If you are planning to do business in China, you probably have concerns about protecting your company’s Intellectual Property. No doubt you’ve heard stories of forced sharing of IP, misappropriation, infringement, and counterfeiting. These practices are potentially very destructive to your brand. IP abuses siphon off revenues that should be going to you, dilute your brand with low-cost copycats, and damage your brand by confusing your quality products with cheap imitations. Trademark misappropriation could also effectively lock you out of a lucrative market.
The good news, however, is that China is changing the questionable practices that global corporations and other nations have complained about for years, making it easier for outside companies to protect IP. According to IP attorney Kelley Keller of The Keller Law Firm, “The Chinese are shifting from a copycat strategy to an innovation strategy, which is a seismic shift with massive global economic impact.” These changes are coming quickly “because China has one-party rule, [and] unlike, for example, the U.S. and Europe, they are able to implement large scale policy and legal changes at an unusually fast pace.”
Thus, change within China has been and will continue to be substantial. But that doesn’t mean companies can afford to be passive in their approach. IP protection requires action and vigilance. Briefly, here are five steps your company can take to better assure the safety of your IP:
- Register your IP in China — Chinese intellectual property rights are very similar to rights enjoyed in the United States and the European Union. You can register a patent for an invention citing its utility or design. You can register your trademarks for your brand and copyrights for original works such as music, films, and novels. Once you’ve registered your IP, you can request administrative enforcement through China’s Intellectual Property Office, the Administration for Industry and Commerce, or the Copyright Bureau. You also have the right to file a civil action for infringement. Criminal sanctions for infringement are also possible. Finally, when you register your IP with the General Administration of Customs, you can request customs enforcement against counterfeits of your goods. As attorney Keller advises, you can “keep counterfeits and other unauthorized products out of the stream of commerce,” by registering at home, in China, and in other countries where you sell your products.
- Bifurcate your research and development — Much has been made about forced sharing of IP in China, but there are ways to work with Chinese companies without having to hand over your IP. Writing for com, George Yip and Bruce McKern suggest two effective strategies. First, if you’re going to do R&D in China, allocate to your Chinese partners an area “in which the company does not currently have a large body of IP.” This arrangement is “less likely to require inward transfers of existing IP,” so you won’t have to surrender proven assets. Secondly, you can split “R&D into modular tasks … allocating some core tasks to the headquarters group, with specific tasks allocated to the group in China.” The less you share, the more you protect. Of course, this raises the challenge of having Chinese partners working effectively in “silos” without having a clear view of the overall project. You can also take steps against employees who would be tempted (or have already decided) to steal IP. Attorney Keller advises companies to “only disclose information on a need-to-know basis,” and not to “allow anyone to bring mobile devices (or other recording apparatus) into your meetings, facilities, etc.”
- Alert China’s major online platforms — Just as Amazon.com has protocols for removing counterfeit goods from its platform, so do the e-commerce giants in China. Alibaba and AliExpress allow companies to register their trademarks and file complaints against infringing products. Of course, the onus for monitoring these platforms falls on you, so vigilance matters.
- Implement comprehensive IP protection strategies — Where IP is concerned, it’s important to remember that you can have ownership rights but not enforcement rights. Also, IP enforcement is territorial, so you can be fully protected in one region, but completely exposed in another. Therefore, if you want global protection, you must go through the registration process in every region where your rights might be infringed. Attorney Keller recommends protecting your regional rights even in areas where you don’t intend to do business currently. Failing to register in a region gives carte blanche to various infringers.
- Examine your retention program — Business IP is often most vulnerable when a disgruntled employee leaves the firm and walks trade secrets out the door. When you keep your people happy, they stay longer and develop loyalty to the company. Even if they move on, they are less likely to misappropriate IP. In the case of “Chinese staff,” Yip and McKern caution that they “are generally not loyal to companies.” However, according to one “German head of China R&D,” those workers “are loyal to their boss.” When managers have a good relationship with staff, “then you will probably reduce the risk of information being stolen.”
At Genimex, we have helped companies around the globe pursue quality manufacturing options in China for decades. We believe the benefits are substantial for any company seeking affordable, high-quality manufacturing of consumer products. However, we are realistic about the risks to unprotected IP, and urge our clients to adopt protocols that preserve their rights. With proper vigilance, you can enjoy all the benefits of Chinese manufacturing while minimizing any risks.