not So Fast,” China’s “impressive volume of patent filings conceals serious challenges to Beijing’s R&D aspirations”:

At first blush, data on “outputs” also look impressive. According to the World Intellectual Property Organization, Chinese inventors filed 203,481 patent applications in 2008. That would make China the third most innovative country after Japan (502,054 filings) and the U.S. (400,769).

Yet there’s less here than meets the eye. Over 95% of the Chinese applications were filed domestically with the State Intellectual Property Office. The vast majority cover Chinese “innovations” that make only tiny changes on existing designs. In many other cases, a Chinese filer “patents” a foreign invention in China with the goal of suing the foreign inventor for “infringement” in a Chinese legal system that doesn’t recognize foreign patents.

So how is it working? According to John Kao, “an innovation consultant to governments and corporations” and former professor at Harvard Business School, as quoted in the New York Times article, “When Innovation, Too, Is Made in China” China is right now using “a brute-force approach at this stage, emphasizing the quantity of innovation assets more than the quality.”

Sort of like instantly increasing steel production by running lots and lots of backyard furnaces.

There are a few basic issues that need dealing with here, most of which come from the WSJ piece on which the New York Times article is based:

  1. Just like every other country of which I am aware, China requires that you apply for a patent before it will grant you one. You cannot enforce a United States patent in China, or a Chinese patent in the United States. Sovereign states are funny about that.
  2. Just like every country of which I am aware, with the exception of New Zealand, China does not grant patents for inventions which have been published in another country before the priority date. Sure, you might be able to slip one past the examiners occasionally, but that’s one of the reasons for invalidation proceedings.
  3. Many of the filings referred to in the article are not for “invention patents.” They are for what are called “utility models” –- that is, “mini patents” for improvements to known technology that do not meet the requirements for an invention patent and which give fewer rights than invention patents. China is not the only country with this system –- Germany and Japan also allow for registering utility models.

This said, there is also a lot here which coincides with my experiences.

Firstly, many large multinationals with extensive facilities in China are growing their patent portfolios in China. Some of these multinationals have what amounts to a production line for patents and they are making thousands of applications per year.

How has this been achieved? In the companies with which I have worked, this was done by setting ever increasing internal targets for patentable ideas and by instituting reward schemes for inventors. Because these patent applications are often made only to reach a target (and not so much for the inventive subject matter that they are designed to cover) these can be of low quality.

Secondly, may of China’s patent applications have been by academics, lone inventors and small enterprises. Many of these applications have been fuelled by Chinese government incentives for registering intellectual property and by patenting targets for research institutes. In other words, China’s national strategy for increased patenting mirrors the carrot approach used in-house by large companies. These are often simply done to fulfill quotas or for prestige reasons, and can also often be of low quality.

So what’s my “trench-level” view on how to cope with this changing environment? Basically, if you are working in areas where patent infringement is an issue, you should focus on the following three things:

  • An  increasing number of patents out there means you should be increasing your emphasis on doing FTO (freedom to operate) work on any product or method you intend to supply, offer, make, use, or import into China to determine whether your product or process might infringe on any existing patents. I know that some people are inclined to be fatalistic about the possibility of infringement, but speaking from my own experience, this is the wrong attitude — even in software it is almost always possible to avoid a patent if it is known about early enough. This is particularly true where the patent is of low quality.
  • Where possible, try to develop your own patent portfolio to use in retaliation against any company that tries to sue you for infringement.
  • Companies give away a lot of information about themselves in their patents. Their patents can reveal who their most innovative workers are, on what technology areas they are concentrating,  etc. The more they patent, the more you can learn about how to compete with them. This is as true in China as anywhere else.

I am interested to hear what you think.

 

China Law Blog’s own Steve Dickinson is going to be setting forth the “golden rules” for managing your Intellectual Property (IP) in China. Steve will be giving this talk on how to protect your IP in China on June 22,  2011, at 4:00 pm at REDSTAR Times Media, Room 41, Building 3, Creative Industry Park, 100 Nanjing Lu, Qingdao. Because Steve’s presentation is part of the China IPR SME Helpdesk attendance is restricted to “only European SMEs and SME intermediaries.”  The event is free and it is described as follows:

Every company operating in China is aware that intellectual property issues are part of the business environment but protecting your rights can seem expensive and complicated. What is the best way to tackle this issue? What are the golden rules? This interactive workshop will provide you with a thorough understanding of the options available for any budget and a checklist of actions you can take to make the most of your intellectual property rights. You will learn from real life case studies and the experience of a local IP expert, Steve Dickinson.

