Protecting your IP in China - Your Options

Wednesday 30th May 2018

The rise of intellectual property in China is at unprecedented levels. In 2017, IP filings in China soared with patent applications exceeding the combined total applications received by the US, Japan, the Republic of Korea and the European Patent Office. China’s perception of IP is changing. Only a decade ago, protecting and enforcing IP in China was fraught with difficulties and, combined with the perception of a copying culture in China, led to many companies believing that protecting their IP, or even expanding into China, was not worth the effort.

But as more Chinese companies have progressed in to more of an innovation space, they've realised that it's best to have IP on their side. Although there are still a number of risks involved with exporting to China, most notably trade mark squatters, China has made huge inroads thanks to changes to its laws and trading environment, which have created huge opportunities for Kiwi companies eyeing up the market.

With careful planning and a well-considered strategy for IP protection in China, Kiwi businesses now have a great chance at succeeding in both the high-growth e-commerce market as well as traditional channels. But getting protecting your brand from the outset is fundamental to your success.

So what are your IP protection options in China?

There are a number of practical steps companies can use to ring fence their ideas, making it difficult for people to copy. This includes a multi-layered approach to protect IP by using a combination of registered rights such as patents, trade mark, copyright and design protection and unregistered rights including confidential information and commercial contracts.

Trade marks in China

China has a ‘first to file’ trade mark system, meaning whoever files a trade mark application first in China, owns the rights to that trade mark. This is different from New Zealand and many other countries where use of a mark before filing, and building a reputation in that mark, can be used to stop a trade mark application being registered.

The first-to-file rule means businesses effectively have no rights to their trade mark in China until they actually register it there. Until then, businesses risk falling victim to a lengthy registration process or opportunists known as ‘trade mark squatters’ registering their trade marks, regardless of whether they’ve been using the brand in China or elsewhere.

Given the relatively low government cost to register a trade mark, some squatters can hold hundreds of Chinese trade marks at once.  In most cases, the original brand owner is unaware of their trade mark being hijacked until they decide to start selling product into China and are unwittingly faced with trade mark infringement threats accompanied by an offer to sell the Chinese trade mark for an exorbitant sum.

Many foreign businesses have been caught up in lengthy expensive battles because China’s ‘first to file’ principle differs from the US, New Zealand and many other Commonwealth countries who all follow a common law system, where a person registering a trade mark also has to show they've used, or plan to use, the mark in business.

Some decide to rebrand just for the Chinese market rather than buy the original Chinese trade mark. The other option is to fight trade mark squatters in court but even though changes to Chinese law makes this easier, it can be a costly experience without any guarantee of success.

This is a serious issue that has not only plagued Kiwi exporters, but also some of the world’s biggest brands such as Air Jordan, Apple, New Balance, Lexus and Burberry, who have all lost trade mark rights, or have had to make significant settlement payouts to gain the rights to their brand because of the difference in trade mark law.

While not strictly a case of squatting, in one of the most costly battles, Apple had to pay US$60 million (NZ$86 million) in 2012 to a Shenzhen-based firm that had registered the iPad trade mark and was demanding Apple either buy the trade mark back or remove its iPads from all Chinese retailers.

Even if a company is manufacturing a product in China but not yet selling it in the Chinese market, they’re still vulnerable until they have properly registered their trade mark there.

Trade mark squatters will also exert pressure on foreign companies by recording their trade mark with China Customs so that any imported or exported goods bearing the trade mark will be detained. If China Customs determines that the goods infringe a Chinese trade mark, then it will confiscate the goods and issue a penalty notice.

And don’t think it won’t happen to you. Many New Zealand brands have already faced Chinese trade mark infringement litigation when making their first move into China.

The message is simple: if you are looking to export your services or products to China, register your trade marks there as soon as possible. If you don’t, someone else will. The cost of securing a Chinese trade mark first is a lot cheaper than taking it to court or rebranding.


Patents in China

Patents are a good way to protect unique ideas and concepts that have involved a significant amount of investment in research and development. A patent is one of the strongest forms of IP and provides the IP holder with sole rights to making, using and selling their invention for a set period of time.

Most businesses don’t intentionally infringe patents but they do set out to push the boundaries when it comes to copying ideas that have not been protected. Having a patent portfolio is a significant deterrent.

The problem with not controlling your IP is not only are your best ideas potentially being copied, but also your competitors may be filing their own patents and restricting your freedom to operate (FTO).

Patents in China operate in the same way as trade mark laws – if there are two patent applications filed for the same innovation, the party that filed the application first will be granted the rights.

Like trade marks, it’s vital you do your research to understand the market in China and what patents currently exist there in your field – otherwise a lot of time and money could be wasted by finding out the hard way if you are already infringing on the rights of an existing IP holder.

To be eligible to file patents, your innovation must not be publicised prior to filing i.e. not publicly sold, described in a magazine, displayed at a trade fair etc (there are very limited exceptions to this provided an application is filed within 6 months of the disclosure). If a patent is granted, but it is later discovered that it was published prior, then there is a risk it may be invalidated.

If you create an invention in China but wish to file a patent application in another country (either having already filed in China or not) you must apply to the State Intellectual Property Office (SIPO) for a ‘confidentiality examination’ to determine any implications for national security or special interest to China. This is important for any collaborations you may have with Chinese companies or inventors.

All patent applications must be filed in Mandarin so the accuracy of the translation is extremely important to ensure everything is properly itemised and covered.


Copyright in China

China is one of the few countries that offers copyright registration and there is real value in doing so. To register copyright in China, businesses must show that they’re the creator of the copyright work or have legally acquired ownership.

Copyright can be a very useful tool in trade mark oppositions when it can be argued that a squatter’s trade mark application breaches the registered copyright.


Keeping your trade secrets secret in China

For many products, trade secrets can be a very weak form of IP protection as they can be easily stolen. Reverse engineering of trade secret products can happen in a matter of days, even for complex technology.

If your business is looking to manufacture a product in China that you want to keep as a trade secret, it’s still a good idea to get different parts of the product built by different manufacturers, or better still, the critical parts should be built in New Zealand.

Turnover of staff in Asia is particularly high so you need to minimise the risk of manufacturing staff taking confidential information with them when they leave. A good way to do this is by separating information out on key components, controlling the amount of knowledge shared on the final product architecture, formulation or processes and limiting access to core IP information to key staff in your own company.


For more information on how to protect your business in China, download a copy of our free ‘Protecting your IP in China’ ebook 

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