The Flanders-China Chamber of Commerce (FCCC), the EU-China Business Association (EUCBA) and the China IP SME Helpdesk organized a webinar on the topic of “Key IP Considerations for Cooperation with Chinese Partners” on July 16, 2024.
Ms. Mariana Fagotti, Project Executive, China IP SME Helpdesk, introduced the Helpdesk. Around since 2008, it offers free initial advice to SMEs in four Chinese jurisdictions (the Mainland, Hong Kong, Macao and Taiwan) and has assisted more than 100,000 European SMEs free of charge to protect their intellectual property while doing business in China. The main service is the helpline at question@china-iprhelpdesk.eu, or by phone at +86-10-64620892. Answers are provided within three working days and are confidential. Other services include training workshops and webinars; one-on-one consulting sessions with a business adviser; publication of self-learning materials; and website IP tools and a blog.
Ms. Gwenn Sonck, Executive Director of the Flanders-China Chamber of Commerce and the EU-China Business Association, welcomed the participants to the 12th joint webinar with the China IP SME Helpdesk and introduced both business associations. Companies doing business in China should include an IP strategy in their business plan. Doing business in China has become more complex due to the slowing down of China's economy, but it is still one of the fastest-growing major economies with a growth of 4.7% in the second quarter. The global economic slowdown and geopolitical tensions make it more difficult for European and Chinese companies to navigate in this challenging business environment. European companies in China need a new playbook. Many of our companies view it as imperative to maintain a footprint in China, not only because of its market size, supply chain, dynamism and industrial clusters, but more and more for its innovation power.
Mr. Valentin de le Court, China IP Expert, gave the main presentation on “Key IP Considerations for Cooperation with Chinese Partners”. Mr. de le Court has close to twenty years of experience in innovation-related intellectual property law, focussing on contentious and non-contentious IP matters and more specifically on patent law and trade secrets. He spent four years in Shanghai working at a Chinese IP boutique and for the past 12 years has been working with the Helpdesk.
The importance of intangible assets in the economy has been rising from 17% of the corporate value of the S&P500 companies in 1975 to 90% in 2020. Intangible assets is what gives value to a company and they are protected through IP rights and trade secrets. IP is extensively used by the largest companies in the world. According to the World Intellectual Property Organization (WIPO), intellectual capital is the foundation for the market dominance and continuing profitability of leading corporations.
Why should an EU SME care about IP and invest to protect its intangible assets?
• Protect your competitive advantage by getting exclusive rights and prevent others from exploiting your IP. The idea is to grant you a monopoly, giving you a competitive edge.
• Attract investments, which is often an absolute must. Chinese partners will first of all check if you have an IP portfolio.
• Freedom to operate (FTO), which will enable you to reduce the risks linked to technology commercialization. There is always the risk that your technology could infringe on the IP rights of third parties. China is a country with massive IP rights. More and more foreign companies are attacked by their Chinese counterparts for infringement of IP rights.
• Increased control and decreased risk when outsourcing, protecting your IP when sharing your technology with a Chinese manufacturer.
• Tax purposes: in Belgium there is a very attractive tax regime for revenues generated by IP developed in Belgium.
• It can be the key to enter new markets by making your company more attractive to develop partnerships.
The bottom line is that IP will be at the heart of any internationalization strategy and will be key to succeed on the Chinese market.
IP laws in China have evolved in less than four decades from a no man's land to a top national priority. China is investing very much in innovation and when you talk about innovation, IP is a tool to protect your innovation. Today a complete set of Chinese IP laws is in place. IP is a central part of China's development strategy and the country has the ambition to become an IPR powerhouse by 2025 at the end of the 15-year plan (2021-2035) to develop the IP system.
China is the No 1 country for patent applications. In 2015 for the first time more than one million invention patents were filed and in 2021 more than 1.5 million were filed, of which 90% were domestic. There is also a shift from quantity to quality. China was also again the No 1 PCT applicant in 2021, which involves international patents. For a fifth consecutive year, Huawei Technologies ranked top PCT applicant in 2021. Actually China is at the top of the universities, government and businesses list for international patents.
R&D spending in China grew tenfold between 2000 and 2016, making China an innovation powerhouse. China is set to pass the U.S. on R&D spending by 2025, as expenditure in China is rising at an annual rate of 16% while the U.S. has stagnated. IP has become essential to achieve technological sovereignty and industrial upgrading. Innovation was one of the big topics at the Third Plenum of the Central Committee of the Chinese Communist Party which was held from July 15 till 18. The strategic goal is technological self-sufficiency and ending the reliance on foreign tech. The focus on innovation leads to the focus on IP. IP is now essential for Chinese businesses, which are IP aware and IP rich. China's stake in the IP system has grown and is now significant.
How to protect your IP when meeting potential new partners or during trade fairs?
• Plan ahead: protecting your IP requires preparation before meeting partners and before participating in a trade fair. First of all you should know what you have to protect. SMEs often lack an overview of their IP assets, which are non-physical, making them difficult to identify. It is very important to conduct an IP audit to map your IP assets and to ascertain whether they are protected in China and how they are protected, by IP or trade secrets. Lesson 1: Understand what to protect.
• Understand how to protect your competitive advantage, either by IP or trade secrets. IP is an exclusive right. Different IPRs serve different goals: trademarks protect indication of the origin of goods and services; patents protect technical features; designs protect the external aspect; and copyright protects creative works. Don't focus on only one IP right. The more IP rights you have the better. In the case of trade secrets, protection is based on the nature of the information and the way the information is handled by the holder. Trade secrets protect against unlawful acts but do not grant you an exclusive right. Lesson 2: Create a bundle of rights.
• Have enforceable IP rights. IPRs are territorial, related to a specific territory. They should cover the countries where you trade, manufacture or exhibit; the countries of your competitors and possible investors; and the countries of your possible partners. There is no automatic protection, registration is needed and has to be done on time. Therefore anticipate and plan early. Not applying for patent protection in China means giving a free license to your Chinese and foreign competitors to use your inventions. It is also important to adapt to the specificities of the Chinese IP system. The Chinese utility model is underused by foreign companies. It is also important to work with people who understand the system. Lesson 3: Be proactive.
• Use contracts to protect your IP. This is the key for successfully protecting your IP in China. IP is relevant to numerous contracts. Lesson 4: Execute an enforceable NDA before disclosing anything of value.
There are two types of patents in China: invention patents, which cover a products, processes or a combination of both, and utility models, which only cover products. There are three conditions for patent protection: absolute novelty, inventiveness and practical use. Patent rights are granted for a limited time: 20 years for invention patents and 10 years for utility models. Trade secrets protect commercially sensitive information, which must be secret (not known to the public), have commercial value, and reasonable steps must be taken to maintain the secrecy. In 2017 and 2019 China revised the Anti-unfair Competition Law to strengthen the trade secret protection regime. Reasonable steps to keep information secret require more than signing an NDA. It is necessary to take proactive measures. If no reasonable steps have been taken, the information is not considered to be a trade secret. The Supreme People's Court has published a non-exhaustive list of confidentiality measures, which is a very useful guidance. Trade secrets are the crown jewels of many innovative companies. Document all transfers of information and confidentiality measures because enforcement is challenging.
Don't forget your other IP rights, especially your trademarks. Register sooner rather than later and before engaging with Chinese partners. China is a first to file country.
The key intellectual property considerations for collaborating with Chinese partners are: be proactive and have a tailor-made China IP strategy; sign NDAs; organize what you share; and select your leads and perform background checks.
The recording of this webinar is available on the Helpdesk's YouTube channel.
