Successful Technology Transfers to China

Toby Mak

29 October 2012

1

29 October

Welcome to the webinar

Philippe Healey

China IPR SME Helpdesk Project Manager

29 October

2

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29 October 3

The China IPR SME Helpdesk

@iprchina

Fan page: 'China IPR SME Helpdesk'

'China IPR'

The China IPR SME Helpdesk provides free, confidential, business-focused advice

relating to China IPR to European Small and Medium Enterprises (SMEs).

Helpdesk Enquiry Service – question@china-iprhelpdesk.eu

Training & Events

Materials

Online Services - www.china-iprhelpdesk.eu

29 October 4

Today’s Speaker

• Dr. Toby Mak

• Firm: Tee & Howe

• Patent Attorney / PhD In Chemistry

• Email: toby.mak@teehowe.com

5

29 October

Technology transfer to/from China

• Overview

• Scenarios involving tech transfer to China

• Why things are operated differently in China than the Western world – the two major “problems” in China

• Forms of IP in China – registered vs unregistered IP

• Different kinds of transfers & practical notes

• Take away message

• Q&A

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Technology transfer to/from China

• Overview

• Scenarios involving tech transfer to China

• Why things are operated differently in China than the Western world – the two major “problems” in China

• Forms of IP in China – registered vs unregistered IP

• Different kinds of transfers & practical notes

• Take away message

• Q&A

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Scenario involving tech transfer to China

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A foreign company wants to work in China:

Internally – set up local branch

Externally - engage local companies to act as

agent

Scenario involving tech transfer to China

• Must transfer technologies to the local entity

• Internally – local branch

– Representative office (RO)

– Wholly foreign owned entity (WFOE)

– Joint venture (JV)

• Internal transfer

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RO or WFOE

Much better control

Possibility of change of ownership

JV

3rd party involved Better to be treated as

external party

Scenario involving tech transfer to China

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• How things can go wrong:

Issue Bad consequences

Improperly or unclearly defined subject

Unclear of what has been transferred →

unexpectedly transfer excessive IP to receiving

party

No dispute handling mechanism Receiving party can continue undesirable

activities during dispute

Unclear deposition of

IP/information/tools at termination

Receiving party still holds important materials

while they should not

Receiving party establishes new IP

Unclear ownership and responsibilities → new

IP may not be protected or even act against the

giving party

Assumed freedom-to-operate after

transfer

Receiving party may be sued for infringement,

and the giving party may have to compensate

the receiving party

Technology transfer to China

• Overview

• Scenarios involving tech transfer to China

• Why things are operated differently in China than the Western world – the two major “problems” in China

• Forms of IP in China – registered vs unregistered IP

• Different kinds of transfers & practical notes

• Take away message

• Q&A

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Why things are operated differently in China

than the Western world – the two major

“problems” in China

• Why are things different in China?

• The two major “problems” in China

– Trust problem

– Volume problem

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Why things are operated differently in China

than the Western world – the two major “problems” in China

• How are things different in China?

– Heavy reliance on evidence recorded at

authorities or verified by independent party

– “Anything not in writing will be ignored”

– What have been signed have been signed

– Proper documentation for tech transfer is

vital

• → how?

29 October 13

Case Study - What happened?

UK inventor invented a chair

Wanted to make good money

out of it

Needed to find someone to

make the chair

29 October 14

What happened? (continued)

Engaged a Dutch company

Dutch company sub-contracted

to a Chinese manufacturer

Filed a UK patent application,

but abandoned prior to

publication, and did not file

abroad including China within

the necessary time period

29 October 15

What happened? (continued)

• Consequence - everything put on hold until issues of the Chinese utility model and design are resolved

Relationship with Dutch

company turned sour

UK inventor found a French

company to continue the project

Chinese manufacturer has

registered design and utility

model for the chair in China (!)

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What can the UK inventor do?

• Invalidate the CN design and utility model – Unlikely to be successful as the invention was not publicly

disclosed

• Claim to be the correct owner of the CN design and utility model – Difficult, particularly if the Chinese manufacturer claimed

that they originally developed the chair

• The CN design and utility model would not have caused any problem if the UK inventor filed patent application in China claiming priority from his UK application

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Take-away messages

• Involvement of sub-contractor → caution

• Register IP BEFORE having any direct or indirect business deal in China

• If you do not register your IP, someone will do it against your business

• Registering IP in China serves offensive and defensive purposes

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Technology transfer to China

• Overview

• Scenarios involving tech transfer to China

• Why things are operated differently in China than the Western world – the two major “problems” in China

• Forms of IP in China – registered vs unregistered IP

• Different kinds of transfers & practical notes

• Take away message

• Q&A

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Forms of IP in China

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Registered rights are territorial in nature.

