Register your Ip in China

Very interesting discussion recently took place on our China Law Blog Linkedin Group.  The discussion was started by a businessperson wanting to know whether “‘—the concept of prior art’ in patent and trademark application really exists in China?”

I am rehashing the discussion below for three reasons.  First, because I think it nicely highlights the sort of high level discussions we have on our Linkedin Group.  Shameless plug:  If you are not yet a member, please join us!  Two, because the views are so common and show a real division between lawyers and non-lawyers on the issue of China IP. The lawyers’ attitude is essentially, register your IP in China or don’t complain, while businesspeople seem to want to focus on how China is different and thereby worse when it comes to IP protection.  Third, I think it provides expert instruction both as to what you need to do to protect your IP in China and as to what can happen to you if you fail to do so.

So without further ado, here is that discussion.

Michael Lin, a patent lawyer with Marks & Clerk out of Hong Kong, answered the initial question as follows:

Yes, prior art exists in China with respect to the patent law — which requires both novelty and an inventive step over the prior art. “prior art” with respect to trademarks is a bit different, so I believe that you may be getting these concepts confused.

To which the businessperson responded by launching into a mini-diatribe on the lack of IP protection afforded to foreign companies under China’s IP laws:

Michael, I’ve seen cases when patents were filed and granted to Chinese companies that practically copied the existing patents existing elsewhere. The same story with the trademarks — my company’s trademark has been registered by someone else before we could do it (we’ve been using for it over 10 years internationally) and, from what I was told, it’s nearly impossible to get it back through court.

If existing patents or trademarks don’t constitute prior art, then I’m not sure what exactly is meant by it in China and whether it has any practical value when it comes to protecting your IP assets.

Michael then sought to further explain China’s patent laws:

Generally: Just because a patent is granted does not mean it is valid. Also, China is a first-to-file country for both patents and TMs.

For the patents you talk about above, are they Invention Patents or Utility Models (UMs) that were filed and granted? Prior to grant, Invention Patents in China undergo substantive examination where they are checked for novelty and inventiveness. In China, both UMs and Design patents are not checked prior to grant and therefore whatever is filed is granted. However, owners of such UMs and Designs are supposed to have a search/assessment conducted prior to enforcing the Design/UM against an infringer. Furthermore, it is possible to invalidate patents, Designs, and UMs that are granted by the SIPO – you just collect the correct evidence (prior art) and to follow the established invalidation procedures.

With respect to TMs, the Chinese TM examination does not take into account whether someone else owns the TM outside of China, or if it is a famous TM outside of China. However, the new TM law that just went into effect makes it much easier for legitimate TM owners to combat bad-faith TM filings.

At which point, Randi Miller, a China lawyer with Foley & Mansfield in Minneapolis, sought to further explain China’s old and new trademark laws:
Michael, we do not know whether it will be “much easier” for legitimate TM owners to combat bad faith filings under the amended trademark law. The language is vague and we all have to wait to see how it is interpreted. The law is certainly intended to combat this problem, but whether it will be effective remains to be seen. Also, the law does not go into effect until May 2014 and it does not apply retroactively to existing registrations or applications that are filed before May 1, 2014.Val, “prior art” is a patent concept only, it does not apply to trademarks. What you are asking is about is whether prior rights in a trademark can be used to stop someone from registering it. In general, trademark rights are territorial and you do not have rights in a mark in one country just because you have rights in a different country (though in some cases, the fame of a mark outside of the country might make a difference). Europe is a big exception since one Community Trademark Registration will cover 27 different countries.China is not really different from other first to file countries (which is most of the world) except that bad faith filings for the purpose of making trademark owners buy the rights to their marks in China are rampant and effectively an industry here and the law has been supporting the continuation of this situation. I think that the IP problems are slowly going to get better because the Chinese are now becoming entrepreneurs and wanting to develop and own IP themselves.

The businessperson then responded, once again assailing China’s IP protections and stating that they are “vastly different from the rest of the world”:
Thank you all for commenting on my question. It cleared some of the issues I was looking for answers to.From my experience however, I do feel that China’s application and interpretation of IP rights are vastly different from the rest of the world. I doubt that things are going to change anytime soon, simply because too many people are benefiting from the existing situation.Here is an example from my own industry: a well-connected Chinese company (by which I mean connected to some local government) starts by registering patents that were issued to another manufacturer elsewhere. In the meantime, they reverse engineer that manufacturer’s products (industrial equipment), steal their software source code and produce exact copy. Once the patents are granted (which they proudly display on their website), this company begins to sell those systems locally and becomes a major competitor in the market.

