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The numbers vary by industry, but the consensus is the same across the board: legitimate businesses are losing millions (if not billions) in RMB each year to IPR infringements. It is thus no surprise that Intellectual Property Rights (IPR) are very pressing topics for many companies. Laws in this field are under constant scrutiny-both domestically and abroad-in order to improve IPR protection in China; but until each such change occurs, current problems still exist and companies still need solutions to them for the immediate future. In this environment, there is a constant demand for practical information that will be useful to foreign enterprises who do or are considering business here.
After surveying leading business associations within the Mainland of China to assess the most pressing practical needs of companies operating here, LegalCare presented these questions and the concerns they represented to a local legal practitioner who has been very successful in this arena.
Mr. Jiang Hao is the CEO and Senior Partner of Shanghai Talent Law Firm. With over 10 years of experience, Talent is establishing itself as a reputable local firm in a variety of fields relevant to both foreign and domestic enterprises. In regards to expertise in intellectual property, the Firm is known as one of many firsts. Talent won the first cases in China related to obtaining evidence from a website, disputes of online purchases, freedom of speech online, infringement of a website, and online authentication. Mr. Jiang may be reached at dadao@vip.citiz.net .
PREVENTION
What are the basic things that everyone should do to protect their IP?
Register your Intellectual Property (IP), period. With few exceptions (such as those involving trade secrets), registering your IP is one of the most critical, central pieces of defending your rights to the property. It is essential to have your patent, copyright, or trademark registered in each country where you do business, and China is no exception. Take note, that as with many other countries around the world, China follows a “first to file” practice in awarding Intellectual Property Rights. Once you have your IP registered, check and understand how the law will (and will not) protect your intellectual property.
Beyond these basics, the additional steps that a company may take to most effectively protect their intellectual property depends on the company’s relationship with the infringer, as in whether there is an existing business relationship or not.
What should companies keep in mind when there is an existing business relationship?
Companies enter into real business relationships when they sign contracts and other such documents. Thus, the contract in and of itself can be an important tool in minimizing the risk of infringement a company may face. As such, there are five main points to consider when preparing a contract.
Define:
Within the contract, state and confirm what IP this contract deals with, such as know-how, products, etc. (in contracts drafted in English in other countries for instances, this is often setout at the beginning of the contract in a “definitions” section).
Time Period:
Stipulate the time period for which the restrictions on the other party will apply.
Limitations:
Set the limitations of what the other party may/may not do with this IP.
Consequences:
Prescribe the consequences for either party breaking these restrictions of the contract.
Remedy:
Take care to note how such IP infringement matters would be resolved. It is strongly advised that the Rights Holder specify the arbitration method and governing laws within the contract. If such measures are not agreed upon before an infringement occurs, businesses may go directly to an arbitration committee or to court. Serious analysis should go into which laws will govern the contract. If no governing law is specified, then by default it will be that of the PRC.
What should companies do to protect their IP from infringers with whom they have no existing business relationship?
These are the hardest ones to protect against, as there is no direct relationship with them prior to the offense. Given that, companies should take a broad, comprehensive approach to protecting their intellectual property to discourage infringement in general and to minimize their risk as much as possible. Companies should follow each of the following four strategies to do so.
The first strategy is a legal one: take every measure to protect your intellectual property. Register your business and its IP. Publicly announce ownership of this intellectual property and the consequences of infringement.
The second strategy is a technical one: make your intellectual property very hard to copy. Use codes that are complicated to crack in order to discourage potential infringers. Establish reliable ways of authenticating your IP.
The third strategy involves your relations: establish good relationships with local governments. In China there are three (3) tracks to pursue infringement via: civil, criminal, and administrative. While the judiciary is responsible for the first two, local governments are responsible for assessing administrative fees on infringers. By fostering positive relations with these governmental bodies, they will know who you are and what your business is really about, which will help expedite equitable outcomes for you should your company ever run into problems in this regard.
The forth and final strategy: approach a competent lawyer in this field. They will help you collect all of the evidence in a proper way. They will assist you in negotiations with the other Party. And if a case must go to trial, you will have someone who can effectively represent your interests and help you through the process.
Each of these strategies in and of themselves is very important to pursue. Driving forward with all of them together simultaneously will reduce your level of risk considerably.
Which kinds of IP are the hardest to protect?
Above all, Trade Secrets are the hardest to protect. Consider a beverage company that makes soda drinks. They don’t register their formula, because if they do it makes the formula public and everyone else would copy it. The downside to this approach is that it is exceedingly hard to prove that the company owns the formula, as they never registered it to begin with. Thus, if another party decides to copy their formula but alters it just slightly, it is very challenging to substantiate that their formula was indeed copied.
PRO-ACTION
What kind of “evidence” will be needed or useful in court cases involving IPR infringements?
Once an infringement occurs, document it. Collecting evidence by yourself could be very challenging as you may not know what appropriate and effective evidence may be in your particular case. These are situations, even more so than normal circumstances, when working with a competent lawyer will be a very sound business investment.
There are four main kinds of evidence that will be very important, if not critical, to have in the event that an infringement case is brought to court.
First, provide proof of ownership of the intellectual property. This may be done via the Certificate of the Patent, or other such similar documents. Without proof that the IP belongs to you, it is very hard to make a case in your defense.
Second, provide a direct calculation for compensation based off of the cost of the infringement to Party A. What loss did Party A suffer due to the infringement from Party B? For example, the sale of a fake book decreases the number of times the real book is sold. Relevant variables to consider in such a complex calculation are the infringement’s degree, quantity, and scope.
Third, provide an indirect calculation for compensation based off of the gain of Party B. In this case, one would take the quantity of fake goods sold and multiply it by the fake price per unit of the good. While indirect in determining actual losses to Party A from the infringement, this kind of evidence is often used if direct calculations for compensation prove too difficult to calculate.
Forth, provide a physical copy of the infringing product. For example, a computer software company may go to a store, buy a computer, get the receipt, have a Public Notary witness that the software included within the computer is supposed to be their program “X”, and then the company would cross-reference the program from this computer with their database to verify if it is an authentic copy or not.
These days much business happens virtually (by email, online chats, etc.), how should evidence be collected in such environments?
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Many people do not know that such ‘virtual’ evidence could even be used in court or that it could be so critical to winning such certain cases. In such situations it is very important to work with people who understand what kind of evidence will be helpful in your case and how to collect it. As a general example, consider a situation when you want to use emails as evidence for your case. Get the Public Notary to confirm the original version of the text from the servers (see Diagram 1), not just the inboxes as it is often possible to falsify such sources. In China, Security Departments of Internet Service Providers (“ISPs”) must maintain their records for three (3) months to enable the relevant parties to collect evidence as needed.
Chris Gassman is an associate editor for LegalCare and may be reached at: chris.gassman@aiesec.net
FOOTNOTE:
LegalCare would like to thank the following business associations for their assistance in assessing the overriding practical concerns of companies doing business in China:
Ø The American Chamber of Commerce in Shanghai,
Ø The European Union Chamber of Commerce in China,
Ø The Quality Brands Protection Committee, and
Ø The Swedish Trade Council
