More and more New Zealand businesses are thriving overseas, especially in China. Our innovation leads the world in many technology areas, and our products are selling extremely well because of the reputation of New Zealand-made products. Many are considered green, pollution-free and trustworthy, and this reputation gives them a competitive edge in the marketplace.
While, unleashing Kiwi ingenuity into the world has rewarding economic benefits, it also has some risks. Whether your business is sourcing from China, manufacturing in China, or selling into China, you need to be aware that your intellectual property (IP) can be leaked, or inappropriately used, by the locals.
So how can you protect your business against these risks?
With a few tips on what to do, and what not to do, you can manage these risks by implementing a robust IP strategy customized for the Chinese market.
Here are some helpful do’s and don’ts for conducting business in China that can be started today.
Do identify your key IP assets and develop a holistic strategy
The best way to prevent IP-related issues is to develop a layered, holistic IP strategy that includes protecting your registrable rights as well as your other non-registrable rights.
Registrable rights include trade marks, which protect your brands; patents, which protect technology; registered designs, which protect aesthetic features that are appealing to the eye, and also copyright, which protects original works. These are recognised and respected in China these days.
In fact the Chinese government is almost over-zealous in ensuring they are protected.
In China, compared to New Zealand, there are two types of patents that exist: standard innovation patents, and utility patents. Having two types means you have more flexibility and options to choose from when deciding which IP protection to seek. The costs are also different.
It is also a good idea to protect your ‘know-how’ and other unregistrable rights. There are three good measures you can take in this regard:
1. When signing agreements with your Chinese business partners, be sure to include clearly defined clauses for IP ownership and confidentiality
2. Be sure to implement internal security measures to protect key data, such as creating a process that ensures your business only provides limited physical and digital access to your sensitive business information.
3. Only disclose information on a need to know basis. Do not give one partner all your know-how. Have a key component made by someone else.
Don’t rely only on contracts
While it’s a good idea to get things in writing, contracts are viewed very differently in China – it is more like a goodwill gesture or a showing of cooperation, instead of a legally binding commitment. Given this, contracts should not be solely relied upon by a foreign business operating in China. Ensure you have done your due diligence beyond relying just on a contract.
When creating a Chinese contract, consider using both English and Chinese languages, and specify that the English clause supersedes the corresponding Chinese clause when they have different meanings. You should also consider including an arbitration clause, so that if a suit is filed against you or your business, you don’t have to go through the Chinese court system. And lastly, consider keeping the contract period short, preferably less than 12 months.
Do conduct a freedom-to-operate search before you enter the market
While you may be worried about your IP being stolen, you should also ensure that you have freedom-to-operate (FTO) before entering the Chinese market. An FTO assessment provides you with information on the likelihood of you infringing someone else’s rights. With over 1.1 million patents filed in China in 2014 (compared to around to around 500,000 in the USA and around 7,000 in NZ), chances of infringing patents in China are much higher than at home.
China attracts an enormous amount of business interests from all around the world and the amount of IP filing activities in China is skyrocketing. Considering these activities, many multinational corporations have started filing patents and trade mark applications in China long before many New Zealand businesses even considered China as a potential market. Given the statistics of recently filed IP applications in China, the likelihood of IP infringement has increased.
You can save money, and invest wisely, by identifying all the potential FTO risks before you set up a joint venture or a marketing campaign in China.
Don’t make any presumptions
Avoid making any presumptions for your business strategy in China because of your experience elsewhere. The IP system, language, the way business is conducted and how business relationships are managed, along with how the market behaves are just some things you’ll want to know more about and adjust accordingly. Go there, see the country and meet the people and potential business partners. Seeing it for yourself is the best form of due diligence you can do.
Do seek professional advice
China’s legal system has made vast improvements over the past twenty years. Unfortunately, the laws are still vague, continually changing and difficult to understand, especially to foreigners. It is important that you seek professional advice from someone who is experienced with the Chinese legal system and someone who understands how IP works in China.
Don’t rely on your Chinese distributor or manufacturer to manage your IP for you
You should never give away the right of registering your intellectual property right to a sourcing partner, a distributor or a manufacturer based in China. You must look after this yourself with the help of an experienced intellectual property agent who understands Chinese law.
From the moment you start considering China as a potential market, contact your New Zealand IP advisor, and discuss your business plan with them. They will tell you how your IP strategy can be adjusted to be more suitable for China and how to help your Kiwi business thrive overseas.
Anton Blijlevens, partner, and Cici Cui, associate, at AJ Park, specialists in intellectual property law.
AJ Park has a dedicated China team that works with many businesses in New Zealand and Australia doing business overseas to help protect their IP rights.