In a post entitled, Trade Secrets and Third Parties: Top Tips to Prevent Theft, Create.org lists its “five top tips” for protecting your trade secrets, all of which apply to China.

Nothing earth-shattering here, but this is actually a really good list (meaning I agree with it 100%) and it never hurts to review the basics, so here goes:

Conduct a strategic assessment of the company’s trade secrets, a process which should incorporate the company’s trade secret policy, the partner’s code of conduct, an evaluation of which trade secrets can be transferred, and careful consideration of the most appropriate operational structures.

Undertake appropriate pre-contractual due diligence, including a thorough assessment of any potential third party partner, evaluation of other IP-related issues, analysis of the partner’s employment and nondisclosure agreements, and investigation of the partner’s subcontractors.

Employ strong contractual protections to safeguard the company’s trade secrets both during the business relationship and afterward, and consider contractual provisions specifically relating to the partner’s employees and subcontractors.

Utilize appropriate operational and security measures to ensure that the correct personnel, physical security measures and technical safeguards are in place to protect the company’s trade secrets. Systematic engagement with the partner can help bolster the effectiveness of these measures.

Take appropriate action after the business relationship has ended, to ensure that departing employees and former business partners honor their continuing obligation not to disclose trade secrets.

Anything else?

If you import a product into the United States from China, the odds are good that your competitors can find out about it. And by find out about it, I mean they can easily and very cheaply (sometimes even for nothing) use a service such as Import Genius, Panjiva or Tradesparq or others to determine what you are importing, how much of it you are importing, and even who you are using to manufacture it.

Don’t want your competitors to know from where you are buying your distinctive xyz product? You had better do something to hide it.

But what? The following methods are commonly employed to hide import information:

  • Set up your own Hong Kong entity and have that company buy the product from your China manufacturers and then be the shipper. Doing this means that the name of the Chinese manufacturer will not be easy for your competitors to discover, but it will not hide the quantity and the nature of your US imports.
  • Have your Bills of Lading made out to your customs broker in the United States. That way, US customs shows your customs broker as the importer and your name stays out of it.  The flaw in this though is that if your competitors know through which ports you are importing, they can maybe figure out who is importing your product (your customs broker) and then work backwards to figure out your manufacturer.
  • Have your bills of Lading made out to your freight forwarder both in China (as the exporter) and in the United Sates (as the importer).  Doing this hides both your manufacturer’s name and your name from your competitors.
  • Set up a “dummy” company in the United States for importing of your product. This has the same potential flaw as using your customs broker to receive your product; it does not hide the name of your Chinese manufacturer.

What are you doing out there to protect your manufacturing trade secrets?

Despite the increasing restrictions on using employee dispatch companies for hiring of “your” China employees, our China lawyers have seen very little by way of a slowdown in smaller companies choosing to go that route, especially if doing so will allow them to delay having to form a China WFOE that much longer.

The legal issues for foreign companies that use employee dispatch companies are not terribly complicated, with one exception.

The way the whole system works is that you as the foreign company sign a contract with the employee dispatch company for it to hire as its own employee an individual or individuals you would like doing work for your company. The better dispatch companies generally have pretty good contracts for this and so our role as attorneys for our foreign clients is mostly to point out the provisions at which our clients have some negotiating power.

The complication arises in the contract between the employee dispatch company and its/your employee and it is here where we see the most mistakes being made. The employee dispatch company drafts its employment contract with its/your employee to protect and benefit itself, without any real regard for you.  In most respects, your interests are fairly well lined up with the employee dispatch company and so for the most part it is a good thing that most of these companies draft good China employee contracts.

But when it comes to your intellectual property, you need to account for the fact that your employee dispatch company does not care at all. And when I say, “at all,” I mean at all. Your employee dispatch company does not care if its contract with its/your employee protects your IP and your employee dispatch company does not care if its contract fails to protect your IP.

For this reason, you have to care and you have to be the one to make sure that the employee contract reflects this. If you want to be sure that the employee does not end up owning your intellectual property, you need to make sure that the employee contract is clear on this. If you want to be sure that your employee signs a contract that reduces the likelihood of he or she running off with your trade secrets, you need to make sure that the employee contract has provisions for that.

Cause if you do not make sure that your China attorneys do this, nobody else will.

Just updated our research regarding China Representative Office rules relating to employees and note the following.

