Several questions and topics come up time and again during overseas visits with Chinese entities, both law firms and corporations. This article summarizes these hot topics that are of interest to overseas entities in the areas of intellectual property and technology transactions.
1. Ideas to Avoid Getting Caught in the US-China Disputes
Trade issues are a hot topic for Chinese entities. It appears that Chinese law firms and corporations are hesitant to invest in US subsidiaries because foreign investments in US entities are currently under scrutiny. For example, goods entering the US from factories in China are subject to a hike in tariff taxes. One solution to avoid the US-China disputes involves moving some of the factories within China to countries outside of China, e.g., Vietnam and Singapore. This solution could impact factories for electronics, manufacturing, and assembly, whereby goods entering the US from non-Chinese factories would be subject to low or no tariff taxes. Another idea to avoid tariffs is to reduce the size or limit the growth of US subsidiaries.
2. Export Control for Patents
Although US-China tensions currently exist in the areas of trade tariffs, it appears overseas entities, especially entities within China, remain highly interested in investing and dealing with US businesses. Large Chinese tech companies raise questions related to export control, and specifically whether inventions designed in the US, implemented in another country such as in Europe, and adopted in China were subject to export control. One obvious category subject to export control is military applications. However, inventions where civilian applications predominate are more difficult to assess. The safe assumption is that when a portion of the invention is conceived in the US, the invention is subject to export control.
3. Differentiations of Co-Ownership of Patents in Various Countries
Another question Chinese firms and companies raise is how two or more entities that jointly own patent rights can enforce their rights (e.g., sue) in the US versus other countries and how various countries differ. Here, for example, there is a distinction between the US and UK patent systems. The US patent system applies the rules that joint patent owners can assert 100% of their patent rights individually. The implication is that any one of the co-owners of the patent can freely enter into a contract with a third party without the other co-owner’s consent, or sue an infringer without the other co-owner’s consent. Procedurally, however, the US court will enjoin the other co-owners to avoid subsequent litigations by the other co-owners. This procedural hurdle effectively avoids multiple litigants litigating separate cases for the same patent and accused product or process. The same implication is observed in UK, where only one party’s consent is required to sue an infringer but the UK court requires all owners of the patent to join in the case to avoid subsequent litigation for the same patent and accused product or process.
4. Potential Patent Ownership Issues for Graduate Students
Another issue related to patent ownership involves various employer-employee arrangements. Typically, an employer requires an employee to sign a non-disclosure agreement and a waiver of ownership to transfer any patent rights to the employer for any inventions the employee conceived while under the employ of the employer. However, there are specific scenarios where it is difficult to determine whether an employee, especially a grad student, conceived the invention during his/her employment. One example occurs when a grad student conceives an invention that includes concepts or ideas that arise from the research of the grad student and/or his/her professor. In this case, the inventive concepts may or may not be an idea of the grad student. The professor/university employer should advise the grad student employee of the agreement governing the relationship and ownership of the inventions arising from such research.
5. Cross-Border Litigation Strategies
Litigation strategies employed by Chinese entities with a US presence, e.g., US subsidiaries, is another topic of interest in China. For example, when a US constituent of an overseas entity is sued for patent infringement in a US court, the overseas entity can initiate a concurrent patent case in a foreign court, such as a Chinese court. It is typically cheaper and faster to litigate in the foreign court than in the US. The effect is that the US court case can be stayed subject to a decision from the foreign (e.g., Chinese) court. Once a decision is handed down in the foreign (e.g., Chinese) court, the US court case might be ripe for settlement in view of the foreign court decision, even in cases where the foreign court case is not representative of the US court case.
Furthermore, some foreign courts, such as the Chinese courts, do not allow arbitration of patent infringement cases as a matter of law. This leads some companies to arbitrate in the US and UK rather than bring the case in a Chinese court. Nevertheless, foreign entities are well advised that initiation of overseas court cases is one strategy that may be adopted.