OP-IP: An ounce of prevention is worth more than a pound of cure....Preventing an Intellectual Property China Syndrome

An ounce of prevention is worth more than a pound of cure

Preventing an Intellectual Property China Syndrome

Filing for intellectual property (IP) protection in China, even if you never intend to market or sell your products in China, can be very beneficial, and potentially cheaper in the long run. If you use or plan to use a Chinese manufacturer to make your products, being proactive in seeking Chinese IP protection for your company’s intellectual property can help avoid a figurative production line meltdown.

A typical unscrupulous scenario is as follows. You are a law abiding U.S. company, trying to make a buck by selling your products in the U.S. You contract a Chinese manufacturer to make your products that you sell exclusively in the U.S. (or at the least, you will not be selling the products in China). You may or may not have applied for U.S. IP protection that will give you the right to prevent others from making or selling your products in the U.S. and to prevent the importation of knock-off (counterfeit/infringing) products into the U.S. Since you are not marketing or selling your products in China, you do not file for IP protection in China. All is going great. The Chinese manufacture is making your products, shipping them to the U.S. and the products are selling like hotcakes.

Next, a nefarious company then enters the scene. Seeing no Chinese IP filed, the nefarious company submits its own application for Chinese IP protection covering the product that you are manufacturing in China. China has a relatively simple registration process for some IP (e.g. designs and utility models). The registration process does not include an independent investigation to determine whether the registrant is the actual, original creator of the IP; China just takes the word of the signed declaration of the registrant. As a result, the unsavory company gets a Chinese registration covering your company’s IP.

The final blow comes when the ruthless company goes to your Chinese manufacturer with the fraudulently secured Chinese IP registration, and insists that your Chinese manufacturer cease producing your product or be sued for infringement.

Your recourse is relatively simple, but not cheap. You can request an invalidity proceeding with the Chinese government to invalidate the improperly secured Chinese registration. To do so, you need to have proof that your product was publically known (e.g. sold or advertised) before the Chinese IP registration was filed. Oh, you will also need a Chinese attorney and will need to pay a Chinese government fee for requesting the invalidity proceeding, neither of which are inexpensive.

What could the U.S. company have done to prevent its manufacturing production line from being possibly shut down for fear of an infringement lawsuit from the ruthless company? The U.S. company could have filed its own application for IP protection in China. The U.S. company’s Chinese IP would act as a shield to prevent the ruthless company from falsely claiming its IP in China. The typical costs (attorney and government fees) can be as much as 50% less to register your IP in China as compared with the costs for invalidating an improper registration of another. Depending on the circumstances, being proactive in filing for IP rights in China may be more cost effective and beneficial than waiting to defend your rights against this dishonest practice.

Send email feedback- sweyer@stites.com