China’s reputation for skillfully manufacturing quality goods at low costs has nations around the world anxious to test the waters. Yet, many of these companies hesitate because they are worried about Intellectual Property theft. What’s the point of introducing a new product if the knockoffs are going to reach the market almost as soon as yours? Fortunately, China has heard the complaints about its formerly lax IP protections, leading to reforms of its adjudication processes and more aggressive enforcement of infringements. Meanwhile, contract manufacturers in China, such as Genimex, have developed successful strategies to further protect their clients’ IP throughout the production process.
How concerned should I be about IP theft in China?
Authorities in China know that if they want to continue to build their industrial base, they must grant foreign companies the level of IP protection they expect. With this goal in mind, China revised its patent law in 2021 to provide:
- Higher potential damages for infringement
- Greater control over generic drugs that infringe on patented medicines
- An increased term for design patents of 15 years
- Increased administrative processing of patent complaints
In response to patent and trademark infringements, Chinese customs have stepped up interdiction to prevent infringing products from leaving the country. For example, in September 2022, Xiamen Customs seized 2,259 pairs of shoes and 1,196 bags that were knockoffs of internationally renowned luxury brands. Despite logos and sophisticated forged documentation, Customs determined the products infringed copyright. The investigation led to multiple arrests, more seizures, and the destruction of three workshops that produced knockoffs.
Similar cases involved the seizures of counterfeits that included:
- Athletic footwear
- Auto parts
- Colgate toothpaste
- Consumer electronics accessories
- Industrial machinery
- MLB and Disney apparel
- Pokémon game cards
- Motorcycle engines and components
These seizures indicate that China is willing to enforce IP rights and punish the individuals and companies who are operating illegally within China. But to obtain enforcement, you must first establish your rights.
Important Steps to Securing IP Rights in China
To safeguard your IP rights, you must take decisive steps administratively and contractually. This means:
- Register your trademarks and patents in China — IP rights are geographically specific. A U.S. patent protects you from infringement within the borders of the United States. If you want help in China, you need to secure your rights within China.
- NNN Agreements — China does not enforce NDAs. A China NNN agreement binds your Chinese associates to a pledge of non-use, non-disclosure, and non-circumvention. The individuals and companies you contract for production cannot use your IP, disclose your secrets to a third party, or use your IP to compete in the marketplace with you.
- Mold/Tooling protection agreement — Let your supplier know that your molds belong to you.
- Product ownership agreement — You must make it clear that even if you are co-developing a product with a Chinese counterpart, the product belongs to you.
- Product sourcing agreement — This detailed contract must clarify your rights at every phase of the production process.
Protecting your IP by segregating component production
One highly successful strategy for preventing IP theft involves component segregation. Under this plan, instead of entrusting the manufacture of the entire product to one supplier, a company contracts with several facilities to produce single components, which are later assembled into the finished product. Since no facility has possession of the entire product schematic, they can’t hope to replicate the entire product. This method eliminates the incentive for IP theft at each stage of production.
Component segregation requires detailed planning and great familiarity with the manufacturing landscape within China. Companies that try to initiate such a program on their own are bound to face frustrations that will delay production and run up costs. But by partnering with a contract manufacturer who can act as concierge for supplier services, companies can save time and maintain low costs.
Trusting your IP only to trustworthy suppliers
In any country, you can find honest businesspeople and chiselers. In China as elsewhere, some suppliers will carefully guard a customer’s IP and those who will put their short-term self-interest ahead of their relationship with a customer. When you have no experience in the region, it’s difficult to know whether you are dealing with a trustworthy supplier. So, this is another area where a contract manufacturer with an extensive network of vetted suppliers can be a true asset.
Improving the Landscape of IP in Eastern Asia
China is not the only Asian country improving its IP protections to attract foreign investment and grow its industrial base. Many of the power players in Eastern Asia have made progress recently, to meet Western expectations about IP security:
- Japan — In 2021, Japan passed reforms making it easier for plaintiffs to prove damages, leading to a greater success rate in court and higher compensation levels. Additional legislation is expected to go into effect by May 2024, further fine-tuning what is the most functional system in the East.
- India — The land of copious red tape set out to streamline processes for patent registration and protection, including a fast-track for patent examination. India has signed several international agreements and treaties to enhance cooperation with other countries on IP protection and enforcement.
- ASEAN — The regional group operates under its own Intellectual Property Rights Action Plan 2016-2025, which sees IP as central to building the region’s socioeconomic goals.
At Genimex, we have manufactured in Asia for over fifty years, and have implemented best practices within our network to guarantee IP is protected for the brands we work with.