Intellectual Property Rights and Doing Business in China
CALSTART Webinar May 31, 2012
International Reach
approximately 2
800 lawyers
15 offices
3 continents
23 languages
Counsel to the World’s Leading Companies
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O’Melveny has the leading practice in China 100+ lawyers in Greater China. Offices in Beijing, Shanghai, and Hong Kong and 20 partners exclusively in the China practice group
China practice teams in the United States, Singapore, Japan, and the United Kingdom that work closely with our China offices
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Regarded as one of the preeminent China practices of any international law firm
Publishers of in-depth reports on areas of current interest in Chinese law as a service to our clients and friends
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Long History in China –
One of the first international law firms licensed by the Chinese government to maintain offices in both Beijing and Shanghai
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We were among the very first US law firms to establish a Shanghai office, and ours is one of the largest mainland offices of all international law firms
Hong Kong, China, and International Law –
One of the first US firms licensed to practice Hong Kong law
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Lawyers experienced in advising on a broad range of Hong Kong law matters including energy, M&A, general corporate, and regulatory work.
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Extensive knowledge of the China market and work closely with local law firms on local and cross-border matters (we are not allowed to practice local law in China as is the case with all international law firms)
Transactional and Dispute Resolution –
Staffed to meet the needs of clients for large scale projects and able to form teams to conduct due diligence, regulatory filings, negotiations, documentation and closings in both English and Chinese
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Experienced dispute resolution team has advised on contentious situations involving most Asian jurisdictions
Strong Professional Relationships and Contacts within China Strong Government Relationships We have stronger relationships with the Chinese government than other law firms. China is relationship based, and our longevity here has enabled us to forge connections and gain support by major stakeholders, including: • Chinese and international financial institutions • Chinese law firms • Chinese approval authorities • Chinese government think tanks • local and international industry chambers • major Chinese corporations (whether State-owned or not) • China’s leading academic institutions We put these relationships to work for the interests of our clients
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We’ve recently advised both clients and relevant government authorities on cutting edge developments, including: – Launching on the proposed international board in Shanghai – Qualified foreign limited partners ("QFLP") pilot schemes in Shanghai, Chongqing, Beijing and Tianjin – Antitrust and IP protection – Another ongoing confidential pilot scheme in Shanghai
O’Melveny’s China Strengths – Full Service Platform Our lawyers’ capabilities span virtually every area of legal practice, including: • • • • • • • • • • • • • •
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Anticorruption and Antifraud Compliance Counseling & Internal Investigations Antitrust & Competition Business Tax Capital Markets Dispute Resolution Energy and Natural Resources FDI/Market Entry Fund Formation Infrastructure Intellectual Property M&A Private Equity and Venture Capital Real Estate and Distressed Asset Restructuring and Insolvency
Intellectual Property Practice Key Facts: • Internationally recognized team “[O’Melveny’s] illustrious name attracts a range of clients for IP work.” Chambers USA “Brings a strength to the table that not many others can match… clients benefit from a strategically strong presence in Asia.” Legal 500 • Lawyers with technical backgrounds and education in engineering, physics, computer science, and life sciences, including several Ph.D.s • Team offers comprehensive and coordinated representation on the most complex patent and technology matters, including multi-jurisdiction, multilawsuit, and multi-defendant cases • Deep experience litigating in the International Trade Commission in addition to United States District Courts, Courts of Appeal, and the US Supreme Court
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Representative Clients:
Technical Expertise Over Two Dozen Lawyers with Advanced Technical Backgrounds •
Chemistry
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Material Science
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Civil Engineering
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Mechanical Engineering
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Computer Science
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neuroscience
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Electrical Engineering
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Physics
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Industrial and Operations Engineering / Industrial Design
20 Lawyers registered to practice before the United States Patent and Trademark Office 8
Transactional Intellectual Property •
Lawyers in: • • • • • • •
Silicon Valley San Francisco Shanghai Beijing Newport Beach Los Angeles London
• Business lawyers dedicated to protecting and exploiting IP assets – Technology acquisitions and dispositions – Spinoffs and restructurings – Corporate partnering transactions – Joint ventures and strategic alliances
• Market leader in structuring and closing complex and novel transactions that drive the realization of IP value – First-ever transaction licensing core US IP into China – Billion-dollar Sirna sale involving Nobel Prize technology – Multiple US-China technology driven joint ventures
• Practical, business-oriented counseling informed by technical backgrounds and professional industry experience • Frequently serve as de facto directors of intellectual property • Unparalleled experience handling transnational IP-intensive deals involving the US and China, Japan, Europe, and the Middle East.
