Ron Hesse of GlobalAutoIndustry.com recently interviewed Fred Rocafort — one of our firm’s China lawyers — on “Important Tips for Protecting Your IP from China.”
Per GlobalAutoIndustry.com, the 14 minute interview focused on the following:
• With regards to IP, what are the most serious IP-related risks faced by U.S. and other foreign companies when doing business in China?
• Are there any essential steps that foreign companies must take in order to protect their IP in China?
• Can foreign companies expect fair treatment when dealing with Chinese law enforcement and courts?
• Are any of your recommendations applicable in countries other than China, such as alternative manufacturing destinations in Southeast Asia?
I so loved the description of Fred that I cannot resist repeating much of it below:
About Fred Rocafort:
Fred is an Attorney with HarrisBricken who focuses on international IP, and customs & trade issues.
Fred is a former diplomat who joined Harris Bricken after more than a decade of international legal experience, primarily in China, Vietnam, and Thailand. His wide range of experience includes starting and operating his own business in Asia, working as an in-house counsel for a Hong Kong-based multinational, as well as many years as a State Department official, providing a client-centric perspective to his legal work.
Fred began his career overseas as a U.S. vice-consul in Guangzhou, China, adjudicating thousands of visa applications and advocating for fairer treatment of American companies and citizens in China and for stronger anti-counterfeiting enforcement. After entering the private sector, Fred worked at a Shanghai law firm as a foreign legal advisor and later joined one of the oldest American law firms in China. He also led the legal team at a Hong Kong-based brand protection consultancy, spending most of his time out in the field, protecting clients against counterfeiters and fraudsters from Binh Duong to Buenos Aires.
Fred is an ardent supporter of FC Barcelona—and would be even in the absence of Catalan forebears who immigrated to Puerto Rico in the mid-1800s. An avid explorer of Hong Kong’s countryside, he now spends much of his free time discovering the Pacific Northwest’s natural charms.
The below is Fred’s interview, but to capture all of its tones and nuances, I urge you to go here and give it a full listen.
Ron Hesse: Welcome to the globalauto industry.com audio interview series. I’m Ron Hesse and today I’m interviewing Fred Roca forward. Fred is an attorney with Harris Bricken whoo focuses on international IP and customs/trade issues. Today’s topic is important tips for protecting your IP from China. How are you doing Fred?
Fred Rocafort: Good, Ron. It’s a pleasure to be on your podcast. Thanks for having me.
Ron Hesse: You’re welcome. Let’s get started. Let me start off with this Fred, with regards to IP, what are the most serious IP related risks faced by U.S. and other foreign companies when doing business in China?
Fred Rocafort: The first risk is the one I think most people think of right away, which is a potential loss of revenue both from customers who unwittingly buy fake products but also from from those who for whatever reason, find that purchasing a fake is an acceptable compromise. This may be because they’re buying a shirt or shoes and then they’re more most concerned with sending out a particular image, but in other cases it may be a misunderstanding of what the genuine product can achieve as compared to a fake one. So this would be the case perhaps of something like a phone charger. In addition to that, they’re so related to risk the form of brand dilution. If you have too many fakes out in the market, some customers may decide it’s simply not worth paying for the real thing.
They may feel that the fakes out there take away some of the prestige, some of the cachet from the genuine articles. And they think there’s no point in buying the genuine product because people might assume it’s fake. You also have reputational costs. If a user or especially someone unwittingly using a counterfeit product has problems with the quality of the product, if there are any accidents or injuries resulting from the use of the counterfeits, the reputational impact might still fall on the genuine brand, especially if you cannot determine with clarity that it was indeed a fake product. And finally, and there is the risk — which is becoming more severe actually as we enter this new period with China — the risk of industrial espionage.
And of course this sometimes is carried out by commercial rivals who want to a copy products or use them as part of their own development processes. But in the case of China, there is the very real risk that these efforts could be aided by government authorities, for example, in the form of inspections that are going to be taking place there — new cybersecurity measures. So there’s a whole host of risks against which foreign companies must protect themselves. Are there any essential steps foreign companies must to protect their IP in China? Yeah, certainly. The first, and this might seem obvious to some people, but the first step is to register your IP in China. Again, this might seem like something obvious like, well of course if you want to protect your trademark, if you want to protect your patents, you have to register them.
