6 Tips for Start Ups and Innovators on Intellectual Property Management in China

On April 6th, I attended a lecture organized by CEIBS Executive Forum on the topic “Intellectual Property Management in China – Multinational Companies, Start Ups and Innovators”. The session was presented by Mr. Douglas Clark, a Partner at Lovells LLP who has been practicing IP law in China since 1993 and is a one of the leading names in IP law in the country.

In my blog post today I will focus on the insights related to Start Ups and Innovators.

As soon as the Start Up and Innovator’s module started… there was bad news for them:

  • IP Management is very expensive
  • Start Up and Innovators tend not to have too much money
  • Intellectual Property Return on Investment (ROI) comes after a long time (by the time you come up with the invention, do R&D, do testing, develop a product and finally sell it, it will definitely be years!).
  • … And that ROI is not even certain to arrive. It is difficult to assess in early days how much a patent is worth, it could be very valuable but it may turn out to be nothing.

But don’t stop reading yet! Things got a little better later on when he shared a series of advice on how Start Up and Innovators could approach IP Management and try to overcome the difficulties above mentioned:

  1. BUILD IN YOUR BUSINESS PLAN THE NEED FOR IP MANAGEMENT FUNDING.
    As mentioned before IP Management is expensive and money is not going to magically materialize, so unless you have a business plan that already foresees the need to properly manage IP you will soon get into trouble. You need to be clear, going in, how much money you are going to need and how you are going to get it.
  2. GENERATE CASH FLOW BY COMMERCIALIZING IP.
    You may need to develop ways to commercialize your IP to generate a cash flow during the first years. This is not easy, as assessing the value of your IP may be difficult in the first years.
    Some Ideas on how to commercialize IP:

    1. Selective Licensing, people you may license IP to that is not going to cause you any problems…
    2. Assignment of non-core IP (with buy-back clause, if possible).
      Warning! Companies may approach you to talk about your ideas and then go and use them themselves… They know you will not have the money to sue them!
    3. Private Equity… but you may need to give up a lot. You must have confidence in your ideas and negotiate really tough.
    4. IPO (Limited Possibility)
  3. LEARN AS MUCH AS YOU CAN ABOUT IP.
    Going to a big firm may be too expensive for a start up so learn from IP books (there are a lot of books about this topic out there), learn from IP websites, learn about claims… learn as much as you can.
  4. DON’T PUBLISH ANYTHING ABOUT YOUR INVENTION
    Don’t publish about your invention or research. Once you publish it… it has gone public!
  5. KEEP IT CONFIDENTIAL
    Sign NDAs with ANYONE you talk to and always mark everything as “confidential”. That will help you if you need to prove that your secrets/ideas have been stolen.
  6. KEEP IT A TRADE SECRET- DON’T PATENT IT.
    This piece of advice was prompted by Mr. Ge Dingkun, a CEIBS Professor of Strategy and Entrepreneurship. He mentioned a study conducted by university professors which came up with a revealing finding. Companies believe that the most effective mechanism to protect their IP is actually not to patent it.  The belief is that if you can work on the development for a few years and get well ahead of your competitors then you have lead time advantage… and that could be the most effective way to protect your IP.
    Mr. Clark agreed with this suggestion and even gave an example of a situation in which he had given the same piece of advice to a company that would have not been financially capable of fighting back an infringement on a patent.
    You can always file the patent later on (unless somebody comes up with the exactly same invention in the meantime!). But something important to consider if you decide to go the “trade secret” way is “Do you have the ability to keep it secret?”.  The “secret” definitely needs to be something that can’t be reversed engineered (for example a production process) and you must be confident in your ability to maintain the secrecy.

Do you have any other suggestions on how Start Ups and Innovators could defend their IP rights?

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