China, Intellectual Property, International Law

How To Protect Your IP From China: It Is Possible

It's a surprise how many companies seem to treat their intellectual property protection in China as an optional.

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1. If your IP has value, and if it can be copied with minimum effort, it will be copied. You must therefore prepare for this reality in advance. What kinds of assets are subject to this risk?

  • Trademarks, trade names, and logos.
  • Exterior product design (design patent and copyright).
  • Books, photos, reports, drawings/plans — any other medium that can be photocopied and reproduced.
  • Any material that can be copied in digital form: music, film, CAD drawings.

2. The Chinese seldom put much effort into independent copying of inventions and other technical IP that cannot be copied easily. If intangible assets cannot easily be copied, the Chinese will usually wait to be trained by the foreign business. They will seldom appropriate foreign technology on their own initiative. As a result, the motivation of many Chinese companies that work with foreign businesses is to acquire technology, trade secrets, and know-how via training from the owner of the IP. This occurs in virtually any area where Chinese companies work with foreign businesses:

  • Technology licensing projects;
  • Joint venture manufacturing or services;
  • OEM manufacturing;
  • Product design and development agreements;
  • Employee training; and
  • Distribution and sales agreements.

Most technology, know-how, and trade secrets are lost in China to companies and employees that have been trained by the foreign owner of the intangible asset. Usually this loss could have been prevented with proper agreements and business practices.

No protection in China will be perfect. However, China can provide many second best methods, and second best protection is better than no protection at all.

American owners of technology often discover that their preferred and customary method of technology protection is not available in China:

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  • Patent protection is often not available because of the China rule requiring that China patents must be filed within one year of the patent having been filed elsewhere.
  • Copyright protection is often not effective for easily copied digital media.

Faced with this, many American companies simply give up and operate in China with no protection at all. This virtually always leads to disaster in China. The correct approach is to work to find an alternative form of protection. This can be achieved in many ways:

  • Licensing agreements;
  • Secrecy and non-use agreements;
  • Technical controls, such as encryption; and
  • Direct manufacture rather than OEM or joint venture.

Many American businesses fall into the trap of thinking that 1) China has no laws, and 2) Chinese companies do not file lawsuits. This is a mistake. Chinese companies are very adept at using the Chinese IP system to their own benefit.

This can occur in two ways:

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1. If the American side fails to register its intellectual property in China, a Chinese entity will register the IP in its own name. In this way, the Chinese company cuts the American company out of the American company’s own market. This happens regularly with trademarks, patents, and commercial copyrights.

2. Many American companies mistakenly believe that China does not have a developed IP protection system. They therefore do not adequately investigate to ensure that they are not infringing the rights of others in their operations in China. This is especially of concern when the American company hires a Chinese contractor to perform services or engages in cooperative design or manufacturing operations with a Chinese company. The American company only learns later that it has infringed on the IP of another. The resulting damages can be significant.

There is IP protection in China and if you are going to be doing business in or with China, it behooves you to figure out how best to protect your intangible assets.

Dan Harris is a founding member of Harris Moure, an international law firm with lawyers in Seattle, Chicago, Beijing, and Qingdao. He is also a co-editor of the China Law Blog. You can reach him by email at firm@harrismoure.com.

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