A Blog by Jonathan Low


Jul 27, 2016

China Has Strengthened IP Laws, Sometimes Even Benefitting Western Companies

Now that China is creating a lot of its own intellectual property, it has become more interesting in protecting it. And sometimes even western companies benefit. JL

Jack Nicas and Josh Chin report in the Wall Street Journal:

Chinese authorities have strengthened patent laws, offered rewards to recipients and created specialized courts to hear intellectual-property disputes. The push for better protection comes from giants like Huawei, which compete globally and see a patent portfolio as crucial to selling overseas without drawing lawsuits or paying royalties. Lawyers say the country is fairer. (But) "the good news is China is interested in IP, and the bad news is China is interested in IP,"
A tiny Chinese firm's patent victory over Apple Inc. reflects China's efforts to better protect intellectual property that often work against Western companies -- but sometimes benefit them.
Chinese authorities in recent years have strengthened patent laws, offered cash rewards to patent recipients and created specialized courts to hear intellectual-property disputes.
Beijing's intellectual property regulator in May ordered Apple to stop sales of the iPhone 6 and iPhone 6 Plus in the city, ruling that their design was too similar to a Chinese phone.
Shenzhen Baili Marketing Services Co., a shell company owned by defunct Chinese smartphone maker Digione, won the injunction and says it is defending its intellectual property. Apple, which is appealing, said the ruling is stayed pending appeal, and sales are unaffected.
Chinese courts are increasingly receptive to such patent suits, even when they are lodged by foreign firms. Double Robotics Inc., a Burlingame, Calif., robot maker, last month persuaded a Chinese agency to invalidate patents claimed by a Shanghai-based rival.
Western lawyers say that as a result of China's moves, the country is fairer to outsiders than a few years ago, but still far from a level playing field. Patent infringement remains rampant, and violators aren't deterred by the small damage awards there, lawyers say. The U.S. State Department said last year that U.S. firms saw "serious obstacles" to protecting their intellectual property in China, including patents, copyrights, trademarks, trade secrets and drug-test results.
"The good news is China is interested in IP, and the bad news is China is interested in IP," said Mark Cohen, who leads the U.S. Patent and Trademark Office's China team.
China's State Intellectual Property Office didn't respond to a request for comment.
China had no patent law until 1985. In the three decades since, the country has bolstered its intellectual-property laws as part of its push to move from manufacturing to an innovation-based economy. In the early 2000s, local governments began offering subsidies to patent recipients, which now range as high as 30,000 yuan($4,500). Last year, officials proposed additional changes, including more authority for patent officials to investigate alleged infringement and a fivefold increase in maximum damages to 5 million yuan. The proposal is pending.
Part of the push for better patent protection comes from emerging giants like Huawei Technologies Co., which compete globally and see a thick patent portfolio as crucial to selling overseas without drawing lawsuits or paying high royalties.
More patents have led to more enforcement. Chinese officials said they handled 35,844 patent infringement or counterfeit cases last year, nearly four times as many as in 2012.
The vast majority of those are disputes between two Chinese companies. But Scott Palmer, an attorney in the Beijing office of Sheppard Mullin Richter & Hampton LLP, said foreign clients increasingly use Chinese courts to protect their intellectual property. He said he has five active cases with another five expected by year's end, about double his typical rate.
Last month U.S. chip maker Qualcomm Inc. sued Chinese smartphone maker Meizu Technology Co. in a Chinese court for using its technology without a license. "Meizu strictly adheres to Chinese law in China," Meizu vice president Li Nan told reporters at a briefing.
When foreign companies sue in Chinese courts, they typically win. From 2006 through 2014, foreign plaintiffs won about 81% of their patent-infringement suits against Chinese companies, virtually the same rate as domestic plaintiffs, according to data compiled for The Wall Street Journal by the global law firm Rouse. The firm says the numbers are incomplete, because of the difficulty of obtaining data from Chinese courts.
One reason for the high success rate, according to several attorneys who work in China: Most foreign firms only sue in China if they are confident they can win.
Double Robotics, the California robot maker, hired a Chinese law firm last year after seeing a Shanghai company selling nearly identical versions of its $2,500 robot -- effectively an iPad on wheels that telecommuters use to video chat with office colleagues -- in China for less than half the price. Last month, the State Intellectual Property Office in Beijing sided with Double Robotics and invalidated the Chinese company's patents.
The ruling "instilled some faith in the Chinese government for us," said Double Robotics spokeswoman Sara Broyles. "This system that many American companies see as unfair or biased was fair for us."
Another perk to patent litigation in China: It is cheap. Double Robotics spent less than $30,000 on its case.
In 2009 and 2014, German chemical and pharmaceutical giant Bayer AG won injunctions in separate cases against four Chinese firms that used agricultural chemicals it had developed. Chinese authorities "immediately took action" once Bayer presented evidence of patent infringement, said Hans-Joachim Henn, a Bayer anticounterfeit executive.
Some Chinese policies have had unintended consequences. Lawyers say the cash payments for patents prompted some Chinese companies to copy innovations from patents filed elsewhere.
In response, the government has made it harder to claim subsidies. In some cases, patents now have to be granted, not just filed, to qualify. Larger sums are offered for patents filed abroad, where the standards are higher.


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