A trade mark/patent/design registered in

Europe has no rights in China, and vice

versa.

One product – many IP rights

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• Design - for phone shape

• Trade Mark - "NOKIA”

• Copyright - software, ringtones & images

• Patent - for technology to produce and operate.

Some pooled or cross-licensed, others kept

exclusive

• Trade secret - some technical know-how kept "in-

house" and not published

Registered v Unregistered IP in China

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Registered IP

• Registered trade mark

• Patent

• Invention patent

• Utility model

• Design

Unregistered IP

• Unregistered trade mark

• Copyright

• Trade secret

• Trade dress

• Unregistered design (not available in China)

Trade secrets - characteristics

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• Any information not available to the public

Advantages

• No registration required

• Protection can last forever as long as secret is maintained

Disadvantages

• Non-exclusive → can be circumvented by independent development

• Need to take substantive measures to maintain the secret

• Once breached, the public is free to use

• Only can target and claim damages from the person who made the breach

Trade secrets in China

Typical scenario – an ex-employee joins a competing company,or even forms his own company using trade secrets from ex-employer

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What does the employer need to

do to protect the company’s trade

secret?

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To successfully sue for breach of

trade secret by a person, you need to

prove:

– the information is indeed qualified as secret

– that person does not have the right to breach

– that person did know and breach

– the damages suffered by the petitioner

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• Usual defense – the secret was worked out

independently, for example by reverse engineering

• Relief – stopping that person from using/disclosing

the secret, and request compensation for the loss

Technology transfer to China

• Overview

• Scenarios involving tech transfer to China

• Why things are operated differently in China than the Western world – the two major “problems” in China

• Forms of IP in China – registered vs unregistered IP

• Different kinds of transfers & practical notes

• Take away message

• Q&A

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Kinds of transfer

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• Assignment

• Licensing

• In/out of China

Assignment in China

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• Prompt recordal is highly

recommended, otherwise:

– Rights to litigate are affected

– If the Assignor has dissolved or deceased,

subsequent recordal can become very

difficult

Assignment in China - Patent

29 October 31

• Co-ownership of patent NOT recommended

• Unless otherwise specified, all co-owners can

practice and license the patent without each

other’s consent → possible for partner to give

license to competitor

Licensing in China -

handling disputes

29 October 32

• Chinese judges “strongly” encourage

mediation

• If disputes are specified to be handled outside

of China, be careful that Chinese courts are

not obliged to honor the outcome of such

foreign proceedings.

Licensing in China -

Monitoring licensee activities

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• Excess products/over-runs produced – Licensee has to find a way to dispose excess

products while recovering cost → leak to the market

– Buy-back mechanism may avoid these from leaking to the market

• IP filings – Bad-faith registrations

– Developments

Licensing in China –

Challenge on validity from licensee

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Clause NOT allowed Allowed clause

Forbid licensee to challenge

validity

Immediate termination upon

challenge

Increases license fee upon

challenge

Request for a lump sum

upon challenge to defend

validity

Licensing in China

–Handling of new IP

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• New IP arises from development during cooperation, e.g. improvements on products

• Clauses prohibiting tech development in contract violates the Chinese Contract Law

• Should consider:

Mechanisms for good recordkeeping, for indentifying

inventors → determination of ownership

If ownership distribution cannot be decided at the start

of the project, mechanisms for discussion of ownership

and costs for establishing IP should be established

Licensing in China –

Handling of new IP

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• Inventions completed in China must obtain clearance before filing patent applications elsewhere.

• If IP is completed by more than one entity, for example A and B, then unless otherwise specified – A and B are co-owners of the invention – If B declares giving up patent application rights and

A eventually obtains the patent, B is entitled to practice the invention for free

– If A or B disagrees to apply for patent, then the remaining party cannot apply for patent on its own

Licensing in China –

Handling of new IP

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• Unless otherwise specified, when selling the new IP, default first-right-of-refusal to: – Inventor(s)

– Client of contracted research

– Co-owner of invention

• Contracted research – Unless otherwise specified, entity completing the

invention owns the patent application right

– However, client of the contracted research is entitled to practice the invention for free

Licensing in China –

default implicit clauses

29 October 38

• For a patent license, Chinese Contract

Law:

– requires licensor to provide necessary

information, guidance and assistance to the

licensee to practice the invention → includes

trade secret?

