RIDING THE TECH WAVE
As hubs for Chinese tech startups, Shenzhen and Guangzhou are experiencing an increase in demand for intellectual property (IP) services. In addition, as Chinese companies expand in the global market, lawyers expect to see more foreign-related cases. Law firms need to build on their strengths to capitalize on this opportunity.
As a key driver for national economic growth and technology innovation, the Southern cities of Shenzhen and Guangzhou nurture companies in different fields, including artificial intelligence (AI), cloud computing, biotech, robotics and smart mobility, which drives the development of IP services.
Wanhuida Intellectual Property's partner Jason Yao tells ALB that the overall demand for IP services in Guangzhou and Shenzhen is growing, but different industries perform differently.
"The demand for IP services in the cross-border e-commerce, new energy and consumer electronics industry keeps growing. However, the demand is shrinking in some traditional industries due to factors such as insufficient demand in the overall market, crackdowns by the authorities on trademark hoarding and abnormal patent filings, as well as geopolitical conflicts and trade friction between China and the U.S.," says Yao.
“The overall demand for IP services in Guangzhou and Shenzhen is growing, but different industries perform differently. IP markets in Guangzhou and Shenzhen have their unique characteristics. As a special administrative region, Shenzhen is more active in attempting innovation.”
Jason Yao, Wanhuida Intellectual Property
Yao believes that IP markets in Guangzhou and Shenzhen have their unique characteristics. As a special administrative region, Shenzhen is more active in attempting innovation. The city has always been the first place to explore new things regarding IP protection systems and norms. For example, the Shenzhen Intermediate People's Court took the lead in introducing the country's first judicial protection of IP rights in the digital economy and appointing technical investigation officers to IP case trials.
Advance Law Firm's partner Li Ye tells ALB that the demand for intellectual property services has diverged in different fields in the Shenzhen and Guangzhou markets, with some areas showing significant growth while others have not. Demand for IP services is increasing in areas such as clothing, beverages, hotels and new energy. The number of bulk services of IP protection, well-known trademark cases, and cases with high compensation awards is rising.
"Enterprises in both cities have similar needs for IP services. Compared to Guangzhou, Shenzhen has more technology enterprises and cross-border e-commerce IP cases," says Li.
“Shenzhen is a major technology hub, with the highest density of startups in mainland China, and it is a staging ground for high-tech companies from all over the world. In such a complex market, with so many different clients, there is scope for all kinds of legal services in Shenzhen.”
Shaobin Zhu, Morgan Lewis
Morgan Lewis's partner Shaobin Zhu sees an increase in demand for IP services in Shenzhen and Guangzhou, in particular from technology and life sciences companies.
"Shenzhen is a major technology hub, with the highest density of startups in mainland China, and it is a staging ground for high-tech companies from all over the world," says Zhu. Therefore, in July, Morgan Lewis officially launched its Shenzhen office.
"We decided to open in Shenzhen to connect leading technology and life sciences companies in the region to Morgan Lewis's full-service and industry capabilities throughout Asia, the Middle East, Europe, and the United States. The demand for services includes patent and trade secrets disputes, as well as drafting and negotiating license agreements and commercial contracts, and transactions and due diligence."
"The City of Shenzhen has been central to China's emergence as a global technology leader. It's important for Morgan Lewis's Shenzhen office to further connect technology and life sciences companies in the region to the firm's full service and industry capabilities," adds Zhu.
"In such a complex market, with so many different clients, there is scope for all kinds of legal services in Shenzhen. Morgan Lewis offers a unique service for clients with cross-border IP counselling requirements, so we see our services as complementary to many other firms in the region."
Wang Jing & GH Law Firm's senior partner Chen Mingwu observes that there has been a significant growth in foreign-related IP cases in the Guangzhou and Shenzhen markets. Courts in Guangdong province concluded 9,876 foreign-related IP cases and 4,913 Hong Kong- and Macao-related IP cases from 2018 to 2022, with an average annual growth of 25.75% and 27.59%, respectively, according to data from the High People's Court of Guangdong Province, therefore, "there has been a significant increase in demand for IP services from foreign-related enterprises," says Chen.
“There has been a significant growth in foreign-related IP cases in the Guangzhou and Shenzhen markets. Guangdong courts have issued a series of regulations and opinions in recent years to strengthen the equal protection of domestic and foreign companies.”
