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The Campfire Stories of IP Enforcement in China

Issued: May 11 2018

As Beijing wraps up its yearly National People’s Congress and Chinese People’s Political Consultative Congress, many in the legal space have been tuning in for policy-level support for IPR protection and technological development. But for those helping brands and companies in their everyday business, the challenges and corresponding strategies carry an extra grain of reality.


A common challenge that comes up time and again, especially against foreign companies with an established presence elsewhere but which are just beginning to enter China, is having their trademarks and product designs challenged by IP squatters. While infringement is not new, its perpetuators have become more resourceful, moving from plain counterfeiting to same and cross-category registrations, armed with their own IP advisers and legal strategies like records of IP usage, requests to invalidate and challenges to inventiveness.



Michelin in China: Mi Qi Lin or Mi Zhi Lian?


We’re seeing more aggressive and sophisticated actions of squatters and counterfeiters, says Mingming Yang, a partner at Wan Hui Da Intellectual Property Agency in Beijing. When his team helped Michelin fight for the use of its Chinese name, the tyre-turned-restaurant-guide-guru had registered a trademark for its Chinese translation Mi Qi Lin (米其林) in China and Mi Zhi Lian (米芝莲) in Hong Kong, as the two regions have different translation norms. The Hong Kong spelling of Mi Zhi Lian was rarely officially used in any promotional materials and the brand was just starting to gain foothold in China. That was when Michelin discovered a restaurant had registered the Mi Zhi Lian mark in China and was creating confusion against Michelin’s business, being in a different yet similar food and beverages category.























Michelin had to fight for the use of its Chinese name, Mi Qi Lin (米其林) in China and Mi Zhi Lian (米芝莲) in Hong Kong.



The name Mi Zhi Lian had only appeared officially in the Hong Kong version of the guide that was occasionally found in China, and the infringing mark had been registered for some seven years, rendering Michelin unable to oppose the trademark as it was not recognized as a famous mark then. Since its registration, the Mi Qi Lin mark had been sold to a squatter with a record of hounding famous brands for Chinese trademarks with exuberant prices.


Building a case around both the non-use of the Mi Zhi Lian mark and the malicious intent of the squatter, Yang drilled the evidence submitted by the squatter as well as highlighted its past blackmailing behaviour. For example, he challenged the promotional banners prepared by the squatter using the Mi Zhi Lian name as insufficient to show conventional commercial use, while providing excerpts of social media discussion and popular culture references to Mi Zhi Lian in China to show that this name is closely associated with the Michelin brand due to market influences from Hong Kong and the ubiquitous spread of the internet.


Examining the squatter’s evidence closely also revealed suspicious details like purchasing receipts that were unusually concentrated in date ranges and couldn’t be independently verified against social media and other platforms that more visibly engaged general consumers. “They even produced a warning letter issued by a local government agency complaining of blockage of the pedestrian path by the alleged restaurant’s light box, which bore the name Mi Zhi Lian on it,” recalls Yang.


Eventually, the court accepted Michelin’s claim that the Mi Qi Lin mark was not in actual use by the squatter and was not registered in good faith with intention of commercial use, allowing Michelin to ultimately claim the use of the alternative Chinese translation.


“This case proved successful in making a cross-category claim to a registered trademark, but often times if a dishonest business is actually in operation and leveraging a mark famous outside of China, the more cost and time-efficient solution might be to license or buy the mark off once and for all,” cautions Yang.


This highlights the importance of registering sufficient marks and engaging IP professionals with a deep understanding of the local market as soon as possible, even for foreign companies who may not believe they have the appetite for foreseeable plans for the Asian market. “Just take JD International and Tmall Global, and think about cross-border bulk retail purchasers (代购 or dai gou) that are all the rage among Chinese tourists globally,” says Yang. “For example, you’d think the milk powder craze has died down, but no, we’re actually seeing many squatter challenges in that space now.”


