Licensing and Intellectual Property Protection

By William R. Dodson

 

1 November 2002

One of the most frustrating aspects of doing business in China for Western companies that invest their business’s intellectual property (IP) is the threat of Chinese companies copying or even stealing investments. Maria C.H. Lin delivered a detailed look at the areas of Licensing and Intellectual Property Protection investors should be aware of as they enter the China market. Ms. Lin, a former research chemist at Ciba-Geigy and DuPont, is a lawyer specializing in intellectual property law. She is a partner at the law firm Morgan & Finnegan in New York City. She has been deeply involved in the development of IP laws in China, Taiwan and Hong Kong. She spoke at a recent China Trade conference in Chicago, Illinois hosted by the United States-China Chamber of Commerce.

 

Lin pointed out that IP is a relatively new concept in China due to a unique set of social, economic and political factors. Chinese society “has little stigma attached to owning a fake or copied product,” she said. Especially since, “real products are not affordable to the average person.” Further, the stage of economic development at which the economy is at makes it less expensive for nascent Chinese companies to copy current IP than to develop their own. In addition, local and national government institutions participate in the manufacture, distribution and sale of counterfeit products. Finally, she noted, the reach of enforcement of the central government in such a large and heterogeneous country is limited.

 

Culturally and historically China had no legal tradition for protecting IP: the Dynastic, Nationalist and Communist eras in China accepted copying, and even promoted it as an art form.

 

Now in China foreign companies can resort to the Patent Administrative Agency to enforce patent infringement cases. The Agency can determine the nature of the infringement; order a court injunction on the offending party; destroy manufacturing equipment as well as the infringing products.

 

Lin identified six areas of patent infringement foreign companies may be exposed to when they enter the China market:

 

• Integrated Circuit Design – companies can have the exclusive right to manufacture, sell and license designs except unless the designs are being used in scientific research, independent invention or individual use, among others.

 

• Copyright Law – addresses Foreign ownership of three-dimensional works, architectural works and acrobatic works in China. Copyright assignments and licenses must be in writing. Lin said, “Foreigners who perform, produce or distribute recordings, or broadcast in China will be entitled to copyright protection.”

 

• Software Protection Regulations – software protection regulations in China address the lease of software and the transmission of software rights through the Internet. However, the PRC does not protect the ideas, processing methods and mathematical concepts that went into the development of software.

 

• Trademarks – Chinese law protects certification trademarks, three-dimensional designs, distinctive shapes, and combinations of colors among other trademark types. Lin commented that Beijing and the Olympic Committee have already specified the rules for commercial use of Olympic 2008-related IP, which “prohibits commercial use of Olympic-related sign, mark, phases, slogans, songs and flags without license.”

 

• Licensing – Lin said, “Generally, IP licensing is by contract and is governed by the New Contract Law.” A patent license in China must be recorded with the State Intellectual Property Office (SIPO) of China within three months of a contract for use of the license.

 

• Technology Import and Export Regulations – Technology transfer contracts require that licensees shall keep the know-how confidential. However, “the obligation terminates when the know-how becomes public.” Further, Lin pointed out that “the party who makes an improvement on the technology has the right to the improvement.”

 

Lin noted there are two channels for IP enforcement in China: the Courts and the Administrative Bureaus. The kinds of courts in China that can address IP issues include: the People’s courts, which are local courts; Intermediate People’s Courts, which address matters at the country level; High People’ Courts, which rule on provincial cases; Special courts like those of the Military; and the Supreme Court.

 

Administrative Bureaus for patents, trademarks and copyrights each have their own national government agency. Bureaus have the authority “to seize infringing products, counterfeits and conduct investigations.

 

Lin identified the main challenges ahead for IP protection in China to be more training for judges and lawyers in China. Also, Lin said there needs to be “increased independence of the judiciary and lawyers.” Local protectionism of companies that make fake goods also needs to end, as well as improved transparency of the laws, rules and regulations that are meant to protect intellectual property in China.

 

 William R. Dodson is Managing Director of Silk Road Advisors, L.L.C., which develops and positions people and products for success in international markets. He is the contributing editor on international business to the American Management Association’s (AMA) MWorld Journal of Management, and writes the weekly column “The Cultured Business”, found at www.silkrc.com and at the Global Perspectives section of the AMA’s member website. He can be reached at sradvisors@gmail.com or +1 (847)722-7817.