Following the discussion on trademark registration issues in China, I’d like to look into patents this time. Every company should take great care to protect their intellectual property but, arguably, this issue is even more pressing in China.

The reason is plain and simple – along with being the main world manufacturer of pretty much everything, China has also become the center of thriving copying industry. Everything is being copied in China nowadays – from snickers and smartphones to industrial machinery and hotel brands. Every company that achieves any degree of success locally is in danger of having their technology reverse-engineered, reproduced and sold at lower cost domestically.

Almost every industry has examples of foreign companies driven out of Chinese market by a local competitor who started selling the low cost alternative. Recent trend has been even more worrying – Chinese companies applying for patents that cover competing technology by practically copying foreign registered patents. Of course, since a foreign patent doesn’t protect the original manufacturer in China, a local company, holding an equivalent of such patent in China, will have the legal right to sue the original maker for IP infringement.

Every company that achieves any degree of success locally is in danger of having their technology reverse-engineered, reproduced and sold at lower cost domestically.

I have recently encountered such case in my own industry where a well-known equipment manufacturer was sued and lost to a local company that reverse-engineered and reproduced their fairly complex product. The original maker tried to fight the copier by trying to invalidate their patents but failed. The local company in question was also enjoying very close relations with the local government which just might have helped them to steer the legal process in their preferred way. As it turns out, that local company has been doing the same trick in the past to other foreign manufacturers and, eventually, drove them out completely.

In general, the process of invalidating patents is very complex in China with very low chances of success, so pursuing this strategy is unlikely to bring any results and also tends to be quite expensive.

What does it all mean to a Western company looking to expand into Chinese market? The critical step is applying for local patents to cover your technology well in advance. This will prevent, or, at the very least, discourage a potential infringer to copy your products. This will also give you an effective way to go after the violators. However, all of this would only be effective if you are the first to apply for a patent which underscores the importance of doing your due diligence ahead of the market entry.

Unfortunately, most companies don’t do it assuming that, even though a foreign patent offers no legal protection in China, the likelihood of someone else being able to pass your technology as their original invention and have a local patent granted for it is low. Apparently, this is not the case as more and more local competitors are increasingly filing patents in bad faith. The upcoming new IP law scheduled to take effect in 2014 is unlikely to change this situation either and it will not be applied retroactively.

In conclusion, perusing a long term IP strategy in China is imperative in any industry and no company is immune from having their products copied and, as a result, being at risk of losing the market entirely. Contacting a reputable local patent law firm on the early stages of the market entry should be an integral part of your overall marketing and selling strategy.

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