China is becoming the biggest market for many industries, and it will dawn upon many brands whether they choose to or not. There’s been more flexibility and willingness among the China Trademark Review and Adjudication Board (TRAB) at considering cross-category marks with a clear intention of malicious/ squatting behaviour, Yang observes, while he comments that it is understandable for the Trademark Office of the State Administration for Industry and Commerce to be more rigid in applying cross-category consideration at the initial registration and administration stage as it needs to uphold a standardized bar in face of an avalanche of applications.


“While evolving interpretations are good to keep in mind, my general advice to brands would still be to adopt a diverse and responsive suite of strategies to protect the brand: buy it, fighting, invalidate it.”



How About a 1982 Lafite?


Heather Hou’s client, the renowned Château Lafite Rothschild, came up against a similar Chinese trademark challenge, only this time the mark was registered by an actual, operating French winery in the same product category. Another problem for the Unitalen Attorneys at Law partner was Lafite’s Chinese name 拉菲 was unregistered in China, running up against 拉菲庄园, a registered trademark by Nanjing Golden Hope Wine Co. The case therefore involved proving an unregistered wellknown trademark against a previously registered mark in both China and France, sitting uncomfortably at the intersections of unregistered famous mark, IPR territoriality and validity of existing registered trademarks.


While the suit was made a Top 10 IP Litigation Case in 2016 by the China Supreme People’s Court with its legal implications amply analyzed, Hou shares the lesser-discussed but widelyuseful takeaway of having to stay open-minded and alert when handling evidence. A key challenge Hou faced lied in proving Lafite was closely tied to the 拉菲 name and had been wellknown before the counterparty’s registration in her attempt to invalidate the mark. The problem was Lafite was a high-end brand that didn’t promote itself as visibly as the courts may be used to seeing in other trademark cases, says Hou. The record of marketing activities and customer interaction were also scarce in China and had little effect in establishing a clear time stamp. But Lefite is famous and there are so many popular sayings around it, thought Hou, recalling famous Chinese movie quotes like “Get me a couple of 1982 Lafite, your prettiest girls, oh, and don’t forget the bill.”


Then the muse came and she looked up references in the Young and Dangerous film series (古惑仔系列) that was popular in Hong Kong and China in the late 90s and early 2000s, where the top dogs of the story’s triad gangs were seen enjoying Lafite as a symbol of their status. She also scoured high-end lifestyle magazines for advertisements and references to the chateau to highlight its fame in the exclusive community.























Château Lafite Rothschild defended its trademark against both a French winery and Chinese company which had registered the name on its own behalf.




On the other hand, Hou sought to prove consumer consumption and recognition at source: imports. After initially meeting a brick wall with China’s customs authority, she got in touch with third-party data providers who aggregated customs records that formed her preliminary evidence on imports data, which convinced the court to work with Customs to produce import records dating years back to show Lafite’s early presence in China.


“Another interesting point in this case is how the evidence – evidence provided by the defendant – helped secure the significant Rmb2 million (US$316,000) award for our client,” says Hou, with a curious sparkle in her eye. What happened was the defendant’s attorney produced very precise sales records as proof of their operations in the country; but considering shipments for wine often come in bulk measured by cases, the figures were substantial and did not help with lowering the damages when an unfavourable judgement came down. “I wouldn’t have produced contracts like that given the risks involved,” says Hou. “But my counterparty was eager to prove a point, almost purely academically without a well-rounded consideration.”


The fact that the defendant’s attorney failed to explain some unusually high prices of his client’s wine found in the evidence didn’t help. “He dismissed those prices as discrepancy between in-store and online platforms, but a closer look would show it was because one platform was selling them in cases while the other was in single bottles or smaller batches. The unit price and profit margin were actually lower than it seemed but he failed to debunk that,” she points out.


When it comes down to it, it’s really about being both openminded yet acutely aware of the details, says Hou. Considerations for suits and therefore its arguments and evidence are also changing, as she observes greater willingness for courts to consider the market performance, usage and intention in registration when calculating damages. The range of evidence accepted is also widening, with social media interactions and ecommerce platforms expected to play a greater role in narrative a brand’s influence.


“Ultimately, the narrative around the suit is not merely that of famous unregistered trademark or infringement, but it’s about a brand story and history, and you need to deliver that to the judge to get a fair judgement and meaningful damages,” she says.