Q.  How many foreigners can work for the Rep Office? What is the proper term for referring to these employees?

A.  A Rep Office may hire no more than four foreign persons, each of whom is called a representative. These people are hired directly by the Rep Office and are treated as normal employees under China’s employment law system. That is, they are to be hired pursuant to a written contract and their taxes and social benefits must be paid.

 

Q.  If four foreigners work for the rep office, can the rep office directly or indirectly hire any Chinese employees?  If yes, how many?

A.  A Rep Office cannot directly hire any Chinese nationals. It instead must hire Chinese nationals indirectly through a Chinese dispatch company such as FESCO. There is no limit to the number of Chinese nationals who can be hired indirectly.

 

Q.  Can the foreigners work directly for the American home office?

A.  All foreign employees of the Rep Office resident in China must be hired by the Rep Office. They cannot work directly for the American home office.

The Rep Office must appoint a Chief Representative. The Chief Representative is not required to be an employee of the Rep Office and is also not required to reside in China. However, if the Chief Representative is not an employee of the Rep Office it must be an employee of the parent company. It is therefor possible to have a situation where four foreigners work in the Rep Office in China as representatives while a fifth foreigner who works for the parent company is designated as the Chief Representative. That is, the Rep Office has four resident representatives and a fifth, non-resident Chief Representative.

 

Q.  Can the Chinese work directly for the American home office?  Or do they have to work for a third party agency, like FESCO?

A.  No Chinese individual can work directly for a foreign Representative Office. The Chinese nationals must work for a dispatch company under a contract between the dispatch company and the Rep Office.

 

Q.  If the Chinese are the Representatives (let’s say there are only 3 Chinese workers and no foreigners), can they work directly for the US home office? Or do they have to work for a third party agency, like FESCO.

A.  As noted above, all Chinese nationals must be indirectly employed under a dispatch agreement with a Chinese dispatch company such as FESCO. They cannot work directly for the foreign parent of the Rep Office. In addition, the dispatch agreement must be between the Rep Office and the dispatch company.

 

It is important to note that the Rep Office needs a good contract with Chinese dispatch company and also must make sure that the Chinese dispatch company has an agreement with the Chinese workers that protects the foreign company.  Just by way of example, if the foreign company wishes to protect its trade secrets, it should make sure that the employment agreement between the Chinese workers and the Chinese dispatch company mandates that the employees not reveal trade secrets of the foreign company.

About a week ago, we did a post, entitled, How To Write A China Contract. Arbitration Versus Litigation. Say Where?  That post discussed an issue that had been raised on China Group on Linkedin, (which just hit 7,700+ members): which forum is better for resolving disputes with Chinese companies, the courts or arbitration?  Our post came down favoring litigation in China (yes, in China) as usually being the best forum.

We talked of how when we seek to determine the appropriate forum for our China contracts, foremost on our minds is the following:

In figuring out what we are going to put in the contracts we write between our US clients and their Chinese counterparts, we first sit back and try to figure out the most likely breach of contract scenarios (either by our own client or by the Chinese company) and also the really critical breach of contract scenarios.  A bad delivery of $100,000 in product might be very likely, but that is going to pale in importance to the Chinese company taking over our client’s factory in China and ceasing all deliveries.  So between those two, we would probably write the contract to provide our client with the best forum for dealing with its factory being hijacked.

A recently issued Chinese Court ruling highlights why a Chinese court is oftentimes the best place to be for an American company seeking redress against a Chinese company. The ruling came from Shanghai’s No. 1 Intermediate Court in the case of Eli Lilly v. Huang, involving a trade secret dispute. The facts of the case are relatively simple.  Huang had been an employee of Eli Lilly’s Chinese subsidiary and he had signed a confidentiality agreement with the subsidiary agreeing not to reveal Eli Lilly trade secrets.  Huang downloaded 21 confidential documents from Eli Lilly’s server, without authorization.  Eli Lilly demanded Huang delete these documents, but he resigned “instead.”  Eli Lilly brought a trade secret misappropriation claim against Huang under China’s Anti-Unfair Competition Law, seeking injunctive relief and RMB 20,000,000 in damages.

The Shanghai court almost instantly issued an interlocutory injunction prohibiting Huang from disclosing, using or allowing others to use any trade secret information in the 21 documents he had downloaded.

This decision presents a number of good takeaways for foreign companies doing business in China or doing business with China, including the following:

1.  Put a trade secret provision in your contracts whenever appropriate.  These especially make sense in your employment contracts.  China does protect trade secrets taken by an employee even if you do not have a contract with that employee forbidding theft of trade secrets, but for various reasons, it is better to have it in your contracts as well, and that is exactly what Eli Lilly had done here.

