PREMIUM SEARCH Search by job title, geography and build a list of executive contacts
Chinese President Hu Jintao's recent visit to the U.S. no doubt intrigued many entrepreneurs eager to tap into China's booming economy. But the lure of China as a manufacturing center and a consumer market could pose problems for companies that don't undertake the necessary due diligence before engaging in business there, says Michael Fedrick, a partner at the intellectual property law firm of Sheldon & Mak in Pasadena, Calif.
"Taking appropriate measures before you do business in China can help protect your firm from legal action and provide you with commercial leverage," says Fedrick. He spoke recently to Smart Answers columnist Karen E. Klein about protecting IP assets in a country that is on the minds of many business owners. Edited excerpts of their conversation follow.
One of your clients had an interesting experience recently when he went to register for trademark protection in China. What happened? My client is Lloyd Klein, a luxury fashion designer who started in Paris and is preparing to open his U.S. flagship store in Los Angeles, near Beverly Hills. He has French and U.S. trademark registrations but when his company went to apply for trademark protection in China, he found that a Chinese company called Hui Tian Software Development Corp. had already filed to register the mark. The pirate application by Hui Tian uses the same stylized lettering of my client's firm for the same goods -- clothing.
What happens to his trademark now? We plan to apply to cancel this pirated application once it's registered. If we can show that we have a prior right to this trademark in China or that our mark is an unregistered but well-known mark in China, we have a chance to prevail. But it remains to be seen what will happen.
What advice would you offer to U.S. companies interested in doing business in China? First, they should catalog their intellectual property assets. These would include utility and design patents, trademarks that define your brand or reputation, copyrights for original artwork, music, video and software code, and trade secrets -- information and know-how that's not generally known by the public or your competitors.
Then they'd identify which of these assets would be used in China in connection with a contemplated business arrangement, and figure out which of them have the most value for their business. For instance, if your company's brand will help sell a product that's going to be made in China, the trademark for that brand would be a "value driver." Knowing which IP assets are your value drivers will allow you to prioritize the resources needed to protect those assets.
How do business owners protect those assets? They should first cover their bases at home and secure protection for key IP assets in the U.S., regardless of what happens in China. Registering U.S. trademarks, copyrights, and patents is a prerequisite to taking legal action against a distributor of knockoffs that originate in China, and is a good first step. Recording registered trademarks and copyrights with U.S. Customs and Border Protection can also help stop pirated goods at the border, before they enter the stream of commerce.
How do China's IP protections differ from those in the U.S.? Time is of the essence in registering patents, trademarks, and copyrights in China. Patent and trademark rights are granted on a first-come, first-served basis, regardless of the actual first inventor or trademark user. This may come as a surprise to some U.S. businesses, as U.S. law on these points is different. China's patent and trademark laws are actually quite similar to those of Europe and Japan, though, and intellectual property can be owned and enforced in China -- to some degree, at least -- by U.S. entities.
Can you outline a potential IP "game plan" for companies that plan to do business in China? Since trademarks are granted on a first-to-file basis, key trademarks should be registered in China as a defensive measure before a company starts negotiating with a potential Chinese business partner. You wouldn't want your trademark to be registered by the "partner" and become a bargaining chip held by the other side.
Moreover, a trademark pirate that registers your company's mark before you do could potentially block you from using the mark in China. On the patent side, technology owners should simply keep in mind that patent applications need to be filed before any public disclosure, use, or sale of an invention in order to be valid in China. And that's true even if that first public disclosure or use is in the U.S.
There is no registration system for trade secrets, so protection is a matter of taking practical and legal measures to maintain confidentiality, including the use of confidentiality agreements. The best way to protect trade secrets is to limit their disclosure to employees or business partners in China. And when disclosure is necessary, first establish a relationship of trust with your business partners there.
Early registration of copyright rights, while not required, is also advisable. Having a copyright registration on hand when your company begins operating in China will allow the copyright to be enforced as soon as it's necessary to do so.
What about enforcement -- isn't that going to be very difficult? Protecting your company's IP assets once you are doing business in China is all about vigilance in detecting infringement and in pursuing infringers. While the fines levied in China against IP infringers may be low by American standards, swift enforcement of copyright and trademark rights is available, and a well-connected business partner can enhance your chances for successful IP enforcement actions.
While the cost of stopping the sale of knockoffs by every street vendor is likely to be prohibitive, securing your company's IP in China will at least allow you to shut down the larger operators. Controlling your IP can also provide commercial leverage, for example, against a contract manufacturer who decides to run an extra shift for his own account.
Have a question about your business? Ask our small business experts. Send us an e-mail at Smart Answers, or write to Smart Answers, BW Online, 45th Floor, 1221 Avenue of the Americas, New York, N.Y. 10020. Please include your real name and phone number in case we need more information; only your initials and city will be printed. Because of the volume of mail, we won't be able to respond to all questions personally.
Karen E. Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues
Printer-Friendly Version