Doing Business in China –Intellectual Property Rights

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Practical Tips on Protecting Intellectual Property Rights and Doing Business in China

CALSTART Webinar

September 2013

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Overview about IP in China

• Chinese IP Laws are on par with comparable laws of developed countries.

• China needs effective IP enforcement.• The IP landscape in China is evolving.• IP remains one of the top-five issues for

MNCs doing business in China.• MNCs in China are developing and adapting

their IP strategies.

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The IP Landscape in China Is Evolving.• Chinese IP laws are evolving and becoming more sophisticated

– recent patent law amendments

– proposed trademark and copyright law amendments

• China’s 12th Five-Year Plan put a strong focus on IP and technology development and Chinese companies have been incented to generate “indigenous IP rights.”

– Most of the patents filed by Chinese companies in China are utility model patents.

– The number of invention patents filed by Chinese companies in China is increasing.

– Chinese companies (such as Huawei) are aggressively filing patents globally.

• Chinese companies are increasingly using IPR as a weapon – Chinese companies no longer play defenses in IP litigation - they have learned to sue and

counter sue their MNC competitors for IPR infringements as a business strategy.

– Chinese companies have started to challenge validity or enforceability of MNC’s patents.

– The majority of the IP litigation cases in China are between Chinese parties and the number is increasing every year.

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To Deal with IP Infringement -

The Bad New is:No Panacea!

No Silver Bullet!No One Size-Fits All!

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To Deal with IP Infringement -

The Good New is:There are some practical tips on:

- prevention- enforcement

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Some Practical Tips on Preventive Measures:• Always apply for patents (including utility model patents), register

trademarks and important copyrights.

• Keep certain technology as “trade secrets” instead of filing for patent protection (the Coca-Cola approach).

• Keep core technology out of China by manufacturing key components outside of China.

• Assign manufacture steps to different contractors in different regions or countries to minimize the risk of misappropriation of the whole manufacturing process.

• Selectively use licensing, JVs, or other business structures to exploit IP assets in China, shift IP infringement risks, benefit from R&D efforts of local partners and access to China-generated IP.

• Adopt new counterfeiting technologies such as RFIC and digital rights management technology.

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Some Practical Tips on Preventive Measures:• Strengthen internal systems and procedures (adopting strict security

procedures, contractual non-disclosure and non-use restrictions, etc.).

• Register IP rights with the Chinese custom to prevent infringing products from exporting outside China.

• Register IP rights with the Chinese regulatory agencies (such as SFDA and the Ministry of Agriculture) to prevent infringing products from obtaining regulatory approvals or permits.

• Adopt competitive pricing to drive counterfeiting products out of the market.

• Continue to press Chinese government to adopt stronger IP enforcement measures.

• Selectively invest in regions with good track records for IP protection.

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Some Practical Tips on Enforcement Measures:

• Select “high profile” infringers to sue or prosecute to maximize the deterrence effect。

• Select the right moment (such as infringer’s pre-IPO stage) to sue or prosecute to compel settlement or compliance.

• Shop for the best forum.

• Hire experienced private detectors to collect evidence.

• Establish good relationship with local law & enforcement agents.

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IP Strategies Adopted by MNCs

Education, Engineering and Enforcement• Instead of focusing solely on enforcement, Microsoft has

adopted a “3E” approach: Education, Engineering, and Enforcement.

• This 3E approach, together with other Microsoft efforts, has generated significant rewards, including a commitment from national government agencies and certain major SOEs in China not to use pirated copies of Microsoft software.

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IP Strategies Adopted by MNCs

Engagement• Disney has an agreement in place with the Creative Power

Entertaining Company (CPE) under which Disney has obtained the global right to develop and commercialize all derivative products under “Pleasant Goat 喜羊羊 .”

• Such licensing arrangement gives Disney the opportunity to explore a popular Chinese cartoon character globally while permitting CPE to realize the value of one of its key assets (value it is otherwise unable to realize on its own).

• Such licensing arrangement helps CPE to “go abroad,” an effort strongly encouraged by the Chinese government.

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IP Strategies Adopted by MNCs

Adaptive Pricing Strategy to Combat Piracy

• Warner Bros has used competitive pricing as a strategy to fight against piracy. – Warner has released cheaper and simply packaged DVDs at a price

that is competitive to the cost of the piracy copies, as a strategy to gradually covert the market.

– At the same time, top-end products, such as commemorative albums and limited editions are sold at a higher price and have been proved popular as gifts, which is consistent with the Chinese “gift-giving” culture.

• Warner Bros has teamed up with an Influential Partner: In addition to the pricing strategy described above, Warner Bros also teamed with China’s state-owned distributor, which is affiliated with the Culture Ministry of China. With its own financial interest at stake, the Chinese partner is also motivated to weed out pirated products from the market.

