Many startups say their primary concern about entering the Chinese market is intellectual property (IP) protection. In fact, a key finding of the Asia Pacific Foundation’s “Canadian Businesses in China” survey (September 2014) is that “the protection of intellectual property rights (IPR) continues to be a serious concern for Canadian businesses either doing business with China or contemplating expanding operations to China. Over three-quarters (76%) of survey respondents indicated that IPR is important to their overall business, and protecting these rights remains a priority.”

In order to clarify and maybe alleviate these concerns to some extent, I spoke with Jacqueline Lui and Paul Jones, both of whom have considerable IP experience in China, and asked some questions. Here is what I learned.

Patent protection in China is improving

I asked Jacqueline and Paul if startups were right to be concerned about IP protection in China. According to the IP litigation statistics from China, Jacqueline says, 80% or more of the IP trials/lawsuits in China are actually related to copyright, and fewer than 10% are related to patents. Even among the patent-related cases, the number of cases won by foreign companies is growing.  This shows that China is making huge progress in patent protection. This view is reinforced in the “Canadian Businesses in China” survey, which indicated that “only 11% of respondents reported experiencing a violation of IPR in the last five years.” It is also worth mentioning that on August 31, 2014, China passed a law to establish specialized IP courts in Beijing, Shanghai and Guangzhou in order to cope with the rapid growth of the number of IP court cases. This is another indication that China is putting heavy emphasis on IP protection.

There are pitfalls

However, Canadian technology companies that have licensee companies or partners in China need to be aware that the Chinese companies will not secretly copy your technologies unless they know that you either do not have patent protection or that the protection you do have is too weak. They will do their own due diligence—in fact, there are companies in China who provide services such as freedoms searches or patentability searches, helping Chinese companies check the IP status of the technologies before they venture to do something. In order to avoid pitfalls like this, you need to have your IP patent strategy in place long before you enter the Chinese market.

Put an IP patent strategy in place before you venture into China

Jacqueline and Paul also offered some tips on how to formulate a better IP strategy and put your company in the position of having strong IP protection. It is very important that your IP strategy is aligned with your financial situation and business plan in China.

A well-known tactic to devalue a company’s patent is to create a “picket fence” around it. With this tactic, a competitor attempts to surround the pioneering patent with many patents covering incremental innovations, thereby hindering the original company’s freedom to operate or freedom to advance the technology along logical trajectories. This practice is becoming more and more common in China, especially in the pharmaceutical industry.

Foreign technology companies, then, should ensure they have a patent portfolio with a broad scope. Potential Chinese licensees or partners may be very experienced at judging the quality of your patent portfolios, and they would be happy to sign the contract if you file the patents both on the basic technology and any additional applications of that technology.

IP-related questions you should ask yourself before you enter the Chinese market

  • What parts of the product are protected, what parts are not and what parts must be kept as “trade secrets”? (“Trade secrets” arrangements must be in place before signing technology transfer agreements with your partner in China.)
  • What are my business plans in China and who are the potential licensees or partners?
  • What will the projects look like in the future?
  • Do I need to create a China-specific patent portfolio on top of my worldwide portfolio?

IP protection and prosecution in China is very sophisticated, and many complaints are the result of not fully understanding the system. If you would like to hear more about how to better protect and commercialize your IP in China, join us at the first MaRS Going Global China event, which will address key insights – including IP protection – related to entering the Chinese market.

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Xuefei Mao

Xuefei Mao provides market insights to Technology Transfer communities in Ontario as part of the MaRS Market Intelligence team. She has extensive market research experience in the commercialization space across different industry sectors and is cross-appointed from the University of Toronto. See more…