1. Martin Harman Chairman, Pinsent Masons martin.harman@pinsentmasons.com
Taking your technology into China whilst protecting your intellectual property
Martin Harman Chairman, Pinsent Masons

2. Hong Kong and China Laws
Hong Kong: English Common law roots, strong intellectual property law, experienced judges
China: Registration of patents and trade marks. Criminal law penalties of I.P. misappropriation
Civil law remedies of injunction, damages
Laws are in place in PRC but …
.… not always what they seem and enforcement is slow
Laws weighted in favour of Chinese party in technology J.Vs
Technology has to be warranted by foreign party
Improvements belong to party who “achieves” it
Cannot restrict Chinese party’s rights to make “improvements”
Courts relatively unfamiliar with I.P. legislation

3. Developing an “IP strategy” for China
first, itemise and prioritise what and how risks will impact your business
then, devise all the self-help measures you can
third, take care to build legal remedies into your commercial contracts – without them you have nothing to complain about!
limit third party access to your IP
in case of infringement, use available enforcement mechanisms

4. Do you need a joint venture to establish your presence?
Representative Office
Wholly Foreign Owned Enterprise “WFOE”
Equity Joint Venture
Contractual (or Cooperative) Joint Venture

5. ENTRY VEHICLES (1) Representative Office
Simplest, least expensive
Restricted permissible activities, largely liaison, no profit making
Requires approval of, and regulation with, Chinese authorities
Short term

6. ENTRY VEHICLES (2) Wholly Foreign Owned Enterprise (WFOE)
Investment vehicle of choice
More control over own affairs, better able to protect I.P.
No need for PRC co-investor
BUT need to export set percentage of output
“Catalogue” may restrict use of WFOE in certain sectors
Application for approval and registration fairly complex.

7. ENTRY VEHICLES (3) Equity J.V. Contractual (or Cooperative) J.V.
Profits distributed in ratio of capital invested
Separate legal entity
Requires registration
Contractual (or Cooperative) J.V.
Profits distributed in accordance with J.V. agreement
Can be separate legal entity or a partnership type structure
Chinese party can “provide” land, buildings as capital
Foreign party must contribute at least 25% of capital
Technology cannot exceed 20-35% of registered capital
Registering authorities may disapprove imbalanced allocation of profit (reasonableness).

8. Your vulnerabilities – in terms of IP infringement
should you be most worried about your joint venture partner?
do you need a JV partner, or does he need access to IP?
is your IP so sophisticated that it cannot readily be replicated in China?
is your IP undergoing such a rapid pace of development that an isolated act of infringement could not undermine the business?
are you concerned to protect the future market in China itself – do you understand how the brand can best be represented in China?

9. Your vulnerabilities – in terms of unexpected incidence of Chinese laws
take account of laws protecting the rights of Chinese recipients of technology imports to ‘improve’ the technology
note mandatory imposition of Chinese governing law in certain circumstances
If contract has foreign element then theoretically can choose foreign law
If technology is part of foreign capital injection, approval of authorities may require Chinese Law
Overriding concept of “reasonableness”
Even if Chinese Law applies, can choose Hong Kong as centre for dispute resolution
consider how your IP will be treated in the event of a winding up of your JV

10. Self-help (examples) keep your newest IP offshore
arrange for China manufacturing of basic components, with the high tech part added later, outside China (perhaps in Hong Kong)
require Chinese party to purchase your ‘secret sauce’ – delivered in a way incapable of replication / reverse engineering
use of an R&D formula which involves hands on supervision and development by expatriate engineers
Avoid secondments, encourage direct employment
Consider consultancy agreements governed by foreign law.

11. Legal Niceties
register all your IP rights in China (patents, trade marks, copyrights)
Set up the right contractual arrangements
Include restrictions on the process of vetting proposed “improvements”
Carefully define the “purpose”, so the technology will pass “adequacy” test
Use Technology R&D Agreement in concert with Technology License
Do not disclose unless you have to
rights granted to China party revoked in every eventuality of default
consider Hong Kong as a neutral forum for dispute resolution
bear in mind administrative, as well as judicial, authorities have an enforcement role in China

12. Case study
Proprietors of computer hardware technology seeking to inject a licence for their technology and further technology transfer, in exchange for US$ multi-million investment by an existing Chinese manufacturer
structure would be via a Cooperative Joint Venture
utilises: technology licence; R&D agreement; supply agreement (import); purchase agreement (export); JV agreement; trade mark agreement

13. Pinsent Masons in Greater China
established in Hong Kong in 1983 and China (Guangzhou) in 1993
office in Shanghai (2002) and premises in Beijing
focus on manufacturing; FDI; technology; infrastructure; construction
over 30 highly mobile and specialist lawyers
THANK YOU
MARTIN HARMAN