Chen Mingwu, Wang Jing & GH Law Firm
Chen tells ALB that Guangdong courts have issued a series of regulations and opinions in recent years to further strengthen the equal protection of the legitimate rights of domestic and foreign companies. It also published typical cases of IP protection in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) to further emphasize the role of Guangdong as a preferred location for IP litigation.
EMERGING CROSS-BORDER BUSINESS
Chen further enumerated several new types of foreign-related business.
The first category involves fair competition cases, referring to combating unfair commercial competition behaviours such as false publicity and acts of confusion. Among the typical eight cases of IP protection in GBA released by the High People's Court of Guangdong Province, five cases were involved in unfair competition among commercial entities.
The other type is cross-border antitrust business. "As a major e-commerce province, Guangdong has seen an increase in antitrust demand in the cross-border e-commerce sector," says Chen. For example, the Guangzhou Intellectual Property Court recently accepted the first case of a local enterprise suing an overseas e-commerce platform for abusing its market dominance.
The last category is cases involving new technologies.
"There has also been a significant increase in the number of cases involving new technologies and industrial research and development, including infringement of trade secrets, disputes over the ownership of patents, as well as unfair competition involving technologies in the Internet field," Chen adds.
Meanwhile, Yao points out that cross-border IP services in Guangzhou and Shenzhen present two obvious trends. The first trend is the increasingly urgent demand of enterprises for IP applications in the global market.
"As more and more Chinese enterprises enter the international market, they need to know how to lay out their IP rights in the international market and require professional guidance," says Yao.
For example, due to limited resources and budget, many small and medium-sized enterprises (SMEs) are unlikely to do a large-scale and comprehensive layout. They tend to gradually expand in their target markets. However, they need professional suggestions on when to start applying for trademarks and patents in the target market, what trademarks and patents they need to focus on, which markets they need to pay attention to, and which markets can be put on hold.
"How to customize the cross-border layout strategy of IP rights based on various factors, such as the enterprise expansion plan, the IP system of the target market, and the perfection of the rule of law in the target market, is urgently needed by many enterprises that are going out," says Yao.
The second trend Yao has noted is the growing need for companies to respond to overseas IP disputes.
“In Guangzhou and Shenzhen, Chinese cross-border e-commerce sellers have become the main target defendants in large-scale IP infringement lawsuits initiated by U.S. law firms. Chinese sellers are facing negotiation and settlement, responding to lawsuits and counterclaims.”
Li Ye, Advance Law Firm
"Many enterprises increasingly encountered issues such as trademark squatting and counterfeit and infringing products appearing in the local market," says Yao.
"Meanwhile, due to the lack of understanding of the target market's IP protection system, many SMEs frequently encounter IP disputes, such as facing complaints about infringement and being sued for trademark or patent infringement. Therefore, they are in urgent need of professionals who are familiar with handling cross-border IP disputes and advice from lawyers."
Li also noticed that in the field of IP services in the Guangzhou and Shenzhen markets, Chinese cross-border e-commerce sellers have become the main target defendants in large-scale IP infringement lawsuits initiated by U.S. law firms. In 2022, the Temporary Restraining Order (TRO) against Chinese sellers was issued by U.S. courts, and then cross-border e-commerce platforms needed to take down seller links and freeze funds. Chinese sellers are facing negotiation and settlement, responding to lawsuits and counterclaims.
"The Amazon platform was sued for abuse of market dominance by sellers in the Guangzhou and Shenzhen courts. This type of case is complex, pioneering and sensitive as it involves the relationship between China and the U.S., antitrust and anti-unfair competition," Li adds.
Within life sciences, Zhu sees an increase in cross-border activity and demand from biotech companies. On the technology side, some areas where Morgan Lewis is working closely with Chinese and international companies include software, telecoms, smartphones, video processing, internet television, LEDs and robotics.
"My colleague Yalei Sun now divides his time between Silicon Valley and China, advising Chinese companies in IP due diligence, licensing and settlement negotiations, and patent litigation, US government regulatory compliance and appellate matters," says Zhu.
WAYS OF STANDING OUT
With the emergence of more demand for IP services, law firms are also facing more intense competition, each law firm should build its unique advantages based on the development needs of the market to attract clients.