For more information, go here.

I am always counselling patience to young lawyers who want to start their careers doing international law. I explain that international law is really just “regular” law with an international component. I thought of that today when I read a post on the High Touch Legal Services Blog, entitled, “Top Ten Intellectual Property Mistakes of Startup Entrepreneurs” and realized how many of those mistakes have commonalities with the IP mistakes we so often see with foreign companies going into China.   

I am going to set out (in bold) six of the mistakes outlined in the High Touch blog post most relevant to China and then discuss how they relate to China. 

1.  Failing to use employee invention agreements.  True of China as well. These agreements essentially require new hires agree to report anything to the company that they invent that result from any work performed on behalf of the company or relate in any manner to the existing or contemplated business of the company, or result from the use of the company’s time, material, employees, or facilities. They also mandate that any such inventions are assigned by the employee to the company. These agreements make sense in China as well.

2.  Assuming that the company owns contractors’ work product.  Even though there is almost no such thing as an independent contractor in China, we see a similar thing all the time. We have been contacted at least a half a dozen times by a US company that has in some strange and illegal capacity retained people in China to conduct R&D for and then when that R&D group goes off on its own, the US company wants to sue them for stealing the US company’s IP. My response is usually to ask how it is that the US company proposes to explain the illegal situation to a Chinese court and then note that what the R&D people walked off with probably did not belong to the US company in any event.  

3. Using another company’s license agreement.  Fortunately, we have no encountered this situation all that often in a China context. Apparently, most companies do realize that if they are going to be involved in a China licensing arrangement they need a customized licensing agreement. I will note here also that China requires you to register your licensing agreements with the government.   

4.  Thinking that patents are the only IP that matters.  We do see a bit of this in that companies seem to underestimate the importance and value of trademarks and trade secret agreements in China.  

5.  Neglecting to identify and protect trade secrets.  Very true of China where companies far too often fail to do all that they can to protect their trade secrets via agreements with their employees or via NNN Agreements with outsiders.  

6.  Giving the “family jewels” to an overseas supplier.  This one obviously applies to China in that companies so often make the mistake of not requiring their China suppliers to sign confidentiality, non-compete and/or non circumvention agreements.  

The seventh mistake (not set forth in the High Touch blog because it is a China-centric tip) is believing that registering your trademark under the Madrid Protocol is the same thing as registering it in China.   

What are you seeing out there? 

The United States Commerce Department, Office of China Economic Area, will be putting on two webinars this month on intellectual property in China. I have listened in on a few of these webinars and they tend to be very good.

The first will be on May 10, from 2:00 p.m. through 3:30 p.m. EST and will be the United States Trade Representative (USTR) “Reports on Local Enforcement of Intellectual Property in China: Special Provincial Review and Special 301 Report.”  This report examines the “adequacy and effectiveness of IPR protection and enforcement at the provincial level in China.”  These reports are based on “numerous teams of U.S. government officials [having gone] to many provinces across China meeting with local Chinese government officials, conducting site visits to hot spots of pirating and counterfeiting activity and solicited two rounds of public comments.” USTR Chief Negotiator for IP Enforcement Stanford McCoy, and Senior Director for China Amy Celico will be leading this webinar, which will provide “an in-depth discussion of this year-long fact finding mission and the results of this year’s Special 301 Report on China.” A copy of the Special 301 report can be found here [pdf].

The second webinar will be on May 17, also from 2:00 p.m. through 3:30 p.m. This one will be on China’s 2007 IPR Action Plan and will be led by China’s Counselor for IP Dr. Yang Guohua. Dr. Guohua will discuss China’s “2007 IPR Action plan which documents initiatives planned in 2007 by a number of China’s IP related agencies. This year’s plan has over 276 measures.” Dr. Guohua’s talk “will focus on “the major projects to be completed in this plan and points out areas of interest to foreign right-holders.” An English language version of China’s IPR plan can be found here.

