Posts Tagged: "doing business with china"

The Chinese intellectual property legal system has matured rapidly. Just 40 years ago China did not have a patent system, and today the country is aggressively using patent policy to create an innovation pathway… Meanwhile, China is pursuing what they refer to as the Made in China 2025 initiative.

The Chinese have absolutely without question focused hugely on patents over the last 10 to 15 years and over the last five years there’s been an absolute explosion in strategic thought around patents. It’s really unparalleled anywhere else in the world. It’s extraordinary… I think the Chinese understand the very close link there is between patents and the encouragement and incentivization of innovation and invention in a way that perhaps we’ve lost sight of in the West to an extent. In the U.S. you get the feeling that over the last three or four years people felt they could do without patents. I don’t think the Chinese see it that way.

A high ranking Chinese official has announced that the Chinese government rejected a request from the United States to end its subsidization of industries identified by the Made in China 2025 initiative. These key industry sectors are areas where technological development is very important and as such, they’ve been at the center of allegations over the forced transfer of patented technologies to Chinese domestic firms as well as outright theft of trade secrets. The Chinese government has responded to concerns over the Made in China initiative with one senior economic official defending the program as open to foreign and private companies according to a report by Hong Kong’s English daily The Standard.

Conservative leaders wrote the White House applauding this initiative, based on the property rights implications of IP expropriation. These conservative leaders note that China is hardly the only country that steals American IP, and such IP theft imposes significant costs to our economy, impairs American competitiveness and compromises our innovative future… The letter reads in part: “The 301 investigation represents a good first step toward asserting rules-based accountability and recommitting to an American IP-based competition policy. However, trade enforcement is only one pillar of an American economic competitiveness plan.”

This latest victory for a foreign plaintiff asserting intellectual property claims is proof of yet another step down the road leading to a reformed, intellectual property friendly China, with China cracking down on infringers — as promised by Chinese President Xi Jinping… The Chinese IP court in Beijing reportedly ordered three domestic shoemakers to pay a total of 10 million yuan ($1.5 million USD) to New Balance for infringing upon the slanted ‘N’ logo utilized by New Balance on its branded shoes. That’s not a huge damages award in the grand scheme of trademark damages ordered around the world but reports indicate that the damages in this cases were the most ever handed out by a Chinese court to a foreign plaintiff for trademark infringement allegations.

If you are an in-house counsel at a U.S. technology company, managing its global patent portfolio with a potentially significant exposure in China, you face some special challenges trying to effectively and efficiently manage the Chinese patent prosecution through your Chinese IP firms. You might assume that these challenges would be caused by some undefinable “Chinese” element. You already knew how to manage U.S. prosecution, performed by the outside U.S. law firms, and in theory you can apply that learned expertise to managing the process in China. But this is not U.S.-style patent prosecution in another place. The working language will be Chinese in addition to English, the communications will generally be over long distances, 12 to 15 time zones away, and you will have to deal with significant differences in laws, practices, and cultures. This article provides a roadmap and tips for making this process productive and successful.

Unified Patents is a relatively new form of patent troll that works as a “Troll of Trolls” or “ToT.” They file IPRs (inter-partes reexamination requests) to kill patents. While they purport to only attack “bad patents,” their definition of a “bad patent” is simply any patent asserted against their clients. So who are their clients? Good question – that is a large part of the problem. They keep most of their clients’ identities secret. Unified does identify a handful of their members on their website such as Adobe, Google, NetApp, Roku, and Salesforce… But China is different. Here, a mercenary third party attacking innovation via patents is problematic. China, unlike America, has made innovation a top priority. China’s government has also, over the last few years, created the best patent enforcement environment in the world.

In the intellectual property (IP) space, knowledge workers come from both Eastern and Western cultural backgrounds. In Silicon Valley and other hubs of innovation, the melding of societal variations most often goes smoothly. However, sometimes not-fully-assimilated Eastern managers get named to groups heavily involved with patents and trade secrets by well-meaning CEOs or founders. What have they missed? That these Eastern managers do not always sync with Western wage earners put in their charge—especially when it comes to workstyles and idea formation.

NPEs are uniquely positioned to help China by attacking foreign entities to clear the way for Chinese companies by exerting pressure in ways that only NPEs can. Even if Chinese semiconductor companies had the necessary patents and experience to engage their foreign competitors, they would risk retaliation from these foreign parties. NPEs, on the other hand, can unilaterally attack foreigners without fear of retaliatory patent suits. Although there are a few of antitrust issues, I do not believe that NPEs that act in the best interest of China should, or will, be attacked by the NDRC or any other antitrust agency in China.

Chinese legislators have attempted to enact anti-terror legislation purportedly designed to protect Chinese citizens against terrorist threats. In late December, China passed a law requiring both telecommunications and Internet companies operating in the country to provide decryption, technical interfaces and other assistance to public and state security organizations to conduct investigations of potential terrorist activities. The tech sector has misgivings about Chinese regulations that would force the handing over of sensitive data. Imagine a leak of encryption keys leading Chinese hackers to degrade performance of a foreign tech provider, all in the name of promoting indigenous innovation. That’s a pretty extreme scenario, but one that’s not completely unimaginable considering recent cybersecurity headlines.

Both Korea and China are major players on the global patent stage, and the leading companies of these countries file and obtain thousands of patents annually. But it seems increasingly clear that the governments of these countries are attempting to support their domestic companies via antitrust enforcement to lower the price of access to patented technologies of foreign competitors.

The first ever CES Asia took place between May 25th and 27th in Shanghai, China. The inaugural industry event showcased the many different technologies that will be entering China’s consumer market in the coming months and years. The three-day exposition was the first Chinese technology trade show coordinated with the Consumer Electronics Association since 2012. More than 200 companies came from 15 countries to display emerging consumer technologies from knockoff versions of Google Glass to home cinema technologies. The forecasts for the Chinese consumer market for emerging technologies would give any technology developer reason to believe that nothing but fair weather awaits them in that country.

The definition of indigenous innovation is “enhancing original innovation through co-innovation and re-innovation based on the assimilation of imported technologies.” Those familiar with China’s joint venture rules for foreign businesses, which require them to transfer some patent licensing powers to Chinese companies in order to enter their market, are wary of statements like this that essentially support a siphoning of foreign intellectual property.