Patent protection helps companies going global

A wise general does not reinforce a citadel unless it protects a strategic location, and instead looks for the pivot points from which inevitable battles may be won. Consistent with that philosophy, innovative Chinese companies looking to expand in foreign markets have increased their efforts to obtain patent protection in jurisdictions other than China, in anticipation of market share battles to come.

These types of battles are inevitable, for as markets mature or economies contract there tends to be a corresponding increase in the frequency in which IP rights are used as a weapon against competitors. Efforts to prepare for these battles have even resulted in a Chinese company Huawei topping the WIPO's global league of international patent applications for the first time, overtaking Philips, which has traditionally topped the rankings. In 2008 Huawei filed 1,737 Patent Cooperation Treaty (PCT) applications.

For those companies considering whether to seek patent protection outside of China, and deciding which steps to take to expand their patent portfolio in anticipation of the need to use these patents when conducting business in foreign jurisdictions, the following points should be considered:

Portfolio evaluation: The process of portfolio evaluation includes reviewing your existing portfolio to determine the extent to which there are patent gaps. These arise whenever there are any novel aspects of the process used in manufacturing the exported products, or with respect to the products themselves, that lack IP protection in the jurisdictions in which those products are being sold. In deciding whether to implement steps to plug these gaps, care must be taken in assessing the differences in substantive criteria for obtaining patents in various jurisdictions. For example, China follows a "first to file" rule, whereby the first applicant to file for patent protection usually is awarded the patent. Other countries, including the United States, by contrast use the "first to invent" criteria, whereby an earlier inventor can take ownership of a patent even over an earlier filer for patent protection.

In a "first to invent" jurisdiction, the latter filer can sometimes swear behind the prior art and challenge the right of the first filer to the ownership of a patent on the disclosed invention. Because patent applications are typically published even if a patent on the application is never issued, and the mere act of filing a patent application necessarily will result eventually in the disclosure of the underlying technology to the public, filing applications for the sole purpose of demonstrating the ability to aggregate large numbers of patents is a dangerous strategy.

IP mining: Once the company has assessed whether its existing processes and products are adequately protected, it should then consider the extent to which there are viable extensions to or variations of the technology that can also be covered even if not currently being utilized operationally.

Review of research and development practices and manufacturing processes can potentially identify future technological trends and advances that may be worthy of patent protection. In this respect, as the duration of an issued patent in many jurisdictions is 20 years, and some continuations may be written to relate back to an earlier application, input from the marketing department of the company can be fruitful to identify long-term market trends and potential applications for inventions that have no present commercial viability. These advances can then be compared against the existing patent portfolio to identify whether and to what extent the IP can be used to obtain patents in foreign jurisdictions.

IP acquisition programs: The current economic market is providing unique opportunities to expand the breadth and scope of a patent portfolio by acquiring IPR developed by others. Many companies, especially early early-stage companies who are not finding sufficient sources of funding to continue operations, are considering the sale of aspects of their IP portfolios. Other companies may be an acquisition candidate as a whole, even if the purpose of the acquisition is solely to obtain rights to their IPR. In recognition of the value of intangible IP assets, several companies have been formed in the last few years with the sole purpose of acquiring IP assets for resale or licensing. The process of identifying companies that have IP to be acquired by searching the world for IP developed - by others that may be useful offensively and/or defensively - is an important component of an integrated IP development strategy.

Forward market analysis: Not all jurisdictions in which a company conducts business should be the subject of efforts to obtain patent protection.

Given the expense of creating and maintaining a multi-jurisdictional portfolio, careful thought must be given to the extent to which there are effective means to wield patent rights through the legal system of any specific foreign jurisdiction.

If it is unlikely that a court in a given jurisdiction will order the infringement to stop, or will not award sufficient damages to justify the cost of enforcement, that country may not be the best candidate in which to spend the sums necessary to develop a local arm of the global patent portfolio. The same conclusion may be reached if the projected volume of sales in that jurisdiction is not significant enough to justify the expense, as the mere existence of the rights arising from ownership of a patent does not always justify the exercise of those rights.

In addition to the use of a patent portfolio to protect market share in a foreign jurisdiction for products being exported into that jurisdiction from China, patents obtained from a foreign jurisdiction can serve as a valuable source of revenue irrespective of use by the patentee of the patented inventions. In this respect, it is important to note that in addition to the value of a strong portfolio for offensive deployment resulting from exclusion of an infringing competitor through litigation, and its potential use defensively in response to claims of infringement by a competitor, effective patent monetization can result from creating leverage in licensing negotiations. Rather than using the patents to exclude a competitor from the market altogether, the patentee can offer a license to practice the inventions claimed by the patent in return for a reasonable royalty. In this context, a licensing strategy allows for effective monetization of the intellectual property developed by the Chinese company.

The author is an intellectual property lawyer in the Silicon Valley office of Dechert LLP, a US law firm. The views expressed here are the author's own.

Editor's note: The IPR Special is sponsored by the State Intellectual Property Office and published by China Business Weekly. To contact the Intellectual Property Office, the IPR Special hotlines are 8610-64995422 or 8610-64995826, and the e-mail address is ipr@chinadaily.com.cn.

(China Daily 03/02/2009 page11)