Both events are free. To register, you must send your contact information to ChinaIPR@mail.doc.gov and registration confirmation and dial-in/log-in instructions will follow. Only a phone line and a computer with internet are required to participate.

If you are a China lawyer or you are doing business in China we urge you to attend.

Click here to watch China Law Blog’s own China lawyer, Steve Dickinson, pontificate on China IP on China’s leading international news talk show, Dialogue. Steve’s portion comes on about 4 minutes into the show, but there is (at least near as I can tell), no way to fast forward.

I thought Steve’s most interesting point was how American companies base their decisions too much on what they read in the media regarding counterfeiting of DVDs and software in China, even though counterfeiting of those items has almost nothing to do with the ability to protect other sorts of intellectual property in China.

We will post a full transcript of the show early next week.

China’s recently stepped up effort to root out foreign companies doing business in China without being registered to do so has caused a rash of China consultants to retain the China lawyers in my firm.

From our work in forming China WFOEs for these consultants, we have learned that many China consultants are falling dangerously short in various other legal aspects of their business as well. Indeed, if we were to single out the foreign businesses in China most often guilty of underestimating their legal risks, it would be China consultants. China consultants seem to have been in China so long that they have lost sight of the fact that when push comes to shove (or as we lawyers like to say, when a deep and easy pocket needs to be found) they are the American/European/Australian company that is going to need to answer for what happened. These China hands also fail to recognize how much China has changed in the last decade and that doing business in China today is just not the same as it was five years ago. Not even close. If you are a Western consultant hired by a Western company to assist in China, you must realize that if something goes wrong for your client you will be your client’s first choice for legal redress.

What can go wrong? And what can you as a China Consultant do to prevent or ameliorate it? Overall corporate planning to protect your personal assets is an absolutely necessary first step. Beyond that however, and more specifically to China, you can do a lot to protect your client and thereby protect yourself.

We have seen the biggest problems with sourcing consultants that assist in finding Chinese manufacturers. A typical sourcing project, might go like this:

  1. Western company retains a product sourcing consultant to find the best Chinese widget manufacturer in terms of cost/quality/dependability.
  2. Consultant requests and secures sample widget from manufacturer.
  3. Consultant meets with countless Chinese manufacturers in search of the best one.
  4. Consultant recommends company Z in China to manufacture 100 million widgets.
  5. Consultant is to be paid a percentage of the manufacturing costs.
  6. Company Z starts manufacturing the widgets.

By this point, I am guessing the sourcing consultants reading this are saying, “yes,” while the China attorneys out there are already apoplectic. Let’s deconstruct this hypothetical project and note where the consultant has potentially harmed the client and needlessly taken on huge liabilities for itself.

  • The sourcing consultant agreed to find “the best” widget manufacturer. Is that best in China or best in the world? What if the widget manufacturer charges one hundred dollars a widget for the 100 million widgets, but your client’s competitor finds another widget manufacturer who will do it for ninety dollars. Are you liable for the difference? Even worse, what if your client’s competitor gets the same Chinese widget manufacturer to do 100 million widgets for ten dollars less? Do you really think a US jury is going to believe you were doing your best when your fee was a percentage of the final costs? Are you responsible for the Chinese manufacturer’s late deliveries? For the Chinese manufacturer’s bad product?  Is it clear exactly what your percentage is going to be based and have you set things up so that your client cannot just go around you? The Solution: Use a well-crafted written contract to make clear exactly what you will and will not do. Put in a non-circumvention provision to make sure you get paid.
  • If you take a sample to China and start showing it to potential manufacturers without FIRST putting in place various safeguards, you are courting disaster. The sample could be used for counterfeiting. We had a consultant call one of our China lawyers in a panic after returning from China to learn that one of the manufacturers to which he had shown a sample had already started manufacturing the product for someone else using the consultant client’s trademark which it had gleaned from the Internet. The Solution: Never show a sample or product plan or reveal your trade name(s) without first making the Chinese manufacturer sign a China-centric NNN Agreement (essentially a hopped up NDA that protects against competition, circumvention and disclosure). Chinese manufacturers tend to be quite familiar with NNN agreements and if you give them a simple and reasonable one, in Chinese, they will sign it.
  • You the consultant must do more than simply negotiate the price and delivery dates or you should at least make clear in writing that these are your only tasks. Typically, product sourcing consultants oversee the OEM contract with the manufacturer and by doing so, they face major liability issues if that contract is not up to snuff. You are the “China guy” and your client is counting on you to guide it through China’s business minefields. You are the one who is supposed to know anything and everything about what it takes to do business in China. Equally importantly, with the manufacturing of its product, your client is probably turning over to the manufacturer all sorts of critical intellectual property. Your client probably thinks that its existing patents, trademarks and copyrights will protect it in China, but a court will expect you as the China expert to know better. The Solution: Put in writing with your client that you will not be providing it with legal advice and that it will need to retain its own lawyer to draft the OEM agreement with the Chinese manufacturer. Put in writing that it is your client’s responsibility to protect its intellectual property in China and that to do so, it must register its IP in China, either through a lawyer with whom you connect them or independently).

