I was recently quoted in a CNBC article by Spencer Kimball, on counterfeiting in China. If you read my recent post in which I outline my five rules for protecting your IP in China, most of what I had to say to Spencer will seem familiar. But because that article so nicely puts into real world context what I earlier said, I am writing on it as well.
1. Register your IP in China and elsewhere.
The first and most important rule is registering your IP your IP. Though this might seem like an obvious step, companies often fail to do so for a variety of reasons. Spencer’s article describes what happened to Ruth Brons, inventor of a violin study accessory:
She decided against patenting her invention in China when she was starting her business. At the time, she didn’t see the point. China seemed far away and she had heard the courts didn’t really enforce U.S. intellectual property anyway. Brons expressed regret about her decision, but she said getting a patent in China was just too expensive for her at the time.
“I could not have afforded it,” she said. “I’m just a violin teacher.”
Ruth’s concerns are not atypical. SMEs must make tough choices regarding budget allocations. And often there is a sense of resignation when it comes to China counterfeiting. I once advised a client from Puerto Rico who told me during our introductory meeting that he assumed his product would be faked; he just cared about keeping fakes out of the Puerto Rican market.
But as Spencer points out: The costs associated with not registering your intellectual property are also steep. Brons said she’s spent at least $100,000 fighting counterfeiters in China, a substantial some of money for her small, family-owned business. Ms. Brons ended up with counterfeits that cost her sales and she ended up spending roughly twenty times what it would have cost her to register her brand name as a trademark and her design as a patent.
2. Work with international and local law enforcement.
As I explained to Spencer, “To have success fighting counterfeiters, you have to be willing to cooperate with the Chinese authorities… This requires doing a lot of the investigative legwork yourself”. The article highlights how those efforts can be successful, as in Larry Griffith’s case. It also underscores the importance of abiding by the first rule, i.e. registering your IP in China and elsewhere:
With his trademark in hand, he hired the help of a law firm in Beijing that had a team of investigators. They identified four factories that were making counterfeit goods. Police conducted successful raids on three factories located in Ningbo. They were able to seize tens of thousands of dollars of counterfeit products in terms of the goods’ estimated value in the U.S., Griffith said. None of this would have been possible without Chinese trademark protection, he added.
Notice how it was Griffith’s investigators who identified the four factories. To use a sporting analogy, cooperating with law enforcement in China on IP matters is like scoring an alley-oop. You, the IPR owner, must throw the ball with precision so your teammate (the authorities) can jump, grab the ball and slam it down. Don’t expect them to drive to the basket.
3. IP Change is in China’s air.
Spencer’s article has an interesting quote from Griffith: “The Chinese government upheld our rights… It was not a matter of nationalism; it was a matter of law. And I think the Chinese are like a lot of countries — they’re very legally minded; they want to be fair.”
This made me think of a conversation I had with a Chinese IP lawyer just last week. He said that not only are Chinese courts handing down judgments in favor of foreign owners of registered intellectual property — as I mentioned in my five rules for protecting your IP in China post (see Rule #3: Sue the Infringer/Counterfeiter), defendants are being more diligent when it comes to paying damages. This Chinese IP lawyer attributed this to the fact that defaulting on a judgment in China can affect your social credit score, which in trun can impact everything from your company’s ability to conduct business in China and your own ability to buy airplane and gaotie tickets to enrolling your kids in school. See China’s New Company Tracking System: Comply, Comply, Comply.
Whatever you think of China’s social credit/company credit system, it is having a rapid and resounding impact on the effectiveness of judicial awards, including in IP cases. Put simply the odds of you collecting on a Chinese court’s damage award have gone way up. This means that, more than ever, civil litigation in Chinese courts can and should be an essential component of a foreign company’s IP protection strategy.