Last month I gave a speech at a leading biotechnology conference in Washington DC on how to protect your IP from China.  Over the next few days, I am going to re-print that speech (in parts) here on this blog.  This is part 2 of that series.  Part 1 can be found here.  Please recognize that this is a speech, not a paper. Please also recognize that a PowerPoint originally accompanied this, but I am going to modify this speech so that ought not to matter.

Let’s say you have made the decision to do business with china, what can you do to reduce your IP risks?  As we lawyers so love to say, that is going to depend to a large extent on your particular factual situation.

Biotech companies generally get involved with China in one of five ways.

  1. They set up their own manufacturing in China or they have someone already there manufacture product for them.
  2. They conduct R&D in China.
  3. They enter into a China Joint Venture
  4. They license their technology to China
  5. They set up their own company in China for sales or they sell through a distributer

Though there are, of course, particular protections you can and should employ depending on what you are doing in China, it will almost always make sense for you do to do the following four things.

  • Do business with the right people in China. Companies with nothing to lose are far more likely to take your IP than those with established businesses and reputations and incentives for not getting sued.
  • Think about what you have that needs protecting. What do you have that others want? What do you have that your competitors would love to get their hands on? Is it your technology?  Your customers?  Your brand?
  • Figure out how you (not your lawyer) can protect what needs protecting. Can you break into subparts whatever it is that you want to protect so that nobody in China gets access to the full thing? Can you get away with sending an older version to China? Can you lock it down in your building in China or on one computer such that your employees cannot leave with it? Can you keep the key portions on a server in the US?  These sorts of protections are usually called structural protections and they can be absolutely critical.
  • Consult with your lawyer on the legal steps you can take to protect your IP.  Oh, and this should go without saying, but – unfortunately, the frenzied phone calls I get at least once a month after the horse has been let out of the barn tell me that it does require saying – talk with your lawyers early on in the process, not when it is too late.

I am going to focus today on the legal aspects of protecting your China IP.  In trying to figure out what can be done to protect IP as a lawyer, I am always thinking about the following:

  • What can get stolen
  • How something can get stolen
  • Who is likely steal it, and
  • What can be done by to protect it

You should be constantly thinking about these things as well.

With these various things in mind, I look at the nature of the transaction itself to see if there might be a better way to structure it.  For example, because I see joint venture deals as inherently risky for American companies — and not just for their IP risks — whenever a company comes to me wanting to do a China Joint Venture, I typically discuss with them other ways they might structure their deal while still accomplishing their goals. Might the US Company licensing its technology to the proposed Chinese joint venture partner make better sense?  Can the US Company go it alone in China? A lot of analysis goes into determining whether a joint venture makes sense, particularly for biotech companies who often need to establish close relationships with Chinese companies that can help them secure Chinese regulatory approval and market their products in China.

In any deal, I always try to figure out what can be done to incentivize the Chinese company not to take the foreign IP and run. What can go into the deal and the contract that will make the Chinese company believe that it will make more money by sticking with its American partner and than by jettisoning it? Should the American company promise future IP if certain goals or quotas are met?  Should the American company promise monetary bonuses in future years if all goes well?  What can keep the relationship between the American company and the Chinese company alive so as to decrease the IP risks.

It then comes down to two things on the legal side. One, properly drafted contracts with the proper people.  And two, proper IP registrations in China.

The contracts are to protect against those with whom you are directly doing business – in other words, against the Chinese companies that sign them. The IP registrations are to protect you against those same people and against everyone else as well.

When it comes to contracts, the field is so broad and so varied there is no way I can get into much depth regarding any particular type of transaction — which is probably just as well for all of you out there who are not lawyers.  But I can and will highlight certain stress points and mistakes I commonly see across the board in dealing with Chinese companies, and I will provide some tips for helping to ensure the efficacy of your various China contracts.