2. If protecting your trade secrets are important to you, write your contract with that goal in mind.  This means figuring out the best forum for enforcing your trade secret provision. Typically, the best forum for enforcing your trade secret provision is going to be a court not an arbitration panel.  Yes, arbitration panels can sometimes get courts to issue orders stopping trade secret violations (and sometimes they can’t), but having to go through arbitration and then having to go through a court will greatly increase the time it will take to get such relief and also increase your chances of never getting such relief.  Typically, the best court for enforcing your trade secret provision is going to be the court with the most power over your Chinese counter-party.  Typically, that court is going to be a Chinese court because most Chinese companies do not have much that can be reached outside China.

3.  If getting your trade secret provision enforced quickly in a Chinese court is going to matter to you, do your contract in Chinese.  For more on this, check out Your China Contract Should Be In Chinese. Here’s Why.

How to write a China contract to protect your trade secrets?  Write it in Chinese, with a trade secret provision and the right forum set to enforce it.

Any questions?

 

I have to admit that one of the things I love about both China and Russia is that they take various international days seriously, that nobody even knows about in the United States.  I suspect that is due to communism and/or its remnants.  Anyway, as part of today’s World Intellectual Property Rights Day (how many of you knew there was such a thing and how many of you knew it was today?) I was interviewed about the past, present and future of China intellectual property law and intellectual property protections in China.  Here is that interview between Zheng Chenguang (ZC) and me (DH).

 

ZC: First, from the international scene we speak to Dan Harris, founding member of Asia-focused commercial law firm, Harris & Moure, based in Seattle, in the US Mr. Harris, welcome to the program.

DH: Thank you.

 

ZC: Friday marks World Intellectual Property Rights Day.  How do you look at the level of IPR protection today, how better are we compared with the situation, say like five years ago, and do you see IPR protection as mainly a challenge facing the developing countries, rather than the developed countries.

DH: No, I do not. I see it as a challenge for any company that does business anywhere in the world.

 

ZC: Why would you say that?

DH: Because certainly developing countries tend to have a poorer record at IP protection than developed countries, but at the same time, developed countries have all sorts of issues as well.  You’re not going to find a company with more than 100 employees in the United States that hasn’t had a problem with an employee leaving with trade secrets or an employee leaving to compete when they shouldn’t have or with a rival using their design. It goes on everywhere.

 

ZC: In your mind, what is the key to protecting IP rights?  Is it more important to make more or stronger laws, or is it more important to solve the problems related to implementation of the existing laws?

DH: Well are you asking about China or are you asking about anywhere?

 

ZC: How about the situation in China?

DH: China’s laws are actually just fine.  It’s not a question of the laws. It’s really a question of implementation. And a lot of times it’s a question of implementation not even so much by the Chinese government, but by companies that are doing business in China.  Meaning, a lot of times foreign companies complain about IP in China, when in reality it was the foreign company that made the mistake when it went into China of not sufficiently protecting its IP. But one thing I want to clarify, and that is when I talk about IP, I always like to divide it up into three, sometimes even four areas: trademarks, copyrights, patents, and you can throw in trade secrets as the fourth item. And the reason I like to divide this up is because in some of those areas, China is actually quite good, while in other of those areas it’s quite poor, and so it’s really unfair to talk about China IP in general without breaking it up.

 

ZC: You’ve divided IP intro three categories. In what category do you think China has done the best job, and which leaves a lot to be desired?

DH: Trade secrets—China’s excellent. They borrowed the laws from the United States and they tend to enforce them. Trademarks—China’s fine. Their laws are very similar to France, to Sweden, to much of the world, and enforcement is pretty good as well. When it comes to patents, China’s patent laws are not as tough as those in the United States, but those in the United States are tougher than those in Europe, and that’s just the way China wants it … its enforcement isn’t bad. Where China does poorly is in copyrights. And that hurts China’s reputation because so many people ascribe China’s handling of IP based entirely on China’s handling of copyrights. And copyrights involve, generally speaking, content—books, movies, software.   Everybody knows you can buy a DVD of just about any movie on the street in China for about two dollars. That’s a problem.

 

ZC: Chinese Intellectual Property laws, there are origins in Deng Xiaoping’s 1978 reform and opening up policy. During the past decade or so, especially after China’s accession into the World Trade Organization, IP protection has been brought to the fore, since China wants to dock with international standard and adopt international practices. How did China’s accession into the World Trade Organization influence intellectual property rights in China? And how better are we compared to with, say, ten years ago?

