by Dan Harris
Virtually every U.S. company doing business in or with China has intellectual property requiring protection from China. Yet far too many of these companies treat their intellectual property in China as an optional or secondary matter when it really should be one of the first issues they consider when approaching the China market.
Let’s first get clear what we mean by “intellectual property.” IP is not patents, trademarks, copyrights, etc. These are simply tools for protecting intellectual property
So what is intellectual property?
IP is a substantial portion of the value of most modern businesses.. For many businesses, such as those in creative services, it forms the core of the value of the company. Consider the stars of the modern business world: Apple, BMW, Microsoft, IBM, Boeing, Siemens, Nestle, General Electric, Dow Chemical, Starbucks, Amazon, and SAP. Huge portions of their value is in their intangible assets.
However, even for hard asset, resource-based companies, IP is still a major component in their company value. Take the mining companies that have dealt with China for the past ten years. A major portion of their value lies in their pricing plans, their internal data on their resources, their techniques of extraction and transport, their future exploitation plans and the like. This explains why the primary battle between these companies and their Chinese competitors centers on the attempts of both sides to acquire data to aid in the struggle over control of the market.
Active and careful cultivation of intangible assets is mandatory to survive in the modern business world. There is much more to protecting intangible assets than the traditional IP tools.
The traditional intellectual property tools are:
Though these tools are essential in the IP world, there is a far wider set of techniques that can be used, including the following:
Many companies believe that since they have done what is necessary to secure their rights in North America and Europe, there is nothing special they need to do in China. This is a mistake.
The key concept is that IP protection is local. Since all IP protection is based on local law and practice, you must adopt an effective and realistic protection program for the country in which you are operating. If you are in China, you must consider the situation in China. China is currently the most dangerous country in the world when it comes to protecting intangible assets, but that does not mean you can afford to throw up your hands and do nothing. China’s IP risks can be managed, if you realistically assess the risks and take practical steps for protection.
To protect your IP in China you must make use of the Chinese system. You must act within China for creation of rights, enforcement of rights, and monetary exploitation of rights. You must deal with China the way it is, rather than hoping to rely on a perhaps more perfect system that simply does not exist in China.
China IP protection can be divided into the following four categories in terms of the effectiveness of the system of legal protection:
Businesses must focus on the realistic risks within China. The risks vary depending on the type of intellectual property. The general situation is as follows.
1. If your IP has value, and if it can be copied with minimal effort, it will be copied and you should prepare for this . The following assets are particularly susceptible to copying in China:
2. The Chinese seldom put much effort into independent copying of inventions and other technical IP that cannot be copied easily. If intangible assets cannot easily be copied, the Chinese will usually wait to be trained by the foreign business. They will seldom appropriate foreign technology on their own initiative. As a result, the motivation of many Chinese companies that work with foreign businesses is to acquire technology, trade secrets, and know-how via training from the owner of the IP. This occurs in virtually any area where Chinese companies work with foreign businesses:
Most technology, know-how, and trade secrets are lost in China to companies and employees that have been trained by the foreign owner of the intangible asset. Usually this loss could have been prevented with proper agreements and business practices.
No protection in China will be perfect and American companies often discover that their preferred and customary method of technology protection is not available in China:
Faced with this, many American companies simply give up and operate in China with no protection at all. This virtually always leads to disaster in China. The correct approach is to work to find an alternative form of protection. This can be achieved in many ways, including the following:
Many American businesses think China has no IP laws and that Chinese companies do not file lawsuits. This is a mistake. Chinese companies actually tend to be quite adept at using the Chinese IP system to their own benefit, including employing the following tactics:
There is IP protection in China and if you are going to be doing business in or with China, it behooves you to figure out how best to protect your intangible assets.