Best Practices: Intellectual Property Protection in China ntellectual property (IP) is a longstanding, discovered. To protect their IP in China, companies critical concern for companies operating in should follow several steps: IChina . IP enforcement has consistently placed among the top handful of issues raised by US- Craft and Implement a Corporate China Business Council (USCBC) member IP Strategy in China companies every year in USCBC’s annual membership survey. Concern about IP • Conduct an initial audit of the company’s enforcement remains a major factor influencing China operations to determine IP assets, IP company strategies and operations in China. risks, and assign appropriate levels of China’s IP laws and regulations increasingly reflect protection to those assets based on the risk of international standards, and China has indeed infringement. made steady efforts to better protect and enforce IP • Review the company’s internal IP controls to rights. However, challenges remain, including determine whether they provide sufficient lingering issues with China’s IP legal framework in protection. Make adjustments based on the IP areas such as trade secrets, uneven enforcement, audit, and dedicate resources in alliance with and significant procedural barriers that frustrate the company’s IP protection goals. company efforts to protect IP in China. At the same time, counterfeiters and infringers in China are • Classify IP-relevant information according to increasingly sophisticated. They often exploit its level of sensitivity, and integrate that procedural loopholes, proactively seek to classification into information control and invalidate legitimate patents and trademarks, operational procedures. deploy advanced techniques such as reverse • Make IP protection a core responsibility of the engineering, and find new ways to infiltrate entire China management team, not merely a legitimate distribution networks and build their function of the legal or brand protection teams, own parallel networks. and adjust internal information flows and reporting structures to reflect those Decades in the trenches have equipped responsibilities. multinational corporations with hard-won • Regularly communicate the value of IP expertise and a set of strong preventive best protection—and the appropriate ways to practices, including internal controls and external handle IP—to key stakeholders, including engagement with key stakeholders. To be government officials, employees, contract successful in China, companies should develop an manufacturers, business partners, and integrated IP protection strategy that reflects the customers. While the level of IP consciousness nature and extent of the IP problems they face and among Chinese citizens is growing, regular is grounded in a realistic assessment of internal communication of the importance of IP is goals and resources. critical to instill a sense of ownership of company IP among key stakeholders. This best practices document lays out key • Take clear steps to document company IP strategies and tactics that companies should adopt protection policies and efforts as such in their attempt to identify and protect their IP in documentation can play an important part in China, both to prevent IP problems before they infringement disputes, particularly in areas occur and to tackle IP infringement once like trade secrets. © 2015, The US-China Business Council 1 Understand the IP Legal Landscape China’s online trademark database for similar trademarks filed by competitors and • Review not only China’s core IP laws and infringers, including marks filed in categories regulations, such as the Patent, Trademark, outside a company’s core products. Many Copyright, and Anti-Unfair Competition laws, companies have experienced challenges in but the growing body of other laws and which a local competitor registers a very regulations that impact China’s IP similar trademark in a different product environment, including (but not limited to) the category, a practice allowed under the Corporate Income Tax, Antimonopoly, and Trademark Law. Labor Contract laws. • Copyrights Though registration is not • Ensure that the legal protection the company is required, entities should consider registering seeking for its IP in China is available. For their works with the National Copyright example, many software products that are Administration, since registration provides a eligible for patent protection in other public record and can serve as useful evidence jurisdictions are not in China, and are more in copyright disputes. commonly protected as copyrighted products. • Monitor laws, regulations, and judicial Balance global IP protection needs with interpretations to ensure that the company’s IP China market opportunities in transferring or enforcement strategies are valid under Chinese licensing IP law. Examples of areas that may require • Conduct a realistic assessment of the business scrutiny include employment contracts, IP risks and benefits of transferring IP to China. licensing arrangements, and evidence For many companies, this means keeping vital collection procedures. designs and latest-generation technologies overseas while bringing to China IP that Adopt Preventive Measures supports their business in country. • Negotiate clauses in technology transfer and to Protect IP licensing contracts to address company needs on royalty rates and ownership of Register IP in China improvements. Companies should recognize If a company doesn’t file its copyrights, patents, differences in how China’s legal framework and trademarks in China, its IP has no formal treats ownership of improvements and protection there. Companies should register (or liability, and that negotiated royalty rates in record) eligible IP in China as early as possible. China are frequently lower than in other Companies should also understand the full range markets. of IP for which they might file, including multiple • Register technology licensing contracts as types of patents (utility model, design, and required under the Ministry of Commerce’s invention), as well as trademarks and copyrights. Technology Import and Export Administrative • Companies should file applications Patents Regulations. with the State Intellectual Property Office (SIPO) for IP that they view as valuable to Design the manufacturing process to protect their business for both core and fringe technologies. Companies should ensure that IP • their patents are properly translated before Compartmentalize critical steps in the design filing. Filing can be done directly with SIPO or and production processes for IP-intensive via international patent arrangements such as products—and the equipment used to the Patent Cooperation Treaty. manufacture these products—to limit the likelihood that any one employee has access to • Trademarks Companies should broadly all the information needed to copy IP. register their core trademarks with the China • Trademark Office, including the English name, Consider incorporating into the production Chinese character name, and Chinese pinyin process technologies and techniques that are name for core brands with the China difficult to copy, such as chemicals, foils, inks, Trademark Office. When filing, companies labels, papers, stamps, and threads. should carefully select the product categories • Incorporate IP protection needs into facility and sub-categories in which to file, and check design. Some companies, for example, limit IP exposure by ensuring that sensitive © 2015, The US-China Business Council 2 information is kept in low employee traffic clauses to the ongoing business relationship, areas or behind unmarked doors. and ensure that partners fully understand what those obligations mean for both parties. Utilize information technology tools to track • Regularly engage business partners to reiterate and protect information the importance of IP protection, and, where • Consider tracking data flows and employee appropriate, partner to boost IP protection file transfers (both paper and electronic), efforts, such as supplementing monitoring engage internal stakeholders such as the resources or jointly engaging with government human resources department in early officials. conversations about developing and • Manage supplier, vendor, and distributor implementing policies that monitor employees relationships through multiple personnel to in this manner. limit the ability of local staff to abuse business • Closely monitor or prohibit the use of flash networks. disks, portable hard drives, laptops, cell phone • Review information that could be sent to third cameras, and other devices that could be used parties before transmission to ensure that it is to capture and transmit sensitive information. not sensitive, or that the benefits of sending it • Establish IT mechanisms to limit employee outweigh the risks of it being leaked. access to sensitive information, such as separate computer terminals or specialized Build internal lines of communication on IP passwords. • Establish an anonymous internal hotline, as well as an outside hotline for confidential Focus on human resources communication with suppliers, distributors, • Run background checks on key hires to check customers, and other third parties to report IP for any IP-related “red flags,” and include infringement. noncompete and nondisclosure agreements in • Build a database of company infringement employee contracts. cases and infringers and make it available to • Educate employees regularly about the firm’s