Intellectual property issues in China

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Based 0n the Nike verdict yesterday, we decided to run a bit of an article we published last July in China Briefing on intellectual property issues in China.

IP is very much an emotive issue when it comes to China, and there are many misconceptions or misunderstandings about the subject and how to cope with IP when it comes to “the China issue.” As China is signatory to all the international protocols that the international community has drawn up concerning the registration and protection of international IP, the country follows the same system as is in place as most nations follow.

What this means:

Registration of your mark
International recognition is only granted provided your mark has previously been registered in five other jurisdictions (thus proving its ‘international’ status) or can be otherwise argued as an ‘internationally considered brand’ – which is a debatable point and subject to legal interpretation. This means if you have only registered your mark in your home country – you are not covered in China. For practical purposes however, even if you have international protection, we still recommend registering in China as courts may have difficulty in recognizing international protocols if they are not used to them, and this will mean more time and expense in legal fees to educate the court and provide evidence of the significance of such protocols and China’s adherence to them. Trademark registration in any event is inexpensive and should be undertaken as a matter of good business sense.

The legal system in China is biased against foreigners
Actually, China’s courts are improving in upholding claims of plagiarism. It is also worth noting that the vast majority of infringements in China are between Chinese firms themselves, and not purely international firms being targeted. Most of the valuable brands in China are of course Chinese – mass sales of foreign products in China are still fairly limited. Courts can and do, in the main, uphold claims by foreign companies where the evidence is properly introduced and in order. The problem is not with the judiciary, although they are not perfect either. The main issue is that of enforcement – actually stopping the infringement once a judgment in your favor has been awarded.

As mentioned, more tricky. Should enforcement be an issue, then we recommend the hiring of off-duty Public Security Bureau personnel (or even PLA) to turn up at the offending premises, look threatening and intimidating. This usually does the trick. Anything beyond this and you will need to engage further legal action – and that gets expensive.

Is it worth it?
IP is an emotive issue to foreign businesses in China. But it is also important to assess the actual damage against the cost of litigation and emotions. Lawyers are expensive, and emotions can mean you concentrate more on the litigation than the case actually warrants. It is wise not to overstate the damage caused to your firm if you do get ripped off and be somewhat pragmatic about dealing with it.

Is your IP vital to your China or international business?
If it is, you may need to seriously assess whether or not you wish to introduce your technology at all to the market here. Or assess the amount of time you have with your IP as part of a marketing plan to work out how long you are likely to have a free range of the market before the plagiarists get to work and start to erode market share.

Patent registrations
As mentioned, China is signatory to various international protocols when it comes to registrations of patents and trademarks. There is, however, a hole in the registration procedure for patents, which require they be registered and placed on public file for assessment prior to the patent being recognized as your own intellectual property. This means some entrepreneurial types scan such registrations specifically to steal designs and then immediately get into production even while your patent pending process is still on-going. This is not a China issue – it is a weakness in the international protocol of registrations and needs to be addressed in the fullest sense to protect expensive R&D and inventions from being used on the cheap by less scrupulous businesses.

For more information on many of the common mistakes and misperceptions made when investing in China, and how to avoid them, please see the July/August 2006 issue of China Briefing.