Just remember that your client sees you as the expert at doing business in China and it is looking to you for help in all areas and if you fall short in any way, you are at risk for a lawsuit.

China consultant, protect thyself.

The other day I did a post entitled, “China IP Protection Rising, Just As Predicted,” touting China’s increasing willingness to enforce intellectual property rights (IPR). I concluded that post with the following advice:

This means foreign companies must examine their intellectual property options in China and this means in most cases it will make sense for these companies to register their trademarks, patents and copyrights in China. Registering your IP in China (or anywhere else for that matter) does not provide iron-clad protection, but a failure to register does all but assure you of no protection at all.

A reader calling himself/herself, “Made In China,” left a very astute comment, noting how China’s improving IP is a “slow motion” story and rightfully asking if its patent protection “story” has moved fast enough to warrant filing for patent protection:

The fact that IP protection in China is improving might also fall into what China Rises called “slow motion” stories — monumental in importance but unfolding so slowly that people hardly notice them.

You were one of the first that raised this point as I remember–to protect your IPRs, whether in China or not, you should go and register them soonest possible.

It’s true as a general principle, but lately I’m wondering what will happen after advising clients that they should register their IPRs, say if 1) the patent registration is rejected by China’s authority and 2) clients claim that they don’t register those “core technologies or formula” because these core technologies will be “stolen” after registration.

I’ve come across both scenarios and the latter one is so common among Chinese clients that I almost guessed if this is a normal practice-these people are successful private-enterprise entrepreneurs and generally very sharp in terms of catching or spotting the issues. My argument was the details of such core tech are not supposed to be made known to public in the process of the registration and after that. But apparently the clients don’t buy it and claimed that’s all “in theory”. So I was wondering whether this is just an excuse for non-registration or it is typical Chinese mentality, or it could be that in realty it happened that registration doesn’t lead to protection but the other way around.

As for the first question, the reason for the patents being rejected according to the clients, was they forgot to file the application for “material examination” (mechanism of registration is first formal examination followed by the substantive examination). It sounds reasonable, but my questions were why they don’t have someone monitor the registration process and what are the measures to mitigate any loss incurred due to the patents being rejected.
Again, they replied to say there won’t be any loss because the patent application was for some unimportant formula-now we go back to the first point.

Just out of curiosity, have you come across any of these?

I am less enthusiastic about filing for patent protection in China than I am about filing trademarks in China.  The decision on registering your trademark in China is easy. If you have something valuable that can be protected by trademark, register your trademark. It is that simple. The record on enforcing trademarks in China is already good and getter better and the cost of enforcing trademarks is generally relatively low.

Patents are a whole ‘nother story.

The cost of filing for a patent in China is usually more than for a trademark and the risk of rejection is also quite a bit higher and far less predictable. China’s courts are not particularly well educated on patent protection, nor are they terribly zealous in this task. On top of this, I do think that filing a patent does increase the likelihood of someone being able to copy that which you sought to patent and the ease of their doing so. The cost to enforce a patent in China, once violated, can be quite high.

All of this means that the decision on whether to seek patent protection in China is anything but simple and it generally must be made on a case by case basis. If you are Pfizer and you are looking at patenting something as valuable as Viagra, the choice is simple and clearcut. You do it and you do whatever it takes to enforce it. But if you are a small company with a product you hope will generate $1 million in profit from Chinese sales, and you know you are not willing to spend large sums protecting your patent should it be violated, you will need to fully analyze your situation in tandem with your China lawyer before determining how to proceed.