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IP Strategies Adopted by MNCs

Strategic JVs/Partnerships• Team up with an Influential Partner

• IP/Technologies Focused Partnerships: – Obsolete or soon-to-be obsolete technology that is not currently available in China: the

transfer of which to a Chinese partner would not create potential competition risk. Such JVs would allow an MNC to indirectly exploit its technology in China and allow Chinese partners to achieve dominant positions in China through access to technologies that are not available in China.

– Development-stage technology or technologies that need to be localized: forming a JV to collaboratively develop or localize a new technology would allow an MNC to reduce R&D costs, benefit from the fruits of R&D globally, and take advantage of government incentives in clean technology, alternative energy, biotechnology, and other industries encouraged by the government.

– Complimentary technology: partnering up with a Chinese company in a neighboring industry or with a complimentary technology to develop new products and explore new uses.

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IP Strategies Adopted by MNCs

New Anti-Piracy Technologies • New labeling/packaging technologies, such as radio-frequency

identification chips (“RFIC”), have been used by pharmaceutical companies, makers of special materials and jewelries, to detect counterfeits.

• New encryption technologies, such as digital right management technologies are being developed to prevent excessive copying on personal computers.

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IP Strategies Adopted by MNCs

Corporate Venture Capital• A number of MNCs in the telecom, pharmaceutical, retail, and other

industries are actively using corporate venture capital arms to invest in Chinese start-ups to:

– developing new IP assets in China– developing localized IP assets in China

• Provide an opportunity to selectively invest in local Chinese companies that are developing technologies that are

– complementary to the use of the MNC’s own technology– expand the use of the MNC’s own technology

• Cultivate a new generation of Chinese business partners who share similar respect for IP rights.

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Wenseng “Wendy” Pan, JD & PhDWenseng “Wendy” Pan is a partner in O’Melveny’s Shanghai office and a member of the Transactions Department. Her practice focuses on mergers and acquisitions, joint ventures, technology based transactions and strategic partnerships, especially transactions involving intellectual property rights in cross-border settings.

She is admitted to practice before the US. Patent and Trademark Office and has a deep understanding about intellectual property law. She is experienced in structuring, negotiating and executing transactions involving intellectual property rights through licensing, strategic alliance, acquisition and other commercial transactions.

Her licensing experience covers a broad range of industries, including the biopharmaceutical, software, gaming, entertainment, retail, e-commerce, consulting businesses. She is a frequent speaker on licensing opportunities in China.

O’Melveny & MyersShanghai Office37/F Plaza 66, Phase 11266 Nanjing Road West

Telephone:+86-21-2307-7031Facsimile:+86-21-2307-7300

Email: wpan@omm.com

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approximately 800 lawyers 15 offices 3 continents 23 languages

International Reach

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Counsel to the World’s Leading Companies

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100+ lawyers in Greater China. Offices in Beijing, Shanghai, and Hong Kong and 20 partners exclusively in the China practice group

China practice teams in the United States, Singapore, Japan, and the United Kingdom that work closely with our China offices

Regarded as one of the preeminent China practices of any international law firm

Publishers of in-depth reports on areas of current interest in Chinese law as a service to our clients and friends

• Long History in China– One of the first international law firms licensed by the Chinese

government to maintain offices in both Beijing and Shanghai– We were among the very first US law firms to establish a Shanghai

office, and ours is one of the largest mainland offices of all international law firms

• Hong Kong, China, and International Law– One of the first US firms licensed to practice Hong Kong law– Lawyers experienced in advising on a broad range of Hong Kong

law matters including energy, M&A, general corporate, and regulatory work.

– Extensive knowledge of the China market and work closely with local law firms on local and cross-border matters (we are not allowed to practice local law in China as is the case with all international law firms)

• Transactional and Dispute Resolution– Staffed to meet the needs of clients for large scale projects and

able to form teams to conduct due diligence, regulatory filings, negotiations, documentation and closings in both English and Chinese

– Experienced dispute resolution team has advised on contentious situations involving most Asian jurisdictions

O’Melveny has the leading practice in China

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Strong Government RelationshipsWe have stronger relationships with the Chinese government than other law firms. China is relationship based, and our longevity here has enabled us to forge connections and gain support by major stakeholders, including:

• Chinese and international financial institutions

• Chinese law firms• Chinese approval authorities

• Chinese government think tanks• local and international industry

chambers• major Chinese corporations

(whether State-owned or not)• China’s leading academic

institutions

We put these relationships to work for the interests of our clients

Strong Professional Relationships and Contacts within China

• We’ve recently advised both clients and relevant government authorities on cutting edge developments, including:

– Launching on the proposed international board in Shanghai

– Qualified foreign limited partners ("QFLP") pilot schemes in Shanghai, Chongqing, Beijing and Tianjin

– Antitrust and IP protection– Another ongoing confidential pilot scheme in Shanghai

