Archive for August, 2012
As China’s IP engine continues to power up, the West remains blind to what is happening here. China now leads the worlds in patents. China’s companies aren’t just doing junk patents filed as unexamined, low-cost utility model applications in China. Two of the top five international patent filers, filing expensive, examined, international patent applications, are Chinese companies. And in addition to lots of filing activity, China and its courts are buzzing with burgeoning IP litigation. China now leads the words in IP lawsuits, many of which are Chinese companies suing other Chinese companies. And yet ZDNET.com just expressed amusement when they learned of a single IP case in China and talked of the “delicious irony” of one Chinese company suing another. Irony? Delicious? News?? This is part of a transition that has been going on for years in China. It’s routine now. Old news. But the West doesn’t get it.
More seriously, the West continues to write off the book in Chinese IP as just a bunch of low-quality patents. That may help the West feel good about its own decline in innovation, but it blinds people to the opportunities (and threats, for some) that are rising from the East. A recent example of Western attitudes is expressed by the European Union Chamber of Commerce in China (EUCCC) in their new report, “Dulling the Cutting Edge: How Patent-Related Policies and Practices Hamper Innovation.” Yes, Chinese IP has quality problems in some sectors (similar to the pervasive quality problems in the US that the USPTO fails to address), and yes, many companies are just filing lost of Chinese patents to get tax benefits. But they are learning how to file. Some are learning how to build estates and how to succeed with litigation when needed. And some are doing this on an international scale. The trends are there and what may be small waves now (still big enough to break records on some shores) could become a tsunami in the future.
Discounting Chinese IP and innovation for its early-stage weaknesses is the wrong way to prepare for the future.
Innovators need to recognize that there are numerous IP risks that their new products and services may face. Sometimes a little attention to your supply chain, packaging, and business model can greatly reduce those risks. An excellent resource on this topic, from which I have drawn a couple of suggestions, is “IP risk assessments – a pragmatic approach
to avoiding problems” by Richard Baker in Intellectual Asset Management (November/December 2011), pp. 72-77.
One approach involves considering and segregating the risk that various aspects of your products and services expose you to. For example, if you are offering a product that includes wireless functionality, consider providing the wireless aspect as an optional add-on that can be purchased separately. If it’s part of the product, you could be sued for infringement of numerous wireless patents and risk paying a royalty of some percentage on the entire product. By moving the wireless features into a separate add-on, the risk becomes much lower, and if you are found to infringe, you’ll be paying a royalty on the sales of the add-on and probably not the sales of the primary device.
You can also reduce risk by exercising caution in how much you disclose (outside of confidentiality agreements) to the public on the details of your products and manufacturing methods. The less you disclose, the less likely someone with a patent looking to sue will spot you as a candidate.
Baker also advocates careful examination of your supply chain and consideration of the jurisdictions that might be involved if there is a suit. If you are shipping internationally, for example, you might want to avoid assembly and shipping from the US where you could be exposed to US lawsuits. Bakers observes that having operations elsewhere can greatly reduce risks. In England, for example, patent infringement suits are successful only about 6% of the time, and in Italy, IP lawsuits move at “glacial” speed through an inefficient court system that often takes longer than the life of the patent to be decided. The US is a great place to be a patent owner looking to sue an apparent infringer, compared to other nations, so take that into account.
Of course, a good patent clearance assessment and care to avoid infringing other patents should be part of your IP risk reduction strategy in the first place, but there is always uncertainty.
Reducing IP risks can help you have a higher chance of succeeding in the market place and overcoming innovation fatigue.
One of the great ironies of politics is that measures intended to solve problems often intensify them. The North American Free Trade Agreement, for example, was touted as a means to promote “free trade” and make it easier on companies to do business in North America. The reality is not always that way. NAFTA, like many other political innovations, involves increasing the political and economic power of some agencies, and increased power in the hands of bureaucrats rarely results in reduced barriers to commerce and innovation.
As one example, here’s an excerpt from the July/August 2012 issue of Textile World in an article called “Insider Advantage(?)” by Janet Bealer Rodie:
Within the NAFTA region, one textile trade issue that owes its impact to actions vis-à-vis NAFTA’s strict rule of origin provisions involves extensive audits by the Servicio de Administración Tributaria (SAT), Mexico’s equivalent of the Internal Revenue Service. SAT has required a number of U.S. textile companies doing business with Mexican textile companies to provide detailed records of transactions with their Mexican partners in order to verify sources of all U.S. inputs shipped to Mexico. The process has been very time-consuming and expensive for some companies, and has even required them to obtain records from their upstream suppliers. Failure to comply within a set time subjects a company to large penalties.
So the cost of doing business with Mexican companies now involves the newly added burden of expensive and invasive reporting to a foreign government. This is free trade? Freer than before NAFTA? Such burdens are especially severe for the smaller companies most likely to be on the forefront of innovation. Government policies and burdens that hinder business can often favor well-connected insiders and big companies while making life disproportionately difficult on small, nimble companies who may not have the connections and the teams of lawyers to achieve compliance.
Free trade can strengthen innovation, when it’s actually free.