I come across them quite often: people who think that China is only good at plagiarizing anything and everything. In the land of continual copies, IP doesn’t seem to stand for Intellectual Property, but for Interesting Possibilities instead. Nevertheless, that image is no longer accurate. China offers all kinds of opportunities – also in terms of IP.
China has 3 times the population of Europe. It is therefore only logical that a lot more patent applications are made in China. But did you know that 10 times as many patents are filed in China than in Europe? Moreover, far more designs and trademarks are applied in China than in Europe. So, it’s high time we start looking at China in a different way and at the way it deals with IP.
Chinese IP system is tricky for European companies
In the past, it was very difficult for non-Chinese companies to win IP lawsuits in China. Up until 2008, for example, you saw Chinese patent applications that were literal copies of patent applications from European companies. That was possible because in order to assess originality in China, they only looked at what was known to them in China. Yet IP law in China is rapidly improving, as is its enforceability. However, their IP system operates slightly differently than in Europe. The upshot is that European companies regularly get it all wrong.
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Building on trust versus relying on trust
In China – as in Europe – you have to register everything that has to do with your invention in the correct way and on time. But the rules for registering your technology, design, trademark, and even copyrights are substantially different. For one thing, you don’t need to register copyrights in Europe, whereas you do in China. In Europe, you can register designs after you have gone public with the design of your product. But in China, you have to register it before the first public release. And anything you reveal during negotiations in China is only considered confidential if a non-disclosure agreement has actually been signed. Guanxi (= building relationships) is extremely important when it comes to doing business in China. Although merely having a relationship of trust is not enough. Registrations and contracts are absolutely essential in China.
National Chinese Interests
Another key difference is the matter of what is in the national interest. Suppose you set up a Chinese subsidiary or you get involved in a Joint Venture. If in that venture, IP is created that could be considered to be of national interest, then you can no longer take that IP out of China without state permission. This also applies to inventions made in Europe that are then brought into a Chinese Joint Venture or transferred to a Chinese subsidiary. That has a considerable impact on the value of IP.
Plenty of young companies in Europe find registering in China an exciting step. They tend to apply only for patents in a few European countries, even though the product is made in China and can be sold worldwide. I regularly hear that companies do not register any of their IP in China, ‘because you can’t legally protect it there anyway.’ Of course, as a new SME, you would not want to pick a legal fight with a multinational. Certainly not abroad. But that is also often not the issue at all. Given that, by registering your IP in China at an early stage, you prevent others from registering your trademark or design. Or incurring exorbitant costs to reclaim your IP rights.
IP as an Investing Possibility
Lots of young companies need IP to secure funding, e.g., at the start of their business. Which means that you must first of all make sure that you invest in good products within a growth market and that these innovations are underpinned with the right set of IP rights. Yet IP plays an important role over the long term as well. A good IP portfolio
- makes you an attractive party for an exit; a good IP portfolio
- can be used very effectively when your company has more ‘body’ and you know how to generate (more) income through your business;
- makes you a more attractive cooperation partner.
In all three cases, a proper registration of IP in China is a good investment. In the first case, a good IP position in China is interesting for the party that wants to buy your business. It adds to the value of your company. You also stand to benefit in the other 2 cases. Investing in IP registrations in China is a worthwhile investment as far as future revenues are concerned.
Also read this column by Hans Helsloot: Use patent databases to take a look into the future
About this column
In a weekly column, written alternately by Eveline van Zeeland, Eugene Franken, Katleen Gabriels, Bert Overlack and Hans Helsloot Innovation Origins tries to figure out what the future will look like. These columnists, occasionally joined by guest bloggers, are all working in their own way on solutions to the problems of our time. So that tomorrow is good. Here are all the previous articles.
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