Foreign manufacturer sues them in China but fails, Chinese company sues them back for patent infringement (that they have copied in the first place) and wins!

Moreover, this is not the first time they do it — the same company has a track record of doing exactly the same trick to other foreign manufacturers in the past to the point of driving them off the market completely…

Can anyone imagine such situation anywhere else in the world except in China?

Then I chimed in with the following quasi-retort:
Yes, I certainly can imagine that in other countries. I also think that oftentimes when someone complains about the result in a case, they blame it on the things that you mention rather than admit that they made the mistake(s) that cost them the case. I cannot tell you how many times someone has claimed someone in China stole their trademark when in fact they had been too cheap to have registered it for themselves in the first place. Here’s a blog post I did just last week on how China just isn’t that bad: Doing Business In China. Not That Bad.
The businessperson responded to me with the following:
Dan, I wasn’t just talking about copied trademarks, this is a minor issue. The case I mentioned is about a foreign equipment manufacturer (with over 500 patents worldwide) having their entire system copied to the last screw. Even the file structure is exactly the same retaining most of the original file names…Not only that Chinese legal system could do nothing about it, the copier sued the original and won! The same company used to drive other manufacturers from the Chinese market (in different segments of the same industry) for years using the same tactics and without producing anything original by themselves.Maybe you are right, China isn’t that bad. I’m sure there are much worse places in world when it comes to IP protection, but, since China is where pretty much everything is made these days, one could hardly care about those other places.

I then talked about how cases are so often misconstrued by those not involved in them and how maybe the facts of the patent case were not exactly how he described them:
I know you weren’t talking about trademarks. I was just using that as an example. Take your patent example. Maybe the Chinese company didn’t copy it. What if they had it before the company that patented somewhere else? It’s possible. I am NOT saying Chinese courts are always fair, but I am saying that unless we have ALL of the facts, we have no idea why they ruled the way they did in this case. A classic example in the US where everyone complained about the McDonald’s hot coffee case, but had the facts all wrong:https://www.caoc.org/?pg=facts
Randi Miller then chimed in, very strongly reinforcing how those who talk of having had their IP “stolen” from China never really owned that IP to begin with because they chose not to register it in China:
I agree with Dan that many companies do not want to spend money to protect their IP and later complain, incorrectly, that their IP has been “stolen”. You said that your company used a trademark internationally for 10 years and someone else registered it before your company “could do it”. In fact, your company could have registered the mark at an earlier time, if it had wanted to do so. The other party did not register the trademark before you “could”; it registered the mark before your company wanted to make registration in China a priority and spend the money to do it. Your outrage about the fact that you cannot use Chinese courts to get your trademark “back” is misplaced because, due to its own decision not to do so, your company never owned the trademark in China in the first place. If a developer builds a subdivision with 20 identical houses, I buy 19 of them, but hold off on purchasing the 20th one for a few months, and during those few months, another party buys the 20th house, has that party stolen the house from me? If not owning all of the houses in the subdivision interferes with my plans and I am forced to pay the buyer a price that is far above market price in order to acquire the 20th house so that I can proceed with what I want to do, is the developer at fault for that?In your example, the foreign manufacturer registered its patents “elsewhere”, but not in China. If protection of its software source code was important to its business, why didn’t the manufacturer register its patents in China? However unjust the ultimate result may be, could it have been avoided if the manufacturer had registered its patents (or at least filed applications) in China before the Chinese company had access to the foreign manufacturer’s products?I’m not saying that there aren’t problems with IP protection in China, but I agree with Dan that some of the problems are a result of companies not doing what they should be doing to protect their assets.

Michael Lin then analyzed how the company with the patent problem could probably have better handled it:
In your above scenario, I don’t doubt that it happened exactly as you say — I have seen this happen many times in the past, and have heard similar stories from many sources and in many industries. Nonetheless, there are lessons to be learned here, especially since it HAS happened so many times (a brief conversation with a China hand, or even a brief review of Dan’s blog will show this).The initial mistake made was when the foreign manufacturer didn’t file their patents in China first. If they did this, then the Chinese company would not have been able to “re-register” the foreign IP (I’m assuming patents here, not UMs or designs).Of course, as hindsight is 20/20…so when the above was NOT done, and the foreign manufacturer became aware of what was going on, then the proper thing to do would be for the foreign equipment manufacturer to have invalidated the Chinese company’s patents in the SIPO. As Schneider and other companies have learned you can NOT do this in the court. Furthermore, the foreign company could have tried to register their software’s copyright in their home country, or China, and then sued the CN manufacturer for copyright infringement, if the source code was indeed exactly the same.

