CHINA & INTELLECTUAL PROPERTY PROTECTION
At the International Business Initiative, Robert Gaybrick, Partner and Co-Chair of the Intellectual Property Practice of Morgan, Lewis and Bockius in Washington, DC., who has been involved in over 100 Patent Licensing transactions and negotiations and has significant experience in intellectual property involving China, Jennifer Groves, a partner in the Washington, D.C. office of Eckert Seamans, Vice-Chair of its Intellectual Property Group for Enforcement and Entertainment, who served in the White House Office for annual Special 301 Review of Worldwide Intellectual Property Protection and Enforcement. and Zhang Rou Yu, an associate in Yingke Law Firm in Beijing, China, which has offices in many cities in China, and who has experience in intellectual property (IP) enforcement in China, led a discussion on the enforcement of IP rights regarding China. Enforcement is improving. China has made it a focus of its policy to establish its own IP industry. China has more patent litigation than any country in the world. The judicial system is not as independent or transparent as ours. Yet “knockoff” products abound in Beijing’s Silk Street Mall and the issue of infringement liability for the mall as well as the stores is being litigated. IP violations can be civil or criminal if above a certain value threshold. Violations include putting a false patent number on a product.
Foreign companies should apply for a patent within 1 year of a U.S. application before publication or use here or in China. A U.S. application is published in 18 months. Publication in the U.S. may ban an application for a patent in China.U.S. patents do not apply in China. A PCT Application may be obtained in the courts. China is not as liberal in the U.S. as to standards for patenting software. Patentability varies throughout China. There is more patentability in the South, and more enforcement in cities like Shanghai, Beijing and Guangzhou. Chipo uses national standards for enforcement. Certain judges specialize in IP enforcement. It can take 2-4 years for approval of a patent. Prior application does not grant a right to the patent but filing as early as possible is wise because it starts the “clock ticking” on damages. Chinese patents last 20 years from the date of filing.
Disputes should be arbitrated. The arbitration system is often better than the courts. Contracts involving IP in China should have an arbitration clause. Injunctive relief is available with the Patent Affairs Administration, which can not award damages. It is fast and relatively cheap. Filing does not preclude also filing in court for damages. Most infringement is by 3rd parties not in contract with the patent holders.
Self Help is available through government relations and lobbying. US companies have a huge problem with IP in China. Some use an advocate like a trade association to get the government to take action. This is done without informing the media, giving the violator a chance to save face.
Companies use the International Trade Commission to prevent or stop the importing of infringing products into the U.S. It can issue an exclusion order so Customs will block the items entry. European countries permit ex parte seizures. The Department of Justice can initiate a criminal action for infringement seeking damages and imprisonment. Another option is the U.S. District Court. At one time there were law firms in China that specialized in closing down of infringing operations. Local police can be used to shut down operations, after an infringement action is filed. Without prior notice to the infringing party local police may enter premises and seize records to preserve evidence. Usually these cases settle.
To do investigation, an insider can be hired to get informants on false software or other infringing products . Fake businesses can be established. Local police can be used under a procedure called A.I.C. Under shuang gui, a member of the Communist Party can be interrogated. There are no depositions, requests for production of documents, or request for inspection or medical examination but a party may seek a court order to obtain and examine the evidence.
Damages awarded may include the profits of the infringer or financial losses of the owner of the IP. There are no punitive damages. Attorneys fees and costs may be awarded. The fee to file a complaint is proportional to the damages claimed, usually a percentage. These fees are awarded if the Plaintiff prevails.
There is progress, but more needs to be done. There are pending World Trade Organization cases on quotas on how many U.S. movies may be released in China.
Practical advice for clients with I.P.: 1) It will be pirated: assume there will be infringement if a product is not manufactured in China. 2) Make plans 18 months in advance to protect your I.P. 3) Get Chinese partners after doing due diligence. 4) Consider withholding key technology. 5) If you have a joint venture your partner may produce unauthorized products at night while doing business with you in the daytime so be careful. 6) You must restrict access to technology by employees in the US and have protection protocols.
The International Trade Commission did §332 investigations on I.P. in China. U.S. businesses lost $48 billion in profits in China in 2009 ($27. billion of which was for information technology and medical, $18. Billion for high technology and $1.billion for consumer goods.) Infringement of Intellectual property cost US companies (in billions) $24. (copyrights), $6.(trademarks ) & $1.(each for patents and trade secrets) US companies spent $5. billion on enforcement. To protect trade secrets, employment agreements should have an arbitration clause permitting injunctive and other relief with the option to go to court of the arbitration relief is not effective. Foreign judgments are not enforceable but arbitration awards are.
J. Michael Considine, Jr., a Philadelphia area International Business Attorney, is chairman of the International Business Section of the Chester County Bar Association and the International Business Initiative of the Philadelphia Bar Association.