Better than Suits and The Good Wife


IP owners need to be extra vigilant because infringers are prepared for lawsuits and may even take the counter-offense, says Gary Wu, a partner at Kangxin Partners in Beijing. He recalls a Swiss company manufacturing and selling scooters globally. Back in 2014, the client discovered a small infringer in Zhejiang province and sued for design patent infringement. The suit was settled with the infringer promising against any future infringing actions. Yet soon after the settlement, the infringer resumed production, and countered his client’s complaint by challenging its design’s patentability on the grounds of prior art and lack of inventiveness.


“Many foreign clients are used to issuing cease and desist letters right away when they run into infringement activities, but they may not have thought through the need of forming a secure chain of evidence and defending their own IP in the first place,” says Wu. In the scooter’s case, the approach became one of first defending the client’s design patent, upon which the infringement case rested.


A key takeaway for rights holders is to regularly evaluate the stability of your patents, says Wu, as frequently, infringers file invalidation requests against the patent concerned with the aim to suspend the lawsuit if the plaintiff fails to provide the court with a favourable Patent Evaluation Report. But because the report, only allowed to be initiated by the right holder but once performed, is public record open to consumers and infringers alike, Wu advises IP holders to be strategic about its use. “Rights holders should engage professionals to perform an internal stability analysis first to get a better understanding of how likely their patent is to be invalidated, and devise actions based on their risk analysis and appetite,” he says.


Evidence is especially important for calculation of damages, an issue of increasing stakes as Chinese courts have become more willing to award meaningful damages that are relatively more punitive than compensatory in nature. Spend the time to gather all the evidence you need before you “beat around the bush and alert the snake,” says Wu using a fitting idiom, whether it is digging out the customs records to estimate sales figures or notarizing all the relevant marketing materials that may provide an estimation for the size and nature of the infringing party’s operations. These are circumstantial information that can come into play when one is pushing for a higher damages award, especially when hard figures and the full extent of infringing production is often hard to come by.


On the other hand, evidence collection became two-fold for the scooter bike case. Kangxin scoured the market to prove that their client’s design was not substantively identical to prior arts, and at the same time, analyzed the significant differences between the client design and infringer’s prior arts to prove uniqueness of design. In this case, notarized purchasing both online and on-site were sufficient, but in cases where infringement evidence is more obscure, more exceptional methods might be called for.


Unlike many practitioners who work with external investigators, Kangxin has developed its in-house investigation team to overcome the perils of evidence collection. The firm deploys “trap forensics” by providing opportunity for criminal action, says Wu. Generally speaking, the legality of evidence obtained through trap forensics is limited to evidence collected through such model as opposed to enticement of criminal intent, and such is a preferable way to argue in court as it implies existing criminal intent on the suspect’s part.


The Kangxin investigation team often works in two divisions simultaneously, with one group contacting the targets to fix sales and counterfeit production evidence through direct purchasing, and the other conducting on-site investigation during the sales process to lay better foundation for subsequent action taken by the Public Security Bureau.


Especially for non-consumer products like industrial goods and parts, infringers are highly alert given the niche clientele and relatively tight industry network. “They will question what kind of customer we are, the products we make and the background of our business,” he says, “and that’s when we may work with external industry partners to help our investigation team break through.” He points out that it’s pivotal that clients understand and respect the planning involved in such process, as it could be months before a visible action is taken to raid the infringing production.


“If you try to find the profiles of our investigators online, you simply won’t be able to because it has to be this secretive to gain infringers’ trust,” says Wu. It’s like one of those legal TV dramas I used to watch, I suggested. “No, it’s better than that,” he laughs.



The ABCs of IP Enforcement


If trademark challenges in the milk powder industry says anything about where market potential lies, it certainly reveals the lure of education of children and all its peripheral markets. Horace Lam, managing partner of DLA Piper in Beijing, shares a case where the international firm’s client, a world-renowned children’s book series that was just beginning to enter China some years ago, saw its name registered and used by a kindergarten. After initial administrative action, whereby the kindergarten promised to change its name, it was discovered the infringing activities had resumed, prompting the brand to step up its action.



































