IPR Protection in China for European SMEs: Focus on the

Machinery Industry

Welcome to the webinar

Philippe Healey

China IPR SME Helpdesk Project Manager

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The China IPR SME Helpdesk

@iprchina

Fan page: “China IPR SME Helpdesk”

Group page: “China IPR”

"China IPR"

The China IPR SME Helpdesk provides free, confidential, business-focused advice

relating to China IPR to European Small and Medium Enterprises (SMEs).

Helpdesk Enquiry Service – question@china-iprhelpdesk.eu

Training & Events

Materials

Online Services - www.china-iprhelpdesk.eu

Today’s Speaker

• Toby Mak, PhD, Patent Attorney

• Registered Chinese Patent Attorney with PhD in Chemistry. Born and educated in Hong Kong. Worked at one of the largest law firms in Hong Kong for 8 years before moving to Beijing. Over 12 years of experience in IP.

• Tee & Howe Intellectual Property Attorneys

• e-mail: toby.mak@teehowe.com

• Tel: +86 10 8391 3118

Opening Poll

Has your product ever been copied before? a) YES b) NOT TO MY KNOWLEDGE

Agenda

1. Overview of IPR in China for the machinery industry

2. Patents – different types, examples, application process, costs and issues specific to foreign applicants

3. Trademarks – application process, costs

4. Trade Secrets introduction

5. Common IP related risks 1: Bad faith registrations and hijacking

6. Common IP related risks 2: Freedom-to-practice

7. Common IP related risks 3: Managing Chinese partners

8. Key Lessons Learnt

Brief overview of IPR

IPR

China

• Legal mechanisms for protecting original

creative work

• Different kinds of IP protect different

aspects of a single product

• IPR is territorial → Europe registered

rights cannot work in China

• It is vital to register invention patent, utility

model and design in China → Otherwise

no rights in China

IP Problems and solutions in China

IPR

China

Problem Solution

Product is “copied” 1. Sales on market 2. Advertisement (including internet) 3. Trade fairs

Enforcement of IPR (does not always mean suing in courts) ← require establishment of IPR

Own IPR taken by others Invalidation or entitlement ← can be avoided if IPR is established, particularly in China

Relationship with Chinese partner (distributor, manufacturer, and/or researcher) 1. Licensing 2. Termination of relationship (including

handling of excess goods/remaining project items)

3. Handling of collaboration research results

1. Background check of partner 2. Handling of agreements with care 3. Awareness of ownership of IPR

Alleged of or sued for infringement 1. Freedom-to-practice exercise 2. Use of IPR as one of the bargaining chips

Forms of IP in China

Key messages:

1. Patents and designs only available in registered form in China.

2. Registered rights are territorial in nature. A EP registered

trademark/patent/design has no right in China, and vice versa.

3. Trade secrets generally not suitable for machinery industry

Kind Registration

needed? Scope Exclusivity

Trademark Yes and no •Identity of the provider Yes (upon registration)

Copyright No •Exact expression of the creative work

No

Patent (including

Design) Yes

•For Patent, technical solution as defined by the claims •For Design, aesthetic feature(s) of a product as in the figures

Yes

Trade secret

No •Information not known to public

No

Patents

Establishment of patent and design rights in China

• What kinds of patents are there in China?

• What are the processes involved?

• Why should a patent attorney be involved?

• Issues specific to foreign applicants

• Costs for establishing patent rights

What kinds of patent are there in China?

• First-to-file

Kind Subject matter Duration Substantive Examination

Invention patent

Technical solution (in the form of apparatus and/or method)

20 years Required

Utility model Technical solution only in the form of improvement on shape and/or structure

10 years Not required

Design Aesthetic feature(s) of a product 10 years Not required

Examples of different kinds of patent in China

• CN patent no. ZL200480042177.2 of FIAT

• Tyre that does not require pressurisation by means of a pressurised fluid.

Poll

Is this an invention patent, utility model, or design?

A. Invention patent

B. Utility model

C. Design patent

Examples of different kinds of patent in China

• CN patent no. ZL200520143059.2 of ITALDESIGN-GIUGIARO S.p.A

• Small size 4-seat vehicle with engine received beneath a raised rear portion of the floor → shorter vehicle with 4 seats.

Poll

Is this an invention patent, utility model, or design?

A. Invention patent

B. Utility model

C. Design patent

Examples of different kinds of patent in China

• CN patent no. ZL200830137974.X of FIAT

• Does not appear to be in the market yet

Poll

Is this an invention patent, utility model, or design?

A. Invention patent

B. Utility model

C. Design patent

Why should a Chinese patent agent attorney be involved?