These are the first things that jump into my mind in this situation.

Okay, so the title is a bit of an exaggeration, but it is true, at least to a certain extent.  I just read two articles that got me to thinking about this.

The first article, “The footwear firm that gave counterfeiters the boot,” is by BBC reporter Kim Gittleson. Ms Gittleson extensively interviewed me for the article, but I ended up getting two small quote lines.  One had me repeating my usual mantra on how if you do not register your IP in China, you are not entitled to complain when it gets taken from you in China:

Dan Harris, an international lawyer with Harris & Moore and author of the popular China Law Blog, says that while American companies have got smarter about protecting their products, there is still one golden rule.

“The key is if you don’t register you’re intellectual property – your trademark, your copyright, your patent – you have pretty much no chance,” says Harris.

For more on the need to register your IP in China meme, check out “China IP Protection. Deja Vu All Over Again” and “An ABC To Losing Your China IP.”

My other quote is more interesting:

But, he [me] adds, focusing on how to protect your business can drive you crazy – and at the end of the day: “Sometimes you have to ignore it and focus on making money.”

I like that one and here’s why.  Far too often foreign companies come to our firm almost debilitated with fear about doing business in China, to the point that they have left big money on the table seeking to protect what simply does not need protecting. Of course you should be concerned about protecting your IP in China, but at the same time, you should weigh that concern against the money-making or money-saving opportunities China can give your company.

The second article, “Retirement Living World China 2012 – Day 1,” [link no longer exists] has Ben Shobert writing on the Retirement Living Conference that just started in Shanghai.  Ben writes about an “interesting insight” on China IP revealed by Kevin Ryan of Waterbrook Xian:

He [Kevin Ryan] also offered up what I found an interesting insight into one concern he had that has been alleviated over the last year; specifically, his concerns over intellectual property theft in the service realm related to senior care have not proven out. Kevin shared “my thinking on IP has changed 100% … I now think that the ongoing management expertise is what will create long term value, that is something that can’t be thrown away.”  Western operators have this IP and while some Chinese developers and prospective operators may believe they can easily copy this, Kevin is confident his long term capabilities and know-how are components of his business model that he can continue to leverage and protect.

For those who think that Kevin’s comments on IP make too little of this potential issue, it is worth pointing out that while China does have a well-earned reputation for IP theft, the country’s ability to take IP in what are commonly known as service or highly intangible industries has not been as much of a problem for foreign operators.  The best example of this, and one that is quite relevant to the senior care sector, is of course the hospitality industry in general.  As I was reminded during a meeting Monday, the hospitality industry in China is still dominated by foreign operators whose primary point of distinction is a brand that offers foundationally better customer experiences than what their Chinese competitors can offer.

Ben’s and Kevin’s comments surprised me a bit in that it would not have occurred to me that a senior living facility would be so concerned about IP protection.  I too do not want to make light of this industry’s IP protection needs (especially since I am certainly no expert in this industry), but it seems to me that about all they would typically need would be strong protections against others stealing their trademarks (their name, their brands, their logos, etc.) and good employee contracts setting forth the trade secrets their employees cannot take with them.

Not saying that you should stop worrying entirely about your IP in China because protecting your China IP is obviously important. Just saying that you should not allow yourself to put too high a priority on this one aspect of your business.

What do you think?

When we first started this blog way back in 2006, we would constantly tout how if you want to protect your IP in China, you have to register your IP in China.  Our thesis was (and is) that if you don’t bother registering your IP in China, you really have no right to complain about someone using “your” IP in China.  For a representative article with these thesis, check out, China Trademarks — Do You Feel Lucky? Do You? The flip side of this thesis is that if you do register your IP in China (i.e., your trademark, copyright or patent), your chances of protecting it will go up exponentially.

