On October 3, 2014, I was at the University of Toledo College of Law for an all day program titled Doing Business in China. The program was excellent, but it had to come across as scary for a truly small business. During one of the breaks someone asked me what I was learning and my rather flip, off-the-cuff response was: “No one should do business in China.”
My snarky response was, of course, an exaggeration. Having said that, I don’t think it is much of an exaggeration to say that there are significant hurdles to doing business in China. If your business does not quality as a “small entity” at the United States Patent and Trademark Office you absolutely should be doing business in China. But if you own a truly small business or start-up company you probably don’t have the resources necessary to be doing business in China. Where the threshold is between too small for China and too big not to be doing business in China is hard to say, but it is fair to say that all businesses of all sizes should at least investigate the realities of doing business and China and have a China strategy in place.
One of the real challenges for the truly small businesses is with the virtual unanimity of presenters and panelists on one point — in order to do business in China you really have to have an employee in place in China on a permanent basis. Another option discusses was having one of the principles or partners of the business always on the ground in China, perhaps rotating in and out so that someone is always there to make sure everything goes according to plan. This might seem like overkill, but one of the big problems with counterfeiting is when the Chinese manufacturer runs an extra shift off the books using your equipment and raw materials to create unauthorized products. Having a person on the ground in China seems absolutely essential.
WASHINGTON – The U.S. Department of Commerce’s United States Patent and Trademark Office (USPTO) and the State Intellectual Property Office of China (SIPO) today launched a new free service that will allow the two offices to electronically exchange patent application priority documents directly. This new service will help streamline the patent application process and reduce costs for businesses which are increasingly pursuing patent rights globally.
The new service will allow the USPTO and the SIPO, with appropriate permissions, to obtain electronic copies of priority documents filed with the other office from its electronic records management system at no cost to the applicant. With this new service, applicants will no longer need to obtain and file paper copies of the priority documents; however, they are still responsible for ensuring that priority documents are provided in a timely manner.
Today I am in Toledo, Ohio, at the University of Toledo College of Law. The College of Law and Professor Llew Gibbons, who is Chair of the Board of Directors for the Confucius Institute, and are the hosts for Doing Business in China. Thisall day program will discuss the advantages of doing business in China for small and mid-size corporations. It is hoped that the program will dispel myths and provide useful information with respect to helping businesses decide whether they should consider doing business in China.
One of the first topics discussed this morning relates to patent examination standards in China. Thomas Moga, a partner with Shook, Hardy & Bacon LLP, explained that businesses should be considering getting patents in China to keep others from using your IP, to develop a portfolio for cross-licensing and to stop counterfeiting. Moga explained that while he cannot say that enforcing rights in China isn’t without problems, but one thing is for certain — if you don’t obtain patent rights you have no chance of enforcing rights in China. “One of the reasons foreigners have in China is they don’t take advantage of the system, which is because we don’t understand the system,” Moga said.
On Friday, October 3, 2014, I will be in Toledo, Ohio at the University of Toledo College of Law. I taught years ago as a Visiting Professor at the College of Law, have many friends still at the University, and my son is currently studying to become an electrical engineer at the University of Toledo College of Engineering, so I expect over the next several years I will find a variety of excuses to visit Toledo.
My excuse this time is to attend a program titled Doing Business in China: A Legal and Commercial Review on Friday, October 3 from 8:30 a.m. to 5:15 p.m. at the University of Toledo College of Law in the McQuade Law Auditorium at 1825 W. Rocket Drive, Toledo, Ohio. Registration will begin at 8:00 a.m. The cost to attend is $35.00, which includes a lunch. Vegetarian meals are available upon request.
The University of Toledo College of Law, Regional Growth Partnership, and the Confucius Institute at The University of Toledo are the lead sponsors for Doing Business in China, which is the first part of two programs. During 2014 the Confucius Institute will spearheaded this program to educate local business people and attorneys on the realities of doing business in China by bringing together a distinguished panel of academics, attorneys in private, public, and corporate in-house practice as well as senior business people to discussed the realties, the myths, and the risks of doing business in China. Next year, in 2015, the focus will shift and will be on the concerns of Chinese attorneys, business people, and their advisors relating to doing business or investing in the United States.
Much has been said and written about China’s “low quality” and “junk” patents both domestically and internationally, but no one agrees what this means – what exactly constitutes “junk” and “low quality”? For that matter, what is “high quality”?
Unfortunately for the Intellectual Property industry, there is no single accepted or consistent measure for patent quality. Some say “low quality patents” refer to Chinese Utility Models because they are not examined, while others also include Chinese Design Patents as well. Others define low quality or junk patents to encompass all Chinese Invention Patents, Utility Models and Design Patents. However, a lack of in-depth analysis risks dismissal of the entire Chinese Patent System as being “low quality” or “junk”; such a rough stereotype is a grave mistake.
Note that among patent attorneys, “patent quality” has a different nuance from “patent strength”. Typically a patent’s strength is more indicative of patent validity with respect to the prior art, as opposed to quality, which is a broader concept. Like personalized concepts of “beauty” and “value”, the concept of patent “quality” is subjective and depends on one’s perspective, each case, and even changes over time.
In 2010, Hewlett-Packard sued its former CEO for threatened misappropriation of trade secrets, after he took a position as President of Oracle. In 2012, Taiwan’s Acer, Inc. sued its former CEO for breach of a non-competition agreement after he quit and took a top position at Lenovo. And last month, criminal charges were filed against five employees of Taiwan’s HTC Corp., for allegedly conspiring to form a competing company using secrets stolen from HTC.
