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5 Tips to Protect your Intellectual Property in China
China has gone through enormous modernisations in the last thirty years and is well on its way from Made in China to Invented in China. Chinese customers are not interested in cheap copies of western brands anymore, they want authentic products and Chinese companies work hard to create their own design. However this does not mean that there is no market for cheap counterfeits in China anymore.
‘The Right to Copy’
China can be a paradise for tourists who enjoy shopping for cheap copies. As everybody knows that copying is widespread in China, nobody will be shocked to find the latest movies sold on the streets even before the movie is out in cinema. The Silk Market in Beijing is notorious for the counterfeit brands they sell for bargain prices. In China, the term copyright is therefore sometimes jokingly translated as ‘the right to copy’. You cannot say that the Chinese lack creativity in this respect though. Besides these obvious examples of counterfeits, there are plenty examples of copying that show more creativity than inventing something new would have.
In 2011, an American woman residing in Kunming posted on her blog that she noticed an increase in the number of Apple stores in the city. At first sight these stores seemed authentic, but at a closer look there were some flaws. For example, at the store entrance the words ‘Apple Store’ where shown, whereas real Apple stores only show the well-known logo. Staff was convinced to be working for Apple, which strengthened the illusion. Another entrepreneur in Kunming must have thought: ‘I can do this better’, and built his own IKEA store. Although the concept was an exact copy of the IKEA business model, he didn’t pay attention to the details. Employees merely wore a yellow apron over their own clothes and instead of Swedish meat balls, Chinese fried pork was served in the cafeteria.
Bad faith registrations
Looking at the issue from the other side, copying products and brands can be very damaging for companies trying to do business in China. However, there are measures a company can take to develop a strong intellectual property rights strategy to protect their business. Over the past thirty years, China has made a great effort to create IP laws that comply with international standards. However, implementation and enforcement issues continue to frustrate the efforts of companies. Especially if a company was not well informed before entering the Chinese market, IP protection can seem very tough.
One positive development is that as European companies become more experienced in the Chinese business environment, there is an increased awareness about IP protection. At the same time Chinese infringers have become more experienced and skilful in using the new IP regulations for their own benefit. The Chinese trademark law is a ‘first to file’ system, which has led to bad faith registrations, also known as trade mark squatting. This means that professionals seek out new brands and file the trademark before the true owner. The original owner of the trademark may have to buy his own brand back, usually at a very high price.
Tips to effectively manage IP in China
European companies should not become discouraged by all this and think of China as the ‘Wild West’ of Intellectual Property. There are several measures companies can take to protect their IP effectively in China. The first and most important steps therein are:
- Determine which intellectual property assets in your company are important to the Chinese market and register your rights, preferably before entering China;
- Protect valuable company information that cannot be registered as intellectual property by having your employees and business partners sign non-disclosure and non-competition agreements;
- Know that registering your rights in Europe does not automatically protect your IP in China! One of the most common mistakes made by European companies is not realising that IP rights are territorial. International registration through WIPO (the World Intellectual Property Organisation) or a separate registration in China is required to be protected in China.
- Know that intellectual property is not limited to products and technology. It is just as important to protect company brochures, websites, client lists and databases.
And last but not least: do not automatically trust Chinese business partners who offer to register your IP, but keep control over the registration process yourself. You won’t be the first European company to lose all its rights in China because that ‘reliable’ business partner did know that China has a first-to-file system…
For more information about the protection of intellectual property in China, visit the website of the China IPR SME Helpdesk, a European Commission funded project providing free, practical business advice relating to China IPR for European SMEs. The blog Your IP Insider discusses IPR developments in China and Southeast-Asia, and how these affect European companies.