Back in 2006 and 2007, the media was constantly writing about U.S. companies with IP problems in China. The amazing thing about virtually all of those articles, however (especially the ones in the local press) was that they never mentioned one way or the other whether the complaining American company actually had any legal basis for its complaints. In other words, they were completely silent as to whether the American company had actually registered its IP in China. I must have called at least a half a dozen reporters behind stories like those and in every single instance, they admitted it had simply never occurred to them to ask whether the subject of their stories had actually registered its IP in China or not. It had never occurred to them because, without even thinking about it, they had just assumed that what is good in the United States is good for the world; if you have a trade name in Peoria, that alone ought to be enough to prevent anyone in Timbuktu or Tianjin from using it. WRONG.

What virtually all of these articles had in common though was that they would quote the “offended” American company as though it were spouting gospel and blame the Chinese company as though it was solely responsible for the American company’s problems.

I thought of those good/bad old days today after reading an excellent post over at the Learn China Business Blog, entitled, “Are Chinese Copycats Convenient Scapegoats for Poor Preparation?” The post is about a USA Today article, entitled, “Chinese copycats challenge U.S. small businesses.” The article highlights a U.S. recreational camper trailer company called SylvanSport. SylvanSport professed “shock” at learning that a product very similar to its own was being made in China and sold in Korea and Japan, two countries where SylvanSport had been seeing strong sales.  Syvlan’s owner seems to see SylvanSport’s legal problems as a political matter:

“Our politicians, when they describe the companies that are necessary for the economic recovery, (they are talking about) companies like ours,” he says. But because of SylvanSport’s lost sales, “There’s a very real chance that the Chinese company could be the survivor here and we could go out of business.”

The USA Today article does NOT make the mistake of failing to investigate the IP protections secured by its subject company and, in fact, it flat out notes that SylvanSports did not file for a China patent and that its Chinese competitor, Wuyi Tiandi, did:

Wuyi Tiandi received a patent on its camper in China in November, according to Tang. SylvanSport received various U.S. patents for its product between 2008 and 2010, Dempsey says.

While Wuyi Tiandi might not be able to sell its products in the U.S. because of SylvanSport’s patents, Tang says, “We can still sell our trailer everywhere else.”

The article goes on to describe SylvanSport’s case as a “cautionary tale about small businesses’ need to protect their intellectual property” and notes that “only 15% of small companies that do business overseas realize that U.S. patents and trademarks protect them only within the U.S., according to the U.S. Patent and Trademark Office.” The article rightly points out the need for US companies to “file patents and trademarks in countries where their products will be made and sold, as well as where they’re based.”

Sylvan’s owner never contests his lack of legal standing, but instead puts forth the vague notion that things ought to be different:

While Dempsey realizes the limits of U.S. patents, he says that Wuyi Tiandi should not be able to get a patent in China based on his product.

I’m sorry, but color me skeptical and indifferent.  Heck, I’ll even go a step further than that and flat out blame the “victim” here and say that whatever SylvanSport is going through is its own fault.

I deal with companies like SylvanSport every day and here is how my conversations with those companies often go:

Company: I have a great product and I am not sure what sort of IP protection I am going to need for it.

Me: Where are you making this product and where will you be selling it?

Company: I am making it in the United States, but I am selling it throughout the world.

Me: Do you have any patents or trademarks or copyrights related to the product?

Company: Yes.  I just filed for a patent here in the United States and I also have registered trademarks here too. One for my company name, one for the product name and our logo.

Me:  Good.  Ummmmmm. Okay. Let’s talk about your sales. You say you are selling your product all over the world, but can you break that out for me a bit more.

Company: Yes. Right now, about 70% of our sales are in the U.S., 10% are in Canada, 5% are in Australia, 5% in England, and maybe 5% in France, Belgium and Germany combined.

Me:  Okay, you said “right now.” Do you anticipate those numbers changing?

Company:  Yes.  We have been getting a lot of interest from Japan and Korea and we are about to sign a deal with companies in both of those countries to distribute our product there.

Me:  Okay. So here is how I see it. If you were an Apple or a Microsoft, this would be easy. I would just tell you to register your trademark and your patent in pretty much every country in the world, including South Sudan and Afghanistan, figuring your product will eventually go everywhere and figuring you can afford it. But that doesn’t make sense here.  So here is what I tentatively suggest, subject to our talking further and our getting back to you on registration pricing for each country.