Establishment of patent rights in China – issues specific to foreign applicants

• By law, foreign applicants can only file patent applications in China through licensed patent agency firms

• Translation into Chinese is a MUST – quality varies

• Quality of translation affects examination and validity

Establishment of patent rights in China – issues specific to foreign applicants

• Prepare filing of application in their own country first – national security requirements

• International mechanisms for pursuing equivalent rights in China

• Specific time limits for each mechanism

CN Invention Patent Application Flow Chart

Application Filed

1.5 yrs

Examination Office Action

Response to Office Action

Decision to Grant

Grant of Patent

2-3 months

Re-Publication

Publication

Request for Examination

1.5 yrs

1-2 yrs

CN Utility Model/Design Patent Application Flow Chart

Application Filed

Examination Formality ONLY

Office Action

Response to Office Action

Decision to Grant

Grant of Patent

2-3 months

Publication

6 to 12 months

Poll

Have your worked with European patent attorneys, or patent attorneys in your own

country?

A. Yes

B. No

Establishment of patent rights in China – issues specific to foreign applicants

• For invention, possibility to obtain both invention patent and utility model – earlier enforceable rights at low costs

• Research and/or development in China - seek approval from Chinese SIPO before foreign filing

• Current infringement and enforcement environment in China – design patent and trademark are very useful

Usefulness of design and trademark in China

• Current situation

– Plain and direct infringement – exact copy of product

– Fraud – products that look exactly the same but do not work

– Administration enforcement – government officers cannot handle complex IP analysis

• Design and trademark – direct visual comparison → easy to be handled by officers

• Design → particularly useful for replacement parts

• Disadvantage → changes to avoid infringement are easy

Costs for establishing patent rights in China - invention patent and utility model

• Costs involved – filing, examination, issuance

• Filing

– Specification

• original preparation → most costly action (both in terms of time and money)

• foreign applicants → first application in their own country → specification is readily available, and only translation is required

– Factors affecting filing costs – length of specification and no. of claims

– For an English specification having 20 pages (each page about 320 words) and 20 claims, the total filing costs are about 18500RMB (about 2000 Euros)

Costs for establishing patent rights in China - design

• Much simpler - only drawings are required

• Filing costs for a one design application with one single design – about 3920RMB (about 430 Euros)

• At most 10 multiple designs that share same design feature can be contained in one design application – each additional design costs 1400RMB (about 155 Euros)

Trademarks

Trademark registrations in China

• General note

• What are the processes involved?

• Issues specific to foreign applicants

• Costs for registering trademarks in China

Trademark registrations in China – General note • First-to-file

• Need to specify class of goods/services at filing (cannot be changed after receiving a notice of allowance)

• Registrability based on distinctiveness of the mark in the specific class applied for and the related classes.

• Cover BOTH marks in original EU language and Chinese marks

• Distinctiveness of a mark – ONLY count situation within China

CN Trademark Application Flow Chart

Application Filed

2-4 weeks

Examination Office Action

Response to Office Action

Decision to Grant

Pre-registration Publication

Within 3 months Registration

Formality Examination

4-6 months

Opposition

Costs for registering trademarks in China

• Costs involved – filing, examination, issuance • Filing

– Specification containing the mark to be registered, and a list of goods

– First 10 goods included in official fees. Each goods in excess of 10 will attract additional costs

– 3400RMB (about 375 Euros) for 10 goods, and each good in excess of 10 cost 120RMB (about 13 Euros)

• Examination – Usually no report to be dealt with – Mainly directed to description of goods, particularly for new

product – Usual costs for each correction notification are about 1200 to

1800RMB (about 130 to 200 Euros)

34

Trade Secrets

• What is a trade secret?

• How is this relevant to the machinery industry?

• Learn more with the Helpdesk E-learning module at www.china-iprhelpdesk.eu

Common IP related risks: Bad Faith Registrations and Hijacking

Typical scenarios, and how IP are involved – points to note on commercial operations

• A foreign company wants to work in China – Sell products – License local companies to act as agent or

manufacture products based on owned technologies – Establishing research/development facilities

• Unclear/assumed IP portfolio in China – Most often assumption – IP rights in own country also

have rights in China – Result → weak IP portfolio in China

• Choosing and handling Chinese partners casually • No freedom-to-practice search

37

Typical issues – weak IP portfolio

• No rights in China – no rights to enforce when facing infringement, or defend against bad faith registrations

• Patents/trademarks registered by other people, particularly trademarks in Chinese transliteration or nickname – hijacked patents/trademarks

• Lesser problem in patents due to novelty requirement

38

Bad faith registrations in China

• First-to-file → whoever first filed in China will get the rights • Current loopholes

– Patents – utility model and design do not go through substantive examination

– Trademark – only Chinese registered trademark will be search against

• Outcome – possibility to acquire rights that should belong to someone else

• Who are going to do this? → Your Chinese partners • Very difficult and costly to rely on non-registered rights

against bad faith registrations • Best approach – file in China, properly

39

Poll

Have you ever experienced bad faith registrations?