A DLA Piper client, a world-renowned children’s book series that was just beginning to enter China some years ago, saw its name registered and used by a kindergarten.



Recognizing this was not only a trademark issue but that concerning the vast market potential of the youth education market, the DLA team filed three cases against the infringer citing copyright infringement, trademark infringement and unfair competition. Building its main grounds upon prior rights, the team invested in collecting and compiling evidence of their client’s recognition in the country despite relatively scarce sources. “The process was especially difficult as China’s evidence requirements are vastly different from the rest of the world’s, and it was important that we educate our client on that too,” says Lam.


Backtracking a few years back to when “bad faith” was little discussed or heard as a convincing argument in court, the DLA team also took a more venturous approach in painting a story around the malicious intent of the infringer when registering its rights. On the one hand, they pointed out the hastiness of the kindergarten in registering over 20 relevant trademarks prior to the suit, highlighting the sheer amount and similarity in design and nature of the marks filed to underline the intention of the infringer at leveraging consumer confusion to their benefit. On the other hand, private investigators were engaged to elicit and notarize admissions of intentionally freeriding on the client’s brand. “We were able to get intentional evidence that these infringers knew how similar the marks were and went ahead to file them precisely because of that,” says Lam.


“We’re seeing this line of argument being increasingly wellreceived by the TRAB, as bad faith arguments have never been easy,” says Lam. “They (TRAB) are now much more willing to look at this issue if you have a case where a hijacker has registered many other trademarks of many other brands, while your client is but one of the parties affected.” The multi-faceted approach eventually helped DLA invalidate the trademarks concerned and has since informed the team’s approach in constructing a narrative around “bad faith.”


Any advice on best practice when working with in-house counsel and foreign clients who are often both unfamiliar and highly suspicious, if not downright anxious, about the Chinese market?


“Understand your client,” says Lam without skipping a beat. He recalls the deep trust he had built with the children’s book brand after their first meeting. “We genuinely believe in the brand’s potential – think education, merchandizing, entertainment, music – and we were able to show an understanding of the client’s ultimate goal and what this suit really means to their business model.” This understanding translates to a deep knowledge of each client’s nature of business and unique challenges, and the ability to approach their problems in a holistic and empathetic manner.


And from the perspective of a foreign company that sees their products copied, IPR challenged in court and even goods seized at Customs, it can be a very daunting situation to wrap one’s head around. “[The legal challenges and remedies] are not easy and quite frankly it’s expensive and complicated,” says Lam, emphasizing how important the mutual trust is in situations from explaining a complex litigation strategy to presenting a bill.


“People like to say [the lack of understanding] is about the language, but I disagree. I think it’s really about bridging the culture and gaining a true understanding,” muses Lam.



Are We Talking About False Advertising, or Are We Talking Drug Regulation Violation?


One of the oldest IP firms in China offers some timeless advice using several remarkable cases their team has handled.


“Speed may not always be the go-to option in evidence collection,” says Deqiang Zhu, senior patent attorney at CCPIT Patent and Trademark Law Office in Beijing. He recalls a case where his team pushed for pretrial evidence preservation, coordinating with the court’s technical inspectors and law enforcement officers to raid the site of suspected infringement production and deliver the letter of indictment at the same time. “It was important that news of the lawsuit didn’t reach the infringing parties before we secured evidence of production, which involved three parties: producer of the infringing part—a cylinder drier to steam-press tissue paper, producer of the whole production line, and the business that used the production line.”

























A CCPIT client, an established hair products brand, had trouble fighting another brand that deployed confusing packaging but using a radically different trademark.



The risk of having to compensate for disruption to the infringer’s production also had to be balanced, says Zhu. The court wanted a collateral of Rmb500,000 (US$79,000) to ensure the defendant’s business wouldn’t be adversely affected before guilty was proven. To work around the financial hurdle, Zhu’s team researched thoroughly the inspection needed to prove patent infringement and agreed with law enforcement to limit operation cessation to eight hours, with inspection/ preservation markers contained to machines parts that wouldn’t hinder production. In the end, the team only had to pay several thousand yuan for an insurance company to issue a letter of guarantee. “None of that would have been possible if we just jumped ahead with the indictment without devising a plan to secure the essential evidence in the most efficient way,” says Zhu.


