Ben Goodger, partner of Willoughby & Partner laid out an IP asset management system which included doing your homework (legal and factual due diligence), using good contracts, preventative measures, early warning of problems and swift & effective enforcement, to get a good IP position.
Location, location, location
Goodger warned that location is a crucial aspect when preventing IPR infringement. If your proposed partner’s factories are in clusters/hotbeds of counterfeiting, you probably will be the next victim. He gave some examples:
Yongkang, Zhejiang Province) is infamous for their infringements of industrial and electrical tools;
Wenzhou (Zhejiang Province) for infringing electrical products and consumer goods;
Shunde (Guangdong Province) for household appliances and Dongguan (Guangdong Province) for textiles, etc.
Goodger gave plausible reasons for these concentrations of infringement:
Authorities protect their sources of income (i.e. these infringing companies). Beside, there is critical mass of factories, which lead to benefits of ‘economies of scale’: a raided factory can rely on neighbouring factories to fulfil their orders.
Beware of long arm provision
Are you buying key expertise? Note the employment law issues in the rules for implementation of the patent law. A patent belongs to the employer if made by an employee in execution of tasks of entity to which he belongs. But also includes invention made within 1 year of employee’s departure where it ‘relates’ to employee’s duties or other tasks entrusted to him by employer:
Rules for Implementation of the Patent Law, article 11 says:
In Article 6 of the Patent Law, employee's invention made by an employee in the execution of the task of his unit means:
(3) The invention made within one year after his resignation, retirement or job change, but is related to his normal duties of his unit or a task assigned to him by his unit.
Therefore watch out for ‘claw back’ by previous employer, if taking key person/team.
Example: nickel foam JV.
Use good IP License terms. Goodger: "Enforcement is trying to cure a problem, while contracts try to prevent problem from happening in the first place." Contracts offer a whole parallel regime of protectionm, i.e. tort beside IP rights. Contracts can have deterrent value and can be seen as a relationship manual. Make clear that your mould, tooling, drawings and software is your's. Make sure there is no sub contracting, sub licensing or sharing moulds with third parties and no night shifts making pirated goods. Don’t loose control of the use of IP in materials such as labels. Record all licensing.
These steps seem obvious, but are regularly neglected: Don’t leave drawings/prototypes behind, before the deal is closed. Goodger gave the example of a Canadian architect who was bidding for the development of a mall. He left his drawings for just 4 minutes. The result was that his designs were rejected, only to see that his own creation was made by other architects. Do not reveal everything, use Black box, consider lay out of factory, process ‘secure/restricted areas’ swipe cards, use copy protection devices. Consider not bringing key ingredients/components to China, or assemble the final product somewhere else.
After termination of the contract, get your moulds back. Take back or destroy everything. Goodger gave the example of a Chinese garage signage. After termination of the contract the customers of the garage didn’t know that they were dealing with an unlicensed dealer.
So in short take IP asset management seriously when doing business in China. Goodger: "Do cheap business in China, but don't do business in China on the cheap."
IPR in China Conference, London Part I
IPR in China Conference, London Part III