Employers often spend considerable resources recruiting, hiring and training key talent, only to face potential disaster when those trusted employees quit to join a competitor, often taking sensitive files on their way out the door. Even if they don’t act in bad faith, departing employees carry critical, confidential information inside their heads, which can’t be deleted. Fortunately, various remedies may be available for the former employer, from confidentiality and non-competition agreements, to lawsuits for actual or threatened misappropriation of trade secrets and the doctrine of inevitable disclosure.
But there’s a conflict. Employers have a legitimate interest in preventing misappropriation of trade secrets, while employees have a legitimate interest in utilizing knowledge and skills gained through work experience and working for employers of their choosing. Courts and lawmakers have long struggled to establish a balance between those competing interests. Below is a general overview of relevant laws and practices in the U.S. and Asia.
Here we go again. Last week, police detained three employees of Taiwanese smartphone-maker HTC, raided their homes and offices and seized their computers and cellphones to search for evidence, as HTC is accusing them of stealing sensitive technology to sell to HTC’s competitors.
The three men – a vice president of product design, director of R&D, and senior designer – are accused of stealing secrets relating to HTC’s Sense 6.0 smartphones, which are scheduled for launch later this year. The accused purportedly formed design companies in Taiwan and China and began speaking with Chinese phone-makers about selling them the stolen secrets. They are also accused of defrauding HTC out of more than US$300,000, by use of forged documents, apparently to raise capital for their new venture.
Taiwan has seen similar cases before. In 2012, the nation’s second largest LCD panel-maker, AU Optronics (AUO), sued two of its former high-level executives for stealing trade secrets, which they took to their new employer, a major competitor in China. In 2011, Taiwan IC-design company, MediaTek, sued a former employee for stealing secrets and sharing them with his new employer. And, most famously, Taiwan Semiconductor Manufacturing Co. (TSMC) battled with its Chinese rival, Semiconductor Manufacturing International Corp. (SMIC), for almost a decade over allegations that SMIC poached numerous employees, who stole critical information that SMIC used to illegally manufacture competing products.
The Commission on the Theft of American Intellectual Property (IP Commission) released an 89-page report on May 22, 2013 assessing international intellectual property theft with a focus on China’s troubled IP regime and recommendations for changes in U.S. policy responses. The IP Commission is an independent, bi-partisan initiative led by the former Director of National Intelligence and Commander in Chief of the U.S. Pacific Command, Dennis Blair, and the former Ambassador to China and governor of Utah, John M. Huntsman, Jr. The IP Commission is affiliated with the National Bureau of Asian Research based in Seattle.
Recently, three Chinese researchers were charged with taking bribes from Chinese medical and research companies in relation to trade secret theft of NYU’s research on magnetic resonance imaging technology. The NYU study was federally funded. The panel in IP Commission acknowledged that this type of misconduct would still occur but would be reduced if their recommendations were adopted.
Recognizing the large scale IP theft that frequently originates in China, the IP Commission proposes designating the President’s national security adviser as the principal policy coordinator for all actions on the protection of American IP.
Design patents have been making the news. Last summer, Apple’s $1.05 billion verdict against Samsung was famously based, in part, on the finding that Samsung infringed Apple’s rounded-rectangle and edge-to-edge glass designs. Since then, Yamaha, Thule, Oakley, Nike and Spanx, to name just a few, have litigated in the U.S. over the design of headphones, ski racks, sunglasses, footwear and women’s undergarments. And just last month, former head of the USPTO, David Kappos, published an OpEd piece describing design as “the new frontier of intellectual property.”
Nothing has fundamentally changed about the nature of design patents. The first US design patent was granted in 1842. The Statue of Liberty, Coke bottle, Volkswagen Beatle, Stealth Bomber and Star Wars’ Yoda are all protected by design patents. Design patents have long played an important role in consumer electronics, automotive, apparel, jewelry, packaging and other industries.
But industrial design is becoming increasingly important, Mr. Kappos explains, because the increasing functionality of man-made devices brings with it increasing complexity, so innovative companies are constantly seeking superior designs, a convergence of form and function that helps make the complex simple and sets their companies apart; and protecting such designs is critical.
On March 28, Apple Inc. appeared in court in Shanghai to defend charges that Siri, its voice-recognition, personal-assistant software, allegedly infringes a Chinese patent. The plaintiff and owner of the patent, Zhizhen Internet Technology Co., claims its version of the software has over 100 million users in China and is requesting the court to ban all manufacturing or sales of Apple’s product in China.
This was not the first time Apple faced patent infringement claims in China. Last summer a Taiwanese man sued the company in China for alleged infringement relating to its Facetime technology; in 2010 a Shenzhen company threatened to sue concerning iPad design; in 2008 Apple was sued for the iPod; and in 2012, a Hong Kong company launched GooPhone I5, an android-based replica of the iPhone 5, reportedly based on leaked photos of the iPhone. GooPhone claimed to have patented the design and threatened to sue Apple if it dared to sell the genuine article in China.
Nor is Apple alone. French company, Schneider Electric lost a $48 million patent infringement verdict in China and Samsung lost one for $7.4 million. Sony, Phillips, Canon and Dell have all had their battles and GooPhone sells knockoffs of other smartphones in China with apparent impunity. Of course it’s possible in some cases the Chinese technology may be first and the Chinese patent legitimate. However, foreign companies face a growing risk that Chinese entities may unscrupulously patent foreign technology in China and demand a toll to do business there. Not only that, but in coming years companies will increasingly face challenges worldwide from the growing landslide of patents coming out of China.