DH: China is a lot better compared to ten years ago. I think very little of that has to do with the WTO. I think that China is better because China is getting wealthier, and because Chinese companies are starting to care more about IP. I am of the view that countries start doing well with IP when its own powerful companies really start caring about it. And I’ve seen this progression happen in Japan, I’ve seen this progression happen in Korea, I’ve read about how this progression happened in the United States. The reality is nobody is going to be able to force China to improve its IP from the outside, but big companies within China like Haier, like Huawei, like Lenovo — companies that care about their own IP — are going to be able to force China to improve. That’s what’s happening. And as more big companies come to the fore in China, China’s IP is going to continue to improve. And there’s not much that can be done to rush it. In fact, if anything China’s IP is improving nicely. Meaning, it’s improving at least as fast as Korea’s did, at least as fast as Japan’s did, and probably as fast as the US’s did, but the US was a long time ago.

 

ZC: As the founding member of an international law firm which has operations both in US and in China, what kind of advice do you want to give to say, Chinese investors, who want to do business in the US, and vice versa, what kind of advice do you want to give to US companies making a foray into the Chinese market?

DH: Okay, I’ll start with the US first, US companies doing business with China, because that’s easier for me because I talk about that every day with our clients. The advice I always give is twofold: number one, know what your IP is and know how to protect it yourself. And what I mean by that is look at your own IP and figure out how you can protect it outside of the law. One of the ways you can protect it is don’t bring it over to China, or just bring over part of it.  Or have a good partner in China — one who is not going to steal your IP. These are things called structural IP protection; it’s what companies can do outside of the law. The second thing, register your IP in China. Don’t complain if your IP is taken in China and you haven’t registered it, because if you haven’t registered it in China, it’s not your IP. On the flip side for Chinese companies coming to the United States, our IP system is different from China’s and you better recognize that and you better take it seriously. Interestingly enough, in my experience, Chinese companies that come to the United States take IP protection more seriously than American companies that go over to China. I think a lot of the reason for that is because in the United States certain IP protections are automatic without even needing to file for them. So when Chinese come over here they’re prepared to file, whereas when Americans go over to China, oftentimes they neglect filing.

 

ZC: We understand that China is now trying to effect a transition in its growth model, focusing more on the quality of the growth side, commercial and technological innovation and a so-called knowledge economy would be important factors for China’s economic growth. To what extent will technological innovation play in China’s economic future? Will the roles of intellectual property laws increase their influence in the future?

DH: Yes. And that goes to what I said earlier, that as domestic companies view intellectual property protection as becoming more important, then the country will as well. And so, as China develops more companies with their own intellectual property, China’s intellectual property laws will improve. More importantly, enforcement will improve as well. China is developing sophisticated pharmaceutical companies, sophisticated technology companies. Those companies are not going to let China fall behind in terms of intellectual property protection. They’re going to be fighting for it. So yes, as China’s economy goes more and more towards the high end, I’m virtually certain its intellectual property enforcement will follow right along with it. It has to. And if it doesn’t, that will temper innovation and a knowledge-based economy in China. The two have to go together.

 

ZC: Lastly, Mr. Harris, one of the most controversial and polarizing debates regarding intellectual property law in the modern world seems to be IP law as it applies to the pharmaceutical industries in the developing world. And this year the Indian Supreme Court came down with a ruling against the patent claims by Swiss pharmaceutical company Novartis. Speaking from a broad perspective, what do you think about the debate of availability versus innovation regarding pharmaceuticals and the developing world?

DH: It’s a tough debate. It’s a really tough debate. I think that China has played that hand better than India. When India makes a ruling like it did, all sorts of companies say “I’m not going to India, I’m too afraid.” Yes, India is going to get some medication because of the that ruling, but, in the end, my guess is dollar-wise they probably hurt themselves a lot more than they help themselves. Because companies see — or I should say hear — about rulings like that, and it really scares them. And that’s not what India should be wanting right now. And not just pharmaceutical companies. People hear about a ruling like that and, non-lawyers, by the time it reaches them, they don’t understand that it’s a complicated patent issue/accessibility issue.  All they hear is, “Wow, India doesn’t protect western intellectual property rights. I’m not going to take my widget factory there.”

 

ZC: Right. That was Dan Harris, founding member of the Asia-focused commercial law firm, Harris & Moure, talking about intellectual property rights protection in China. Mr. Harris, thank you very much indeed for your insights.

