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Some Advice to European Companies on Intellectual Property Protection in China

Linda Liu & Partners
Contrary to what many people had predicted, China didn’t experience an economic slump after the Beijing Olympic Games in 2008, but in general maintained rather steady growth; simultaneously, the Chinese government has made active adjustments to the judicial and administrative environments in recent years which enhance the protection of patentees’ rights.
Using the policies of “Likonomics”, i.e. mainly focusing on getting rid of economic bubbles, adjusting the structure of supplying and distribution and transforming the development mode, the rate of increase in GDP in China in the following years should be around 7% per year instead of reaching the 10% that was achieved in the last ten years. At the same time the economy should transform from manufacture-dominated to a knowledge-driven pattern, with intellectual support from over six million graduates from Chinese universities every year. Simultaneously, more and more innovative companies should spring up in China.
Compared with the not so healthy world economy, China has clearly become a star in economic growth and is seen as an ideal investment object, attracting worldwide attention. Owing to this we can expect that more and more Chinese companies will file patents in foreign countries using the Paris Convention or PCT, and it will lead to more intense competition in IP within the Chinese mainland in the future; hence it is advisable for foreign companies to establish a patent portfolio in China as early as possible.
Patent application statistics confirm this trend. The Chinese patent statistics for the first half of 2013 released by the Patent Office indicates that even in today, when the Sino-Japan relationship is rather unclear, Japanese applications in China still increase at a rate of up to 10% every year.
Based on above, we believe that more and more European companies are willing to start doing business in China. Thus, the protection of intellectual property will be very important as it fulfills its role as a strong weapon in supporting the business. Herewith we would love to share some advice with European companies on IP protection in China, and hope that it will be of some help.
I. Getting Patent Rights by Making Full Use of China’s IP System
China’s IP system mainly includes patents, trademarks and copyrights. Generally speaking, for all three types of rights, it is recommended to actively file applications to get the necessary rights as early as possible. Here we take copyright, utility models and designs as examples to illustrate our advice.
1. Copyright
Just like in other countries, copyright in China automatically takes effect once the item is produced, but a registered copyright has obvious advantages when used as evidence in litigation (including trademark and design infringement cases concerning copyright), which enhances its value for protecting the rights of copyright owners. In a request for the invalidation of a design patent, a registered copyright could be used as a prior right. Due to the above advantages, we recommend that European companies register copyrights in China at their earliest convenience.
2. Utility models
Chinese “patent” protection comprises patents, utility models and designs. In the past, European companies mainly protected their technical solutions through obtaining patents, while nowadays an increasing number of European companies have begun to notice the importance of utility models and designs in China.
Actually by the year 2012 the number of utility model applications exceeded that of patent applications in China. Utility models do not need to go through substantive examination, which significantly shortens the time to grant. Generally speaking, a utility model requires about seven or eight months from filing to grant, and the average time for examination for a utility model is six months; yet once granted, the subject matter of the utility model can be protected for as long as ten years, which makes the filing cost of utility models comparatively low. Additionally, patents and utility models have the same strength when it comes to enforcing the right, while to invalidate a utility model requires similar time and effort as needed to invalidate a patent. All in all, utility models are rather easy to obtain and hard to invalidate. Therefore, many companies choose to use utility models to protect their technologies and fight their competitors.
The statistics show that Japanese companies were in advance of Western companies in realizing the importance of utility models. Many Japanese companies, such as Panasonic and Olympus, have made great use of utility models to protect their own technology. For some technologies they even only apply for utility models instead of patents.
3. Designs
Designs have a long history and great importance in Europe, and it’s an important form of IP protection in China as well. However, the differences between Chinese and European design systems may cause European companies some confusion.
From April 8 to April 9, 2013, I was invited to Alicante, a beautiful Spanish city, to participate in the 10th anniversary celebration of the European Community’s registered design system. As a guest speaker from China, I delivered a speech introducing the characteristics of the design applications in China and some noticeable issues for the applicants. I hope I managed to show the European companies and IP firms the differences between Chinese and European systems for registered designs.
For example, applications for parts that are invisible while being used, such as vehicle engines and components inside the engines, can be protected in China, while such parts are not able to be protected in Europe. As for the requirements when submitting drawings in China, these are stricter than that in Europe, for example, at least one perspective view and one orthographic view should be submitted for a three-dimensional product in China, while in Europe, one drawing is enough. The European Union allows protection for parts of a design while China doesn’t; therefore European companies need to consider how to ensure that priority can be claimed in their application in China when the earlier application is for only part of a design. Additionally, in China, products in sets and two or more similar designs for the same product could be filed as one application, with the advantage that the official fees and the fees charged by the patent agency are based on only one application, yet each design can separately enjoy its own rights. Especially in the case of two or more similar designs for the same product, one application can prevent the problem of “double patenting” that might be caused by filing separate applications for the respective designs.
Therefore, we advise European applicants to make full use of the unique regulations of the Chinese design system.
II. Taking Proactive Measures to Protect IP Rights
With the endless growth in Chinese companies’ technology strengths and the increasing business activities of companies from all over the world in the Chinese market, European companies are faced with intense technological competition in China. Therefore, we suggest that European companies take proactive measurements to protect their IP rights.