The IP service market in Guangzhou and Shenzhen has always been highly competitive, especially in the context of the world economic slowdown and stagnant demand in the industry as a whole. IP service organizations are competing against others, and the demand side has been trying to suppress prices.
In this case, Yao believes that law firms should improve from two aspects to stand out. They need to improve themselves to provide more professional and efficient services than others. They also need to improve their judgment on market trends and, spot the new market demand, then make changes to team resources accordingly.
Li agrees that competition is fiercer for lawyers in Guangzhou and Shenzhen.
"In the past, Chinese companies involved in cross-border cases would look for Chinese lawyers first. Now, many of them will skip Chinese IP lawyers and collaborate with offshore lawyers directly," Li says.
Li suggests that Chinese IP lawyers should think about how to get involved in these influential and internationally recognized cases. They should also think about whether they should act as the lead attorney in a case, or as a consultant in China for well-known foreign law firms to provide IP services to Chinese companies.
"Lawyers have to figure out how to make themselves an indispensable advisor for clients and gain an in-depth understanding of the client's industry. They also need to improve efficiencies or reduce the client's overall legal fees. These will become lawyers' competitive advantages," Li adds.
In addition, generative AI technology will also greatly impact lawyers. Li suggests that lawyers need to actively think about how to combine their business with AI, instead of being replaced by AI.
Chen also notices that law firms with professional experience in IP in Beijing and Shanghai have been setting up branches expanding in Guangzhou and Shenzhen in recent years, which further indicates that the demand for IP legal services in Guangdong is increasing while the competition is getting more and more intense.
As a law firm based in the GBA, Chen notes that Wang Jing & GH Law Firm is facing greater challenges in the market from well-known law firms headquartered in other cities. But at the same time, it is also an opportunity for the firm.
"Apart from traditional IP business, we are focusing on new areas of IP legal needs and customers in the GBA, with emphasis on foreign-related IP rights, digital economy, Internet, and cross-border e-commerce. We aim to highlight our advantages in different IP segments," Chen explains.
Zhu highlights that demand for IP services is increasing across the board in China. As Shenzhen and Guangzhou are global hubs for technology and finance, the region presents opportunities for all kinds of companies with intellectual property requirements.
"The huge range of clients here means that law firms can have very different strategies, and there is room in such a growing market for many different approaches to legal services," Zhu adds.
NEW TRENDS TO LOOK OUT FOR
Yao expects that there will be four hotspots in IP legal services in Guangzhou and Shenzhen in 2024. They include IP layout in overseas markets, especially in Belt and Road Initiative involved countries; patent layout in the fields of new energy, AI, blockchain, autonomous driving, biotech, and satellite communications; cross-border IP dispute handling; as well as IP value assessment, financing and trading.
Li notes that more Chinese sellers will need IP compliance services as direct-to-consumer (DTC) brands expand overseas. In addition, large high-tech companies will continue to lay out in the global market and apply for invention patents. Apart from passive response to litigation, Chinese firms will proactively safeguard rights and prosecute global infringers. Li predicts that there will be Chinese companies filing IP lawsuits abroad as plaintiffs with lawyers' help in 2024.
Based on the Guangdong court's strategy "to serve the development of the GBA with IP judicial initiatives", Chen believes that "IP protection in high-end manufacturing industries will be further strengthened. New types of litigation cases or non-litigation projects involving the digital economy industry will gradually appear. It will also strengthen a fair competition market involving commercial entities. Cross-border businesses in GBA will be further improved."
Zhu points out that one issue for businesses going into 2024 will be the impact of the new Protecting American Intellectual Property Act of 2022 (PAIP Act), signed into law by President Biden on January 5, 2023, for regulating the relationship between the U.S. and Chinese governments and businesses concerning the long-standing subject of IP theft.
In addition, the United States Select Committee on the Strategic Competition Between the United States and China will create legislative proposals on a range of U.S.-China strategic competition-related issues. Zhu suggests that tech and life sciences companies should be watching these developments closely.
"As industry players develop, deploy, and invest in new energy technologies and resources, we are seeing huge growth potential, particularly in the electric vehicle and renewable energy, clean, and other low-carbon technologies spaces," says Zhu.
"In a time of heightened competition, it is critical for our clients to protect their intellectual property. Our global IP team, which includes lawyers and IP professionals with diverse technical backgrounds, is advising clients on a full range of IP-related issues impacting the electric vehicle space," he says.