Proposed Fund to Help IP Litigation

By Jia Hepeng for Intellectual Property Watch

China Proposes Fund To Help Its Firms Fight IP Litigation

BEIJING - China is proposing a fund to help its enterprises cope with rising international litigation related to intellectual property rights (IPRs).

The message, together with other measures, was delivered by Zhang Qin, deputy director of the State Intellectual Property Office (SIPO) at a national corporate IPR meeting on 2 September, but it was not made public until 10 September.

Sun Pingping, a spokeswoman of SIPO, confirmed the news, saying the scale and detailed operation of the fund have not been finalised.

Zhang told the corporate meeting that international legal cases on IP that Chinese enterprises face have been growing. While some of the lawsuits arise from Chinese enterprises' poor IPR awareness and ownership, it is possible that some multinationals are abusing IPR to block the rise of Chinese firms, he said.

Together with the fund, SIPO will help some enterprises streamline their IPR strategies, organise patent examiners to provide patent searches and establish early warning services to prevent the potential patent infringements by Chinese companies.

The policies came amidst more multinationals suing Chinese exports for allegedly having copied their patented products.

German auto giant BMW, for example, claims a sedan of the Chinese firm Shuanghuan Auto copies its X5 and is suing the German company that imported the car.

Three years before, thousands of Chinese DVD players were confiscated by a German customs after they were accused by an alliance of electronics giants such as Matsushita, Toshiba and JVC to have used their patented technologies without authorisation. The DVD patent dispute ended with Chinese manufacturers agreeing to pay royalty fees up to US$8 for per DVD player, whose price has been lowered to US$40 as a result of severe market competition.

According to SIPO, by the end of 2006, the US International Trade Commission (USITC) had instituted 58 Section 337 investigations - a major US measure against infringement of IPR - against Chinese enterprises. In 2006 alone, there were 13 such cases, accounting for 39.3 percent of the total number of the Section 337 investigations USITC launched.

"Although many Chinese companies lack patents for their products, the patent barriers for their exports are not insurmountable," Sun told Intellectual Property Watch. She added that if Chinese companies are active in addressing the patent disputes they are entangled in, they might find some relevant patents are outdated while others could be overcome by slight revisions. "The fund could promote more Chinese companies to reasonably face international IPR charges," Sun said.

However, it seems to Zhao Chen, a patent examiner at SIPO, that the proposed fund of SIPO is not enough to help Chinese enterprises in dealing with the patent litigation.

"A patent lawsuit in the United States could easily spend $6 to 7 million, and the limited financial strength of SIPO cannot support such big spending for many enterprises," said Zhao. The proposed SIPO fund would mainly play a symbolic role, encouraging Chinese companies to cope with international legal challenges related to patents, he said.

Zhao revealed that with the help of the Ministry of Commerce, SIPO has already worked out a guidebook on international patent litigation for Chinese firms, containing messages from practical recommendations to the contact information of the major US and European patent law firms.

Despite the measures and the planned litigation fund, Zhao said Chinese companies that will actively respond to patent litigations would not be many.

"[Being involved in] any lawsuit is a result of balancing costs and benefits. The profit for Chinese manufacturers in the international market has already been very thin, and they would hardly insist on lawsuits for the small profit," Zhao told Intellectual Property Watch.

He added that to make Chinese enterprises more positively cope with international IPR lawsuits, the collective force coordinated by industry associations is very important, but now Chinese industry associations are still too weak and reluctant to organise the activities, partly due to the difficulty in sharing costs and benefits.

While welcoming the SIPO's move to help enterprises deal with IPR litigation, Chen Naiwei, director of the IPR Research Centre at Shanghai Jiaotong University, thinks the measures on foreign IPR litigation should not be prioritised.

"For a latecomer like China in the world of patents, the key issue is to help patent applications avoid or get around the barriers set by the existing patents and reflect added innovation," said Chen. "Only in this way, the possible subsequent lawsuits can have a substantial basis."

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