Chinese companies are facing increasing pressure from intellectual property (IP) disputes with foreign enterprises over core technologies, even within the context of the domestic market. Counterfeit products, piracy, branding and advance domain registration are also a problem.

Lawsuits are not necessarily the best approach to dealing with these IP disputes because there tend to be costly and time consuming. The challenge for companies is to identify ways to avoid unnecessary lawsuits, and to decide upon strategies for dealing with court battles started by other enterprises.

IP such as inventions, brands, indications of product origin, and Chinese and English domain names should be applied as quickly as possible, because applications in China are dealt with on a "first come, first serve" basis. The 9th provision of China's Patent Law states that patent rights are granted to the first applicant to file an application.

Under the 29th provision of China's Brand Law, the first company to apply for a brand registration is usually granted it. When two or more applicants file applications for same or similar brands at the same time, the first brand that was used is typically approved. Other applications are denied without proclamation.

It is important for companies to closely watch what their competitors are doing. If other enterprises have not applied for patents in a specific field that your company has developed technologies for, you should apply for as many fundamental patents relating to that technology as possible, so that competitors' relevant technologies, once created, will fall under your fundamental patents. Competitors will then have to pay patent utility fees to your company, even when they use their own technologies. If your competitors want to use their own technologies for free, they will have to go the "cross-patenting" route with your company. This is a way for companies to use competitors' inventions without paying patent fees.

Most companies are unlikely to circumvent fundamental patents, especially those concerning processes. Fundamental patents for method inventions should therefore be designed as part of a "patent net" that involves as many relevant patents as possible.

Fundamental patents also only require minimal technology and capital. Patents cannot be displayed in products, which means applicants only need to come up with more inventive ideas.

This approach has been widely used by US companies, due to the low costs involved. When Japanese manufacturers began entering the US market in the 1970s and 1980s, most of them found that their technologies fell under fundamental patents held by local companies.

If a company finds its competitors are applying for, or have applied for, patents of core technologies that they are using, that company should circumvent the fundamental patents and apply for exterior patents. It can also improve its core technologies and apply for patents for its technological innovations, so that it gets patent certificates from competitors at reasonable prices through cross patenting.

Overall strategy

Companies should develop a comprehensive strategy to protect their IP from a diverse range of technological perspectives.

In the information technology sector, for example, a company can apply for patents on chips, and copyrights for integrated circuit designs. Key technologies that are not suitable for patent protection should be kept secret, however.

When new products are widely promoted in the market and many corporate logos are recognizable to consumers, companies should emphasize competition based on branding. Brand registration should be integrated into overall IP protection systems, along with patents, copyrights and business secrecy. This wider approach can help companies minimize potential losses.

In the pharmaceutical and agricultural sectors, indications of product origin can be used to protect certain products or services. Improved planting and processing methods can also be protected under breeding rights protection.

IP protection is about legal knowledge and strategic flexibility. In practice, agents often narrow down the protected range of a certain patent as a means of circumventing patents. Patents can fall into the protected range of other patents, however, if that protected range is too broad.

Companies should also carefully compare invention patents and practical innovations when they seek IP protection for technological inventions.

Although invention patents take longer and are more complicated to apply for, they are generally more effective in IP disputes.

A common tactic in legal disputes is to prolong the court process, which buys companies more time to sell their products. These tricks are useless with invention patents, however, because the court can continue its judgment after the defendant applies for invalidity of the patent. Patent owners can receive compensation and squeeze defendants out of the market, or at least charge the defendant for patent fees.

The patent issues and practical skills involved in IP disputes are often too complicated for even large companies. Enterprises need to work with professional law firms and patent agencies when handling such issues.

Dequan Law Firm, Beijing

(China Daily 01/23/2006 page9)