Chinese enterprises should be prepared for the IPR disputes

Editor's Note: During the past decades, Chinese companies have established a presence in almost every corner of the world with their low cost products and flexible cooperation strategies.

But at the same time when made-in-China goods are prevalent, Chinese companies are also finding themselves more frequently than ever involved in IPR lawsuits in foreign markets.

Since 2002, Chinese companies have received more Section 337 investigations from the US International Trade Commission (ITC) than any other country. A Section 337 investigation deals with allegations of patent infringement and trademark infringement by imported goods in the US and last year more than half of the investigations were targeted at Chinese companies. In Europe, Chinese companies are also under greater pressure at both government and corporate levels.

Robert Yoches, an attorney from Finnegan, a US Intellectual property law firm, said that although Chinese companies are becoming successful in the international market, most of them are "unprepared" for the IPR disputes that they may face in foreign markets.



On his recent trip to China, Yoches talked with China Business Weekly reporter Wang Xing about how Chinese companies could better deal with IPR lawsuits in the United States.

Q: Is it very difficult for Chinese companies to win IPR lawsuits, in the United States?

A: First, I don't think there is, in most places, any prejudice against Chinese companies. Maybe in the 1970s and 1980s I would have given you another answer, but now I don't think that's much of a problem.

Second is that the Chinese companies do have a problem because they are unprepared for US litigation. That is because they hadn't put their affairs in order and they hadn't got the opinions they should get. In addition, Chinese companies often do not take the issue seriously the first time. So they will get a warning letter and they ignore it and sometimes they get a complaint and they ignore that. That brings a lot of trouble. So overall the Chinese companies have difficulties in litigations in the United States but most of the difficulties are correctable.

Q: In which way do you think most of the Chinese companies are unprepared?

A: Before entering the US, many Chinese companies did not see if there are any important patents that they had to be careful of. Because if they were, they can seek a legal opinion to see whether or not they can change their design a little bit to avoid a lawsuit or maybe they should take a license. Because it is always easier to get a license before you infringe than after. Or they aren't prepared economically. They should put the money aside for the fact that they might sued. So the unprepared companies are those that did not look at the risks and did not obtain their own Intellectual rights to protect themselves.

Q: Many argue that the Chinese companies do not buy licenses because they can't afford to. What's your view on that opinion?

A: They need to face following choice. Is a license going to be less expensive than damages from a lawsuit? And if they decide not to get a license then they have to pay large damages. There is a recent case. There was a company in Taiwan call Real Tech. And they just lost a lawsuit in which the damages were between $35 to $40 million and maybe tripled. I don' t know if this is the fact but the rumors is that they could have got a license for $3 million. So they might think at the time that $3 million was too much to pay for a license because it would reduce their competitiveness in the United States. But they paid a lot more than $3 million.

On the other hand if the license request is so outrageous that you can't make a profit or if you can't compete and maybe it makes more sense to take that risk. But at least they made a decision.

Q: What are the good ways for Chinese companies to reduce the impact of potential IPR lawsuits before they come to the United States?

A: There are three ways. First, suppose your competitors in the US have a patent on a DVD player. But their patent is limited to a particular circuit. So you may get your engineers together and design a DVD that does not have that circuit. That's called redesign.

Or you can ask the patent office to look at the US patent again. If you can show that when they granted it the first time they didn't have the 'best prior art' (that they think might be relevant to determining if an invention is new and non-obvious, as the law requires.) If the patent office knew about it, they wouldn't grant that patent.

The third way is that when you're coming to the US, your competitor sent you a warning letter and said you'd better stop because you are infringing those patents, you could say 'well, listen, you've got a nice patent, but I have those five patents. So let's sit down and talk. And then you cross license. But in those situations, the Chinese companies have to take the situation seriously.

Q: What can Chinese companies do with the Section 337 investigation?

A: The best thing you can do in an ITC investigation is a redesign, because all an ITC can do is to stop import of an infringing product. Let's say if you never heard of this patent before, you could launch a suit in the ITC and it's going to take another 12 to 15 or 18 months before a final decision comes out. But during that time you can change your product. Then even if you lose and they are going to stop the importation, you have a new product so you don't care.