Chinese firms take on world in IP battle
Xiang Wang, partner at Orrick, Herrington & Sutcliffe, discusses intellectual property issues on the mainland
China has a short intellectual property history but has become the top IP filing destination. Increasingly, Chinese companies are litigating in Chinese courts as both plaintiffs and defendants. But in courts in foreign countries, Chinese companies remain mostly as defendants.
What are the reasons behind this?
China has overtaken the United States for the seventh consecutive year in terms of the annual number of IP litigations. However, the amount of damages and enforcement rates as well as the level of judicial transparency are still low when compared with the US. Further, compared with their foreign counterparts, most Chinese companies still lack both independent core technologies and the awareness of IP protection.
When sued in foreign courts, most Chinese companies chose to default due to lack of familiarity with foreign laws, judicial systems and the high litigation cost as well as the high risk of being found infringing. However, with the further development of IP laws and a national IP strategy by the Beijing government, we should expect to see a change to the current situation in the near future. A small number of Chinese companies such as Huawei Technologies and ZTE are quickly stepping into the international arena as fierce competitors. They are becoming the leaders of Chinese companies filing and protecting their IP rights abroad.
Why is IP protection so important to long-term business growth?
Changes in the global economic environment have reshaped the development of modern business models in which IP rights have demonstrated unprecedented value. Major international players in high technology industries are using IP lawsuits as powerful weapons to strengthen their market positions and to weaken or destroy competitors' businesses. Such goals would be impossible to achieve without first establishing a robust IP portfolio and a strong IP protection strategy.
What should Chinese companies do when they acquire intellectual property rights overseas?
Chinese companies are still at the early stage of going abroad and are often not sophisticated enough to deal with complicated IP issues in mergers and acquisitions. Therefore it is advisable for Chinese companies to first understand how important their target IP assets are, as compared with other assets, and what type of IP rights may deserve more careful evaluation and due diligence than others. This will enable them to understand how much should be spent on what IP due diligence. It is also advisable they obtain legal advice on local laws and practices as early as possible due to the jurisdictional nature of most IP rights such as patents and trademarks. In addition, when acquiring IP assets, tax issues should also be carefully addressed, because the arrangement of IP ownership and licensing among family companies may have an impact on the tax to be paid globally as a whole.
What are the expected trends in the next 5-10 years?
On the one hand, China will continue to be an important market attracting foreign investment. On the other hand, more and more Chinese companies will continue to expand their businesses abroad and at the same time they will become more aggressive in developing their own IP portfolios globally. As a result, it can be expected that Chinese companies will become more active in defending and asserting IP rights in foreign courts in the not so distant future.