IP and China: Best Practices Part 1
Intellectual property is consistently a top concern for companies seeking to manufacture goods in China, if not the #1 top concern. If I tap a manufacturer to produce my goods, what is to stop them from simply producing the same items for others - or even worse - from trademarking and patenting my brand and proprietary processes within China for their own use.
We reviewed several expert sources on the matter, from law firms, trade organizations and global brand managers, to compile a two part best practices breakdown on how to protect yourself from IP issues when partnering with Chinese vendors.
The US-China Business Council provides the following pre-engagement checklist to make sure your company is aware of the landscape regarding rules and regulations, as well as specific due diligence around company specific IP and trademarks you may seek to protect.
1) Understand the IP legal landscape
- Review not only China’s core IP laws and regulations, such as the Patent, Trademark, Copyright, and Anti-Unfair Competition laws, but the growing body of other laws and regulations that impact China’s IP environment, including (but not limited to) the Corporate Income Tax, Antimonopoly, and Labor Contract laws.
- Ensure that the legal protection the company is seeking for its IP in China is available. For example, many software products that are eligible for patent protection in other jurisdictions are not in China, and are more commonly protected as copyrighted products.
- Monitor laws, regulations, and judicial interpretations to ensure that the company’s IP enforcement strategies are valid under Chinese law. Examples of areas that may require scrutiny include employment contracts, IP licensing arrangements, and evidence collection procedures. source
Moreover, Chinese Law experts over at Harris Bricken detail how having the right contracts in place will help protect you before you even commence production.
Having a good contract with anyone in China to whom you will be revealing your IP is the second key to avoiding IP disputes in China and to prevailing in such disputes. The right contract or contracts will depend on your specific situation. The most common contract for IP protection is an NNN Agreement (this is a more thorough, more complicated and, most importantly, more China-centric version of an NDA). But this might also include a trade secret agreement, a non-compete agreement, a confidentiality agreement, a non-use agreement, a licensing agreement, or many other sorts of contracts tailored for your specific situation. For making sure whatever contract you use to protect your IP actually works for China, check out Drafting China Contracts That Work.
2) Register your IP
The next step is to protect as much of your IP as you can through the local trademarks and patent bureaus. To put it bluntly, unless you file for trademarks and patents in China, you have no protection legally there. The earlier you register your IP in China, the better. From the USCBC:
- Patents Companies should file applications with the State Intellectual Property Office (SIPO) for IP that they view as valuable to their business for both core and fringe technologies. Companies should ensure that their patents are properly translated before filing. Filing can be done directly with SIPO or via international patent arrangements such as the Patent Cooperation Treaty.
- Trademarks Companies should broadly register their core trademarks with the China Trademark Office, including the English name, Chinese character name, and Chinese pinyin name for core brands with the China Trademark Office. When filing, companies should carefully select the product categories and sub-categories in which to file, and check China’s online trademark database for similar trademarks filed by competitors and infringers, including marks filed in categories outside a company’s core products. Many companies have experienced challenges in which a local competitor registers a very similar trademark in a different product category, a practice allowed under the Trademark Law.
- Copyrights Though registration is not required, entities should consider registering their works with the National Copyright Administration, since registration provides a public record and can serve as useful evidence in copyright disputes.
Harris Bricken adds: "copyrights are automatically protected in China under the Berne Convention, but to be able to sue quickly for a copyright violation and to have full copyright protection in China, it almost always makes sense to file your copyrights there. Just as in the United States and the EU, you need only submit a small portion of your software code to secure copyright protection on the entire program."
They also elaborate on an additional step you can then take - registering your IP with customs - in order to reduce the risk of counterfeits leaving the country:
China Customs will block products that infringe on China IP from entering OR leaving China. The “leaving China” part is why it is 100% essential that you register your IP in China even if all you are doing in China is having your products made there. The leaving China part is also why it usually makes sense for foreign companies that have registered their IP in China to also register that IP with China customs. Even though manufacturing in China is on the decline, China still manufactures way more than any other country in the world and it is still by far the world center for counterfeiting. If you register your IP in China and then also register that IP with China Customs you will have positioned yourself to be able to block counterfeit versions of your products from leaving China for anywhere in the world.
3) Verify your vendors
Knowing who you work with, and verifying that they are trustworthy partners, kicks off the first of several steps the experts suggest to ensure you reduce any IP risk from your selected production partners. Nuna Network performs Chinese business verification and monitoring services for a number of global partners seeking to perform this level of due diligence. From the USCBC:
- Conduct comprehensive due diligence on suppliers and distributors prior to any agreement and on a regular basis thereafter. As part of that due diligence, investigate how those companies view IP, including IP they access through business partnerships and their own IP.
- Include IP protection clauses in all contracts and agreements. Regularly engage business partners to share the importance of those clauses to the ongoing business relationship, and ensure that partners fully understand what those obligations mean for both parties.
- Regularly engage business partners to reiterate the importance of IP protection, and, where appropriate, partner to boost IP protection efforts, such as supplementing monitoring resources or jointly engaging with government officials.
- Manage supplier, vendor, and distributor relationships through multiple personnel to limit the ability of local staff to abuse business networks.
- Review information that could be sent to third parties before transmission to ensure that it is not sensitive, or that the benefits of sending it outweigh the risks of it being leaked.
4) Take additional precautions
Some final steps before engaging a partner might be a bit of common sense mixed with a healthy dose of skepticism. From the USCBC:
Conduct a realistic assessment of the business risks and benefits of transferring IP to China. For many companies, this means keeping vital designs and latest-generation technologies overseas while bringing to China IP that supports their business in country. Compartmentalize critical steps in the design and production processes for IP-intensive products—and the equipment used to manufacture these products—to limit the likelihood that any one employee has access to all the information needed to copy IP. Some companies, limit IP exposure by ensuring that sensitive information is kept in low employee traffic areas or behind unmarked doors
Need help with your China partner due diligence? Nuna Network is here for you. We’re the partner of choice and go-to resource for businesses or individuals seeking guidance in researching, developing, and establishing bespoke data and monitoring solutions with over 180+ million companies indexed across 55+ data points. Feel free to reach out to a Nuna Network data expert to discuss further.
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