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Overview about IP in China • Chinese IP Laws are on par with comparable laws of developed countries. • China needs effective IP enforcement. • The IP landscape in China is evolving. • IP remains one of the top-five issues for MNCs doing business in China. • MNCs in China are developing and adapting their IP strategies. 10
IPR Enforcement Routes and Remedies in China Enforcement Route Remedies
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Civil Relief
Declaratory judgment Injunction: preliminary / permanent Damages: - losses suffered by the infringed party - profits earned by the infringing party - appropriate multiple of reasonable royalties - statutory damages (maximum RMB 1 million for patent; RMB 500 K for trademark/copyright)
Administrative Relief
Injunction Seizure and destruction of tools Administrative fines
Criminal Relief
Criminal fine Seizure and destruction of tools Imprisonment
Scope of Patent Right Protection • Invention or Utility Model: be determined by the terms of the claims. The description and the appended drawings may be used to interpret the content of the claims. • Design: be determined by the product incorporating the patented design as shown in the drawings or photographs. The brief description may be used to interpret the design patent shown in the drawings or photographs.
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Patent Infringing Acts •
Invention/Utility Model Without the authorization of the patentee, no entity or individual may exploit the invention/utility model patent, including: – make, use, offer to sell, sell or import the patented product, or – use the patented process, or – use, offer to sell, sell, or import the product directly obtained by the patented process for production or business purposes.
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Design Without the authorization of the patentee, no entity or individual may exploit the design patent, including: – make, sell, offer to sell, or import the product incorporating the patented design
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Scope of Trademark Right Protection Limited to: • trademarks which have been approved for registration and to commodities on which the use of a trademark has been approved • except certain protections available to unregistered "famous trademarks"
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Trademark Infringing Acts •
using a trademark which is identical with or similar to the registered trademark on the same kind of commodities or similar commodities without a license from the registrant of that trademark
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selling commodities that infringe upon the right to exclusive use of a registered trademark
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forging, manufacturing without authorization the marks of a registered trademark owned by another person, or selling the marks of a registered trademark that are forged or manufactured without authorization
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changing a registered trademark and putting the commodities with the changed trademark into the market without the consent of the registrant of that trademark
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causing other damage to the right to exclusive use of a registered trademark of another person.
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New Development of PRC Trademark Law Proposed Amendments to the PRC Trademark Law •
Draft published by the State Council Legislative Affairs Office (SCLAO) in September 2011 for public comment
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NPC may issue new draft for industry comment by mid-2012 and enacted by the end of the year
Major Provisions in the SCLAO Draft Proposed Amendments •
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Bad Faith Registration –
for similar goods/services: a proposal to add to the current law a requirement of “prior connection between parties”, and “prior use in China”
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for dissimilar goods/services: a proposal to add to the current law the avoidance of bad faith registration on dissimilar goods/services with trademark of “definite degree of influence (fame) in China” and “mark relatively distinctiveness”
Civil Damages –
a proposal to make the trademark owner’s actual losses become the primary basis for calculating damages (the infringing person’s illegal gains to serve as calculation basis only when the trademark owner’s losses cannot be ascertained)
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a proposal to double “statutory damages” to maximum RMB 1 million
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a proposal to require the trademark right holder to prove its use of trademark in prior three years
What is Trade Secret in China? Technical information and operational information: • not known to the public; • capable of bringing economic benefits to the right holder and has practical applicability; AND • the right holder has taken measures to keep it confidential.
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Trade Secret Infringing Acts • obtaining trade secrets from the right holder by stealing, luring, resorting to coercion or other illegitimate means; • disclosing, using or allowing others to use trade secrets of the right holder obtained by the means mentioned in the preceding section; or • disclosing, using or allowing others to use trade secrets obtained in breach of an agreement or disregarding the requirement of the right holder to preserve the trade secrets. • if a third party obtains, uses or discloses the trade secrets of others when he has or should have knowledge of the illegal acts mentioned in above, he shall be deemed to have infringed on the trade secrets of others.
