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What Tech Startups Need To Know About IP in China

8 min Read

For a long time, China has been considered the black hole of IP (Intellectual Property) laws: foreign companies and tech entrepreneurs saw China as a law-less place full of copyright-copycats and intellectual property thieves. However, in recent years, China’s IP laws have changed dramatically, and China has revolutionised the way IP is governed.

Trademarks and patent effectiveness is improving dramatically in China. Through current governmental focus on revamping the IP processes, China has incentivised the IP system to continue to improve and it is set to continue developing over the years.

Additionally, “laowais” (foreigners) are no longer discriminated against in the Chinese courts simply for being foreign; great news for foreign tech startups! Though, going toe to toe with and SOE (state-owned enterprise) is still likely to be a very tough battle.

All these improvements in the Chinese IP system have shown that the Chinese market is turning out to be a great place for tech startups to start their business. This article will provide a lowdown on how IP works and will provide tips for tech startups on how to deal with Chinese IP laws.

1. How the Chinese IP System Works:

As any type of foreign company it’s important to know one thing: Your global patents are worthless in China. If you want to be protected here, you need to have filed locally for all your IP & patents.

The types of IP you can file in China:

  • Patents: There are multiple types of patents and it’s important to know which type to apply for including design and invention. Tech startups should apply for a patent for both core and fringe technologies. These should be filed with the State Intellectual Property Office (SIPO). This process can also take up to 6 years.
  • Trademark: Unlike in other countries, a company should register both their Chinese names (Pinyin and Character) and their English name as their trademark. Companies should register their main trademarks with the China Trademark Office (CTO) and conduct a trademark search prior to registration.
  • Copyrights: This step is not entirely necessary for all companies but once a company registers their work with the National Copyright Administration (NCA) this provides a public record of their IP registration and can be used as evidence in a copyright dispute.

How do you protect the registered IP?

  1. Identify: Identify the particular concept or product that you wish to patent
  2. Register: Go to the relevant government registry and apply
  3. Update: With every development to your business or product, or government regulations, make sure you update patents where necessary

You will need to be proactive and enforce your IP to be taken seriously by other companies here. If you aren't, you will get pushed around.

The Chinese system is a “first to file” process meaning that the first person who applies for the patent will be the one who is awarded it despite being able to prove first use. In most other countries, if you can prove through sales or other means that you are the deserving party you will be awarded the patent. This is not the case in China, and as such, reinforces the need to update every iteration and change you make to your IP.

Specifically for tech companies, the process for applying for an IP is slightly different. In order to file for IP you will need to disclose the first and last 50 pages of code for your copyright application, so this should be taken into consideration when doing any coding.

2. How to Protect Your IP and Business in China:

When doing business in China as in any country, you will often find yourself partnering with other businesses or individuals and ultimately sharing your IP. This is especially common for tech startups that may need to construct a supply chain within China.

However when sharing your IP as tech startup in China it is important to tread carefully as you should always be extremely careful about what you disclose to any potential partners. There are four main steps any savvy businessperson should take:

  1. File an idea or patent as soon as humanly possible. The second you have filed for an IP you are protected.
  2. When sharing your IP in China, you should make sure all your IP applications have already been filed before you start partnering or sharing information.
  3. As an extra measure (but just as necessary), it’s important that those who you share information with sign a non-disclosure agreement (NDA) before you disclose details about your business with them. As a tech startup you should be especially careful when disclosing information to manufacturers or individuals throughout the supply chain.
  4. File for an IP for every small iteration and change to the product; it’s cheap and easy and will save you in the long run
  5. Keep an eye out on developments in IP Law. The Chinese government can publish new laws out of the blue so it is important to closely follow databases and government news sources that announce new IP laws and the date that they come into action. By staying updated and prepared to meet any changes in the law, you can focus on developing your business as opposed to working with the government’s limitations.

Protecting your business and IP is especially important for tech startups entering into a JV (joint venture). When writing up the contract or agreement for the JV it’s important that you clarify exactly who will own the IP rights & any ideas generated throughout the partnership.

3. How to Protect Your IP In the Manufacturing Process

Once you’re ready to begin manufacturing your product, it’s important to know that your IP troubles may not end there. Apart from using non-disclosure agreements with manufacturers, protecting your IP is also about designing the manufacturing process in a way that stops people from stealing your ideas.

  1. If your product is IP-intensive, segment the critical steps of the design and production processes so that not one outsourced company or individual has access to the whole design to copy your IP.
  2. Differentiate your product by including a system or technological aspect that is difficult to imitate.

Along with signing NDAs with manufacturers, implementing the above steps will ensure your tech startup faces little harm from attempts to copy your IP.

4. The New Cyber-Security Law Coming into Effect on June 1st

The new Cyber Security Law passed by the Standing Committee of the National People’s Congress is set to have huge impacts on IP when it comes into effect on the 1st of June. Here are some of the most important changes (and possible changes) involving IP that can affect tech startups:

  1. Data localisation: According to the new law business info and data on Chinese citizens gathered within the country should be kept on domestic servers. This data can also no longer be transferred abroad without permission. Data stored overseas for business reasons must be government-approved. This may be especially challenging for tech startups whose main base of operations is not in China.
  2. User Consent: Internet platforms could be required to get consent from users to collect their data.
  3. Government Cooperation: Internet operators need to cooperate with and provide technical support for government investigations involving crime and national security. This involves handing over data to authorities if wrong-doing is suspected.
  4. Equipment Testing: Mandatory testing and certification of computer and network security equipment before entering the Chinese market.

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by Clinton

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