– unless otherwise specified, licensee is

forbidden to sub-license without licensor’s

consent

Tech transfer into/out of China

29 October 39

• Governed by the Chinese Patent Law

and the “Administrative Regulations on

Export and Import of Technologies”

• Three categories:

– “forbidden technologies”

– “restricted technologies”

– “free technologies”, which include all other

technologies that do not belong to the above

two categories

Tech transfer into/out of China

29 October 40

• “Restricted technologies” and “forbidden

technologies”

• Lists maintained by the Chinese State Council

and updated occasionally

• Very specific

– “Forbidden technologies” are not allowed to be

transferred

– “Restricted technologies” must obtain special

approval before transfer

Typical issues – freedom-to-operate

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• Obstacles to business – Compliance

– Competitor’s IP

• Freedom-to-operate searches → identify competitor’s IP

• Once identified → Apply a strategy to deal with the issue

• Otherwise, may have to pay huge compensation to competitor

• Chint v. Schneider → settlement of 150 million RMB (about 17 million EUR) from Schneider to Chint

Chint v. Schneider

29 October 42

Circuit breakers of Chint’s UM ZL97248479.5 (C, left) and Schneider’s

CN1186320A (S, right)

Chint v. Schneider

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Schneider’s earliest priority date

23 Dec 1996

Schneider’s publication date

1 Jul 1998

Schneiders CN filing date

15 Dec 1997

11 Nov 1997

Chint’s filing and priority date

2 Jun 1999

Chint’s publication date

Freedom-to-operate – practical notes

29 October 44

• IP filings in China help defend your positions

• IP is also useful to defend against

infringement claims

• Quality of IP matters

• Difficulties in establishing evidence at

Chinese Courts for unofficial materials

Chinese prior art search

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• A lot of Chinese patent filings have not filed

abroad

• Not available in languages other than Chinese

• Good side – find relevant references to

invalidate patents elsewhere

• Bad side – potential freedom-to-operate

obstacles in China

• Highly recommend to do Chinese prior art

search

Technology transfer to China

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• Overview • Statistics on tech transfer in China • Scenarios involving tech transfer to China • Why things are operated differently in China

than the Western world – the two major “problems” in China

• IP due diligence – issues specific to China • Choosing a partner for Tech transfer • Different kinds of transfers & practical notes • Take away message • Q&A

Take Away Message

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• Register your IP in China!!

• Decide on an RO, WFOE or JV

• Be very specific/explicit in all agreements of terms • (i.e. licensing!!)

• Do not rely on unofficial evidence when enforcing or • defending your IP

• Follow all official protocol to ensure smooth and • efficient filing

• Follow IP due diligence – watch out for translation • and local legal requirements

Q&A

• Dr. Toby Mak

• Firm: Tee & Howe

• Patent Attorney / PhD In Chemistry

• Email: toby.mak@teehowe.com

29 October 48

Helpdesk Guide: Guide to Technology Transfer to China

To access all our publications click here

29 October 49

Upcoming Helpdesk Events

Save the dates of our upcoming events: Upcoming Training Events in China: 6 November, Beijing: Briefing to 'Made for China' Trade Mission 13 November, Shanghai: Protecting Your Company's Intellectual Property in China 14 November, Shanghai: Partnering for Success: Finding and Working with Chinese Business Partners 21 November, Beijing: Partnering for Success: Finding and Working with Chinese Business Partners

Upcoming Training Events in Europe: 14 November, London: IPR Protection for Making and Selling Fashion in China

Upcoming Webinars: 8 November: IPR Protection in China for EU SMEs from the Toy Industry

FOR MORE INFORMATION ON THESE EVENTS

CLICK HERE

29 October 50

Thank you

The China IPR SME Helpdesk provides free, confidential, business-focused advice

relating to China IPR to European Small and Medium Enterprises (SMEs).

Helpdesk Enquiry Service – question@china-iprhelpdesk.eu

Training & Events

Materials

Online Services - www.china-iprhelpdesk.eu

For more information please contact the Helpdesk:

Room 900, Beijing Sunflower Tower

No. 37 Maizidian Street

Chaoyang District

Beijing 100125, P.R. China

Hotline number: +86 (10) 6462 0892

29 October 51