Protecting Your Intellectual Property in China

Last Updated Jun 17, 2008 5:26 PM EDT

China has been called the world headquarters for counterfeit
goods, the source of everything from designer-brand knock-offs to black-market
aircraft parts. For companies that outsource their manufacturing to China,
intellectual property (IP) problems are not limited to brand-name rip-offs.
Other forms of IP theft are subtle but no less damaging — like the
illegal inclusion of proprietary circuitry inside Chinese-made consumer
electronics. In many cases, the IP thieves are the current or former employees
of Chinese firms that once worked with the original IP owners.

So how can you guard your firm's assets? Here are
seven ways to protect intellectual property from reappearing inside a Chinese
competitor's product:

1. File patent and copyright documentation in the United States.

U.S. patent and copyright laws are among the most stringent
in the world. Filing in the United States allows you sue a Chinese company in
U.S. courts, providing that company has offices or a subsidiary in the United
States. “Almost all Chinese firms want to sell their products in the
United States, so when they see a U.S. filing, they’re less likely to
steal your IP, lest it cause a problem for their future growth plans,”
says Amy Xu, a Shanghai-educated attorney at the IP-focused law firm Dorsey &
Whitney LLP.

2. File a patent in China.

Enforcement of patent law is weaker in China than it is in
the United States. Still, a patent in China provides an official record that
your IP exists and creates a useful document if you wind up litigating in a
Chinese court, according to Xu. “Some people think that there are no
protections in China,” she says, “but there are laws, and
they have sometimes been used effectively to stop infringement.”

3. Sign contracts that protect your IP.

Manufacturing contracts should define the scope of your IP
as well as the financial penalties for the Chinese firm if that property is
stolen. Tip: Have the Chinese version of the contract vetted by a U.S. lawyer
fluent in Chinese; you don’t want your rights to be lost in
translation, says Tobey Marzouk, partner at Marzouk & Parry, a
Washington, D.C., law firm that specializes in software litigation.

4. Keep control over key IP elements.

Segment your product so that at least one element —
one that’s crucial to its usefulness, of course — is not manufactured
in China. Have that element shipped to China for final assembly, or do the
final assembly after the parts made in China have been transferred to the
country where they’re to be distributed, suggests Patrick Powers,
former vice president of China operations for the U.S.-China Business Council,
an industry trade group. “That way, an IP thief can’t steal
the entire product,” he says.

5. Incorporate a mandatory service element.

If your product is only usable if it’s accompanied
by consulting services, product support, and ongoing maintenance, the IP inside
the product becomes inherently less attractive for resale and thus less likely
to be stolen, according to Ben Goodger, global head of IP commercialization at
Rouse & Co. International, an IP consultancy headquartered in London.

6. Build connections with the local and regional government.

In China, local governments are mandated to enforce
copyright violations. If you build a strong relationship with local government
officials, they’re more likely to try to enforce your rights. “Some
additional gratuities may be required in order to grease the wheels of
commerce,” says Usha Haley, professor of International Business at
the University of New Haven in Connecticut.

7. Develop a relationship with a Chinese legal firm.

You want to be ready from the start to bring either a civil
lawsuit or criminal lawsuit under Chinese law. The threat of a suit can be a
deterrent to IP theft, provided it’s clear that your firm is serious
about pursuing the matter. “Having legal representation in China
sends a signal that you’re not afraid to pursue all avenues to keep
your IP safe,” Xu says.