While most reporting on the U.S.-China trade war has focused on the U.S. imposition of tariffs on Chinese goods in response to what the U.S. Government calls China’s “unfair trade practices,” what often gets buried in the ongoing kerfuffle are the details—namely, what are those unfair trade practices?
According to the Business Roundtable, an association of CEOs from America’s leading companies, those “unfair trade practices” include limiting the access of U.S. firms to Chinese markets which results in a huge trade deficit that favors China, the Chinese Government subsidizing domestic companies in order to create an uneven competitive field, policies that flood foreign markets with certain goods to drive down prices and stifle competition (such as with steel and aluminum), government policies that restrict digital trade in China, the forced transfer of American technologies by U.S. companies to their Chinese partners in order to do business there, and failure by China to enforce intellectual property rights.
Of particular interest to readers of this blog are intellectual property (IP) rights in China.
IP Rights In China
“Historically, China has developed a reputation for intellectual property abuses,” explains Eric Ludwig, ESQ, an experienced, US-based trial lawyer with an extensive background in intellectual property and business litigation. “It ranges from the practice of forcing U.S. companies to share their technologies and, thus, their trade secrets in order to do business there, to the counterfeiting of famous brand name electronics and apparel, and the unauthorized reproduction of CDs, DVDs, and other digital media and entertainment.”
According to Ludwig, however, there have been recent, positive developments on the IP issue in China, including a new law recently passed there. Under this law, the Chinese Government says it will protect the IP property rights of foreign businesses operating in China and, in doing so, will not discriminate between domestic and foreign businesses.
This concession by China to strengthen and enforce its standards for patents, trademarks, copyright infringement, and forced technology transfer, including levying punitive damages for intellectual property infringement, is seen as one of the keys for recent positive developments toward resolving the ongoing US-China trade war.
However, U.S. companies doing business in China should remain vigilant. “IP rights in China is a longstanding issue that won’t be fixed overnight,” cautions Ludwig. “It remains prudent for companies operating in Chinese markets to follow best practices to protect their IP rights.”
In a recent “best practices” report, the US-China Business Council (USCBC), a private, nonpartisan, nonprofit organization of some 200 American companies that do business with China, conceded that while “China has indeed made steady efforts to better protect and enforce IP rights . . . challenges remain.” In its report, Best Practices: Intellectual Property Protection in China, the USCBC laid out a number of strategies and tactics it says companies should adopt to protect against IP infringement in China, beginning with an overall China IP strategy.
Some of the key elements from the report include the following:
- S. companies need to gain a full understanding of the IP legal landscape in China, including core IP laws and regulations there (such as the Patent, Trademark, Copyright, and Anti-Unfair Competition laws), and the full range of IP for which they might file, including multiple types of patents (utility model, design, and invention), as well as trademarks and copyrights.
- S. companies should also review other laws and regulations that affect the IP environment in China, such as Corporate Income Tax, Anti-monopoly, and Labor Contract laws, and keep abreast of new laws that might result as part of the US-China trade war.
- Just as foreign companies doing business in the U.S. must file for copyright, patent, and trademark protection here, U.S. companies doing business in China must file their IP there for formal protection, and they should do so as soon as possible before entering the Chinese marketplace.
- Initial and ongoing due diligence by U.S. companies in who they chose to work with in China is critical. This includes investors, manufacturers, suppliers, distributors, and others involved in the business relationship. Companies should also include IP protection clauses in all contracts and agreements.
- S. companies need to assess the business risks vs. benefits of transferring their IP, vital designs, and technologies to China in order to do business there, as well as determine how they might be able to compartmentalize critical steps and components in their design and production processes to limit the likelihood of IP or technologies being copied or counterfeited.
- S. companies should also consider deploying IT tools overseas to track employee file transfers (paper and digital), limit access to sensitive information, and closely monitor or prohibit the use of flash disks, portable hard drives, laptops, cell phone cameras, and other devices that could be used to capture and transmit sensitive information.
- US Companies should establish relationships with various IP-related Chinese Government officials and regulatory bodies, industry associations, and other companies already doing business there. Doing so can aid in the identification of IP infringements, sharing of information, and the formulation of appropriate responses.
- When IP infringement is discovered, companies need to move quickly to send cease-and-desist letters to infringers and to work with Internet marketplaces/service providers to remove infringing goods or pirated materials from websites or to take down websites providing infringing products or content.
- Companies also need to build clear cases against IP infringers and utilize official enforcement channels (such as governmental, administrative, civil, and criminal channels) to pursue them.
If It All Feels A Bit Overwhelming
Even in countries with longstanding reputations for strong enforcement of IP laws and regulations, determining what’s best for you, your company, and your IP rights can be daunting, if not overwhelming.
“It’s a big step for most U.S. companies to enter overseas markets, especially China. Granted, the opportunities are attractive, but the risk of doing business there, especially as it relates to the theft of IP, is great,” Ludwig explains. “In an ideal world, companies would not have to be so cautious. They could simply enter a market and focus on competing there fairly to sell their products and services. However, that’s rarely the case, especially when it comes to IP. That’s why I always recommend that any U.S. company considering doing business in a foreign market, retain competent US-based legal counsel—someone who can commit to a process of due diligence on behalf of the client and advise on various legal issues, especially concerning IP laws, patents, trademarks, and what to do if/when infringement occurs.”
Protect Your Product. Your Business. Your Dreams.
Contact Eric Ludwig today for a free, one-hour consultation to discuss whether you need to apply for copyright, patent, and/or trademark protection in the United States.
(619) 929-0873 | [email protected]