Corporations worldwide are slowly but surely coming to the realization that they can’t stay competitive without having operations in China. The country’s enormous population and domestic market constantly entice corporations and entrepreneurs. However, protecting intellectual property can cause many large organizations to shy away from China.
The international community has frequently criticized China for pirating products, services, businesses, and business processes. The moniker of “Copycat China” has long plagued the Chinese economy and resulted in reluctance from many global corporations to set up operations in China. Chinese piracy extends to a range of products from toys and luxury goods to automotive and airplane parts.
Protecting intellectual property rights has been one of the most challenging tasks for most multinational corporations entering China. According to the US Government, China amounted to 80 percent of all IP thefts from US-based organizations in 2013. Similarly, European manufacturers reported a 20 percent decrease in profits because of IP-related losses in China. Furthermore, according to the US embassy in Beijing, 20 percent of all products sold in the Chinese consumer market are counterfeit. Consequently, firms are wary of conducting business in China.
In fairness, China is aware of the IP protection problems it faces. The Chinese government has actively made efforts to improve IP laws and regulations to reflect internationally accepted standards. However, challenges remain, including lingering problems with China’s legal framework for IP protection. Therefore, most legal advisors counsel foreign entities to implement measures to safeguard their IP themselves.
What is Intellectual Property?
Intellectual Property (IP) refers to creations of the mind. Intellectual property comprises inventions, artistic and literary works, designs, symbols, technology, images, and more.
Governments devise laws to protect IP from theft or leakage. Several ways of protecting your IP exist in the form of patents, trademarks, and copyrights.
Patents protect an invention’s design and utility, which is why two types of patents are typically issued: design patents and utility patents. Terms of protection and duration of the patent vary from jurisdiction to jurisdiction. In China, the IP office issues patents for inventions that last up to twenty years, whereas design and utility patents have a ten-year protection period. Patents are non-renewable in China.
Trademarks typically apply to words, slogans, and designs that help identify a product or service. Corporations register for trademarks when a slogan or design becomes a signifier of their brand or product. Terms of protection for trademarks in China extend to ten years. Trademarks are renewable in China.
Copyrights protect an original work of art in a medium of expression. Copyrights typically protect books, music, films, games, and software. Although copyrights in China are non-renewable, they have a protection period of fifty years for both individuals and foreign enterprises.
Trade secrets refer to a piece of information that provides its owner with a competitive advantage. Trade secrets can be formulas, business practices, or manufacturing techniques. China has unfair competition laws that help protect trade secrets. However, these competition laws can often be convoluted and difficult to comprehend.
What Makes China the Hotspot for IP Leakage?
Before proceeding further, it is vital to understand the factors that drive IP leakage and theft in China. Several reasons contribute to China’s counterfeiting culture. However, three factors are the most significant drivers of IP theft.
The Chinese government has shifted its focus from being an export-oriented economy to becoming a technologically self-sufficient economy. The country has plans to become a technological leader and has been steadily implementing policies to accelerate its technological development. China already leads the world in some areas, such as integrating digital payments on a nationwide scale. However, the Chinese government is now centering its focus on innovating in the consumer and industrial technology sphere. One of China’s main strategies for innovating is co-innovating and re-innovating. The notion behind this concept of co-innovating and re-innovating is to assimilate current technology from world leaders and focus on re-engineering and adapting for other purposes. Unfortunately, some Chinese companies view it as a blueprint for replicating existing technology via counterfeiting.
The Global Economy
The global economy also plays a significant factor in contributing to IP leakage and theft in China. Over the past decade, there has been a transition in foreign investment into China, from low-cost manufacturing to high-tech manufacturing. These trends have resulted in asymmetric industrial growth in China. The development process in China sees a leapfrog in many stages of development due to an increase in technical knowledge and procedural know-how.
The rapid scaling of the development process leads to problems for both local and foreign firms. Foreign entities can no longer compete in China while operating on the same principles as ten years ago. On the other hand, Chinese companies find the quickest avenue to profitability occurs by ripping off technology.
Sociocultural factors also play a significant role in IP leakage. During Mao Zedong’s reign, the government actively stifled property rights. This historical legacy continues to shape attitudes towards IP rights. Moreover, China’s approach to education also contributes to a culture of counterfeiting than innovation. Chinese education entails students rote memorizing and creating exact copies of works by masters or teachers. In addition, a survey by McKinsey also shows that there’s an exceptionally high turnover rate in China’s high-tech industries for middle managers. Middle management is often the gatekeeper of a company’s IP. High turnover rates result in a loss of IP as managers move onto different organizations, taking their wealth of knowledge and implementing it at their new workplace.
Safeguarding your Intellectual Property
Successfully safeguarding your intellectual property in China requires an assortment of strategies focused on internal and external measures. Moreover, you need to adopt a preventative approach and a reactive approach to curb IP leakage and theft.