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Burden of Proof for Trade Secret Misappropriation Plaintiffs in a trade secret misappropriation case in Chinese courts must first prove the following three elements: • Existence and ownership of trade secrets - i.e. plaintiff must present evidence on the following: – Specific content of the secret and the medium that carries the secret – Commercial value of the secret – Protective measures taken by the owner of the secret • Defendant possesses information that is identical or substantially identical to the trade secret; and • Defendant used improper means to obtain the trade secret.
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Difficulties in Proving Trade Secrets Misappropriation in China • Heavy burden of proof on Plaintiff • Lack of effective mechanism for the Plaintiff to obtain evidence from Defendant (no formal discovery procedures; court’s evidence preservation orders may not be effectively executed) • Witness testimonies and/or expert opinions not given much weight because Chinese courts in general rely primarily on documentary evidence.
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The IP Landscape in China Is Evolving. •
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Chinese IP laws are evolving and becoming more sophisticated –
recent patent law amendments
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proposed trademark and copyright law amendments
China’s 12th Five-Year Plan put a strong focus on IP and technology development and Chinese companies have been incented to generate “indigenous IP rights.” –
Most of the patents filed by Chinese companies in China are utility model patents.
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The number of invention patents filed by Chinese companies in China is increasing.
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Chinese companies (such as Huawei) are aggressively filing patents globally.
Chinese companies are increasingly using IPR as a weapon –
Chinese companies no longer play defenses in IP litigation - they have learned to sue and counter sue their MNC competitors for IPR infringements as a business strategy.
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Chinese companies have started to challenge validity or enforceability of MNC’s patents.
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The majority of the IP litigation cases in China are between Chinese parties and the number is increasing every year.
To Deal with IP Infringement -
The Bad New is: No Panacea! No Silver Bullet! No One Size-Fits All!
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To Deal with IP Infringement -
The Good New is: There are some practical tips on: - prevention - enforcement
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Some Practical Tips on Preventive Measures: • Always apply for patents (including utility model patents), register trademarks and important copyrights. • Keep certain technology as “trade secrets” instead of filing for patent protection (the Coca-Cola approach). • Keep core technology out of China by manufacturing key components outside of China. • Assign manufacture steps to different contractors in different regions or countries to minimize the risk of misappropriation of the whole manufacturing process. • Selectively use licensing, JVs, or other business structures to exploit IP assets in China, shift IP infringement risks, benefit from R&D efforts of local partners and access to China-generated IP. • Adopt new counterfeiting technologies such as RFIC and digital rights management technology. 24
Some Practical Tips on Preventive Measures: • Strengthen internal systems and procedures (adopting strict security procedures, contractual non-disclosure and non-use restrictions, etc.). • Register IP rights with the Chinese custom to prevent infringing products from exporting outside China. • Register IP rights with the Chinese regulatory agencies (such as SFDA and the Ministry of Agriculture) to prevent infringing products from obtaining regulatory approvals or permits. • Adopt competitive pricing to drive counterfeiting products out of the market. • Continue to press Chinese government to adopt stronger IP enforcement measures. • Selectively invest in regions with good track records for IP protection. 25
Some Practical Tips on Enforcement Measures: • Select “high profile” infringers to sue or prosecute to maximize the deterrence effect。 • Select the right moment (such as infringer’s pre-IPO stage) to sue or prosecute to compel settlement or compliance. • Shop for the best forum. • Hire experienced private detectors to collect evidence. • Establish good relationship with local law & enforcement agents.
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IP Strategies Adopted by MNCs Education, Engineering and Enforcement • Instead of focusing solely on enforcement, Microsoft has adopted a “3E” approach: Education, Engineering, and Enforcement. • This 3E approach, together with other Microsoft efforts, has generated significant rewards, including a commitment from national government agencies and certain major SOEs in China not to use pirated copies of Microsoft software.
