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The seven things to do when your China IP has been compromised.

By Dan Harris in 'China Law Blog'

Stan Abrams over at China Hearsay just did an excellent how-to post entitled, "Pirates Beware! Gearing Up for the China IP Enforcement Lecture." The post does a great job explaining how to handle a China IP problem, though the steps it sets out would pretty much work fine for just about any legal issue needing resolution. As Stan puts it, a China IP problem is, at least from a lawyer's perspective, "just another problem to solve, and not unlike a typical foreign investment case, or a trade dispute, or a commercial transaction."

Stan advocates the following seven step method for dealing with a China IP problems:

  1. Identify the actual problem. Slightly more complicated than it sounds. Yes, in most cases, we are dealing with IP infringement. But you have to drill down to determine the actual facts, not what your staff/suppliers/distributors tell you is going on out there in the marketplace. Sometimes this involves getting professional investigation help. After a little more digging, you might be surprised to learn that the good, or bad, news obviates the need for a full-blown enforcement action.
  2. Determine the goals of the IP owner. This has to be done quite early, but after the pertinent facts are learned. Some client goals are based on faulty intelligence or unrealistic expectations. Usually here we are talking about a combination of “stop the infringement” and “get compensation,” but others are possible, including moving the parties towards a transaction like a license, assignment, or acquisition. Needless to say, you not only need to learn about goals, but to at least do a quick and dirty hierarchical list of what is desired, acceptable, tolerable, and unacceptable.
  3. Identify and evaluate the IP. Sometimes that “IP infringement” is non-actionable unfair competition, meaning that one firm is copying something of another firm, but there is no IP involved that can be protected, and the facts are insufficient to back up an unfair competition theory. Unless you know what you own, you’ve got nothing. That being said, this knowledge can lead to some mitigation work, such as registration of IP. However, based on my experience, if you learn at this stage that your “IP” is actually nothing, you’re pretty much screwed.
  4. Know your enemy. Again, probably time to find an investigator. Depending on who the infringer(s) is(are), your case might be dead on arrival. And by the way, I am not necessarily talking about facing a huge, powerful State-owned Enterprise; you might have even more trouble with a bunch of tiny, fly by night operators that are difficult to track down. Either way, no one needs to waste time and money tilting at windmills, so figuring out as early as possible whether your opponent is vulnerable (from a legal perspective) is key.
  5. Isolate your legal options. At this point, one should be able to cross quite a few options off the list, both in terms of legal theory (e.g. unfair competition, trademark infringement) and dispute resolution. As with other points along the way, sometimes the answer is that there is no viable winning strategy. If that’s the case, hopefully you will not have to deal with a client in denial who insists on the “just do something” futility gambit. Stay away from those guys.
  6. Formulate strategy. Based on the available options, a strategy has to be put into place with fallback options, if possible; note that the plan might include parallel actions. This strategy, along with its (realistic) budget, needs to be signed off on by all the stakeholders, preferably by senior management like a Board of Directors. The last thing you want is to have your marching orders yanked away just when you’re getting somewhere.
  7. Implementation. In practice, implementation usually means getting experts involved, including (yes, again) investigators, local IP agents, local government, etc. If you’re a foreign lawyer, you always have to get local experts involved, since you are legally not allowed to go into court, apply for an administrative action, etc.

I completely agree with every item on this list and would like to expound a bit more on some of them.

What I find interesting about this list is how well Stan has broken down the various elements. Had I written it, I might very well have conflated 1-5 by describing them as figuring out what is going on, figuring out what you want to accomplish, and figuring out what you can do to achieve what you want to accomplish. Do you have a strong case and one that is worth pursuing?

The "know your enemy" step is of far greater importance than I think many people realize as that can have a tremendous impact on how you choose to proceed. When companies have learned of IP infringement, their initial reaction is usually "let's make them stop and sue the bastards for millions of dollars for what they have already done and let's let the world know that we are not a company to be messed with." And they usually say this as though these goals all fit together perfectly and can be achieved in a few months time. They don't and they can't.

If the company that "stole" your IP is a "fly by night operator" there usually is simply no point in suing that company for millions of dollars that it does not have. There oftentimes is simply no point in suing the legitimate company either, particularly where your case is marginal. If you sue the legitimate company on a marginal case, it may decide it needs to fight you really hard to show the public that it was not violating any IP laws and to show that it too is "not a company to be messed with." I have actually had shockingly good success by writing a quasi- cease and desist letter, pointing out what we believe to be the errors of the legitimate company's ways, giving them a "chance to explain," and seeking to convince them that they would be better off changing things so there can be no questions regarding their conduct. Most of the time, they write back saying that they didn't know of our company's IP, that they do not think they have engaged in any IP violation, but that they will do such and such to make sure there are no future issues.

How do you handle such your China IP infringement matters?

 

 


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.

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