Intellectual Property Rights and China in the 21st Century

Sourcing in China can reap numerous benefits including, but not limited to, large economies of scale, cheap but increasingly sophisticated labor, and a strong infrastructure. However, one of the common fears overcoming of which is a key to properly exploiting the potential that manufacturing in China holds is understanding the knowledge sharing and intellectual property customs and practices in the country. Below are three factors to be aware of when considering the risks of protecting your intellectual property in China:

1. With the onset of the PCT (Patent Cooperation Treaty), IP protection can be ensured on a more global scale. The time it can now take to file for a patent in multiple countries has been drastically reduced thanks to the PCT. Through this treaty, a filer only has to file once to apply to any number of member countries. In addition, the treaty allows a filer to “claim priority” within a 30 month window during which a filer can choose to submit a patent to any additional countries and maintain the priority of a previously submitted patent. This reduction in paperwork and resources necessary to file a patent has greatly reduced the barriers to enjoying IP protection, something that is particularly important in China. To see the role that the PCT has played in the world of China IP, note that since 1994 when China signed the treaty, the number Chinese patents held by non-residents has risen from 7,876 in 1994 to 85,477 in 2009- an increase of over 985%!
   Patent applications, nonresidents

   Data from World Bank

   In addition, with the globalization of the world economy, Chinese companies are no longer willing to put future business abroad at risk. As Amy Xu of the IP-focused law firm Dorsey & Whitney LLP states: “Almost all Chinese firms want to sell their products in The United States, so when they see a U.S. filing, they’re less likely to steal your IP, lest it cause a problem for their future growth plans.” Though IP rights may not be as widely recognized in China as abroad, with an eye to the future, companies on the mainland are increasingly willing to adapt to Western standards.

2. The rule of law is paramount to ensuring smooth business operations anywhere in the world. Historically, this has been a major barrier for foreign firms looking to enter the Chinese market in some capacity. Navigating personal business relationships historically has been the most important way to help protect your intellectual property in China, however this naturally puts Western firms at a competitive disadvantage. As the country has emerged onto the world stage, the national and local governments have responded accordingly building up a more supportive and robust legal structure for a less hostile business environment for foreign firms to participate in.

   The International Law Office provides the following information on the increase in IP lawsuit activity:

   Since China’s accession to the World Trade Organization in 2001, local courts have experienced an increase in IP rights civil lawsuits before the courts, in excess of 25% year on year. In 2009 local courts accepted 30,626 civil complaints of the first instance, which was an increase of 25.5% compared with 2008. However, in the first half of 2010, local courts accepted 20,357 civil complaints of first instance, which represents an increase of over 46.12%. Among these lawsuits, there were over 11,827 copyright cases, 3,945 trademark cases and 2,582 patent cases.

   The Chinese government has clearly recognized this need for legal protection in order for private firms to most effectively operate, and, as we can see from the data above, the market is responding accordingly, as people are taking advantage of their ability to protect their intellectual property.

3. Finally, even though the situation is improving in China, just as with in any other country it is always a good idea to plan for all contingencies. With the stronger legal infrastructure mentioned above in place, it is now easier than ever to secure that insurance policy. It is a good strategy to have a relationship set up with an organization or law firm that can navigate the Chinese legal structure, in the eventuality that you may have to enforce your IP rights. Chances are you won’t have to resort to the legal actions, but now that the local and national governments recognize your rights (even as a foreigner) to your property, these signals represent viable threats. Sometimes all it takes is to show that you’re serious and aware of the legal landscape. Thus having the right systems in place, including proper documentation and thorough background checks, can effectively help to avoid any “options of last resort” all together.

It is clear that there is still a wide gap between what is accepted “on the street” in the West and what is accepted in China for IP infringement, however China’s regulatory framework is adapting to protect both foreign and local innovators and entrepreneurs, converging with global ideals and enforcing appropriately. The PCT has helped to bring down the administrative barriers of being able to file a patent in China, while the laws are growing to protect those rights. By making sure you understand the complex legal and social web of business operations in China, you can suitably protect yourself while taking advantages of all the benefits of business in China.

-Marco Tommaso Rossini, CPG Marketing Intern