There are other times when evidence collection is challenging in a more indirect sense, says CCPIT trademark attorney Yue Zheng. Instead of going after evidence of her client’s market presence in cases where prior arts are obscure and hard to prove, she tries to understand the intricacies of the industry and trademark category for alternative areas that may bring breakthrough to a difficult case. “One time our client, an established hair products brand, had trouble fighting another brand that deployed confusing packaging but used a radically different trademark. Their line of marketing was also similar in that it emphasized a certain chemical used in our client’s formula, a defining feature of the client product.”


Zheng analyzed the trademark and consumer product registrations and realized her client’s shampoo was registered as a drug while the defendant’s was not, implying varying chemical content although the infringer marketed its main ingredient as being comparable. “So we sat down with the defendant and we told them: either we’re talking about false advertising, or we’re talking about a violation of drug registration regulations, which is a completely different story.” The case was settled out of court in favour of CCPIT’s client.


“You need to approach a case from multiple perspectives and keep an open mind while you do,” says Aimin Huo, deputy director of the firm’s legal division. “Sometimes you might not be able to attack the problem directly, and it may be just as effective getting around it by examining other facets like nuances across categories. Other times, for example in the case of pushing for higher damages, it may be important to gather more circumstantial evidence around the size and nature of the infringer’s operations even though you cannot obtain solid sales figures.”


It is also important to know your own IP portfolio and weaknesses before jumping right into action, says Huo, pointing out that clients are not always rational when the first thing that comes to mind is often “send them a cease and desist right away!”


“In the end of the day, always try to register first, and register more,” he says. “Especially with the proliferation of ecommerce, infringers and squatters will be moving down the ladder to less famous brands in hopes to cash in on future potential.”



Facing Off with the Squatters


Beijing Lusheng Law Firm, the Chinese member of the global firm Rouse’s network, has employed similar tactics when facing off with squatters.


“We had a client whose trademark was registered under the drugs category that came up against a copycat whose mark was registered as a food supplement. Although the intention to freeride on our client seemed quite apparent at first sight, the infringer came well-prepared and argued that they are a legitimate company registered in Hong Kong,” says Sharon Qiao, a partner at Lusheng.


In other cases, she’s seen squatters register highly similar trademarks and design patents as foreign companies, imitating even the marketing styles and techniques and using this near identicalness as argument in court that they are in fact exercising their own IP rights. The way of fighting such squatters comes down to giving the court strong enough reason to overturn existing, if not laxly granted and carelessly monitored, IP rights.


“There are several ways you can approach trademark squatting. When facing cross-category registration, we can try to fight the challenger by establishing a well-known trademark. When tackling an infringing registered mark in the same category, we may try to establish our client’s reputation before the infringer’s registration,” says Qiao.


Yet part of the difficulty lies in the fact that problems arising today are legacies of a past when online records are scarcer, suspicion of IPR in China higher and use of its registration systems lower; proving “certain degree of reputation” in the process of invalidating a squatter’s mark is often harder than it sounds. “That’s when you really have to look at the respective industry in detail,” says Landy Jiang, partner at Lusheng. If you cannot find proof of promotion and consumer awareness for your client’s drug, maybe you are not looking in the right places. Realizing medical products have advertising restrictions, the Lusheng team focused their evidence search on medical magazines, industry communications like tradeshows and conferences, and provided examples of hospital and insurance contracts. You can’t just check off boxes on a list of definition to “certain reputation,” and it’s important you educate the court of this too, says Jiang.


Furthermore, focus on telling a story instead of making a broad argument around “bad faith,” she says. It may be true the client and the infringer have very similar marks and designs and that the infringer has equally well-protected IP registrations, but what’s your client’s brand story? What are the historical backgrounds around the trademark design and brand identity, and how does the client deliver these through the various aspects of the product? How likely do you think anyone would come up with this certain name, Chinese or English, had there not been such story behind the brand? What are the investments the client made to develop and maintain this narrative?