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O’Melveny’s China Strengths – Full Service Platform Our lawyers’ capabilities span virtually every area of legal practice, including:• Anticorruption and Antifraud Compliance Counseling & Internal Investigations • Antitrust & Competition• Business Tax• Capital Markets• Dispute Resolution• Energy and Natural Resources• FDI/Market Entry• Fund Formation• Infrastructure• Intellectual Property• M&A• Private Equity and Venture Capital• Real Estate and Distressed Asset• Restructuring and Insolvency

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Intellectual Property PracticeKey Facts:

• Internationally recognized team

“[O’Melveny’s] illustrious name attracts a range of clients for IP work.” Chambers USA

“Brings a strength to the table that not many others can match… clients benefit from a strategically strong presence in Asia.” Legal 500

• Lawyers with technical backgrounds and education in engineering, physics, computer science, and life sciences, including several Ph.D.s

• Team offers comprehensive and coordinated representation on the most complex patent and technology matters, including multi-jurisdiction, multi-lawsuit, and multi-defendant cases

• Deep experience litigating in the International Trade Commission in addition to United States District Courts, Courts of Appeal, and the US Supreme Court

Representative Clients:

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Technical Expertise

Over Two Dozen Lawyers with Advanced Technical Backgrounds

• Chemistry

• Civil Engineering

• Computer Science

• Electrical Engineering

• Industrial and Operations Engineering / Industrial Design

• Material Science

• Mechanical Engineering

• neuroscience

• Physics

20 Lawyers registered to practice before the United States Patent and Trademark Office

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Transactional Intellectual Property• Business lawyers dedicated to protecting and exploiting IP

assets– Technology acquisitions and dispositions

– Spinoffs and restructurings

– Corporate partnering transactions

– Joint ventures and strategic alliances

• Market leader in structuring and closing complex and novel transactions that drive the realization of IP value

– First-ever transaction licensing core US IP into China

– Billion-dollar Sirna sale involving Nobel Prize technology

– Multiple US-China technology driven joint ventures

• Practical, business-oriented counseling informed by technical backgrounds and professional industry experience

• Frequently serve as de facto directors of intellectual property

• Unparalleled experience handling transnational IP-intensive deals involving the US and China, Japan, Europe, and the Middle East.

• Lawyers in:• Silicon Valley• San Francisco• Shanghai• Beijing • Newport Beach• Los Angeles• London

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Los Angeles400 South Hope StreetLos AngelesCA 90071-2899United StatesT: +1-213-430-6000F: +1-213-430-6407

Newport Beach610 Newport Center Drive17th FloorNewport Beach, CA 92660United StatesT: +1-949-760-9600F: +1-949-823-6994

New YorkTimes Square Tower7 Times SquareNew York, NY 10036United States T: +1-212-326-2000F: +1-212-326-2061

San FranciscoTwo Embarcadero Center28th FloorSan FranciscoCA 94111-3823United StatesT: +1-415-984-8700F: +1-415-984-8701

ShanghaiPlaza 66, 37th Floor1266 Nanjing Road WestShanghai, 200040People's Republic of China T: +86-21-2307-7000F: +86-21-2307-7300

Silicon Valley2765 Sand Hill RoadMenlo Park, CA 94025-7019United States T: +1-650-473-2600F: +1-650-473-2601

Singapore9 Raffles Place#22-01/02 Republic Plaza 1 Singapore, 048619 T: +65 6593 1800F: +65 6593 1801

TokyoMeiji Yasuda Seimei Bldg.11th Floor2-1-1, MarunouchiChiyoda-kuTokyo, 100-0005JapanT: +81-3-5293-2700F: +81-3-5293-2780

Washington, DC1625 Eye Street, NWWashington, DC 20006United StatesT: +1-202-383-5300F: +1-202-383-5414

BeijingYin Tai CenterOffice Tower 37th FloorNo. 2 Jianguomenwai Ave.Chao Yang DistrictBeijing, 100022People's Republic of ChinaT: +86-10-6563-4200F: +86-10-6563-4201

BrusselsBlue Tower326 Avenue LouiseBrussels, 1050BelgiumT: +32-2-642-4100F: +32-2-642-4190

Century City1999 Avenue of the Stars7th FloorLos AngelesCA 90067-6035United States T: +1-310-553-6800F: +1-310-246-6779

Hong Kong31st Floor, AIA Central 1 Connaught Road,CentralHong Kong S.A.R.T: +852-3512-2300F: +852-2522-1760

LondonWarwick Court5 Paternoster SquareLondon, EC4M 7DXEnglandT: +44-20-7088-0000F: +44-20-7088-0001

Office Locations

Jakarta*Tumbuan & PartnersGandaria Tengah III/8Kebayoran BaruJakarta Selatan 12130 IndonesiaThe Plaza Office Tower 41st F Jl. M. H. Thamrin Kavling 28-30Jakarta 10350 Indonesia+6221-2992-1988

In association* with Jakarta-based Tumbuan & Partners