Adverse Consequences of not registering IP rights in China Author: Toby Mak This is a case study regarding adverse consequences of not registering IP rights in China.

What happened? UK inventor invented a chair Wanted to make good money out of it Needed to find someone to make the chair The story begins with an UK inventor. He invented a chair, and naturally, wanted to make good money out of it. However, the UK inventor did not have capabilities to do mass production, and therefore had to find someone else to help him to manufacture the chair.

What happened? (continued) Engaged a Dutch company Dutch company sub-contracted to a Chinese manufacturer Filed a UK patent application, but abandoned prior to publication, and did not file abroad including China within the necessary time period Initially, the UK inventor engaged a Dutch company. This Dutch company sub-contracted to a Chinese manufacturer as it would be much more cost-effective to manufacture in China. The UK inventor was aware of this sub-contracting relationship, but did not pay much attention to this. Although the UK inventor filed a UK patent application for the chair he invented, this UK patent application was abandoned before publication. Further, no applications were filed abroad within the required time frame, including China. The chair was not made available to the public by sales or publication as the UK inventor expected his chair would be a big hit to the market. The UK inventor had the notion that patent enforcement was not that effective in China, and he was going to lose nothing for not filing in China.

What happened? (continued) Relationship with Dutch company turned sour UK inventor found a French company to continue the project Chinese manufacturer has registered design and utility model for the chair in China (!) However, the relationship between the UK inventor and the Dutch company turned sour, and the UK inventor decided to terminate the relationship with the Dutch company. The UK inventor then found a French company to continue the project. The French company provided a very lucrative deal to the UK inventor. However, during the due diligence process, the French company discovered that the Chinese manufacturer has design and utility model for the chair of the UK inventor registered in China. Naturally, the French company put the project on hold until the issues of the Chinese utility model and design are resolved because otherwise, the French company cannot legally manufacture the chair in China, and export the chair from China. Consequence - everything put on hold until issues of the Chinese utility model and design are resolved

What can the UK inventor do? Invalidate the CN design and utility model Unlikely to be successful as the invention was not publicly disclosed Claim to be the correct owner of the CN design and utility model Difficult, particularly if the Chinese manufacturer claimed that they originally developed the chair The CN design and utility model would not have caused any problem if the UK inventor filed patent application in China claiming priority from his UK application The UK inventor was literally “jumping up and down” when he heard about the Chinese utility model and the design. In such a situation, the UK inventor can either invalidate the Chinese registered rights, or obtain ownership of such registered rights to resolve the French company’s concerns. The problem is, can he achieve either one of these? Firstly, it is unlikely to invalidate the Chinese design and utility model in this case, as the chair was not publicly disclosed by means of publication and/or sales. When a person applies for a patent and is not entitled to do so, the true owner of the patent can apply to become the correct owner through specific proceedings. These are known as patent entitlement proceedings, which have the purpose of adding the proper patentee to the patent, or rectifying a Patent Register so that the proper owner is recognized. Such entitlement proceedings are available in Europe and China. However, if the UK inventor wish to claim as the correct owner of the Chinese design and utility model, he would find that it is unexpectedly difficult even if he used a certified copy of his unpublished UK application. The reason is that the Chinese manufacturer would very likely claim that they originally developed the chair, and have not seen anything from the UK inventor. As the relationship between the UK inventor and the Chinese manufacturer is indirect and the UK inventor did not pay much attention to the Chinese manufacturer, it would be difficult for the UK inventor to prove that the Chinese manufacturer had taken drawings from the UK inventor directly or indirectly to obtain their Chinese design and utility model. Alternatively, the UK inventor can consider negotiating with the Chinese manufacturer to buy the Chinese design and utility model from the Chinese manufacturer. However, apart from the difficulty of accepting this emotionally, the Chinese manufacturer is likely to ask for a high price as these rights are now valuable to the UK inventor. All the above difficulties and issues will go away if the UK inventor had filed a patent application in China claiming priority from his UK application before having any business deal in China directly or indirectly. In this case, the UK inventor had an indirect business relationship in China. If the UK inventor did file a patent application in China for his chair claiming priority from his UK application, the Chinese manufacturer’s design and utility model will become invalid in light of the UK inventor’s Chinese application. Unfortunately, the UK inventor had not done so within the required time frame in this case.

Take-away messages Involvement of sub-contractor → caution Register IP BEFORE having any direct or indirect business deal in China If you do not register your IP, someone will do it against your business Registering IP in China serves offensive and defensive purposes Here are some take-away messages in light of this case study. Firstly, whenever a sub-contractor is involved, great care should be taken. Important questions like the identity and reputation of the sub-contractor, and what will be and/or has been supplied to the sub-contractor particularly with respect to information on products that are potentially patentable should be asked. Proper records, preferably notarized, of important information passed to the sub-contractor should be made. It would be even better if background check against the sub-contractor can be done. However, the most important point to note is that one should register their IP before having any direct or indirect business deal in China. Otherwise, someone will register the IP against you. The current case study only one of the many other real life examples. Obtaining registered IP in China is not only about suing someone, as IP registrations are also useful in defense against infringement claims or bad faith registrations. This is one function typically not well recognized by people outside of China, as in the Western world, there are various alternatives to rectify such situations, for example using lab notebooks, email correspondences, and so on to establish one’s case. However, in China, such evidence would usually be rejected or challenged on self-procurement basis, that is, there are doubts in the authenticity of the evidence provided by the plaintiff who is going to use it in his/her favor. Then the burden of proving the authenticity of these materials is on the plaintiff side. By sharp contrast, IP registrations are recorded in government departments, and can be used as evidence undeniably. As in the current case study, the Chinese design and utility model troubling the UK inventor will go away easily if the UK inventor had filed a patent application in China.