successful technology transfers to china · –representative office (ro) –wholly foreign owned...
TRANSCRIPT
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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‘Contact Us’ section
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 – [email protected]
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: [email protected]
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
29 October 6
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
29 October 7
Scenario involving tech transfer to China
29 October 8
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
29 October 9
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
29 October 10
• 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
29 October 11
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
29 October 12
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 (!)
29 October 16
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
29 October 17
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
29 October 18
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
29 October 19
Forms of IP in China
29 October 20
29 October 21
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
29 October 22
• 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
29 October 23
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
29 October 24
• 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
29 October 25
What does the employer need to
do to protect the company’s trade
secret?
29 October 26
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
29 October 27
• 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
29 October 28
Kinds of transfer
29 October 29
• Assignment
• Licensing
• In/out of China
Assignment in China
29 October 30
• 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
29 October 33
• 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
29 October 34
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
29 October 35
• 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
29 October 36
• 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
29 October 37
• 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
29 October 41
• 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
29 October 43
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
29 October 45
• 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
29 October 46
• 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
29 October 47
• 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: [email protected]
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 – [email protected]
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