15 Tips on Intellectual Property Protection in China… most of them no money required!

A few months back I wrote a post entitled “6 Tips for Start Ups and Innovators on Intellectual Property Management in China“. Since then I´ve read a couple of very useful posts at the China Law Blog that have extended this list to 15 tips… most of them free!(read the list bellow in my post).  The first post from the China Law Blog is titled “Top Seven Intellectual Property Mistakes By Foreign Companies Doing Business in or with China” and quotes a post by the High Touch Legal Services Blog, entitled, “Top Ten Intellectual Property Mistakes of Startup Entrepreneurs“.  The second post from the China Law Blog is titled “Six Ways to Protect your China IP. No Lawyer Required” and is based on inputs from an article entitled “Enforcing Intellectual Property Rights in Weak Appropriability Regimes: The Case of de Facto Protection Strategies in China” written by professors at the University of St. Gallen (Switzerland) Marcus M. Keupp, Angela Beckenbauer and Oliver Gassmann.

So here goes the updated list of tips on how to protect your IP in China… most of them with no money expenditure required!:

  1. BUILD IN YOUR BUSINESS PLAN THE NEED FOR IP MANAGEMENT FUNDING.
    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.  
  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.
    Some 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.
    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.
  7. USE EMPLOYEE INVENTION AGREEMENTS
    Employees agree to report anything to the company that they invent that result from any work performed on behalf of the company and those inventions are assigned by the employee to the company.
  8. DO NOT ASSUME THE COMPANY OWNS CONTRACTORS’ WORK PRODUCT
    The Chinese Copyright Law provides that, short of prior arrangement, the copyright in commissioned works belongs to the commissioned party…. that is, the 3rd party! So make sure you have signed an agreement to assignment the copyright to your company.  
  9. REGISTER ALL YOUR IP, NOT JUST PATENTS
    China Law Blog notes here that companies seem to underestimate the importance and value of trademarks and trade secret agreements in China
  10. IDENTIFY AND PROTECT TRADE SECRETS via agreements with their employees or via NNN Agreements with outsiders.  
  11. SIGN CONFIDENTIALITY, NON COMPETE AND/OR NON CIRCUMVENTION AGREEMENTS WITH YOUR CHINESE SUPPLIERS
  12. FOCUS ON ACHIEVING TECHNOLOGICAL ADVANTAGE so that imitation is impossible or difficult
  13. NURTURTE YOUR INTERNAL GUANXI (good salaries, training…) , so that employees feel so committed that they are less tempted to sell your IP.
  14. BUILD STRONG EXTERNAL GUANXI
    Good relations with officials and institutions you can turn to in case of IP infringement.
  15. LIMIT THE ACCESS TO PRODUCT FUNCTIONALITY THROUGH A SAFE PASSWORD OR OTHER “ACCESS KEY”
    Here the China Law Blog shares an example of a client that sells an equipment that requires a protected password for full functionality.

Do you have any other tips to add to our list?

Trademark Rights in China: Good News, Bad News.

A lot has been written about the status and enforcement of trademark rights in China. This is no surprise, as for some industries trademarks are a key strategic business advantage.

When it comes to trademarks in China, I like to put it this way “I have good news and bad news… which one would you like to hear first?”

The good news is that, although China has to put up with quite a negative press when it comes to respecting and enforcing IP rights (one could say well deserved), on trademark rights protection it has quite a good record of enforcement!

So what could the “bad news” be? Well, China follows a first-to-file system so, if you have not done it already, anybody could well register your mark without evidence of prior use or ownership (ouch!). So register your trademarks now (it may take between two to three years – although there were proposed law changes that hopefully could end up shortening this period) so that you don’t have a nasty surprise one of these days.

Lovells, the international business legal practice, has published in its website a “Clients Note” entitled “Pre-emptive intellectual property rights management in China” in which they highlight what they call the “hijacking of IP rights”.  I’ll summarize it for you: “somebody registers your rights and then takes legal action against you for IP rights infringement … because you are obviously making use of your own rights!”

The document also shares a real life example in which things went really wrong for an unnamed US Company. A former distributor registered this company’s trademark and ended up:

  • Filing trademark infringement complaints in several Chinese cities
  • Getting all production plants sealed
  • Getting product seized by administrative authorities and
  • Achieving an administrative order ordering the US Company to stop using its own trademark…

You can breathe now. It has a happy ending. But my point is that those things happen. And as Douglas Clark, a partner in this same law firm, mentioned in a lecture on Intellectual Property at CEIBS Executive Forum on April 6th, his firm gets 5 to 6 cases like this every year.

You may be thinking now that you don’t sell your products in China, but that does not take you to safer ground. Check out the China Law Blog for some basic tips on outsourcing … and do not miss the part in which they mention that you could even be prohibited from exporting your own product from China!

I hope I did not leave you too worried… for peace of mind, you can just log onto the Trademark Office of the State Administration for Industry and Commerce (CTMO)

http://www.ctmo.gov.cn/english/index_e.asp

And browse in the link bellow to see if you find your trademark there….

http://202.108.90.72/trade-e/index.jsp

Hope not… unless you are registering it yourself!

Do you have any experience to share?

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?