China Manufacturing Contracts vs. Your Existing Patents

China contract lawyersEarlier this year, in China and Worldwide: Trademarks Good, Patents Bad, I wrote about how patents are overrated as compared to trademarks.

I cannot tell you how many times I’ve had companies swoon over the idea of spending big money to secure a patent and pooh-pooh my suggestion to spend small money to secure a trademark. Honestly, most of these companies don’t really get it.

I went on to write about how patents are usually expensive to get and expensive to protect whereas trademarks are relatively inexpensive to get and inexpensive to protect.

I then talked about how if sending a cease and desist letter to try to get someone to stop violating your patent usually results in their claiming there is no violation. I then mentioned how if you go to the e-commerce sites on which the alleged patent infringer is selling your product — even if that product almost certainly does infringe your patent — and you ask that e-commerce site to take down the infringing product, the odds are good that site will tell you they are not patent lawyers and you will need a court order or a judgment for them to take it down.

All of this means that if you want to stop your competitor from selling what infringes on your patent you must sue and you likely will need to hire an expensive expert to prove the infringement. Few things in life cost more than international patent litigation, and since my law firm does international patent litigation, I know whereof I speak on this.

I then wrote about why trademarks are simpler and cheaper:

  1. Securing a trademark typically costs 1/3 to 1/4 less to secure than a patent. This is true pretty much everywhere.
  2. If you believe someone is violating your trademark and you send them a cease and desist letter to get them to stop doing so, there is a decent chance they will stop, especially if they are not in the counterfeiting business.
  3. If you go to e-commerce sites and request the product infringing on  your trademark be taken down (and it is in fact violating your registered trademark), there is a very good chance it will be taken down. This is generally true of the leading e-commerce sites around the world. It does NOT take a lawyer to know that if I have a registered trademark in China and the United States for “Harris Special Orthopedic Device” (in the right class), anyone else selling “Harris Special Orthopedic Device” in China or the United States (that did not come from me) is violating my trademark. My law firm’s success rate in taking down offending trademarks is super high. Like 99+ percent high.
  4. Should you choose to sue for a trademark violation, proving the trademark violation is oftentimes relatively easy.

All of the above are also why contracts are another key to protecting your IP from China.

Let me explain.

As we have written here so many times, your scariest competitor is your own supplier. See Your China Factory as your Toughest Competitor. Chinese factories will apply what they have learned from making your products and use that information to compete directly with you. My firm’s China lawyers are fond of pointing out to our clients, “since you will essentially be educating your Chinese manufacturer in how to compete with you, you need contracts that will at least limit what it can do when it does so.” And if you believe it does not make economic sense for your China factory to sell your product directly, let me tell you that our China lawyers have seen so many cases where this has happened that we know it often does:

We have gotten more calls in the last year from companies whose China factories are now directly competing with them than in probably the three years before that combined. Chinese factories are more confident now than they have ever been about going out into the world with their own products, and more willing to toss their foreign customers to the curb early. E-commerce sites do not help matters and the US-China tariff war has been like throwing accelerant on the problem. The US company tells its China supplier that it needs lower prices to make up for the tariffs and the Chinese company — usually surreptitiously — then starts competing directly with its US buyer to make up for its falling margins.

Far too often our clients believe they are protected from their Chinese manufacturer if they get patent protection in all of the markets in which they sell their products (usually this means some combination of the US, Canada, Australia, Europe, Japan, Korea, Mexico and Brazil) since their patents will prevent their Chinese manufacturer from being able to sell into those markets using the client’s IP. Legally, this is correct, but practically, patent lawsuits to stop patent violations are incredibly expensive and time consuming. Do you really want to be embroiled in simultaneous patent litigation in Spain, Japan and Brazil?

In addition, where product development takes place, there is usually an innovation or improvement your Chinese supplier will claim gives them independent rights in the improved product. Since the Chinese side does the work, they are often correct about this, particularly under the civil law patent approach which allows for minimal innovation as the basis for an independent patent claim.

well written contract with your Chinese manufacturer that makes clear that your manufacturer cannot copy your product (beware: these provisions are not easy to write) and makes clear that a breach will lead to real-life and enforceable consequences can give you massive and far-reaching and low cost protection. To the point that your manufacturing contract will likely be more valuable for protecting you even in those countries in which you have a patent,

A well-crafted manufacturing contract also has another powerful benefit that your patents in the US, Canada, Australia, Europe, Japan, Korea, Mexico and Brazil lack: your contract can work worldwide. So yes, getting expensive patents in these places is great, but they do not give you protection in India or Indonesia or Peru or New Zealand, etc., whereas your manufacturing agreement with your Chinese manufacturer can.

So though patent protections can be valuable, they are not the end-all for China or the rest of the world, by any means. Protecting your product against counterfeiting requires a holistic approach tailored to your specific product and situation, usually involving some combination of patents, trademarks, and contracts and more.

For more on the sort of contracts you can use to protect yourself from China counterfeiting, check out the following:

This article was written by Dan Harris and published on China Law Blog. Original Post: https://www.chinalawblog.com/2018/08/china-manufacturing-contracts-vs-your-existing-patents.html      

View the original article here.

Dan Harris

Dan Harris is internationally regarded as a leading authority on legal matters related to doing business in China and in other emerging economies in Asia. Forbes Magazine, Business Week, Fortune Magazine, BBC News, The Wall Street Journal, The Washington Post, The Economist, CNBC, The New York Times, and many other major media players, have looked to him for his perspective on international law issues.