Squatters have become more sophisticated and usually target vulnerable companies that are “in between,” says Joshua Mandell from the Rouse Consultancy (Shanghai). “The age of the ‘unregistered wellknown trademark’ is over,” he says, commenting on the trend of smaller, high-potential but lesser-known clients being the targets of aggressive squatters who employ means from seizing the foreign company’s imports at Customs and raiding their local offices to outright asking for astronomical licensing fees as ransom for the trademarks.


“Especially with the rise of ecommerce, one can leap from a small company to a global brand in a matter of months,” says Mandell, “and business expansion could greatly outpace one’s IP portfolio management and strategy.” This necessitates an even more proactive and anticipatory mentality among businesses, all the while keeping in mind that the legal system, despite making big strides, will always react with a lag to market forces and distortions, like dai dou, that have risen to fulfill the Chinese appetite for trustworthy foreign goods.


“But this can also play to our advantage from an evidence point of view,” says Qiao, who expects to see greater use of social media and newer media forms in litigation. “Think about Taobao comments, WeChat followers, vlogger (网红) and fan interactions—and we’re seeing judges becoming more open to such evidence too, because these have indeed become a facet of people’s daily lives.”



Why Don’t You Dance?


If exploring an IPR’s background is as important as constructing a convincing ecosystem of legal rationale, the case handled by Junwu Zhou, Beijing Jincheng Tongda & Neal’s senior partner, would testify further to the magic of storytelling.


When the dance sequence Thousand-hand Guan Yin (千手观音 in Chinese, referring to a form of the Buddha in Buddhist texts) shot to fame after appearing on the CCTV’s Chinese New Year’s Eve performance in 2005, the performing group China Disabled People’s Performing Art Troupe (中国残疾人艺术团) and their choreographer, Jigang Zhang (张继钢), were hit with a copyright infringement suit from choreographer Difang Mao (茅迪芳), who claimed to be the copyright owner of the dance Goddess of Wealth, Fortune and Prosperity (吉祥天女), upon which, Mao said, Thousand had infringed. Goddess was conceived and first performed in as early as 1987, claimed Mao’s attorneys, who produced a series of comparisons between the dances’ forms, styles and rhythm, as well as the key evidence of a manuscript that bore distinctively the texture of old, time-worn paper (referred to in Chinese as lao zhi, or 老纸).


While Zhou attacked the argument of infringement from different angles like challenging Mao’s copyright ownership, cross-examining Mao’s evidence and establishing the uniqueness of Zhang’s work, some key points from the case stand out as universally applicable to him. “You always need to examine the evidence closely and question everything, sometimes even if you may not know what to look for at first,” he says.


“Just like musical notations in both western and Chinese music, dance choreography has its own marks and symbols,” explains Zhou, “but the problem is no one uses them in real life. Instead, choreographers work with dancers to formularize and memorize the sequences as they are developed, so there often is not any written, let alone time-stamped, records that can prove time of creation. And remember, video and YouTube have really just become popular.” So, the question loomed: how true is this manuscript? It was one such tenaciously inquisitive member on Zhou’s team, himself also a Chinese dance expert, who studied a copy of the manuscript tirelessly, “even bringing it to meals and to the bathroom.”


Then suddenly he spotted the ghostly shadow of a second score that seemed to have been imprinted unintentionally onto the copy when the lao zhi was folded in half. The lyrics and notes seemed to resemble a modern version of the Songs of the Long March, a series of communist music whose earliest version dates back to 1965. “So there exists a possibility that the manuscript was forged using an old piece of paper, but we couldn’t be sure due to the vague imprint. We had to take a leap of faith,” says Zhou.


The manuscript was forged, his team told the court. Unexpected even to Zhao, Mao’s attorneys admitted to forgery immediately and a whole of line of argument around the manuscript fell apart. Although Zhou had yet to prove uniqueness of his client’s dance, the judge’s trust had shifted significantly in his favour.


