China Has Joined The WTO. Are You Prepared?

Do You Have an Intellectual Property Strategy in China?

As a business person in this global economy, you are faced with many difficult decisions. In addition to traditional business decisions related to allocation of labor and other resources, the investment of monies, and development of opportunities to expand business for the future, you are faced with a business decision relating to accessing the largest market in the world - China.

And if you do business in this largest market in the world, you must consider enforcing intellectual property rights because your products are likely to be copied. China has become notorious as the source of counterfeited products, particularly movies, music, CD's and computer software. In the last decade, the Chinese government's efforts in establishing intellectual property protection mechanisms to crack down on the many sources of counterfeit products helped maintain high investment interests and, more importantly, helped strengthen China's domestic industry in the long run.

A clear understanding of the global economy, markets, and intellectual property protection in the global playing field covering product-oriented patentable technology, brand names, copyrightable materials, trade secrets, and know-how, can help you make these difficult decisions. Such an understanding will help you avoid pitfalls and difficulties encountered by some of the early entrants into the China market. You should establish a strategy to extract value from your existing and future intellectual property portfolio so that you can build a strong protected future for your company's business dealings in China.

From the other perspective, imagine that you are the leader of the Chinese government. You have a dilemma. You want to establish a friendly foreign investment market to increase exports and strengthen domestic industry. However, you are also afraid that opening market access (e.g. increasing imports) might flood the domestic markets and significantly affect the domestic industry because foreign imports are extremely competitive. Further, you are concerned that if it is not competitive, the domestic industry will never progress.

After 15 years of negotiations and consideration between China and the other World Trade Organization (WTO) members, China acceded to the WTO and became a member on December 11, 2001. China made at least two significant concessions, namely, to increase market accessibility and to protect intellectual property rights. The Chinese government realized that these decisions would maintain, and perhaps increase, foreign investment interests. They will also strengthen domestic industry in the long run. Removing quotas, restrictions, and other market access limitations, reducing import tariffs, and making the intellectual property laws and enforcement mechanism transparent, were among many steps taken by the Chinese government in the last 15 years.

In 2001, Chinese patent, trademark, and copyright laws were amended to accord with the TRIPS (Trade Related Aspects of Intellectual Property Rights) agreement - a multilateral agreement which is part of the GATT (General Agreement or Tariffs and Trade). The amended Chinese patent law was effective on July 1, 2001; the amended Chinese trademark law was effective on December 1, 2001; and the new regulations related to copyright law were implemented on August 29, 2001.

On the enforcement side, injunctions and damages, including treble damages, are available and have been awarded in patent, trademark, copyright and infringement cases. Remedies for trade secret misappropriation and unfair competition claims are also available. Many of the companies that manufactured counterfeit goods were raided and/or shut down.

What do all these actions in China have to do with your company? Seize the moment if you are considering expanding your business to the Chinese market. China has become the largest consumer market for many goods and services, and the Chinese labor market is still one of the least expensive labor markets in the world. With the commitments made by the Chinese government to the WTO and with intellectual property protection in place, the business environment in China is, by far, the best it has ever been.

First, learn about the intellectual property laws and enforcement mechanisms in China. Second, as part of your business plan, establish intellectual property protection in China before, during, and after you invest in China. Third, develop an enforcement strategy and effectively enforce your intellectual property rights.

In the U.S., if you want to protect your competitive advantage with intellectual property rights, you first want to seek advice to understand the laws and rules for protecting these rights. Similarly, you need to be familiar with intellectual property protection in China before doing business, particularly technology oriented business.

You may already have an intellectual property portfolio in the United States, but not in China. You may want to evaluate the portfolio to see whether a similar intellectual property rights can still be acquired in China and whether a new portfolio should be established. These all depend on your business plan, and current and future markets. Similar to the U.S. laws, in China some intellectual property rights, such as patents and copyrights, expire after a period of time, and others, such as trademarks, last forever if property is maintained. Some rights need to be commercialized, and others need to be enforced. Most managers do not have time to evaluate the portfolio. Forming an Intellectual Property Strategy Team can provide you with a comprehensive intellectual property asset review for purposes of establishing intellectual property protection in China and other parts of the world in which you do business.

You may already have acquired, maintained, and commercialized your intellectual property rights in China. And now you find that someone has infringed your intellectual property rights in China. You must learn and consider the extent of your IP rights in China and how to enforce them. The enforcement of intellectual property rights in China was derived from and is rather similar to the German system (a civil law country with no jury system). However, in China, judges have used some doctrines created by our judiciary, such as a doctrine of equivalents, that are not available in Europe.

To enforce IP rights in China there are two judicial paths if business negotiations cannot resolve the matter. There are special local provincial judicial panels for adjudicating intellectual property related cases, without discovery. Some cases that are considered to be significant have been published and posted on web sites associated with the courts that make these determinations. Further, in China a unique governmental intellectual property enforcement agency was granted injunctive and investigative power for various intellectual property violations. Your Intellectual Property Strategy Team should consider and provide you with an enforcement strategy for company-to-company negotiations and an enforcement strategy for litigated matters in China.

A review of your intellectual property portfolio can also reveal and identify potential business risks. For example, your business plans and assets for China may have been fenced in by your competitors who have also invested in China or by one or more Chinese competitors.

Your understanding of Chinese intellectual property rights and how the Chinese laws fit within the international regime that now applies under the WTO, and the alternative rights and remedies available to you as a national of a member nation of the WTO, will help you create a strategy to put you in a knowledgeable and controlling position and put your competitors in a position such that they must deal with you on a level playing field. We recommend it.