Suppose your American company is No. 1 or No. 2 in your product niche. You’re a leader because you make a product better than your competitor’s product. You know it’s better because it outsells the competition. In fact, it’s so good that your competitors can’t resist the urge to copy it.
Infringement is a compliment that can come from anywhere
You say your competitor is infringing your intellectual property? Congratulations! Nobody but a fool copies a loser of a product. Imitation—that is, copying—is sincere flattery. That’s true in the U.S., and it’s true in the world.
China is not the first to be accused of rampant infringement. Japan was the feared country in the 1980s. The United States of America was the upstart in the 1790s.
Everybody has to start somewhere. A logical place to start is follow-the-leader. The goal is to advance to leap frog. That is true among nations and among companies.
Trade wars won’t stop competition
Intellectual property is the subject of international negotiations and treaties. An extreme example of negotiations is the current trade war between the U.S. and China. Tariffs may temporarily stem the flow of trade and investment, but they won’t stop the need for U.S. companies to compete with China. The Chinese commitment to progress is indicated by its China 2025 initiative, which will make China a leader in each of several key technical industries.
IP protection starts at home
Intellectual property is largely the creation of national laws. And the best place to start is at home. If you’re not protecting your IP in your own shop, and in the U.S. Patent and Trademark Office, you’re probably not going to fare well against foreign competitors, whether they be from China or anywhere else for that matter.
Yes, your American company can be stolen blind by the Chinese. What if you’re not in China? Well, guess what, they’ll come to you. They’ll see your products at trade shows and in catalogs and on the Internet. They’ll order your product and reverse-engineer it. (Reverse engineering is a polite phrase for copying.)
China is the world’s leading country for IP infringement
It is widely believed that China and Chinese companies will steal you blind. There is some truth in that. China is full of stores that sell counterfeit products. Chinese manufacturers will make and sell your product to you through the front door and sell the same product to your competitor out the back door. China will require you to register your plans and your trade secrets before they allow you to build a plant in China. The message is clear: Whether you stay and succeed or fail and leave, your technology will stay in China. Everybody knows that China means infringement.
China is the world’s leading country for IP protection and enforcement
It is widely believed that there is no protection for IP in China. That is incorrect.
About 30 years ago, China adopted patent laws modeled on the German patent system. I have been to both countries and represented American companies in both systems. Both systems are good.
China now leads the world in filings of patent applications. They might not be the best quality, and they might not be directed to the most important inventions. But there are more engineering degrees granted every year in China than in any other country. They are doing manufacturing and they are doing engineering. They are inventing and they are patenting their inventions. These are national priorities.
China also has an excellent patent enforcement system. They have courts, and they move fast. Will you get a fair shake as an American? Maybe. Maybe not. But you’ll probably fare better all the way around if you have a Chinese business partner with feet on the ground there, for two reasons. First, if you’re going to do business in China, you’ll need someone fluent in the language and skilled in the local business practices. Second, when you go to court to enforce your IP rights, you’ll be better positioned for success having a local business partner on your side.
Yes, your American company can obtain excellent protection and enforcement in the U.S. and in China. But you have to be proactive and smart about it.
Five action steps for American companies
- Make a better product. Keep improving it. Satisfy your customers’ needs. Squeeze your costs. Earn a premium.
- Protect your IP, including data, here in the United States. Use firewalls, confidentiality agreements, etc. Be vigilant in protecting, policing, and enforcing your IP rights. You are subject to breach here. Even if you never step foot in China, you can lose IP to the Chinese (and to Americans and others) in a heartbeat. Consider insurance, such as for cyber breaches. But homeowners insurance doesn’t mean you don’t lock your door. Protect your IP. Hire an American IP lawyer of your choice to help you.
- Get a trusted Chinese business partner to help you do business there, and put strong agreements in place. Make sure the agreements are enforceable in China. For that matter, put strong agreements in place with everyone with whom you do business, in the U.S., in China, and everywhere else.
- Register your trademarks in China in English language and Chinese language. Here again, you’ll probably want to start with clearance and filing in the United States. Marks in the English language are relatively easy to register in China, unless someone beats you to the punch, as is all too common. Marks in the Chinese language are more important in China—the English language is about as intelligible to the Chinese as the Chinese language is intelligible to Westerners—and selection and protection of Chinese marks takes more thought, because translation can be phonetic or semantic or preferably both.
- File patent applications in China, typically starting by filing each patent application in the U.S., then filing a PCT or international patent application, and lastly nationalizing in China. Your American IP lawyer will be well-positioned to conduct this process.
Yes, a Chinese company might steal your IP and your market. But you don’t have to take it lying down. Take the five action steps outlined above. Protect your IP and your market in the U.S. and in China.