IP-BASED CHINA TECH-TRANSFER TRANSACTIONS

Comment

Comment by Daniel Leuck on November 15, 2010 at 5:47pm

Thank you for the detailed response. Its good to hear Chinese companies have some ability to protect their IP. Its interesting that there is no concept of a subpoena duces tecum.

To be honest, I favor the "allocation of patent value to overall value" standard anyway, although I realize its not as popular with IP attorneys :-) When I look at some of the obvious and ridiculously generalized software patents issued by the USPTO it worries me. Pretty soon every product group and software development team will need a full time IP attorney sitting next to them.

Comment by Leighton K. Chong on November 15, 2010 at 2:26pm

Although I have not yet had direct experience of it, many authoritative commentators in the U.S. and in China have noted that the enforcement of IP and particularly patent rights has become much more robust in China in recent years. One major difference though is that the computation of infringement damages awarded by courts is not as generous as the current U.S. standard of awarding "entire market value" attributable to the patented invention, but rather more like the European "allocation of patent value to overall value" standard. This results in lower damage awards and greater reliance on injunctions to stop infringement. Chinese court procedural rules also require interim mediation steps that lead to more settlements rather than court trials. Also, their discovery procedures do not permit a party to compel the divulging of information from the other party, but rather a party must be prepared to provide its own discovered evidence. Court damage awards and injunctions must also be enforced within China, as export exclusion orders or attachment of foreign-owned assets are not available. These and other constraints make enforcement of Chinese IP rights more familiar and of more value to an established Chinese patent owner rather than to a foreign corporation that has no assets or business presence in China.

Comment by Daniel Leuck on November 15, 2010 at 1:42pm

That sounds like a fascinating experience. I enjoyed reading your post. Of particular interest was your description of how US companies should utilize a JV to monetize their IP in China. You said:

The typical small-to-medium sized U.S. technology company has little leverage or sufficient resources to enforce Chinese patent rights against large companies in China anyway, so transferring the China rights to the Chinese joint venture partner is the best use of the China IP rights and provides an incentive (exclusive China market rights) for the Chinese joint venture partner to invest in engineering the product and gearing up for manufacture and domestic sales. The U.S. company can instead rely on securing IP rights in other strong IPR countries such as the U.S., Japan, Korea, Australia, Canada, and/or Europe to protect exclusive market rights for later import sales there.

This assumes Chinese companies can protect the IP they own or license within China. I've heard differing opinions on this matter. How hard is it for a Chinese company to successfully sue another Chinese company for infringement in China? I know the laws are on the books, but how well do they work in practice?