But many would be surprised to discover that many foreign companies fail to register their IP in places like China for example. They might feel that because they’re not planning to to sell in China they do not need to register their IP there. However, in those cases you are exposed to what we call bad faith registrations by people who have nothing to do with your brand. And this can lead to another risk — the risk of detentions and seizures by customs when the products are being exported. If you have not registered a trademark but someone else has, as far as Chinese law is concerned, they [not you] . are the legitimate owner of the IP and your products using that IP can be seized at the Chinese border.. In addition to registering the IP with China’s patent and trade office you should also register your IP registration with China customs.
And then the same way you would do it here in the U.S., it’s essentially a two step approach. You, you have to obtain legal title if you will, but then you also have to inform the enforcement authorities of your problem and your desire to get them to help you out with enforcement. Registration is very important, but it’s just a start. It’s also critical to cooperate with law enforcement and facilitate their efforts, and also with the courts. Again, this might seem like an obvious thing to do, but again it is surprising to see foreign companies fail to cooperate efficiently. They don’t respond to requests, for example, from authorities for assistance with identifying products with to determine if they are in fake or not.
If the seizure figures are low, some foreign companies feel it’s really not worth their trouble to prepare all the documentation. But this is counterproductive. And finally, don’t ignore your own backyard. Basically this means the idea here is to guard against internal risks that may actually be a lot more harmful than external risks. We’re talking about things like, like leakage, whether it’s intentional or whether simply you’re allowing back doors that allow outside parties to come in take your design files or facilitate their own efforts to copy your product to then make a product that competes against yours. So, it’s very important to audit your own facilities and your own suppliers with an eye to makin sure there are no problems contributing to the counterfeiting problem.
Foreign companies expect fair treatment when dealing with Chinese law enforcement and courts. Based on my own experience with China’s courts I can tell you that they regularly handed down judgments in favor of my foreign clients. Perhaps in some instances the damages were not that spectacular from the point of view of U. S. plaintiffs who are used to more generous awards.
In China, it’s important to be careful when litigating in some of the economically less developed areas where judges might be more sensitive to social pressures and they might be hesitant to impose damage awards, especially when the plaintiff is a large multinational. Obviously political winds can also play a role. In the current environment it’s probably fair to say that at least some Chinese judges would think they would stand to lose if they were to side with a U.S. firm against a, a local defendant. Another thing to remember is that while some parts of China — especially the larger cities like Beijing and Shanghai — have specialized IP courts where the judges feel very comfortable tackling the issues surrounding intellectual property, many areas do not. Judges that deal with very few IP related cases might apply legal reasoning that perhaps works when dealing with a different kind of case, but not with with IP.
Ron Hesse: Are any of your recommendations applicable in countries other than China such as alternative manufacturing destinations in Southeast Asia?
Fred Rocafort: Definitely. On the one hand, the, the legal IP protection framework in China is more robust really than in places like Vietnam and Cambodia, especially if you’re looking at the protections as they exist on paper. However, one thing we always point out to clients is that that’s not the full picture. You also have to consider the actual likelihood of someone — let’s say your supplier or one of your own employees actually going in and stealing your IP. And you also have to consider things such as the ease of finding another manufacturing facility that will very quickly be able to copy whatever material, whatever prototypes, whatever designs are brought to them. In this regard, I think it’s fair to say that the IP risks in China are still greater than in places like Southeast Asia.
Fred Rocafort: All of these tips, all of these recommendations that I provided, by and large apply to all these destinations. Registering your IP is something you need to do no matter where you are and no matter where you are it makes sense to work with local law enforcement. Something that is also true across the board is the need to protect your own facilities. It may be the case that you’re manufacturing in a country that doesn’t have much of a counterfeiting problem. However, if there are weaknesses at your supplier’s facility — if it is possible to get access to your sensitive designs the counterfeiting groups will figure out a way to get access to that. Right? I mean, if it’s easier for them to go to another country and work with employees there to support a counterfeiting operation, they’ll do it. Crime nowadays is international. Criminal groups are perhaps some of the most adept organizations when it comes to working across borders. So pretty much everything that you’d be doing in China to protect your IP, you should be doing in other countries that are becoming popular manufacturing destinations.
Ron Hesse: Excellent points. Thank you for your great insight, Fred. And that concludes today’s audio interview. Everyone have a wonderful day.