In China, it is important that you know a few tricks of the trade when it comes to protecting your company secrets
China’s IPR (intellectual property rights) protection system is expanding and improving, but it remains vastly different from the European system. Accordingly, to be successful in China a business must take preventative measures to protect its intellectual property rights; one must obtain valid IPR rights in China as a minimum first step. In other words, the protection of IPR rights should be a key part of a company’s business strategy, whether entering or expanding operations in China.
While some IPR issues are common to all types of European companies doing business in China, others are specific to the technology industry. In this article, we outline appropriate patent and trade secret strategies.
Developing a patent and trade secret strategy for China
China has three types of patents: invention patents, utility model patents, and design patents. For a hardware invention, all three should be considered; this is because each will help to protect your product in different ways.
Invention patents cover products that provide solutions to technological problems – they are more ‘inventive’ than utility model patents, which essentially provide protection for technological ‘upgrades’. Companies developing software inventions should consider filing for protection under an invention patent. The Chinese patentability standards for software inventions are similar to those in Europe. Thus, a software invention that is patentable in Europe should generally be patentable in China, although the patents should also be registered separately in China. An invention patent lasts twenty years and should be used to protect inventions with a relatively long life. The duration of a utility model patent is only ten years. Since the ‘novelty threshold’ for utility model patents is lower than that for invention patents, utility model patents are suitable for incremental inventions and technologies with a shorter life span.
Since Chinese companies can freely access patent information in Europe and the USA, it is advised that companies register their invention and utility model patents in China before their inventions are released anywhere in the world. If your invention or utility model is disclosed to the public before it has been patented (i.e. it is no longer ‘novel’), it is no longer possible to apply for a patent.
Design patents protect the ‘look’ – or cosmetic appeal – of a product. In the EU, designs are automatically protected for three years. This is different in China, where if you do not register your design patent before you disclose it to the public in any way (anywhere in the world); it can no longer be protected by a design patent.
Trade Secret Protection
Trade secrets include confidential business information that may provide your company with a competitive advantage over others. Unbeknown to many, trade secrets can be extremely valuable intellectual property. However, since they are not registerable rights, protection strategies adopted by EU SMEs should be considered carefully.
Trade secrets can include a myriad of technologies, including source codes (to the extent that they cannot be reverse engineered). Trade secrets can also include operational information, such as processes and methods; or other information, such as marketing strategies and customer lists, so long as they meet all of the below requirements.
A trade secret is defined as:
1. Technical and business information that is unknown to the public;
2. Information that has economic value and practical utility; and
3. Information that the trade secret owner has palpably protected – the owner should have undertaken (demonstrable) measures to ensure its confidentiality.
Although trade secrets can be protected by a confidentiality agreement – as in Europe – it is also recommended that recipients of confidential information should sign an acknowledgement prior to receiving such information. If it later becomes necessary to file a misappropriation action, a trade secret owner must provide appropriate evidence to show that the trade secret meets the above requirements, in addition to proving there has been misappropriation of the trade secret by a wrongdoer or a third party.
In the case of trade secrets, prevention is the best strategy. However, companies that take enforcement actions can, and have, received positive outcomes from Chinese courts.
Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and emerging ASEAN, we are your reliable partner for business expansion in this region and beyond.
For inquiries, please email us at email@example.com. Further information about our firm can be found at: www.dezshira.com