The Status Of IP Protection In China

Saturday, December 1, 2007 - 01:00

Editor: Tell us about your background and current IP practice, including with respect to U.S. companies complying with Chinese law and Chinese companies in the U.S. complying with U.S. law.

Hu: I have a B.A. in physics from the University of Kansas and a J.D. from the University of Maryland. My practice focuses on international patent litigation and client counseling. I have been advising and assisting non-Chinese companies regarding various IP issues in China for the past 12 years or so, and currently do so in conjunction with our IP professionals in our Beijing office. I began representing Chinese companies on their IP issues in the U.S. about three to four years ago - which reflects the rise of the Chinese companies in general.

Editor: There have been numerous complaints about the ability of U.S. companies to protect their IP in China. Do you continue to hear them?

Hu: Yes, I do. However, I have also heard from many Chinese officials that U.S. companies, as a group, have been the least likely to enforce their collective IP rights in China, as opposed to European companies. I am sure the perception that China does not adequately protect IP rights discourages U.S. companies from enforcing their IP rights. However, Chinese officials have complained, perhaps with good reason, in effect, that if you do not enforce your rights, how can you complain that your rights have not been adequately protected?

Editor: Have changes in the level of IP protection occurred as a result of China's membership in the WTO?

Hu: China amended its IP-related laws and regulations after it joined the WTO to conform with WTO requirements. However, changes in the level of IP protection have been an evolving process, independent of China's entry into the WTO.

Editor: The most frequent complaint seems to be that Chinese laws against infringement are not effectively enforced. Is this situation changing?

Hu: Absolutely, but perhaps not to the extent that the critics demand. The Chinese laws are not the problem. The problem is with enforcement of the laws. China is a big country and the effectiveness of its judiciary varies widely, primarily depending on the geographic location.

Editor: How important is it for U.S. companies to take steps to register patents, trademarks and copyrights with the appropriate Chinese body? Does this include registrations with respect to IP that it does not intend to use in China?

Hu: I would say it is a must. Obviously, if a U.S. company does not register its IP in China, there would be nothing to enforce if there is infringement or misappropriation of its IP. Besides, from a business competitive standpoint, a U.S. company should absolutely register its IP in China because its competitors are doing exactly that right now.

Editor: Where the Chinese infringer is a significant local business, what steps can be taken to effect a change in venue when seeking judicial relief? Are administrative alternatives available?

Hu: Venue for enforcing IP is limited to one of two places: where the alleged infringer resides or where the act of infringement is taking/has taken place. Therefore, in some situations, the "home court advantage" cannot be eliminated. Administrative alternatives are definitely available. I always felt administrative agencies are more effective in handling trademark, copyright and trade secret-related issues, whereas the judiciary is more effective in handling patent-related matters.

Editor: Street vendors are major problems. Has the Chinese government made any effort to provide protection?

Hu: Yes and no. For example, it is almost impossible to buy any counterfeit Beijing 2008 Olympics memorabilia due to unprecedented enforcement by the Chinese government. Many have argued that if the Chinese government can stop counterfeit there, why not the counterfeit DVDs or CDs? As a response, the Chinese officials point to the street vendors in downtown Washington, DC or Times Square in New York City who sell counterfeit DVDs and CDs and question why these street vendors are allowed to conduct business.

Editor: What steps should be taken to prevent a Chinese joint venture partner from appropriating the U.S. partner's IP, including trade secrets?

Hu: This is probably the one single issue that I have handled most frequently over the years. I cannot emphasize enough that due diligence is a must. It often amazes me that an otherwise savvy, sophisticated U.S. business would conduct business with a Chinese partner merely on the say-so of some person who claims to be politically connected in some vague manner. Of course, it helps if the U.S. company has registered its IP in China.

Editor: How effective are agreements with employees to control loss of trade secrets and other confidential information?

Hu: Not very effective, and this is right now a problem in China for a couple of reasons. One, there is no trade secrets law per se in China, so protection of trade secrets has been a mixture of labor law, civil law, contract law and, sometimes, even criminal law. Two, courts often do not recognize, or the laws do not proscribe, misappropriation of intangible information. Proof is the major obstacle.

Editor: Should a requirement for arbitration be used in agreements affecting IP with employees, joint venture partners and third parties? What are the strengths and weaknesses of arbitration?

Hu: If crafted appropriately, an arbitration clause definitely neutralizes any potential "home court advantage" or the varying effectiveness of the judiciary due to geographic locations that I talked about earlier. In fact, it is common to have mandatory arbitration provisions where the arbitration will take place in Hong Kong or Singapore, instead of in the Mainland.

Editor: What are some innovative approaches that might be applied to achieve greater protection of IP in China?

Hu: Nothing beats the old-fashioned approach of registering for various IP rights, due diligence, and prevention. A comprehensive management plan and strategy are absolutely crucial.

Editor: How important is the ITC in protecting domestic U.S. companies from imports of infringing products from China into the U.S.? Does it add to the pressure on Chinese authorities to take infringement more seriously?

Hu: The ITC can be tremendously effective because an infringing product will be excluded from entry into the U.S. regardless of who actually makes and/or sells the infringing product. There are a number of major challenges in enforcing IP rights in the U.S. against Chinese companies, including the difficulty in identifying the true source of the infringing products, in identifying the distribution channels of such products, and in establishing jurisdiction for the U.S. courts. Perhaps more importantly, many of the companies are judgment-proof. I don't necessarily see the Chinese authorities getting involved, at least publicly, in what amounts to private matters.

Editor: In considering China, should companies that are concerned about the compliance aspects of protecting IP assets under Sarbanes-Oxley develop an IP assets protection program for China even though they may not presently be doing business in China? Do you help in developing such plans?

Hu: It is difficult to image a U.S. company that is not affected by the rise of China in some way. It is imperative that every company have a comprehensive IP strategy for China, regardless of whether it is currently doing business in China. Many IP rights take time to obtain, so advanced planning is critical. I have been devising comprehensive IP protection and management plans for companies doing business in China for the past decade and, together with our IP professionals in our Beijing office, am constantly updating and revising these plans to meet the ever-evolving IP laws and enforcement schemes in China.

Please email the interviewee at yhu@akingump.com with questions about this interview.