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There can be no doubt that China is becoming � if it’s not already � a manufacturing and financial giant and a world player. Even more to the point, China is becoming an integral part of commerce in the United States and a supplier of the things we use in our daily life. This involvement in almost every aspect of our commercial and domestic lives is evidenced by the recent recall of products manufactured in China. There is hardly a U.S. home that was not part of the search for Dora the Explorer, Barbie or Elmo following the recent Mattel toy recall. Putting aside questions of how it happened and who is to blame, the recall dramatically demonstrated the degree of interconnection we have with the Chinese manufacturing economy. For some, the recall events were a shocking wake-up call that focused attention on the vast amounts of every day products we import from China. For others, such as intellectual property lawyers, it reinforced the tremendous influence some Asian countries, particularly China, have on American corporations and our world markets. Generally, we have come to some understanding of the major Asian economies, such as Japan and Korea, but the emerging economies, like China, are more difficult to understand and predict. Where will China go with its industrial regulations? Where will it go with the registration of trademarks and the issuance of patents? More importantly, where will China go with enforcement of these rights? Following the events overseas is important to assisting clients with understanding the trends, deciding on new filings and instituting enforcement initiatives. Obtaining Protection Clients often question whether it is worth the costs necessary to obtain intellectual property protection in China and if it will prevent grey goods, look-alike knock-offs and independent production of infringing products for which the client may have already obtained U.S. patent or trademark protection. The potential issues and concerns go well beyond the simple and require consideration of a number of factors, including the following: � Is the product being produced in China? � Is the product intended for only domestic sales? � Will the product be sold in the Chinese marketplace? � Is the product only produced in China, and is there only a single Chinese manufacturer? � If the Chinese manufacturer operates under more than one name, does the client know all of those names? � Who has possession of any necessary tooling? � Does your client have the necessary product information in its control? � How easily can the product or technology be replicated? � What agreements do you have with your Chinese manufacturer? � If the Chinese manufacturer files for trademark or patent protection on your product or similar product, do you have the documents to prove your ownership? � If all of the above questions are answered favorably, is there sufficient money to pursue a foreign enforcement action? If your client has the money, is the market worth the expenditure in time and funds? All of the above argue that it is better to be diligent in all things and to pay special attention to the major market, which is most often the United States. For many years, China had a reputation for being a pirate that failed to protect or enforce intellectual property rights. This did not come from a lack of understanding the importance of intellectual property rights; rather, it was an economic decision based on market availability. As China became more inclined to recognize trademarks and copyrights because of worldwide pressures, it continued to be an unsettled and unfriendly environment for patents. The end-result for many years was the United States did not see any value in filing for something that would never be enforced. In today’s global market, there are many risk factors that argue for Chinese patent protection. A summer article in the Wall Street Journalquestioning the need for patent filings in China cites Siva Yam, president of the U.S.-China Chamber of Commerce, as saying that the Chinese government is trying to better enforce patents, so that having a Chinese patent may have more value in the future than some have attributed to it in the past. In the same article, Yam noted that a Pennsylvania company’s decision to forego a patent in China, since it was already selling the technology there, proved to be an expensive and dangerous oversight. A Chinese company later sought and received dominant patent rights and sued the U.S. company for infringement! While the Chinese company eventually relented, it was only after the Pennsylvania corporation expended time and money to protect itself against what should have been its own rights. Unfortunately, this scenario is all too common in China. Even if China is not central to your client’s business plans today, whether it could be a part of the business plan tomorrow is a question that must be addressed. It is no longer simply a question of whether the product is imported or exported, but the viability of the product to the Chinese and worldwide consumers. Evaluating the current costs (which are favorable in comparison to some other national procedures) and future defense or enforcement costs makes it an easy decision for many. Patent-Filing Procedure China, like most countries, grants patent protection to foreign nationals based on specific agreements or international treaties. A patent application must be filed with the Chinese Patent Office, which will generally conduct the examination within 18 months. If the application is approved and published, there is a six-month period for opposition by the public. Patents of inventions (utility patents) have a term of 20 years from the filing date; utility models and design patents have a 10-year term. Appeals of an action by the Chinese Patent Office in a utility patent application are possible to the Re-Examination Board. There is no judicial appeal for design or utility model patents. Infringement decisions in the Chinese Patent Office are also a part of any enforcement action. Trademark Protection Perhaps the most important point to remember about China’s trademark system is that unlike the United States, China has a “first-to-file” system that requires no evidence of prior use or ownership. Therefore, registration of foreign marks is open to third parties, including speculators and your company’s own distributors and manufacturers. As with patents, a company should expect that