We have written a number of times about the need to register intellectual property in China with the appropriate authorities. And we usually put particular emphasis on registering trademarks in China, because doing so is an easy, obvious, and relatively economical first step in IP protection. But for those selling or manufacturing products in China, the analysis should not end there.
A design patent in China (generally analogous to a design patent in the U.S. or a Community design in the EU) covers novel product designs that (1) incorporate shapes, patterns, and/or colors, (2) are rich in aesthetic appeal, and (3) are fit for industrial application. It does not take much for a design to meet this standard. China does not even conduct a substantive examination of design patent applications. Such examinations only occur if a third party challenges a patent’s validity after registration. A design patent applicant need only submit an application to SIPO that satisfies the procedural requirements, particularly with respect to proper formatting of documents and drawings.
Does this mean many of the design patents in China are slight modifications (read: ripoffs) of existing product designs? Of course. But this cuts both ways. A foreign company deciding to enter the Chinese market would not be able to register a design patent for its own product that has already been on the market for five years, but it could add a twist (“Chinese characteristics,” if you must) and thereby make the design patentable. Since 2009, the rule in China for patents has been absolute novelty – that is, disclosure anywhere in the world will negate novelty and make a design unpatentable. Before 2009, the rule was novelty in China.
A registered design patent has serious value: its owner can sue for design infringement, and, perhaps more importantly, its owner can also register the patent with Chinese Customs and have counterfeit or copycat products seized at the border. Even if a company does not think its design is novel enough to be patented, there is a first mover advantage to filing, in that design patents are valid until successfully challenged by a third party.
If you make an arguably generic product, would you rather hold a presumptively enforceable design patent on that product, or allow one of your competitors to do so? Bamboo mat manufacturers found out the answer to this the hard way.
The international IP lawyers at my law firm have consistently been able to secure license payments from Chinese manufacturers that were infringing on our clients’ design patents. We have done this by writing cease and desist letters and then instituting negotiations. These manufacturers chose to pay a licensing fee rather than contest the validity of the patent.
Really bad things can happen — and incredibly often do happen — when foreign companies develop a product with their Chinese supplier (this is typically called co-development), without any agreement in place regarding who owns what and without it being clear who gets to register the resulting IP (patent, trademark or even copyright). Spoiler alert: you as the foreign party will virtually always be on the losing end of such an arrangement.
Chinese design patent registration requires absolute novelty. If the design has been revealed in any way, registration is not permitted. Technically, because China design patents are not reviewed, it is very easy to register one, but if it isn’t novel, the registration will — if challenged — be deemed invalid.
With the rise of product co-development in China, the use of design patents has become essential. The co-development process assumes the resulting product design will be entirely new. So long as secrecy is maintained during the design process, the design can then be registered as a design patent in China. All foreign companies working on co-design in China should therefore be aggressively using the Chinese design patent system to protect their product designs.
The utility of a design patent applies in two quite different settings. In the first setting, the design patent is used as a defense against knock-off manufacturing by third parties. In the second setting, the design patent is used to make clear the rights of the foreign entity and the Chinese factory in the co-designed product.
In preventing third-party factory knock offs, the most powerful tool is a Chinese invention patent. However, in most cases of co-development, invention patent protection is not an option due to technical or cost factors. Where there is no patent protection, other Chinese factories are free to manufacture knock-off copies of the product. If you have a good contract with your Chinese factory, this leads to the odd situation in which your factory cannot independently manufacture the product, but every other factory in China is free to do so.
It is important to be clear about this situation. Where there is no Chinese patent protection, it is perfectly legal for an unrelated Chinese factory to knock off the product. Only some form of patent can stop the knock-off. That is, absent patent protection, a knock-off does not constitute infringement. So where no invention patent applies, a design patent is a powerful tool. If the design is registered as a patent, the owner of the patent can prevent any other factory in China from making a product using that design. The patent owner can also register with customs, preventing the export of the knock-off product.
For this reason, both the foreign entity and the Chinese factory have a strong incentive to register a design patent so as to prevent knock-offs from third-party manufacturers. This then leads to the second issue: who will own the design patent? Where the product is produced in a co-development process, the question of who owns the design is fundamentally unclear. Far too many foreign companies mistakenly believe they own the design because they came up with the design or because they made some or all of the payments for the design.
This belief is entirely mistaken.
The default rule in the case of patents is that absent a formal agreement to the contrary, whoever did the work owns the patent. It is therefore essential for the Chinese factory and for the foreign entity to make a formal, written decision on who has the right to register the design patent. But this simple agreement is not enough. Once the foreign entity secures the right to register the design patent, it must be sure to register that design before the product is revealed to the world because any form of disclosure of the design will destroy the right to register. Sale is not required. A promotional photo published on the web or in a trade journal or trade show brochure is sufficient to constitute disclosure that defeats the right to register the design patent.
A design patent is particularly useful in the most difficult co-development setting in which the foreign party design is being built on top of technology proprietary to the Chinese factory. In that setting, it is quite clear that the foreign party cannot assert ownership to the underlying technology of the co-developed design. However, the foreign party can and should assert ownership over the unique design of the co-developed product. Though a contract with the Chinese factory will establish who has the right to the unique design, the only way the foreign party can establish actual ownership of the design is by registering a design patent.
Finally, foreign parties should take note of one of the big dangers in doing product co-development in China. This is the same issue that arises continually in the China trademark area: if you do not do it, your Chinese “partner” will. That is, where there is a co-development project, if you do not register the design patent in your own name, it is likely that the Chinese factory (or its owner or someone connected with the company or the owner) will do the registration. You will not find out about it until either a) you see your own product being sold on Amazon or eBay or b) you try to move your production to a new factory and discover this is impossible.
The only way to avoid this kind of disaster is to take action on your own. Our China lawyers even now still get at least a call a week from someone who has lost their IP to a Chinese company because they never registered it and/or entered into a contract making clear who owns it. If you do not take the responsibility of protecting your intellectual property in China, I can assure you that no one else will.
If you are selling your product in China or having your product manufactured there, you should consider applying for a China design patent.