International Law

Top Seven Intellectual Property Mistakes By Foreign Companies Doing Business In Or With China.

By Dan

I am always counselling patience to young lawyers who want to start their careers doing international law. I explain that international law is really just "regular" law with an international component. I thought of that today when I read a post on the High Touch Legal Services Blog, entitled, "Top Ten Intellectual Property Mistakes of Startup Entrepreneurs" and realized how many of those mistakes have commonalities with the IP mistakes we so often see with foreign companies going into China.   

I am going to set out (in bold) six of the mistakes outlined in the High Touch blog post most relevant to China and then discuss how they relate to China. 

1.  Failing to use employee invention agreements.  True of China as well. These agreements essentially require new hires agree to report anything to the company that they invent that result from any work performed on behalf of the company or relate in any manner to the existing or contemplated business of the company, or result from the use of the company's time, material, employees, or facilities. They also mandate that any such inventions are assigned by the employee to the company. These agreements make sense in China as well.

2.  Assuming that the company owns contractors' work product.  Even though there is almost no such thing as an independent contractor in China, we see a similar thing all the time. We have been contacted at least a half a dozen times by a US company that has in some strange and illegal capacity retained people in China to conduct R&D for and then when that R&D group goes off on its own, the US company wants to sue them for stealing the US company's IP. My response is usually to ask how it is that the US company proposes to explain the illegal situation to a Chinese court and then note that what the R&D people walked off with probably did not belong to the US company in any event.  

3. Using another company's license agreement.  Fortunately, we have no encountered this situation all that often in a China context. Apparently, most companies do realize that if they are going to be involved in a China licensing arrangement they need a customized licensing agreement. I will note here also that China requires you to register your licensing agreements with the government.   

4.  Thinking that patents are the only IP that matters.  We do see a bit of this in that companies seem to underestimate the importance and value of trademarks and trade secret agreements in China.  

5.  Neglecting to identify and protect trade secrets.  Very true of China where companies far too often fail to do all that they can to protect their trade secrets via agreements with their employees or via NNN Agreements with outsiders.  

6.  Giving the 'family jewels' to an overseas supplier.  This one obviously applies to China in that companies so often make the mistake of not requiring their China suppliers to sign confidentiality, non-compete and/or non circumvention agreements.  

The seventh mistake (not set forth in the High Touch blog because it is China-centric) is believing that registering your trademark under the Madrid Protocol is the same thing as registering it in China.   

What are you seeing out there? 

Full post as published by China Law Blog on June 14, 2010 (boomark / email).