The story behind Thousand played a key role in establishing uniqueness, says Zhou. When comparing the dances, it is not a single movement of the hand or leg, or one or two musical notes that can form a meaningful comparison, but the sequential combination of such movements and bars of notes that form recognizable chunks of a dance. Zhou’s team broke down the dance into various sequences and explained each of their origin, providing the judge with motivational explanations from references in Buddhist texts to notes from site visits at the temples and monuments that inspired specific dance moves. They broke down the headwear design of Thousand and explained both the historical and aesthetic considerations that went into the eye-catching feather crown design. They compared the inspirations and meaning of their dance against the comparison done by Mao’s team, convincing the court that some of Mao’s comparisons were taken out of context.


“Shaping the story around the creation of a unique dance is especially important in this case, because dances are the combination of nuanced movement, music, rhythm, costume and many more,” says Zhou, “each carrying a reasoning and meaning behind.”



Hush, Hush Now, It’s a Secret


Evidence collection on both the infringing party and the client’s operations is tricky in many IP enforcement cases; what complicates things further is the issue of trade secrets.


Charles Feng, partner at East & Concord in Beijing, observes that the challenge is two-fold. “Administrative action to raid infringing production sites have become standard protocol and quite formulaic for the police, but when it comes to trade secrets, the court and law enforcement are much more cautious and hesitant,” he says. He points out that courts are unlikely to order a police investigation without sufficient preliminary evidence and given a vast scope of having to potentially confiscate and scour hundreds and thousands of a suspect’s computers. “It becomes all the more important that you must narrow down the scope reasonably and go through this research under the radar so that no evidence is destroyed prematurely,” he says.


Case in point, one of his clients found out that a former employee had stolen some design blueprints and sales contacts to set up a sizable operation in Shanghai using the same technology. The theft only came to light when a potential customer who was shopping around for suppliers raised the question: “Didn’t I just see this ‘proprietary technology’ when I was talking to another company last week?” To obtain further evidence of trade secret theft, Feng engaged his client’s customers for a covert operation to help investigate the technology behind the Shanghai company, successfully capturing in picture blueprints and designs that bore blatantly the logo of its original owner. “Coupled with analysis of recent leavers and the technology and division involved, we were able to provide the court with a very specific area for the proposed raid, and the burden of evidence collection in such a difficult case was shifted to law enforcement instead.”


In this case the status of the client’s trade secret was wellestablished, but Feng is worried many companies are not doing enough. Companies often think having employees sign non-disclosure agreements (NDA) upon employment implies important information is covered; but from the court’s perspective, an NDA that doesn’t discriminate against levels of information sensitivity may not be meaningful. “If this piece of information is truly the core of your competitive advantage, only a small group of people should have access to it, and they should be signing very different agreements from your average employee.”


Feng estimates the share of trade secret cases accepted by the court in first instance to be less than 10 percent. Given the sensitive nature of assets concerned and the cautious attitude adopted by courts and administrative departments, companies are held to a higher standard when proving they have taken “reasonable action” to protect their corporate crown jewels.


The World Intellectual Property Organization has laid out eight categories of a comprehensive protection plan for companies to reference:


• Create agreements, policies, procedures and records to establish and document protection.


• Establish physical and electronic security and confidentiality measures.


• Assess risks and prioritize technical and operational vulnerabilities.


• Put in place due diligence and third-party management procedures.


• Set up an information protection team.


• Train employees and third parties in protection procedures.


• Track and measure corporate efforts.


• Adopt corrective actions and improve policies and procedures.


Feng sees trade secret cases as an exploration with the client, who sometimes are themselves at loss as to what’s core and essential to their competitiveness which, from a legal perspective, may or may not coincide with trade secret protection.


A good way to approach a trade secret is to embed it at the core of your IP strategy, advises Feng. For what patents cannot legally cover, or core information that you cannot risk to be disclosed in public or suffer from expiration of patent protection, trade secret protection could come to play. This requires engaging IP professionals not only at the enforcement or litigation stage, but also in stages from people and organization structuring to patent application and IP portfolio management. For example, companies may try use patents to cover a broad technological concept and use trade secrets to protect the production details.


“I expect trade secret enforcement to gain more traction in the future as Chinese research and development continue to grow and fuel patent application, and globalized production and trade will necessitate technology transfer and related dispute resolution,” predicts Feng.


More enforcement stories to be continued in the next issue – stay tuned!

 

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