On April 12, 2022, the Flanders-China Chamber of Commerce, the EU-China Business Association and the China IP SME Helpdesk organized a webinar focused on IP Practices in R&D Activities.
Alessandra Capriglia, Project Manager, China IP SME Helpdesk, delivered the welcome remarks and introduction. The China IP SME Helpdesk is a EU-funded project providing free-of-charge advisory services to European SME businesses in China. The Helpdesk not only covers mainland China, but also Hong Kong, Macao and Taiwan, which have different systems for protecting intellectual property rights. In the past 12 years the Helpdesk has assisted over 100,000 SMEs, not only from the EU, but also from other countries. Free services include an enquiry helpline; training workshops; webinars; a website and blog; and guides and factsheets. Enquiries will be responded to within three working days.
Website: https://ec.europa.eu/ip-helpdesk Email: question@china-iprhelpdesk.eu
Ms Gwenn Sonck, Executive Director of the Flanders-China Chamber of Commerce and the EU-China Business Association, introduced both organizations. China has already become a leader in innovation in several areas such as the internet industry and artificial intelligence. According to the World Intellectual Property Organization (WIPO) China ranked 12th in the global innovation index in 2021, up two places compared to 2020, when China overtook the U.S. as the top filer of patents. China has held more than 400,000 patents in AI, accounting for 75% of the global total, ranking first in the world. Innovation is one of the reasons European companies want to be in China. European business leaders also see Chinese firms as equally or even more innovative than European ones. According to a survey of European companies in China, European businesses also say China compared favorably to other countries regarding government incentives, low research costs and R&D productivity. They also see opportunities in an increasingly innovative China rather than a threat. Most of our companies are in China for China. It is crucial to do the innovation where the applications are. They have to be close to their customers so as not to delay the introduction of innovative products. Technology is moving so fast that they can't afford to have any dead time in the development track. That's one of the key advantages of doing R&D in China, being close to the customer, the high-growth market, and being very fast in action. We can't be complacent.
Jari Vepsäläinen, IP Expert, China IP SME Helpdesk, conducted the training session on IPR protection in R&D activities in China. He is based in Helsinki, Finland, at the company Fintrade-Mercer. He is a corporate lawyer. He obtained a licentiate degree in company law, taxation and contract law from the People's University of China and is a doctoral candidate and visiting scholar in Chinese contract law at the People's University in Beijing and in Chinese corporate law at Zhongshan University in Guangzhou. He is normally based in Hong Kong. His company is specialized in bringing foreign companies to China and keeping them there. He negotiated the establishment of the European Chamber of Commerce in Hong Kong and has been Chairman of the Finland Chamber of Commerce in Hong Kong and Vice Chairman of the European Chamber of Commerce in Hong Kong.
There are different administrations in China for different types of IPR:
• China National Intellectual Property Administration for patents and trademarks (lifespan 20 years and 10 years respectively)
• National Copyright Administration for software and copyright (lifespan 10 years and 50 years respectively)
You need to register everything you can before you go to China. The types of patent models are very similar to Europe. Recently the IPR protection environment has been improved a lot through amendments to the laws. The patent protection has been extended and damages for infringement are now much higher. The burden of proof has changed: the infringer now has to prove its innocence, not the IPR holder. The same positive effects apply to copyrights. Copies infringing on copyright and the equipment and materials used to produce them will be destroyed without compensation. The protection of trademarks is also very important, including the prohibition of bad faith trademark registrations and the prohibition of trademark squatters, which are Chinese companies registering foreign trademarks with the purpose of using them for blackmail, extortion and trademark piracy.
The utility model patent protection is strong in China, meant to protect minor improvements to an already existing technology. It is not well known in Europe, but it is fast, cheap and secure. You can use the utility model patent protection as a first remedy while waiting for the invention patent. The patentee will be able to enjoy the benefits of fast issuance of the utility model and early protection. The utility model application can be filed in China based on an earlier filed foreign patent application of an invention or utility model.
Copyright registration of software is important in China, including the source code, to have protection. The identification materials include the first 30 and last 30 pages of the source code, each page containing no less than 50 lines. No person other than the applicant or a judicial body can open the sealed enveloped stored at the China Copyright Center. China is a signatory country of the Berne Convention, providing minimal copyright protection for 50 years without registration, but in China copyright registration is a precondition for filing a lawsuit and non-registered software is without any substantial protection. China is a member of the major international IP conventions. Joint R&D in China can be performed by a JV or wholly-owned subsidiary or a Chinese partner or third subsidiary. IPR ownership options are ownership of all IPR by the European company; by its Chinese business company or co-ownership.
Before going to China, European companies must conduct a prior art search and a competitive art search. You also need to check the catalogue for prohibited and restricted technology imports and the foreign investment catalogue. There also might be export restrictions as China is putting up more barriers to the export of R&D from China. Partner selection is very important. Companies of different types will have a different attitude towards IPR management. It is important to choose the governing law and place of arbitration. Once you have selected your partners you have to screen them through publicly available information such as blacklists and court records. Also check who is the legal representative and whether they have a business license. You should expect the unexpected. Every company that desires to have R&D done in China should establish a corporate IP strategy and work with IP specialists and corporate lawyers.
Once in China you need to make a good services contract with the service provider and not only NDAs. Reverse engineering is permitted under Chinese law and not considered a theft of trade secrets. Chinese courts prefer Chinese parties and their licenses. Technology-to-equity transactions are very important. This means that instead of royalty payments, you get shares in the Chinese company. You can try to capitalize the R&D. If there are disagreements, there are several resolution options: negotiations and mediation; the administrative channel and judicial action. You can also take the dispute to several mediation centers. Finally Mr Vepsäläinen introduced the IPR infringement case of Norsepower Rotor Sails.
Summary:
• Pre-registration of every IPR before going to China is a must to get protected under international conventions and Chinese law in order to be able to seek injunctive relief for patent infringement.
• Conduct prior art search, register utility model as soon as possible, register your software source code.
• Selecting a trusted partner with the right IP business practices and security infrastructure is a practical means of protecting IP in an R&D services relationship in China.
• Careful contract management is a must even when dealing with your own JVC, WFOE and personnel.
• The best way to manage IPR issues is negotiations and mediation, avoid courts.
• Injunctive relief to stop IP leakage rather than monetary damages is the most realistic official/legal remedy in China. Injunctive relief is more quickly available for patent or trademark infringement than breach of contract.
While doing business in China has IP risks, the risks need to be weighed against the economic benefits. China is a market that cannot be ignored. European SMEs who do not think carefully about how to guard against IP risk when doing R&D in China may unwillingly suffer a loss of competitiveness and market share.
A Q&A session concluded the webinar.
