IP Protection In China: Convergence?

Monday, December 1, 2008 - 00:00

Editor: Dr. Li, would you tell our readers something about your professional experience?

Li: My undergraduate work was completed in China, and my doctorate is from the University of California, San Diego. I then went on to George Washington University Law School.

The first law firm I worked for was Foley & Lardner, and much of the work revolved around patent issues. I moved on to Arnold & Porter, where I was engaged in a general litigation practice. The firm had substantial clients in the pharmaceutical area, however, and my scientific background disposed me toward this group of clients. Needless to say, any exposure to the pharmaceutical industry is going to involve an effort to build expertise in the patent law area, and that was my experience.

While at Arnold & Porter I was approached by Rohm and Haas, one of the world's largest manufacturers of specialty materials. They were looking for IP counsel in connection with their expansion in China and elsewhere in Asia, and the move constituted a very exciting opportunity for me. My focus at Rohm and Haas was on IP, including patents, trade secrets and some trademark work, as well as on internal information management. In time I became the enterprise's chief counsel for Asia, which meant that I handled a variety of issues beyond the IP arena.

Just recently I was recruited by Jincheng Tongda & Neal (JT&N) for their IP practice.

Editor: Would you give us an overview of JT&N and its practice?

Li: The firm was created in 1992, which, I believe, was the year that China first allowed private partnerships to be established. In any event, it was one of the country's very first law firms. Over the years it has grown from a few specialized areas of practice, including IP, into a full service law firm with about 200 lawyers and offices in Beijing, Shanghai and several other cities in China. Among the firm's practice area strengths, besides IP, are foreign direct investment, mergers and acquisitions, real estate, antitrust, financial regulation and general corporate litigation. The clients are both Chinese and foreign, and the firm represents a substantial number of large Chinese companies.

Editor: Would you give us an overview of IP protection in China today?

Li: When I returned to China in 2005, I was struck by how much attention the country had given to IP protection. I am fortunate to participate in this dynamic development of IPR laws. In the three and a half years since, I have witnessed the progress in civil protection of patent rights. I also think progress on the criminal prosecution of trademarks has been good.

Patent infringement cases are not easy to pursue in China. Success requires effort and an ability to bring resources, both financial and in terms of expertise, to bear. Persistence and hard work do pay off, however. I am involved with an organization called the Quality Brand Protection Committee (QBPC) of the China Association of Enterprises with Foreign Investments (CAFEI), which is affiliated with China's Ministry of Commerce. It functions as an industry association would in the U.S., including having access to a number of government agencies and to the courts. QBPC is the most active industry group that promotes IPR protection in China. Concerning civil protection of IPR, we have worked with various Chinese courts, from the Supreme People's Court to lower level courts, in addressing issues concerning civil IPR litigation. Over the past three years the organization has co-sponsored with the Supreme People's Court two international conferences, in which both Chinese and foreign judges have participated. The Chinese judges were from all the major courts in China, and the foreign judges have come from the United States, Germany, Britain, Japan, India, the Netherlands and France.

IP litigation is complex, and in China, a rather limited number of courts handle IP matters. Of more than 3,000 district courts, 400 intermediate courts, 31 high courts and the one Supreme People's Court, IP litigation is limited to the intermediate courts and only a few district courts. Patent litigation, which is regarded as even more complicated, is limited to about 70 intermediate courts. This narrowing of focus has served to improve the quality of IP and patent litigation substantially. The judges tend to be young and well educated. Many of them have overseas experience. In just the few years since my return to China, I have observed a substantial increase in the sophistication of the judges handling these issues, and their ability to understand the complexity of the litigation at hand is now quite high.

Editor: How about the enforcement of court decisions? Are decisions made in Beijing going to be enforced out in the countryside?

Li: China has a unitary system so, according to law, enforcement is available everywhere irrespective of where the decision was issued. Nevertheless, as a practical matter enforcement can be a challenge. Having a court order requiring the other party to desist from infringement, however, has its advantages: the party seeking to enforce the decision of the court is in a position to influence the market and convey the message that the defendant is under court order not to sell the product. Potential customers are very reluctant to expose themselves to liability.

Damages tend not to be significant in infringement cases partly because the evidentiary standard for damages is very high. In the absence of discovery - which is the case in these IP cases - the likelihood of meeting evidentiary requirements is very slim. However, there have been patent cases where courts gave damages in the magnitude of millions of dollars. One would be mistaken to take patent infringement lightly by thinking of low damages. Injunctions generally follow infringement determination. Pre-suit injunctions are possible too. Indeed, we have had cases in which pre-suit injunctions were issued on behalf of our clients.Editor: Can you tell us about administrative enforcement for infringement of IPR?