A. Yes

B. No

Bad faith registrations – practice notes

• Use of IP registration other than enforcement

• Importance of trademark registration in appropriate classes, including “to-be-expanded” business (Apple)

• Importance of registration for Chinese marks (Ferrero)

• Millions of dollars could be saved if proper IP protection was obtained

• Consider domain/company names

41

Common IP related risks: Freedom-to-practice

Typical issues – freedom-to-practice

• Obstacles to business

– Compliance

– Competitor’s IP

• Freedom-to-practice searches → identify competitor’s IP

• Once identified → diffusion

• Otherwise, may face huge compensation

Freedom-to-practice – case study

A - Chint‟s CN patent no.

ZL97248479.5

B - Schneider‟s CN patent no.

ZL97125489.3

Freedom-to-practice – practical notes

• Other than enforcement, patent is also useful to defend against infringement claims

• Quality of drafting of specification matters

• Difficulties in establishing evidence to be accepted in China for unofficial materials

• Unwise to heavily rely on unofficial materials

Common IP related risks: Chinese Partners

Poll

Have you checked the background of your Chinese partners, including assets and reputation, before

engagement?

A. Yes

B. No

C. A little, but not extensively

D. I don’t have a Chinese partner yet, but may in future

E. I don’t have a Chinese partner, and don’t plan to

Typical issues – choosing and handling Chinese partners

• Choosing partners without proper checking • No/improper setting of ownership distribution prior to

start of relationship • No/improper license agreement with local

distributor/agent/contracted manufacturer • Continue to produce/sell products carrying IP after

termination of relationship • Improper handling of disputes during execution of

terms • From the IP owner’s perspective, difficult to handle

“infringement” as the infringer would be able to show a proper license

48

Choosing Chinese partners

• Background check

• More assets the better (have something to lose)

• HK/TW enterprises > State-own enterprises, Big CN enterprises > Small CN private enterprises

49

Handling Chinese partners

• Explicit notification of ownership of IP rights at least in China → CN application/registration nos.

• Recite these CN application/registration nos. in agreements

• “Money better be kept in your own pocket”

50

Contract – case study

• Facts – Company X licensed a trademark to Company Y on

certain terms

– Y did not notify X on sub-license to a manufacturer

– X had payment dispute with Y

– However, X still provided license to Y for manufacturing after being chased by Y

– Y sold products with trademark, X was not happy, and X sued Y

51

Contract – practical notes

• A proper agreement should have

– Proper definition of licensed actions

– Proper termination clauses

– Proper clauses to handle dispute - immediate termination or stay?

– Proper clauses to monitor licensee's activities

– Clause to deal with challenge of validity

52

Key Lessons Learnt • No IP rights, no cards to play

• Proper establishment of IP rights will save, if not earn, money ultimately

• If nothing is done, someone will do it against your business

• Price not paid today may have to be paid in 100 to 10,000 times in a few years time

• Obtain and use multiple kinds of IP

• Obtaining rights in China – offensive and defensive purposes

• Choosing partners and handling of agreements with care

• IP budget – time and money

• Quality of IP partner

Q & A

Toby Mak, PhD, Patent Attorney

Tee & Howe Intellectual Property Attorneys

e-mail: toby.mak@teehowe.com

Tel: +86 10 8391 3118

Upcoming Helpdesk Webinars

Save the dates of our upcoming webinars and events:

• 8 June 2011 – Budapest: IPR as a Business Asset

• 16 June 2011 – Hong Kong: Essential IP knowledge on Technology Transfer in China

• 20 June 2011 – Frankfurt: IPR protection for Clean Technology SMEs

• 20 June 2011 - Webinar: Focus on IPR protection for SMEs in the CHEMICAL INDUSTRY

Thank you

The China IPR SME Helpdesk provides free, confidential, business-focused advice

relating to China IPR to European Small and Medium Enterprises (SMEs).

Helpdesk Enquiry Service – question@china-iprhelpdesk.eu

Training & Events

Materials

Online Services - www.china-iprhelpdesk.eu

For more information please contact the Helpdesk:

Room 900, Beijing Sunflower Tower

No. 37 Maizidian Street

Chaoyang District

Beijing 100125, P.R. China

Hotline number: +86 (10) 6462 0892