One of the worst parts of being a China lawyer is when a company contacts you after having lost its IP to a Chinese company. In those situations, we review the relevant contracts and relevant IP (trademark, copyright, patent and licensing) registrations to determine whether they have a good case against the alleged IP infringer. The overwhelming majority of the time they do not and it is no fun essentially telling them: “sorry, you’ve lost your IP and there is little we can do about this because you didn’t do what you needed to do beforehand to protect your IP from China, but hey, if you want to prevent this from happening again to you. . . .”
One of the best parts of our job as China attorneys is working with foreign companies to prevent the above sort of situation before it happens. The below email is a typical email we send to clients, explaining what they must do to protect their IP from their Chinese counterpart, which in this case is one of China’s largest and most powerful companies.
If ____________ [big and powerful China company] does “development work” absent a formal written agreement that deals with the development work, it can claim rights to the development work and it also can claim certain patent rights based on the development work on an incremental change, new work basis. China does not require very much of an incremental change to allow a new patent, especially for design patents and similar “junk patents” popular in China.
The way to deal with this is to enter into a product ownership and/or a product development agreement that directly confronts the issue. In a situation where you are asserting the entire ownership of everything done with respect to your product, such an agreement is not complex. If the Chinese side’s goal is to infringe on your product, they will be reluctant to sign the agreement. However, If they sign the agreement, the protection is powerful, but only against the parties that sign. What we would do with _______ is to say: If you release our information to anyone, you are liable for the breach, without regard to your own fault. We can normally draft this as a very specific agreement, however, we can also just include this type of provision into any form of global agreement with these companies.
My cautions are as follows:
You should never do a deal with a company you believe intends to infringe; you are not looking for a lawsuit. As you know, recovery from infringement carried out by a huge entity like _______ will be difficult for a company like yours.
__________ is a giant company that basically “owns” _________ [a specific third tier China city]. Thus any legal proceeding against them in ________ would be difficult. This again calls for caution and a program where you receive adequate payment BEFORE it has a chance to infringe.