Can the IP protection war ever be won?

By Frank Liu, Shanghai Pacific Legal
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Lots of companies that have just started intellectual property (IP) protection often ask many questions, for example, can this round of anti-infringement action get rid of all the fakes on the market? After this year’s actions, don’t we have to worry about it anymore? Why are there still infringements after the IP protection actions have been taken? Is it necessary to invest in IP protection every year?

刘建强, Frank Liu, Partner, Pacific Legal
Frank Liu
Partner
Pacific Legal

All these questions actually reflect the same mentality: Can one-time IP protection have a long-term or permanent effect?

Rights protection corresponds to the infringement. Practically, as long as the right holder’s brand recognition remains, infringements may continue to occur, and IP protection cannot be done once and for all.

For companies, the value of the brand itself lies mainly in the high profit between the cost and the selling price it brings to right holders. As long as the profit margin is attractive enough, infringers will inevitably take risks and get profit by doing nothing but taking a free ride on the brand. Although infringements against different brands in different regions vary due to the cost of violations and the frequency of crackdowns, just as judicial organs that curb violations are indispensable in any country, infringements will not completely die out because of a strict law. As long as there is the attraction of high profits, there is no crackdown action related to IP infringement that can achieve a permanent effect.

Since infringements cannot be eliminated, what role can IP protection play? The main role of IP protection is to deter infringements, and to control the frequency, scope and impact of infringements within a lower limit. Generally speaking, the ideal situation is that the infringement will not have a substantial impact on the market share and brand awareness of the right holder. If infringing can be maintained within this limit for a long time, we can say that the protection of IP has had its due effect.

Some misunderstandings

The right holders’ understanding of IP protection in China requires practice, either long or short. Right holders sometimes have misunderstandings in the early stages of right protection:

(1) Generally, brands or technologies are hard won, and right holders often have a better understanding of the value of their IP, although it makes sense that many right holders overestimate their IP. However, the contradiction and misunderstandings are that, facing their own IP that is worth billions, some IP right holders find it hard to realise the value of third-party expertise in IP protection. They think that the services of different firms do not have major differences, so that they may seek the cheapest, or even free, IP protection services. Only after problems arise do these right holders regret their decisions.

(2) There are also some right holders who believe that they should use IP protection to make profits, instead of spending money on it. These right holders often tend to defend their rights through a fully contingent fee, so that they do not spend money, but can make money through the compensation. It works, under the circumstances that right holders focus on the short-term benefits of IP.

However, for right holders who want to develop their brand’s influence in the long term, and expand their market share, it is likely that the right holders lose money through a fully contingent fee to gain profits with their IP on hand. As mentioned above, the greatest value of IP lies in the high profits it brings to companies. Only through protective actions to strengthen its market reputation, maintain, or even increase market share, can the value it brings be much higher than the cost of IP protection.

(3) For short-term benefits, IP right holders use IP that can create higher value, to earn compensation for counterfeiting and save agency fees. In the end, stubborn infringers are often left in the market and continue to occupy market share. In the long run, this strategy is penny wise and pound foolish.

(4) So, is there a means of IP protection that can save money while also being effective? The author thinks that effective and satisfactory goods or services must have corresponding value. Rather than put the mind on seeking fortune or exceptions, it is better to see a complete picture of reality and seek appropriate and reasonable IP protection solutions based on the actual situation.

Conclusions and suggestions

The above-mentioned questions and misunderstandings are what some right holders who started to protect IP in China experienced in the early years. Due to various factors such as the complexity of the social economy, the legal and regulatory conditions of every country, the high profit temptation of infringement, the control of IP protection costs by right holders, etc., it is objectively difficult to have a market without counterfeits.

Therefore, the most effective strategy ideally is to contain the infringement instead of removing it completely. A successful IP protection is to contain the number, scale and impact of counterfeits within a scope that does not affect the commercial benefits of right holders. The ultimate value of IP protection is to support the market share and popularity of right holders, and to create commercial value that is far higher than the cost of IP protection. If IP is used to earn counterfeit compensation, and thereby save protection costs, it may be suitable for the short-term interests of some companies, but in the long run, it may cause loss in the commercial value of IP.

Hence, only by having a clear understanding of IP protection, and trying to avoid possible misunderstandings, can right holders find a suitable IP protection solution in a relatively short time. A better way for companies to effectively protect the value of their IP in the long term might be making IP protection play a role in supporting market share and brand reputation.

Frank Liu is a partner at Pacific Legal

Room 2709, 27/F, Plaza 66 II
1266 Nanjing Road West, Shanghai 200040, China
Tel: +86 21 6086 0199
Fax: +86 21 6086 0111
Email: frank.liu@shanghaipacificlegal.com
www.shanghaipacificlegal.com