Recent developments certainly reinforce the ever growing importance of IP in China.  The Chinese patent laws were first established in 1985 and have undergone several amendments to bring the laws in close conformity with the international standards. The Most recent of all, the third amendment (to be effective on 1st October 2009), has made several changes to the Chinese laws including provisions for absolute novelty, compulsory licensing, clinical trial exemptions, foreign filing, prior art defence to infringement , stronger enforcement regulations, ownership etc.

Even pending the effect of the legislation, the Chinese clearly have taken enforcement issues very seriously. As reported extensively, in Chint v. Schneider, Chinese utility model holder Chint completed its major victory over French competitor Schneider through an unprecedented $ 23 million settlement (RMB 157 million), approximately half the damages awarded two years ago by the Wenzhou Intermediate People’s Court.  (Thanks to Hal Wagner for an excellent paper on this as always.)

The continued fast pace of development of the Chinese IP system suggests the need for foreign players to develop a comprehensive IP strategy before entering into the Chinese market. Foreign manufacturers need to revise their IP strategy aligning it with policies that derive compete benefits from the Chinese system.  While it may be very difficult to completely eliminate the risk of IP infringement seems, it certainly seems within a company’s reach to minimize those risks.

At the outset, foreign companies first need to understand the different IP filings allowed under the Chinese model i.e. patent, utility & design protection. While patent protection is difficult and time consuming to obtain, “utility model” protection with a deferred examination is available for mechanical types of improvements. They have a shorter life but are cheaper to obtain. Filing and obtaining IP protection in China may be crucial in terms of capturing the benefits of the low-costs and resources available in China. 

You need to be cognisant also of the different invalidity rules that apply to utility models as against standard patents – in China, and elsewhere.  Prior use outside China does not invalidate a Chinese Utility Model.  A problem that was important in this case.

It is also important for a foreign company to understand the local business culture. One way to do this could be to carefully choose business partners who in addition to having a good understanding the local culture, also have a robust IP policy to protect and enforce IP. Such business partners must be able to assist the foreign companies with manufacturing activities in China.  Also, invest in relationships and adding value to China itself – it’s well worth it and the return on your investment will undoubtably be high.

(Photo credit: Luo Shaoyang)