Any business with one eye fixed on the future knows that they can’t afford to stay out of China, one of the four largest emerging markets in the world.
Unfortunately, businesses also know that they can’t afford to stay in China either, as China accounts for at least half of all intellectual property theft from United States companies.
How do you beat the catch-22?
By learning how to play smarter than China.
That’s why we’re explaining everything you need to know about protecting your intellectual property in China, from the problems you’ll face to steps you can take.
What is Intellectual Property?
But first, we should address the basic question at the heart of this: what is intellectual property?
After all, if you’re not clear on what intellectual property actually is, you won’t have a clue about how to keep it safe.
In the simplest terms, intellectual property is any product of the human intellect that is legally protected from unauthorized use. It generally falls into four categories:
- Trade secrets
The basic goal is to protect your property and business from infringement, particularly from the unauthorized use and misuse of your creation.
The most basic example of intellectual property theft? An employee walking out the front door with your designs to work for another company, which will market your trademarked product, design, or production process as their own.
Why You Need to Protect Your Intellectual Property
With that in mind, let’s talk about why you need to protect your intellectual property.
Intellectual property isn’t a physical asset–it’s an idea. That means that unlike a painting or a car or some other concrete object, you can’t lock it in a vault.
Yet safeguarding it is crucial.
One of the biggest reasons for this is maintaining a competitive advantage. Let’s say your company created a new drug, the only drug of its kind to do what it does or successfully treat a particular illness. That drug would make you pioneers in the field, and since you’re the only one who knows how to make it, you have a monopoly on the market.
Now let’s say someone else starts making that same drug and selling it. Suddenly, it doesn’t matter that you got there first–what matters is whether consumers happen to see your brand or your competitor’s brand first.
Another important element is brand recognition. When your company creates goodwill with customers, they’ll learn to identify your brand with that goodwill and use the brand as a shorthand identifier for quality.
And when you’ve worked so hard to create that positive association, you don’t want another company to profit on your work.
Problems with Intellectual Property in China
Since your intellectual property is so important to your business, you’d obviously want to protect it.
Here’s the problem: intellectual property protections are largely reliant on the laws of the place in question. Unfortunately for you, intellectual property laws in the United States are wildly different from intellectual property laws in China.
Worse, Chinese companies are encouraged under official Chinese government policy to poach intellectual property from American companies–often with the active participation of Chinese government personnel.
Your best option? Don’t wait for someone to infringe on your trademark. Instead, prevent the problem from happening.
Protecting Your Intellectual Property in China
So, with all of that in mind, how do you go about protecting your intellectual property on the Chinese market?
Nothing can replace an experienced intellectual property attorney, who can help you take a look at the rules, regulations, and common practices in the areas you want to do business and help you come up with a comprehensive plan to keep your property secure.
There are, however, a few things you can do to make your life (and your attorney’s life) a little simpler.
Know the Law
It starts with knowing the law.
And yes, we did just tell you that the government frequently encourages intellectual property pillaging. However, if you want a legal basis to address the issue (and protect your property from the rest of the world, as well) you’ll have to know your way around some of the most commonly used manufacturing agreements and IP registrations in China.
Again, your lawyer can help you explore your options in greater detail, but we’ve provided a few starting points here.
Manufacturing Agreements and IP Registrations
The first thing you should know about is NNN agreements, which are basic agreements protecting the confidentiality of your products while preventing your Chinese manufacturer from competing with you or circumventing you by going directly to your clients.
Many Western businesses make the mistake of believing their nondisclosure agreements are sufficient protection in China (for the record: no, they’re not.) Nondisclosure agreements work in countries like the US or Canada where judges have ample power to issue and enforce injunctions. That’s not the case in China.
You’ll also need a mold/tooling protection agreement, which makes it clear to all involved parties that the molds and tools you are having manufactured belong to you and cannot be used to manufacture products for anyone else. It seems basic, but it’s how you prevent your manufacturer from using your tools to compete with you.
In addition, you should get product ownership and product development agreements.
A product ownership agreement makes it clear that the product you co-develop with your Chinese manufacturer is solely your property.
A product development agreement is a little more complicated, but it’s designed to iron out the exact details of your product development relationship. Good agreements will make it clear who owns what components of the finished product and the precise milestones the manufacturer must meet along the way in order to receive payment.
Register Intellectual Property in China
The next thing you can do to help protect your intellectual property is to register your intellectual property in China if you have any intention of using it there.
Yes, even if you’ve already patented it elsewhere.
If you’ve been paying attention, you’ve probably noticed a trend by now: protection to the level of redundancy is a good thing where China intersects with your property. You want any dealings with your manufacturer to be ironclad and airtight.
Remember, patents are national rights. If your product is already legally protected in the local environment, it’s one less loophole a competitor (or your manufacturer) can exploit to edge you out of your own market.
Used Establish IP Protection Practices
In the process of patenting your product in China and ironing out details with your Chinese manufacturer, you should make sure you do one thing consistently throughout: abide by well-established local practices of IP protection.
Specifically, you should comb through Chinese laws on IP protection and make sure you’re abiding by it to the letter.
For example, this could include standard practices on how to handle inflow and outflow of sensitive material, restricted rights access to internal databases, and other practices.
Think of it this way – you don’t want to set up an invisible wall between Chinese coworkers and the rest of the company. That said, it’s much more socially acceptable to monitor workers in China than the West, and that’s something you should take advantage of.
If anything, most Chinese companies go well beyond what most Western companies would consider acceptable. Mobile phones, for example, might not be allowed in company buildings at all, in or out, and USB ports are blocked.
Whatever you may feel about surveillance, the fact remains that in China, it’s a competitive advantage. If you’re not using it, your Chinese competitor certainly is.
Establish Chinese R&D
Some companies have tried taking it a step further, to ensure that their Chinese manufacturer is just as invested in their success as the rest of the company.
One way that companies have done this is to establish Chinese-based research and development centers, particularly focused in areas where the company does not currently hold a large body of intellectual property.
The idea is that, through close collaboration, both sides have just as much to lose if something is leaked to a competitor, which will disincentivize your manufacturer from selling you out.
Plus, if the field is new for the company, you won’t need to transfer much (if any) core intellectual property technologies over to China. This means that you’re actively encouraging your Chinese manufacturer and Chinese staff to innovate on your behalf without having to worry about compromising your core technology.
There are downsides, of course, especially if you want to foster collaboration (which you should). Inevitably, there will have to be some sharing of core technology, or there’s no longer any incentive to stay loyal to you.
When all else fails, think of it this way: decide what you do not want to be shared with your Chinese colleagues. Anything not on that list can be shared freely.
The Attorney You Need to Protect Your Ideas
Regardless of the specific methods you use to protect your intellectual property in China, one of the best tools you can have in your arsenal is a talented intellectual property lawyer.
That’s where we come in.
We litigate to help you understand the complexities of intellectual property, business, and technology, and we believe in giving our clients plain language and respect.
If you need an intellectual property lawyer, don’t hesitate. Get in touch today to see what our firm can do to help your business thrive.