What will probably make sense is for us to look into the most cost effective way to get you trademark and patent protection in the United States (where it sounds like you are probably already completely covered), Canada, Australia, England, France, Belgium, Germany, Japan and Korea. It will probably end up making sense for you to do an EU filing to cover all of the EU countries, not just those we have already discussed.  Do you have any plans to manufacture your product outside the United States?

Company:  No immediate plans, but I as this thing really takes off, I could see us looking at China, Vietnam or maybe even Indonesia for manufacturing.

Me: Okay. Well then we should get back to you with pricing on those countries as well. By the way, who did your United States patent work?  I ask this because I will want to talk with them about exactly when your patent was filed and what sort of filing was undertaken because that will impact whether or not you are too late to file patents on your product in any other countries. We don’t do patent work, but we can recommend patent lawyers to you in the relevant countries, though I am guessing that your patent lawyer can probably do so as well and we find it generally makes sense to have your US patent lawyer head up and oversee your foreign patent filings as well.

The point of my setting out the above is to show the basics of what companies typically go through in determining what to do to protect their IP around the world. SylvanSport should have gone through the same sort of thing with its lawyers and if it did and then chose not to register its patent in Korea or Japan (where it is now complaining of lost sales) or in China (where it is now complaining of a copied product), it made its own choice. If SylvanSport was advised on what it needed to do to protect its IP and then chose not to spend to do so in China, Korea or Japan, then it appears it made a cost-benefit analysis that it now regrets. If Sylvan was never advised on what it needed to do to protect its IP around the world, then it made the decision not to bring in counsel capable of assisting it with this issue.  Either way, it was SylvanSport’s choice not to spend the money it needed to spend to secure the IP protection it now seems to wish it had.

One more thing about the article that struck me. SylvanSport might be right to complain about how Wuyu Tiandi should not have been granted a Chinese patent. Patents in China require, among other things, “novelty” and if something has already been patented, it probably is not novel. Invention patents in China are substantively examined but utility patents are not. If SylvanSport is concerned about Wuyu Tiandi having a Chinese patent, SylvanSport should retain a Chinese lawyer versed in China patent litigation to figure out whether it has grounds to challenge Wuyu Tiandi’s patent and invalidate it. It is probably too late for SylvanSport to secure its own patent in China but invalidating Wuyu Tiandi’s patent would at least allow SylvanSport to manufacture and sell in China some day, if it so wishes.

Learn China Business raises THE important question: “In SylanSport’s case, how can they feel victim to any Chinese company selling a product similar to theirs without coming to the table with a Chinese patent protecting their ownership interests?” I’d like to know the same thing.

Finnish communications giant, Nokia, just brought an intellectual property lawsuit in Beijing Court against two Shenzhen-based Chinese phone manufacturers, Shenzhen Telsda Mobile Communication Industry Developing Co. Ltd and Song Xun Da Zhong Ke Electronic (Shenzhen) Co. Ltd. Nokia also named the distributors of the offending phones, Beijing Tongwanbao Commerce & Trade Co. Ltd An Wai Avenue No. 2 Branch and Beijing Xin Tongwanbao Commerce & Trade Co. Ltd as co-defendants.

Nokia is seeking a Court order requiring defendants cease manufacturing and selling mobile phones that allegedly copy the Nokia’s protected designs.  Nokia is also seeking monetary damages.

Nokia is smart.  Nokia wisely registered its intellectual property in China and it is now taking legal steps to protect it.  It is not waiting for the Chinese government to do something; it is doing something on its own, just as it would do in just about any other country in the world.

I was recently contacted by a fairly large European company wanting our help in stopping someone from selling copycat products in China, under the very same company name.  When I learned this European company had done nothing in China to protect its intellectual property in China, I asked if it would have a good lawsuit if this very same situation were occurring in the EU.  He responded no.  I told him China was no different.

Bottom Line:  If you want to protect your IP in China, be like Nokia: register your IP in China.  Then, if you learn someone is infringing on it, take legal action.  This holds true for patents, trademarks and copyrights.  In other words, do in China exactly what you would do just about everywhere else.

In a post, entitled, “IP Piracy: China Gets Religion, French Rockers Get Hissy,” What About Clients? wrote on piracy in China because it involves their “clients and practice.”  The post ends with some wise and pithy advice:  “Dude, register your IP in China.”

Dan Hull started the What About Clients? blog to contribute towards improving on the service lawyers provide their clients. This blog definitely contributes to that goal and I highly recommend it to anyone interested in client service issues for service businesses.