DH: Thank you very much for having me.

Just fired off the same email I’ve probably sent at least two dozen times. It was in response to someone who just realized that their Chinese manufacturer or potential manufacturer had used confidential or trade secret information.

Here’s the email to me (changed to get rid of any identifiers):

I had my Chinese factory sign a non disclosure agreement and I just learned that they copied my product and are selling it to two of my competitors.  I am still buying product from them. What should I do? I want to sue them.

Here’s my pretty much standard response:

I suggest you send me a copy of the NDA that your factory signed.  If it is in Chinese and provides for litigation in China and was sealed/chopped than you are likely in quite good shape.  If it contains a provision making crystal clear what the exact dollar/RMB penalty is for a violation, all the better. But if you just used an off the shelf American version of an NDA, than doing anything on this would almost certainly be a waste of time. If your NDA provides for suing in the United States, that will be even more true. I should also note that if it just provides for the manufacturer not revealing trade secrets (as opposed to selling your product to others) your likelihood of winning a case will be reduced. In the meantime, I suggest you read the following about China NDA/NNN Agreements:

Almost without exception, we hear nothing further, which is fine since it is always easier to deliver bad news by email as opposed to by phone.

 

Just received the following comment to our post, How To Find And Deal With Chinese Manufacturers:

I have a question,
I sent a picture of a unique [product] and they sent back an email saying that they would like to manufacture it and when I said mine they corrected me by stateing ours.
is this normal?
How should I deal with them.
how does something like this work?
Thanks

We get this type of question shockingly often.  Usually, it comes from someone who just returned from China calling to say that they just spent the last week in China, meeting with a whole slew of potential Chinese manufacturers, and they just realized (oftentimes by having read one of our blog posts on the need for a Non Disclosure Agreement) that they should have required the potential manufacturers to sign a Non Disclosure Agreement BEFORE showing them their product or prototype.

So what can be done?  How should this company deal with their manufacturer? How can this company protect its trade secrets now?  With this particular company, all may not be lost. and that is why I struck its specific definition of their product and replaced it with the generic word, “product.”

If this company provided its product to just one manufacturer and is now planning to buy from just this one manufacturer, this company may end up doing just fine.

What this company should have done BEFORE it showed its unique product to anyone in China (or anywhere else in the world for that matter) is to have required that Chinese manufacturer to sign a comprehensive NNN Agreement written in Chinese and tailored for enforceability in China.  But that was not done, and the question is what can this company do now that it has returned without a China NDA of any kind.

This company can and should go to this particular Chinese manufacturer and say something along the following:

We want you to manufacture our product, but for that to happen, we need you to sign this OEM Agreement.

The OEM Agreement this company provides to its chosen Chinese manufacturer should contain each and every trade secret provision that should have gone into the NNN Agreement this company should have required the Chinese manufacturer to have signed before showing the Chinese manufacturer anything.  If the Chinese manufacturer signs the OEM Agreement, the company will have its trade secret protections. If the Chinese manufacturer refuses to sign the OEM Agreement, the company will have a big problem.

In our experience, Chinese manufacturers will virtually always sign a legitimate OEM Agreement containing trade secret protections becuase the Chinese manufacturer wants the manufacturing business.  I would estimate that Chinese manufacturers sign our OEM Agreements around 98% of the time and those few times that they do not it is because they are not a legitimate company and they do not want to be bound by legitimate requirements.  In other words, the Chinese manufacturer that refuses to sign an OEM Agreement does so because they intend to steal trade secrets or fail to deliver on their quality promises and they do not want to sign a contract that could effectively penalize them for doing so.

The much tougher problem is the company that comes back to the United States having shown its unique product to ten Chinese manufacturers.  That company can get a protective OEM Agreement from just one or two of them (i.e. the ones whom it is going to use for manufacutering) and it will then always have a problem with eight or nine of them.

The real solution, however, is not to go to China without an NNN Agreement at the ready.

If you are seeking to have your product manufactured in China, I suggest you scour  the following regarding NNN/NDA Agreements:

And the following regarding China OEM Agreements:

And the following regarding other key issues arising from China product outsourcing:

Had a telephone conversation with a client today (yes I am working today) regarding the steps it should be taking to protect its trade secrets in China.  Client is an American company that has been doing business in China for nearly a decade but is “for the first time being forced by its competition to bring over its good stuff to China.”