Li: Administrative enforcement for infringement of IPR is particularly important with respect to trademarks and copyrights, somewhat less so with respect to patents, particularly invention patents, which often require trial of facts for infringement determination. The agencies for administrative enforcement include the Administration of Industry and Commerce (AIC), which deals with trademark and unfair competition matters. Each province also has an Intellectual Property Office with enforcement function for patent rights. As the level of complexity rises in a case, however, recourse to the courts becomes more advisable. The more complicated the matter, the more sophistication is needed to sort through the factual background and the issues. The newly issued China IP Strategy also calls on the courts to play a leading role in IPR protection.

Editor: As you know, our readership consists of general counsel and the members of corporate legal departments. Would you share with us your thoughts about IP pitfalls that general counsel of an American company might expect to face in China?

Li: I think it is essential for general counsel to allocate sufficient resources to any project or undertaking in China. If a decision is made to pursue enforcement of the company's IP rights, then do so with full intention of being vindicated. The company's reputation is built on how it handles these matters, and if vigorous action is not taken that is how the company will be perceived.

Most American corporations have their own systems to manage information and protect IP. It is not necessary to throw all this away in moving into China. Rather, the company should utilize those systems by adapting them to the local situation with the advice of local experts.

Editor: With respect to partnerships and joint ventures, what are the safeguards for a foreign enterprise to have in place if it is going to be working with a local partner in China?

Li: Entering into an arrangement with a local partner is a business decision, of course, but if that results in a partnership or joint undertaking of some kind, due diligence is essential. Indeed, due diligence is absolutely essential where the foreign company is bringing IP and technology to the arrangement. You would like to find out your partner's past practice with regard to IPR as well as information management. In disclosing key information, not only do you need a carefully drafted non-disclosure agreement, you must also have the confidence that your partner is committed to protect the information.

Due diligence is equally important where the other party is also injecting its IP into the equation. What is the origin of their IP? How was it developed or acquired? Would the use of either party's IP in the joint venture expose the other party to liability in the event of infringement? In my experience, it is important for each party to have a clear understanding of the IP that the other party is contributing to the venture. And to be clear on how control is to be exercised over the IP that is to be utilized in the venture.

As a practical matter, it is unlikely that many employees of the joint venture partner are going to be familiar with the foreign company's system of IP protection. It would be advisable, in the beginning, to have the American company's technology people lead the technology effort and establish a proper information management system and train the employees of the joint venture partner in its use. There may be cost associated with this approach. But the reward is considerable.

Editor: Do you see a convergence between the trends in IP protection in

China and the IP protection regimes elsewhere in the world?

Li: Absolutely. China has been in the process of revising its patent laws since 2006. I follow that effort closely. With each draft, the legislative authorities seek comments from industries and governments from across the world. Indeed, this effort is not limited to patent law revision. When China considers changes to its laws, including changes in court practice, it looks abroad to see what has been successful in other legal systems. Each year there are numerous conferences, seminars and opportunities to exchange ideas. I am a strong believer that reasonable minds will come to similar conclusions. That appears to be happening with respect to IPR in particular.

Editor: What do you see as the focus of the IP group at JT&N over, say, the next five years?

Li: The practice began with a primary focus on domestic clients. Today we represent a great many international clients as well. The issues we see are becoming more complex, and, with the passage of time, we are seeing an enhancement of the civil litigation system's ability to protect IPR.

China has just issued its national IP rights strategy, which envisions the judicial action as one of the principal ways in which public resources can be used to enforce private rights. This is indicative of a considerable increase in litigation. In 2007 alone, China had about 4,000 patent cases and over 10,000 IP rights protection cases.

In addition, there is an emerging group of Chinese companies with an emphasis on IP. Even five years ago the intensity of interest in IP we see today was not evident. Now we have major Chinese enterprises with IP as their essential asset. As a result, Chinese companies are becoming more active in protecting their IP.

Finally, there is the tremendous growth of the Chinese economy. Today there are 12 Chinese companies among the Fortune 500. While we may not predict with any certainty how many there will be five years from now, I think it is safe to say there will be a great many more than at present. These are companies investing in Europe and the U.S. They operate globally, and they have an increasing need for IP protection under a variety of jurisdictions.

The implications of the foregoing on JT&N's IP practice are extraordinary.

Please email the interviewee at samli@jtnfa.com with questions about this interview.