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IP Strategies Adopted by MNCs Engagement • Disney has an agreement in place with the Creative Power Entertaining Company (CPE) under which Disney has obtained the global right to develop and commercialize all derivative products under “Pleasant Goat 喜羊羊.” • Such licensing arrangement gives Disney the opportunity to explore a popular Chinese cartoon character globally while permitting CPE to realize the value of one of its key assets (value it is otherwise unable to realize on its own). • Such licensing arrangement helps CPE to “go abroad,” an effort strongly encouraged by the Chinese government.
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IP Strategies Adopted by MNCs Adaptive Pricing Strategy to Combat Piracy •
Warner Bros has used competitive pricing as a strategy to fight against piracy. – Warner has released cheaper and simply packaged DVDs at a price that is competitive to the cost of the piracy copies, as a strategy to gradually covert the market. – At the same time, top-end products, such as commemorative albums and limited editions are sold at a higher price and have been proved popular as gifts, which is consistent with the Chinese “gift-giving” culture.
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Warner Bros has teamed up with an Influential Partner: In addition to the pricing strategy described above, Warner Bros also teamed with China’s state-owned distributor, which is affiliated with the Culture Ministry of China. With its own financial interest at stake, the Chinese partner is also motivated to weed out pirated products from the market.
IP Strategies Adopted by MNCs Strategic JVs/Partnerships •
Team up with an Influential Partner
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IP/Technologies Focused Partnerships:
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Obsolete or soon-to-be obsolete technology that is not currently available in China: the transfer of which to a Chinese partner would not create potential competition risk. Such JVs would allow an MNC to indirectly exploit its technology in China and allow Chinese partners to achieve dominant positions in China through access to technologies that are not available in China.
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Development-stage technology or technologies that need to be localized: forming a JV to collaboratively develop or localize a new technology would allow an MNC to reduce R&D costs, benefit from the fruits of R&D globally, and take advantage of government incentives in clean technology, alternative energy, biotechnology, and other industries encouraged by the government.
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Complimentary technology: partnering up with a Chinese company in a neighboring industry or with a complimentary technology to develop new products and explore new uses.
IP Strategies Adopted by MNCs New Anti-Piracy Technologies • New labeling/packaging technologies, such as radio-frequency identification chips (“RFIC”), have been used by pharmaceutical companies, makers of special materials and jewelries, to detect counterfeits. • New encryption technologies, such as digital right management technologies are being developed to prevent excessive copying on personal computers.
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IP Strategies Adopted by MNCs Corporate Venture Capital •
A number of MNCs in the telecom, pharmaceutical, retail, and other industries are actively using corporate venture capital arms to invest in Chinese start-ups to: – developing new IP assets in China – developing localized IP assets in China
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Provide an opportunity to selectively invest in local Chinese companies that are developing technologies that are – complementary to the use of the MNC’s own technology – expand the use of the MNC’s own technology
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Cultivate a new generation of Chinese business partners who share similar respect for IP rights.
Wenseng “Wendy” Pan, JD & PhD Wendy is a counsel in O’Melveny’s Shanghai office and a member of the Transactions Department and IP-Technology Group. Her practice focuses on mergers and acquisitions, technology based transactions and strategic partnership. Wendy has advised life sciences companies and technology companies in structuring and negotiating complex IP-based transactions and other commercial arrangements. Her practice covers product and technology licensing, strategic partnership and joint venture formations and research, development and commercialization collaborations as well as mergers and acquisitions and private investments. As a former scientist and a registered U.S. patent attorney, Wendy possesses a unique set of skills in counseling her clients on technology and intellectual property related issues in a non-contentious setting.
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Qiang Li Qiang is the managing partner of OMM’s Shanghai office. With twelve years’ experience practicing in China, he advises Chinese and international companies on a broad range of M&A and FDI projects. His work includes advising SOE ChemChina on its proposed acquisitions in Germany, the US and the UK. Qiang sits on expert panels of the shanghai COFCOM and SFO, and has advised the Shanghai government on the 12th Five Year Plan, QFLP program, and other initiatives. Qiang, who speaks Mandarin and Shanghainese, authored “The New M&A Code and the New Takeover Rules: Impact on Future M&A Transactions.” Qiang was recommended by the Legal 500 Asia Pacific 2009/2010 for his "high-calibre legal service" and "business experience". Recently, Qiang has been nominated as a leading lawyer in the 2012 Edition of the IFLR1000.
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