1. Keeping a keen eye on the competitors
In accordance with the Chinese saying “know yourself and know your enemy, you can fight a hundred battles with no danger of defeat”, we suggest that European companies keep a keen eye on the activities of their competitors in China. Many foreign companies in China (Japanese companies in particular) have begun to fully use Chinese firms to do competitor research. For example, when they find that during examination their patent applications are always being blocked on novelty and inventive step by reference documents from certain companies, they take control by analyzing the IP status of the prior right owner (applicant or patentee), through which they can effectively learn about the technical directions and patent portfolios of their competitors. Such investigations could also be used for reference for their own research and development and to help to enhance the quality of their own patents. As some competitors’ patent applications that have been filed but have yet to be granted may have some influence on that competitor’s market share, the company could submit evidence and statement of opinions to the Patent Office in order to prevent the competitor’s pending applications from being granted, which is much more cost effective than invalidating a patent after it has been granted.
Many companies begun some years ago to build databases of their competitors in China, and even hired Chinese employees especially for this job. From our experience, it is advisable for European companies to put a great emphasis on this kind of work.
2. Taking active measures to protect IP rights
Once a European company notices that competitors are using its technologies, it’s not advisable to dodge the problem or give up, but it is better to take active measures, including requesting royalties, dividing up the market as early as possible through litigation, and trying to reach win-win cooperation with the competitors where it’s necessary or a must.
In practice, Chinese IP firms play the role of bridges between European companies or agents and their Chinese competitors during negotiations and litigation, and help to increase the efficiency of communications and reduce the difficulty of negotiating. The full-service firms, integrating IP and common law practice, have particular advantages in such comprehensive projects. In recent years, more and more foreign companies have begun to cooperate with Chinese firms, such as Linda Liu & Partners, to protect their rights actively.
III. Cooperating Closely with Chinese Firms
Due to the complexity of the Chinese IP system and practice, it is recommended that the European companies cooperate fully with Chinese firms. IP agents should also actively provide services to clients, and try their best to fulfill their clients’ needs and to safeguard their clients’ interests. Linda Liu & Partners always sticks to this principle and endeavors to serve its clients to the best of its ability. Based on the experience that Linda Liu & Partners has gained from its cooperation with clients, we have the following suggestions for European companies:
1. Communicating with examiners with the help of Chinese firms
Linda Liu & Partners has always been devoted itself to facilitating the effective communication between companies and examiners, promoting their mutual understanding and assisting the companies to satisfy their needs. For example, we proactively help our clients to have interviews with examiners; we also organize technical presentations for our clients at the Chinese Patent Office, which is a way of helping the examiners get a deeper knowledge about the technology of the clients, and which also shows the examiners the company’s confidence in their patents being granted and why it needs the rights, while also displaying the cooperative and active attitude of the company towards the Chinese examiners.
Nowadays the examiners in the State Intellectual Property Office (SIPO) of China are generally very young and lack first-hand working experience in product design and production in corporations, and they do need to keep pace with developments in technology. We recommend that European companies communicate actively with Chinese examiners with the help of Chinese firms.
 2. Discussing best working processes with Chinese firms
It is advisable for European applicants to take control of educating Chinese attorneys in the establishment of rational working processes, and to eliminate unnecessary procedures.
For example, we learned that after receiving the official actions from the Patent Office, many Chinese firms translate the full text of Office Action without confirmation with the clients beforehand, which leads to a high translation fee. Even worse, meaningful analysis and advice on how to get the application into condition for granting is not given, which, as a consequence, fails to provide the European companies or agents with time- and cost-effective services.
Therefore, we recommend that European companies initiate discussions with Chinese firms and set up rational work procedures for handling cases. For reference, here are some measurements taken by Linda Liu & Partners in practice.
For new filings, Chinese firm must translate the full English filing documents correctly into Chinese, report to the clients any problems that may exist in the filing documents and discuss possible solutions with the client before filing. In this way, they can minimize flaws in the application and reduce costs during the follow-up examination. I think that such work is part of the Chinese agents’ duty, and should not incur extra charges.
After receiving an Office Action the Chinese agents should first report briefly to the clients, with summaries of the Office Action and agents’ legal opinions, and ask the clients for their opinion, which can reduce the cost to the applicant considerably. Every particular case should be handled on a case by case basis, instead of taking the unified way of “translate before replying to Office Action”, thereby avoiding the scandalous waste of clients’ money.
After discussions and negotiations, the firm and the company could reach an agreement on work processes.
3.  Holding annual meetings
As European applicants usually have complicated and strict requirements for the Chinese firms, we recommend that European applicants and agents actively discuss and reach agreement with the Chinese firm concerning the ways of cooperation. They should prepare summaries and communicate once a year on the quantity of cases, budget, granting rate, average numbers of Office Actions for one application, the most common defects and the reasons for being rejected for the year. Taking Linda Liu & Partners as an example, it sticks to the tradition of holding annual meetings with clients, which greatly promotes the efficiency of the cooperation with clients.
4.  Demanding grant rate
Although we know the granting rate of patents is influenced by many factors instead of being decided by the Chinese firms only, it is still advisable that European companies require the Chinese firms to reveal their grant rate, which in fact could encourage Chinese firms to increase their quality of their services.
For example, Japanese companies usually strictly require Chinese firms to achieve certain high grant rates. This requirement for a high grant rate may to a certain degree prevent some patents that have a high potential for being granted, have been granted in other countries or have great importance for the clients, from not being granted in China, which would lead to the waste of time and money and the breakdown of whole patent portfolio.
These are our suggestions based on the practical experience of Linda Liu & Partners. We hope they’re helpful for European companies.
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