Enforcement of IP rights in China has long been associated, at least by foreigners, with the seizure and destruction of counterfeit goods produced at low cost. This may still be somewhat accurate, but the fact that the nation is slowly shedding its ‘counterfeiter’ image and is moving towards becoming a serious IPR player is now indisputable. President Hu Jintao has embarked on a plan to build China up as an innovation-oriented country with the capabilities to develop its own intellectual property.

“No longer is it a joke to say that you are an IP lawyer in China. People see China as a place where IP is now being taken seriously,” says Luke Minford, a partner at Rouse. “China realises that if it wants to be a world player, if it wants to truly operate on the world stage, it has to move up the value chain and move away from being a low-cost manufacturing country towards being a country that has its own valuable IP.”

IP strategy
Lawyers are at the forefront of this new landscape. IP practices are evolving with changes in the economic and legal framework as the government makes its push towards innovation. The new policies are generating opportunities for companies – and legal work is being offered as lawyers identify ways for their clients to make the most of the Chinese government’s incentives.

Lawyers are now taking a more pro-active role in advising their clients on strategies for the protection of their IP rights in China and the rest of the world. “Litigation should be a last resort. Before that most companies will design, with our assistance, a complete mechanism to protect their IP rights… They will have a set of systems at their facilities and by-laws which are applicable to their employees,” says Richard Lin, a partner at Fangda.

Both local and foreign companies are increasingly looking to their IP portfolio in the nation, turning to their lawyers to ensure that their assets are protected. It is also crucial that foreign companies perform due diligence before they begin any business activity. There has been an increase in the number of disputes brought by Chinese plaintiffs against foreign companies for the infringements of patents, says Li Yong, a partner at King & Wood.

Enforcement procedures
Litigation is still very much a part of the protection and enforcement of IP rights here and IP lawyers are busy with a steady flow of work. “We have seen an increase in the number of patent infringement and trade secret infringement litigation cases, which are the two areas we have been busy in the last two years,” says Gordon Gao (pictured), a partner at Fangda. “We see more and more of that coming our way.”

Chinese lawyers are particularly busy with litigation work as they (unlike foreign-qualified lawyers) can of course appear before local courts. Accordingly, domestic law firms benefit from referrals from international and foreign law firms, who require not only representation for clients but also expertise on the local legal system.

“Foreign firms should never assume that the [litigation process] in China is easy to understand,” says Gao. “Patent law in China has its own nuances which must be understood completely before starting litigation. Corporate practice may be international, but this is not the same for IP and litigation because it is totally local.”

Many IPR firms also assist their clients with administrative enforcement, which is different to litigation. Enforcement involves lodging a complaint with the relevant government authority, which will then examine the case and, if appropriate, conduct a raid to seize and destroy any counterfeit goods.

Unfortunately, this process is not punitive and has no real deterrent effect. While counterfeit property is seized and destroyed, ultimately the producers open up shop elsewhere and continue with manufacturing because it makes economic sense. “The administrative actions are supposed to be quicker and easier but they are not as aggressive as litigation before the court,” says Gao.

Administrative enforcement is popular because it is a quick-fix. “This is the bread and butter of a lot of law firms… but it’s not working, it’s not solving the problem. Some law firms and advisers will keep doing it and tell their clients they have to do it because it is easy money,” says Rouse’s Minford.

At the moment counterfeiters are getting away with a slap on the wrist. “The counterfeiters are realising that the authorities have no force or teeth… When they are caught out they are not put in prison or heavily fined. They are not deterred by anyone,” says An Xiaodi, the founder and managing partner of An, Tian, Zhang & Partners.

Rouse’s Minford is passionate about the enforcement of IP rights through litigation. “The courts will take a different approach; they are there to award compensation and to deter,” he says. “We have to make damages meaningful and the best way to do that is to award damages that result in an economic deterrent.”

The government has recognised that enforcement of IP rights is the key to creating a more innovative society. “We will see courts and administrative authorities trying to show that they are playing their part in this… We are very likely going to see an increase in damages and high-profile cases which demonstrate [enforcement],” says Minford. And more important to note is that the push for independent innovation means innovation for domestic companies.

“Yes, they are going to improve the enforcement mechanism but what happens when Chinese companies, who they have identified as being innovative, come into contact with foreign companies with big infringement issues? I think then you are going to see a real tension that is quite hard for them to resolve,” he says. “I expect that we are going to see some pretty negative, quite protectionist decisions coming from courts where you have companies that are part of this whole innovation push.”

IP future is positive

Registration and enforcement of IPR in China will continue as a steady source of work for law firms. King & Wood’s Yong estimates that while patent filings by domestic companies have increased by 10%-20% for the past three years, patent filings by foreigners may decrease by about 10% because of the financial crisis. However, this is no cause for concern. King & Wood has established a new practice group, IP legal, to focus on commercial IP work – such as developing portfolio management strategies and IP due diligence.

Both Fangda and An, Tian, Zhang & Partners are actively recruiting lawyers with IP litigation experience, as the firms anticipate the increase in litigation. “We are actively looking for lawyers with the capability to do patent infringement litigation… We must hire people with patent litigation abilities because [such abilities] are not easy to acquire,” says Gao.

Rouse is also preparing for an ‘innovation explosion’ and has strategic plans for tapping into the legal work generated by Chinese companies emerging as serious global IP players. “The future Sonys, Hitachis and Samsungs of this world are going to come out of China. They need help, they need an IP strategy,” says Minford. “Chinese companies are going to be the next big thing and we are putting a lot of investment and resources in to pick up that work.”

Part of the firm’s plan is already underway. Every province has an IP commissioner who is responsible for creating awareness of issues and innovation. Rouse is targeting work through education, having already completed workshops and seminars for Chinese companies organised through the IP commissioner.

Academic institutions are also investing significant amounts in R&D. However, these institutes are not yet applying the results of their work in a commercial manner. Rouse is also planning on targeting those bodies to offer assistance in understanding how the institutes can benefit from the commercialisation of their R&D.

For the moment, most of the workflow comes from foreign companies entering China. “We can’t ignore that this is where the work is coming from at the moment but we are trying to prepare for future innovation and we will continue to add resources,” says Minford.

Change is afoot and local IP lawyers are set to witness something of an evolution. “It is a wonderful time for an IP [lawyer] to be in China. On the other side, the Chinese are really responding…” says Minford.

“They’re really into this whole idea that [the nation] is going to emerge as a real IP player, not as a counterfeiter or a copier the way it has been, but actually as a player. That is really motivating and exciting to our Chinese lawyers. They are now quite passionate about all of this.”