Download - Protecting Intellectual Property: An Ounce of Prevention is Worth a Pound of Cure Outsourcing in China Alan N. Sutin Greenberg Traurig, LLP September 1,

Protecting Intellectual Property: An Ounce of Prevention is Worth a Pound of Cure

Outsourcing in China

Alan N. SutinGreenberg Traurig, LLP

September 1, 2007

Successfully Outsourcing to China

The blame for failed projects often rests with the foreign customer, not the Chinese partner

Success far more likely by following four basic principles:

Be Realistic

Know Your Partner

Avoid The Common Mistakes

Protect Yourself

PRC Legal Regime

Trademark Law

Patent Law

Copyright Law

Software Protection Law

Unfair Competition Law

Not a problem of lack of laws

Product Quality Law

Customs Protection Measures

Many, many more

PRC Legal Regime

Problem of enforceability - detection/evidence gathering

Problem of judicial expertise

Problem of complex governmental structure

Lots of Authorities Involved

State Administration for Industry and Commerce - trademarks, unfair competition, anti-counterfeiting

State Intellectual Property Office – patents

Technology Supervision Bureau (TSB) – anti-counterfeit

National Copyright Administration

In case of infringement: choice between

administrative, civil and criminal measures

General Administration for Quality Inspection and Quarantine - product quality, anti-counterfeiting

General Administration of Customs

China Internet Network Information Center - domain-names

Chinese counterfeiting and piracy affect you:

In the United States

China is the largest single source of seizures of infringing products by U.S. Customs.

In other countries

China is a leading source of seizures in the European Union, Japan and in many developing country markets, such as in South America, Southeast Asia, Africa, and the Middle East.

Scope of the Problem

Scope of the Problem

Problem is widespread in China.

Counterfeiting

20% or more revenue lost of some products

Piracy

90% + of movies, motion pictures, software

Catalyst for Change: WTO

China joined the WTO on December 11, 2001.

China agreed to implement the Agreement on the Trade-Related Aspects of Intellectual Property (TRIPs) Agreement.

Does China provide “adequate and effective” intellectual property protection?

Catalyst for Change: WTO

GOOD NEWS:

China has amended its IP laws substantially.

The TRIPs Agreement keeps China accountable.

Other WTO Members can use TRIPs as leverage with China.

BAD NEWS:

Cutting edge legal issues require further legislation.

Enforcement of IP laws is still weak.

Protect Yourself

Understand the risksDo proper pre-contract planning

Firewall key product or process areas

Strategically identify where to outsource

Catelog and file IP before outsourcing

Establish jointly-developed IP ownership and confidentiality requirements early

Extract and file IP during and after outsourcing

Outsource strategically to multiple vendors to reduce knowledge transfer

Reduce possibility of contract manufacturers or product designers working with competitors

Protect Yourself

Protecting IP Before Entering ChinaClean chain of title from inventor to the Company

Identify consultants and employees and obtain appropriate assignments

Non-competes, NDAs

Register your IP in the US and/or protect your trade secrets

Know your limitations (review your licenses, agreements, etc.)

IP Rights are territorial

Use the 3 R’s

1. Registration

2. Recordation

3. Remedies

Protect Yourself

Patents

Must file patent applications with State IP Office (SIPO)

SIPO Regional Offices provide administrative enforcement

China is “first to file” country

Use of registered patent agent.

Protect Yourself - Register

Trademarks

Must file trademark applications with the Chinese Trademark Office (CTO), which is part of the State Administration for Industry and Commerce (SAIC)

CTO is the most active TMO in the world

SAIC’s local bureaus provide administrative enforcement of trademarks throughout China


Tips for Protecting Your Trademarks

China does not grant trademark rights on use without registration (“first-to-file” system)

Do a trademark search

Have the trademark registered in Chinese and English

Secure other rights such as domain names and company names


Copyright

Copyright protection is available for all works at the point that the work is in any tangible form

There may still be reasons to register.

As a US copyright owner, you must register in order to be able to bring suit in federal court for infringement.

Registration puts others on notice

A US registration may help to provide evidence in Chinese court.


Trade Secrets

Technical and/or management information that is unknown to the public

Can bring economic benefits and is of practical value, and

Which the rightful party has adopted measures to maintain its confidentiality.

Protect Yourself – Trade Secrets

Trade Secrets

Trade secrets do not require registration.

Principle law regarding trade secrets is “Law to Counter Unfair Competition”

Principle administrative enforcement agency: Fair Trade Bureau of SAIC.

Protect Yourself – Trade Secrets

In the U.S., you can record your registered trademarks and copyrights with the U.S. Customs and Border Protection (CBP)

This information is entered into an electronic database accessible by CBP officers across the country. CBP uses the information to actively monitor shipments and prevent the importation or exportation of infringing goods.

Note: this procedure is not available for patents.

A similar process exists for Chinese Customs

Trademarks, copyright and patents can be registered with Customs.