a speculator, competitor or its own distributor may very well seek to register its trademarks, either for competitive purposes or merely in the hopes of extorting payment for transfer of the trademark. Any U.S. company manufacturing in China, selling goods or services in China or planning to expand into China is strongly advised to register their marks and/or logos with the Chinese Trademark Office. Further, any Chinese language translations and appropriate Internet domains should also be registered. China’s trademark registration requirements and examination processes are quite similar to those in many foreign countries; the trademark must not cause confusion or conflict with a pre-existing registered mark. China allows registration of marks for goods, services, collective and certification marks. One problem with registration in China is the backlog in examinations, which currently lasts four to five years. In addition, a trademark that is registered in one class of use may not be protected against registrations or infringement in another class of use, unless it is extremely well known. Accordingly, it is often necessary to file trademark applications in a number of classes that would not be required in the United States. In addition, since many U.S. words do not have an exact Chinese translation it is advisable to attempt to capture variations on the Chinese translation. Of course, these additional applications add to the cost and complication of registering in China. In terms of enforcement, Chinese trademark law gives foreign companies a surprising amount of protection. The enforcement can include civil action for infringement and/or criminal action, with remedies ranging from damages, injunctive relief or seizure of products being exported from China. Even companies not worried about stopping counterfeiters should consider defensive registrations in order to reserve their place in the Chinese marketplace. In view of the above, any U.S. company entering the Chinese market should develop a strategy for protecting their company’s intellectual property early in the planning stages of doing business in China. This strategy should include establishing a corporate system for monitoring the marketplace for infringing products. However, the key component of any strategy is registration of both English and Chinese versions of your trademark before the product enters commerce in the U.S. or in China. Finding New Favor Last year, the China Dailyreported on a senior government official’s concerns that the country’s weak grasp of IP rights was holding it back in the international arena. Lu Yong Xiang, vice-chairman of the Standing Committee of National People’s Congress (NPC), warned that a lack of experience in patent applications was restraining China’s ambition of becoming an “innovative country.” Between 1998 and 2003, 99 percent of Chinese companies did not apply for a single patent, according to Lu. The 166 largest Chinese companies filed less than 20 percent of the applications made by foreign counterparts. Lu, who is also president of the Chinese Academy of Sciences, said that many companies based outside of China apply for high-tech Chinese patent applications. This is especially apparent in wireless transmission, mobile telecommunications, semiconductors, medicines and computers. Many of these areas are dominated by U.S., Japanese or Korean companies that may or may not manufacture in China. The result is that Chinese companies seeking to use these technologies and respective Chinese patents often pay higher licensing fees. Concern about the impact of it costing a Chinese company more to acquire necessary patent rights has spawned a greater sophistication and understanding of IP in general. Creative Approach Symantec Corporation, known for its Norton Antivirus utility, recently developed a joint venture with a successful Chinese technology company. As reported in the September 2007 issue of Corporate Counselmagazine, Symantec partnered with Huawei Technologies, China’s largest networking equipment supplier. The joint venture, based in China, will work together to support new trends in telecommunications. The new company, Huawei-Symantec Inc., will provide staff, manufacturing, engineering expertise, sales distribution channels and � IP. Establishing a joint venture has been seen as a win-win for foreign manufacturers and Chinese partners. The thought is simple �� if the Chinese partner is as vested in the venture, it is not likely that they will ignore another domestic infringer. However, this approach still has problems because of local political pressures and the remaining vestiges of the prior closed economic system. While this approach may work for large, well-known international companies, it is a more difficult undertaking for smaller entities. Accordingly, it is not a substitute for securing official patent protection. Cost-Benefit Analysis If you start from the premise that you have positively analyzed the earlier issues, then you need to consider what remedies are most meaningful to your client’s business. Given the recent U.S. case law developments, which make it less likely that you will obtain an injunction upon a finding of patent infringement in the district court, will money damages be the remedy you seek? If not, will your client prefer the entry of an injunction to the awarding of damages? If the first answer is no and the second is yes, you should consider the possibility that your client would be better served by filing for an investigation with the U.S. International Trade Commission than by filing a litigation in a U.S. district court. To paraphrase a popular expression, what we currently have is “good China, Bad China.” Which one you see depends on the issue of the day. When it comes to establishing an IP strategy in China, there is no Chinese copy or “given” approach. Each case must be reviewed to evaluate the risks, the potential costs and the future value of the rights in question. These must be balanced against the lessons of past experiences and aligned with client’s business plan. Anthony S. Volpe , managing shareholder of Volpe & Koenig, has corporate and private practice experience in securing, licensing and enforcing all aspects of intellectual property rights. Volpe has experience in foreign intellectual property matters, including litigations, administrative proceedings, and licensing of territorial and global rights.

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