By Dan Harris in 'China Law Blog'

Last week, co-blogger Steve Dickinson and I spoke at the Foreign Correspondents Club in Beijing. From our perspective, the best part of our talk were the excellent questions posed to us by the reporters in attendance. There was one question I pretty much punted on and though I have thought much about it since, I still do not have a good answer. In fact, I have determined it is not a question for a lawyer, but rather for a business. Here's the question, as best as I remember it (I believe it came from a Wall Street Journal reporter):

"What do you tell your clients about how Chinese companies are taking foreign company intellectual property and then using that intellectual property to market their own products outside China?"

As I recall, my response was something along the following:

"Good question. In the 'old days' we used to warn our clients about the risks of Chinese companies taking our clients' intellectual property and using that intellectual property to compete in China but you are right that Chinese companies are now using foreign company intellectual property to compete worldwide, not just in China. I guess we just warn our clients of this possibility and then they need to figure out whether it is worth it to them to take the risks."

Steve then talked of how much of the intellectual property that is being taken by Chinese companies is not the type that can be registered as a patent, copyright or trademark and therefore its protection requires contractual solutions. Steve then went on to talk about how in many instances when he and our clients have expressed a desire to the Chinese "partner" about protecting intellectual property, the Chinese company makes clear that one of their chief reasons for wanting to do the deal is to garner the intellectual property and, if they cannot do so, they will not go forward with the deal.

So about the best advice we can give is that if you are opening up your intellectual property to a Chinese company, you had better think long and hard about what the repercussions will be to your company if that Chinese company takes your IP (as it almost certainly will) and then uses it to compete with you not just in China, but in all of your existing and planned markets.

I fear there is no good solution here. What do you think?

Update: Today's (1-18-2011) New York Times has an article, entitled, "G.E. to Share Jet Technology With China in New Joint Venture," that nicely illustrates this dilemma.

Dan Harris is founder of the Harris & Moure law firm, a boutique international law firm focusing on small and medium sized businesses that operate internationally. China is the fastest growing area for the firm. Dan writes ChinaLawBlog.com as a source of China legal and business information.