In part 1 of this two-part series, I stressed the need for just about any company doing business in China or with China to register their brand name(s) and logo(s) as a trademark in China. We have considered registering your trademark in China as a no-brainer since we started this blog and the need to do that has only increased as trademark enforcement in China consistently strengthens. And, yes, this applies even if you are just outsourcing to China and exporting all that you are having made.
I ended part 1 by noting how about a year ago, our China lawyers became convinced that if you are outsourcing your product production to China or selling your product in China, in almost all instances you really do need to register a design patent on your product. Because if you don’t, someone else will and then you will find yourself either having to challenge that patent (which is relatively expensive and time-consuming) or just walk away from China.
A design patent in China is generally analogous to a design patent in the U.S. or a Community design in the EU and it covers novel product designs that (1) incorporate shapes, patterns, and/or colors, (2) are rich in aesthetic appeal, and (3) are fit for industrial application. China registers design patents without conducting a substantive examination of the design patent application and so it truly does not take much at all to secure one. Substantive examinations only occur if a third party challenges a patent’s validity after registration. A design patent applicant need only submit an application to SIPO that satisfies the procedural requirements, particularly with respect to proper formatting of documents and drawings.
Even though many of the design patents in China are nothing more than slight modifications of existing product designs they still can have substantial value because its owner can sue for design infringement and register the patent with Chinese Customs and have counterfeit or copycat products seized at the border. Even if you do not think your design is novel enough to be patented, there is a first mover advantage to your filing for the design patent simply because your design patent will be valid until successfully challenged by a third party. A Chinese design patent grants its holder exclusive use of the aesthetic features of a product, not its functioning portion. In other words, the patent is on how the product looks; its external appearance.
What though does it really mean to have a China design patent? The typical design patent cases our China attorneys have recently handled are a good way to answer this question.
The case typically starts with a phone call from a Western company telling us that some company (usually a company it already knows and usually either its manufacturer or a competitor) just contacted the Western company (or the Chinese company that makes the Western company’s product) and said that the Western company’s product is violating the Chinese company’s China design patent. The Chinese company then threatens to sue the Western company for patent infringement damages and to block any of the Western company’s “infringing” product from leaving China. Needless to say, the companies that call us on these matters are more than a little bit concerned.
Nobody has yet actually had customs block their product from leaving China. The reason is because China customs generally requires a party seeking such a block to post a substantial bond. That substantial bond then becomes available to the party whose product has been blocked by customs. Again though, you want to avoid these cases if at all possible because even if you end up prevailing, you will need to incur considerable time, trouble and money to get there.
The Chinese companies threaten to get an order blocking our client from having its product made in China, but they never do. They never do because they know the cost of doing so is high and the likelihood of their getting such an order and having that order stick is low. I read somewhere once that something like 70 to 90 percent of all Chinese design patents get invalidated when challenged. These Chinese companies know that if we were to challenge their design patents we would prevail, so why spend big money only to lose in the end? The Chinese company’s power comes from the design patent threat, not from its reality.
What’s the best way to nip design patent hijacking? Register your design patent first, before anyone else can do so. And that is why we are adding design patents to our list of the one thing (well, maybe two) you must do if doing business in or with China if your business involves a physical product.