Developing Business Clarity
Many corporations frequently enter the Chinese market by setting up a subsidiary in China. However, they’re not clear about their strategic objectives in China. Developing a precise approach can prove fruitful in protecting your IP. It requires creating a strategic plan and identifying the specific IP that helps the company execute its formulated strategy. The company’s strategic plan should address operational, management, and contingency procedures. It should also highlight the individuals leading the Chinese operations. Your organization can also classify IP-relevant information to key operation members, securing your IP from prying eyes.
Companies often bring the entirety of their IPs to their Chinese operations, which isn’t a safe approach to protecting IP. Most corporations that have successfully managed to safeguard their IP follow this approach. They devise an action plan that details the necessary IP required for their Chinese operations, thereby protecting the rest of their IPs from theft and leakage.
Understand China's IP Landscape
Whether you’re setting up a joint venture in China or incorporating a branch office, comprehending the IP landscape in China is essential. You should review China’s core IP laws and regulations about copyrights, patents, trademarks, and trade secrets. Moreover, you should also thoroughly assess other laws that can affect your IPs, such as anti-monopoly and labor contract laws.
Your organization should also ensure that the legal protection it’s seeking falls under Chinese IP laws. For instance, many software products eligible for patents can only receive copyright protection in China, a vital distinction that your organization should consider.
Here are several measures your organization can take to protect your IP.
The first step for any organization operating in China should be registering their IP. If your company doesn’t file an IP for a patent or copyright in China, the government won’t be liable to provide any protection. Companies can file applications with the State Intellectual Property Office (SIPO) for patents. Similarly, companies can register their copyrights with the National Copyright Administration. If your company is filing for a trademark, you need to register with the China Trademark Office. Registering trademarks in China can be complicated because your company needs to files names, slogans, and designs under the English name, the Chinese name, and the Chinese Pinyin name.
Another preventative measure corporations can take is compartmentalizing the manufacturing process. Breaking down critical steps and assigning them to various departments or employees can prevent IP leakage as no single employee will be aware of the entire process. Moreover, you can also protect sensitive information by incorporating IP protection needs into facility design. You can safeguard IP information by keeping it in areas with low employee traffic.
You should also utilize information technology to protect your IP-related information. Implement tracking measures on employee file transfers and data flows to ensure vital information isn’t shared with outside sources. In addition, you can pair the use of information technology with the creation of a secure intranet. A dedicated intranet can help make communication channels safe and prevent information leaks for both internal and external communication.
Seeking Assistance from Local Bodies
You can also seek assistance from local IP enforcement bodies. Many people harbor a misconception that China doesn’t care about IP infringement, but that’s not true. The Chinese government has implemented several measures to improve IP laws and regulations. Although these laws haven’t revolutionized the attitude towards IP infringement in China, they have led to some noticeable improvements.
Actively Monitoring for IP Theft and Leakage
Perhaps, the best method of proactively protecting your IP is monitoring for instances of infringement. Sending company employees to trade fairs and industry events can help identify any IP leakage and theft. Similarly, we recommend having representatives scan the internet for counterfeit goods and products. Check E-commerce giants like Alibaba and Taobao to ensure no one is infringing upon your IP. Monitoring IP publications like the PRC Patent and Trademark Gazettes can also provide leads regarding IP theft.
Reactive Measures to IP Infringement
If you find that your organization’s IP is already under threat, here are some measures you can implement:
Cease-and-desist letters are an excellent way to stop small infringers. Small companies are frightened by the prospect of litigation, and in most cases, are unwilling to continue infringement practices. However, it is essential to note that some infringers can be stubborn. They’ll incorporate new companies to continue violating your IP or move to new markets since they’re now alerted by your efforts.
Work with E-Commerce Giants
You can also contact E-commerce giants like Alibaba and Taobao and enlist their help in removing products and services that infringe your IP.
Collect Evidence against IP infringement
Review your organization’s files and look for physical and digital evidence that proves other parties are infringing upon your IP. Providing documented proof to Chinese officials can hasten matters and help you remove IP infringers from the market quickly.
You can also consider working with vetted IP infringement companies to help you track down infringers and collect evidence.
Protecting Your Trademark and Software Copyrights
If your business is already operating in China, and you’re seeking software copyright protection
and trademark registration and protection
, Business China can assist you. We have a team of highly qualified professionals with proficiency in Chinese copyright and trademark laws to help you protect your intellectual property.
If you’re looking to enter the Chinese market and require professional assistance, Business China can help smoothen the company registration process for you. We focus on assisting businesses to get started with their Chinese operations. Whether you’re looking to incorporate an LLC
or a representative office in China
, we can ensure that you don’t have to deal with bureaucratic red tape and paperwork.
Contact us today
to get started on your Chinese expansion.