For foreign and domestic businesses, cost is always an issue to consider in protecting intellectual property rights (IPR). For individual businesses, there are no one-size-fits-all criteria for measuring the cost of IPR protection because of the differences in their IPR value, dependence on IPR, and mode of operation. In considering IPR protection, however, there are some misunderstandings that we need to pay special attention to, and avoid.
Impact of different legal environments on cost
Foreign companies have entered China’s market for many years, and now an increasing number of Chinese companies are actively seeking an overseas presence. The differences between domestic and foreign legal environments will have a significant impact on the cost of IPR protection. But in practice, many enterprises assess their protection cost under foreign legal regimes based on their local experience, which is likely to result in misestimations of the cost of IPR protection.
For example, foreign companies growing under well-developed IPR protection regimes in Europe, the US, etc., usually pay higher attorney fees and contingency fees in local markets, generally finding these fees in China more affordable. As the cases of IPR squatting and infringements in their host countries are less frequent than in China, they may not understand the cost of defensive trademark registration. If their local judicial documents are enforced smoothly, they may find the enforcement expenses unacceptable after winning a case in China.
Chinese clients, given the large gap between domestic criteria for attorney’s fees and contingency fees and those in Europe and the US, usually find foreign attorney’s fees and contingency fees unacceptable in applying for IPR registration and protection overseas.
Impact of contingency fees on cost of IPR protection
Enterprises generally hope to hire external agencies that charge the lowest possible attorney’s fees and contingency fees on IPR protection services, providing that they can provide effective protection.
Currently, in the Chinese market, however, price-off competition is quite common as many enterprises are unable to effectively assess the service quality provided by external agencies. Some agencies even offer services free of charge as a promotional gimmick. In fact, there is no such thing as a free lunch. These free or below-cost services will definitely take a heavy toll on their users.
Most companies usually value their IPR highly, but still wish to protect their IPR at a very low cost, disproportionate to their value. They are reluctant to pay for protection before a crisis occurs, and are forced to pay a heavy price when their IPR is in danger.
To choose a service provider with appropriate professional skills, and commensurate with the complexity of its IPR, an enterprise should gain an overall market picture of service providers. Except for some atypical or special cases, free and below-cost services usually result in the highest price in the long run. In effect, service providers need to add an appropriate markup to the cost to ensure sustained and effective co-operation.
One-off versus long-term cost
An inexperienced company is usually frustrated by further infringements upon its IPR after one or several successful operations against infringers. They owe it to the inadequacy of earlier crackdown efforts, or feel that such infringements cannot be effectively tackled. In fact, it reveals their inadequate understanding of the characteristics of IPR protection.
A higher awareness and value of a brand or technology is desirable, along with recognition that other resources will be needed for IPR protection, no matter in which country such a brand or technology is based. Investment in IPR protection will continue in the long run, as long as the brand does not go downhill. On the one hand, the high intrinsic value of the brand or technology will make infringers more motivated to take a risk. On the other hand, there is no environment in which infringements on IPR can be fully eliminated.
Therefore, to protect IPR from infringements is more about keeping infringements in check effectively, and in an appropriate way. For a well-known brand, it is unrealistic to root out infringements via one or several operations.
Cost of case-specific actions versus overall strategy
If an enterprise has a sound in-house IPR protection system that functions well, and only wants case-specific support from external service providers, case-by-case services are a relatively cost-effective solution. In reality, however, the author finds that in most cases enterprises have no complete strategic plan or protection system, and engage different agencies to deal with different cases in a decentralized manner. In such circumstances, internal frictions are likely to arise from possible conflicts between individual cases.
In most cases, the conflicts between cases and internal frictions can only be effectively avoided through specific actions taken under an integrated plan and uniform strategy for IPR protection, which will create synergies of mutual support among cases.
To sum up, IPR protection is a long-term systematic programme. A good strategy and action plan, together with appropriate cost control, will boost the awareness of an enterprise’s brand and also help maintain and increase its market share.
Frank Liu is a senior partner at Tiantai Law Firm’s Shanghai office
Tiantai Law Firm
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