But what do foreign companies – and CFOs – really know about doing business in China? In the area of intellectual property protection, apparently not that much. The first thing to do, says Dr. Xiang Wang, Beijing-based partner at international law firm Orrick, Herrington & Sutcliffe LLP, is to file your patents, trademarks and other intellectual property.

 

“Many companies in the past didn’t learn that lesson,” he says. “File Chinese patents if you believe that you will do business in China or even if you do not do business in China, but your customers do. Otherwise, your competitors may file ahead of you.” Xiang spoke with CFO Innovation’s Cesar Bacani on how to understand and navigate China’s unique intellectual property regime.  

 

It’s more important [to do this in China] than in other jurisdiction because China has a very unique law that many other countries do not, which is the Chinese Customs IP Protection Regulation. In the U.S., if you infringe a patent product, the U.S. courts and Customs office will only prevent you from sending that product into the U.S. They don’t care if that product is sent outside of the U.S.

 

Exactly. But the Chinese Customs law will prevent you even from sending an infringing product outside of China.

 

Around the world, you will find that there is almost unanimous provision in each patent law on the on five rights of the patent-holder: to prevent others from 1) using, 2) making, 3) offering for sale, 4) selling, and 5) importing. There’s no exporting [as a right]. But Chinese customs law provides [a sixth right]: and this is aimed at preventing people from exporting [products that are judged to have infringed on an IP right such as patent].

 

I call this a ‘de facto worldwide injunction’. Legally, of course, there is no such thing. Each country provides its own injunction. But there can be, in effect, a de facto worldwide injunction if a company puts all its eggs into one basket – in other words, it moves all its manufacturing into China. When it is then not allowed to ship out its products [by Chinese customs because of either an alleged or a ruled IP infringement] and it is the only company in the world that makes those products, then you’re facing a de facto worldwide injunction because no country can get that product from China anymore.

 

CASE STUDY

There are five options to get out of patent litigation. No. 1 is to invalidate the patent. So if I can invalidate the patent, that’s the best route. No. 2 is that I do not infringe. That actually does not depend on you because if your product infringes, it infringes. No. 3 option is for me to design around. I change my process, I change my product. That’s sometimes possible, sometimes not, because if I change a process, if I change my product, no one will want it anymore, because it’s either too expensive, ugly to use, or has many other side effects.