Strangely enough, this was the first time a client has asked me this question, at least in this form.  I am often asked to draft a contract that contains a trade secret provision and we are constantly drafting Non Disclosure Agreements designed to protect trade secrets.  But this question went beyond that.  The question was directed at all of the methods, both legal and non-legal, this client should employ to protect its trade secrets.

I thought for a while (and checked the notes from a speech I recently gave on protecting IP from China) and eventually spewed forth with the following five keys to China trade secret protection (or something fairly close):

1.  First thing you must do is figure out what you want to protect.

2.  Second thing you must do is figure out how your trade secrets can be taken and what you can do to protect them.  This involves answering a number of questions.  Does it make sense to have your suppliers/vendors sign a code of conduct or a contract making clear that they recognize and will protect your trade secrets?  What operational structures can you put in place (anywhere along the chain) to protect your trade secrets?

3.  Make sure your contracts provide trade secret protection.  In particular, look at your employment and sub-contracting agreements.  Make sure that these contracts safeguard your trade secrets both during the business relationship and after the relationship terminates — you would be surprised at how many contracts seem to end with the termination of the business relationship.

4.  Make sure that all of your people understand the importance of protecting your trade secrets. I don’t have any hard numbers on this, but if I had to guess, I would say that well over half of all trade secret thefts come from your own people and well over half of those come from sloppiness.  It is your job to make sure that you are employing the right personnel, and using the right physical and technical security measures to prevent leakage of trade secrets.  Do the same thing with your suppliers and anyone else that has access to your trade secrets.  Make sure to do whatever you can to ensure that your trade secrets remain a secret even after your business relationships end.  Go ahead and remind your former business partners and employees of the requirement to maintain your trade secrets.

5.  Don’t be afraid to sue to protect your trade secrets.

Did I miss anything?

What do you think?

 

Your enemy won’t do you no harm
Cause you’ll know where he’s coming from
Don’t let the handshake and the smile fool ya
Take my advice I’m only try’ to school ya

From the song, “Smiling Faces,” by the Temptations

You know how when you buy a new car, you immediately start seeing your same car on the road all the time?  I have been going through a bit of that as I have been preparing for two speeches I will be giving soon on protecting intellectual property in China.  One of the things I plan to emphasize is how so often it is your own employee or partner who steals your IP and companies far too often fail to prepare against such theft. Since coming up with that as one of the themes for my talks, I seem to have been hit with a plethora of examples backing me up.

First, I got a call from a company who wants to sue its former employee and his new company for having stolen critical IP.  We are still looking into the viability of that lawsuit so I cannot really speak to that.  Then, just today, I received an email from a friend — a very thoughtful and veteran China consultant based in China — who wrote of how “it’s always the employee who causes IP problems in China.”  His email included a link to a Time Magazine article, entitled “China’s Talent War,” that spoke of the problems foreign (and domestic too) companies face in retaining their China talent and the IP problems that often accompany an employee who leaves:

But the consequences in China of not trying to retain talent can be severe. Not only, as Alcatel-Lucent’s Singh-Molares says, is it “deeply disruptive” to an organization to have to constantly retrain new people, but the issue can also have a competitive impact far beyond that. Intellectual-property protection in China remains porous: a survey for the American Chamber of Commerce in Shanghai released earlier this spring showed a vast majority of respondents saying there had been “no change” in intellectual-property-rights enforcement in the past year, despite repeated assurances by the central government in Beijing that China would crack down on piracy. The same survey ranked retention of talent far and away as the biggest human-resources challenge that companies face.

That’s hardly a coincidence. The two issues are inextricably linked. In 2008 an employee named Xiang Dong Yu quit his job as a product engineer at the Ford Motor Co. and joined a Chinese competitor, bringing with him 4,000 documents he had downloaded onto his computer. Xiang later made the mistake of traveling to the U.S., where he was arrested and prosecuted. But the brazenness of the theft and the reality of China’s uneven enforcement record is what lingers for many top executives. “That kind of thing still happens all too often here,” says the China chief of one American high-tech firm. “Every night at the close of business, those are your secrets walking out that door.”
What can you do as a company doing business in China or with China?  The first thing is to be cognizant of the problem and not ignore it simply because you find it distasteful to distrust your own people. The second thing is to set up systems to try to minimize opportunities for those close to you to steal your IP and to minimize the damage any such thefts will do to your company. In other words, avoid giving all of the keys to your kingdom to any one employee.  The third thing is to take all necessary legal steps to position your company to be able to sue anyone who steals your IP. The way to do that is through contracts protecting your trade secrets and by registering your IP in China.

You have been warned….