Protect Yourself - Recording

If infringing products are being imported into the United States, and the company holds a registered patent, trademark or copyright for the product, you can file a Section 337 complaint with the U.S. International Trade Commission to bar infringing products from entering the United States.

http://www.usitc.gov/trade_remedy/int_prop/index.htm

Remedies – Section 337

Advantages

ITC is required to conclude its investigation in a timely manner

Effective & speedy remedy compared to court cases

Disadvantages

Can be very costly meeting ITC deadlines

Remedies – Section 337

Using Remedies in China

“Three Track” Enforcement System

Administrative Enforcement (Most Common)

Patent, TM, Copyright, Trade Secret, Plant Varieties, etc.

Customs

Civil Enforcement

Criminal (Least Common)

Administrative Enforcement

ADVANTAGES:

Inexpensive and fast

Local

Expert Agency (nearly every IP right has an administrative agency)

Lawyer not necessarily needed

May be able to obtain an injunction

Administrative agency may have other enforcement capabilities

DISADVANTAGES:

“Local Protectionism”

Penalties usually non-deterrent

Non-transparent

Difficult to transfer to criminal prosecution

Limited geographic jurisdiction

Can’t reach international criminal activity

Damages for injured party not likely available

Administrative Enforcement

Civil Enforcement

ADVANTAGES

Specialized judiciary more likely to be familiar with IPR

Damages available

Injunctive remedies

Right to appeal

Nationwide jurisdiction

Civil Enforcement

DISADVANTAGES

High cost

Low damage rewards

Lack of independence of judiciary in many jurisdictions

Difficulties in collecting damages, if rewarded

Criminal Enforcement

ADVANTAGESCan be brought by police/prosecutors or injured party

Deterrent damages possible (fine and imprisonment)

Possibility of civil damages in addition to criminal punishmen

Potentially lower cost than civil litigation

Criminal measures for willful trademark counterfeiting and copyright piracy on a commercial scale are WTO obligations


DISADVANTAGES:

Evidentiary standards have been lowered with the new Judicial Interpretation, but resource issues may still make these cases difficult to pursue.

Not all IPR infringements are criminalized.

Difficulties may exist in having administrative cases referred to criminal prosecution.

U.S. Government Efforts

Ongoing WTO monitoring

Multilateral work at World Intellectual Property Office (WIPO)

Regional work: ASEAN, APEC

Bilateral Meetings

Joint Commission on Commerce and Trade (JCCT)

Capacity building activities

Domestic Outreach to U.S. businesses

STOP Initiative

Rightsholders can call 1 (866) 999-HALTMulti-agency effort involving:

Commerce DepartmentJustice Department and Department of Homeland Security

Multifaceted effort using each agency’s resources to best tackle the problem.Strategy Targeting Organized Piracy (“STOP”)http://www.stopfakes/gov/


ADVANTAGESCan be brought by police/prosecutors or injured party

Deterrent damages possible (fine and imprisonment)

Possibility of civil damages in addition to criminal punishmen

Potentially lower cost than civil litigation

Criminal measures for willful trademark counterfeiting and copyright piracy on a commercial scale are WTO obligations


DISADVANTAGES:

Evidentiary standards have been lowered with the new Judicial Interpretation, but resource issues may still make these cases difficult to pursue.

Not all IPR infringements are criminalized.

Difficulties may exist in having administrative cases referred to criminal prosecution.

U.S. Government Efforts

Ongoing WTO monitoring

Multilateral work at World Intellectual Property Office (WIPO)

Regional work: ASEAN, APEC

Bilateral Meetings

Joint Commission on Commerce and Trade (JCCT)

Capacity building activities

Domestic Outreach to U.S. businesses

STOP Initiative

Rightsholders can call 1 (866) 999-HALTMulti-agency effort involving:

Commerce DepartmentJustice Department and Department of Homeland Security

Multifaceted effort using each agency’s resources to best tackle the problem.Strategy Targeting Organized Piracy (“STOP”)http://www.stopfakes/gov/

Current IPR WTO Dispute

USTR formally requested WTO dispute settlement consultations with China on April 10, 2007

Deficiencies in China’s legal regime for protecting and enforcing copyrights and trademarks for a wide range of products

Barriers China has placed on trade in books, music, video’s and movies

Formal request for consultation is first step in pursuing WTO dispute settlement

China’s Alleged IPR Deficiencies

Excessively high thresholds for criminal liability

Recently reduced from 1000 to 500 infringing works –counterfeiting must be “serious,” “extremely serious,” “relatively large,” or “huge.”

Disposal of Infringing Goods

Permit seized goods to enter the channels of commerce

Denial of Copyright Protection to Works Awaiting Censorship Review

Unauthorized copies are placed into the market without threat of liability during review period

Scope of Criminal Law on Piracy

Unauthorized reproduction actionable only when accompanied by unauthorized distribution

Thank You

Alan N. Sutin

Greenberg Traurig, LLP

200 Park Avenue

New York, NY 10166

Tel: (212) 801-9286

Fax: (212) 805-9286

Email: [email protected]