Expanding into overseas markets is a critical choice in the transformation and growth of Chinese enterprises, and for their move up the value chain. Numerous Chinese enterprises have expended great efforts in establishing a footprint in overseas markets.
Taking televisions as an example, according to data released in February 2023 by Omdia, an authoritative market research firm, Chinese brands occupied three of the top five spots in terms of global TV shipments in 2022, with their products dominating the international market.
In addition, through setting up research and development centres and production bases overseas, Chinese enterprises have built up global supply chains, thus upgrading from “going global” to “diving deep into local markets”, demonstrating the determination and action of their globalisation strategies.
However, in the course of expanding their footprint overseas, Chinese enterprises also face many political, trade, legal and cultural challenges. In the US, for example, according to the China Intellectual Property Society’s Investigation Report on Intellectual Property Disputes in the US Involving Chinese Enterprises, 359 new patent actions involving Chinese enterprises were docketed in 2021. This was an increase of 37% over 2020, and involved more than 850 Chinese enterprises.
Clearly, overseas intellectual property-related risks have become an issue that Chinese enterprises must face and overcome.
CHANGE AND LEARNING THE UNKNOWN
In recent years, reform of China’s IP regime has achieved notable results in terms of IP creation, application, protection, management and service level. Chinese enterprises have become familiar with and are used to the domestic IP implementation and judicial environment.
However, there remain significant differences in IP environment and regimes between China and regions such as Europe and the US. When making plans in overseas markets, Chinese enterprises face stronger IP protection awareness, more stringent IP judicial environments, greater penalties for IP infringement, and higher costs in responding to IP disputes.
The IP ideas and concepts accumulated and cultivated by companies in China inevitably suffer some bruising and battering; mechanically applying domestic experiences to IP issues abroad will not wash.
It is imperative for us to be aware that Europe and the US have numerous technologically advanced enterprises and the local IP regimes have played a positive role in stimulating innovation. When dealing with overseas IP issues, we have to accept the new changes with a positive attitude and apply local rules and laws in dealing with and resolving IP issues.
The author has observed that, in recent years, overseas IP disputes have increased markedly. The scope of products involved has expanded significantly, the geographic extent of disputes has grown from individual countries to the entire globe, and overseas IP issues are becoming increasingly serious. In the face of increasingly acute IP risks, we need to constantly improve our risk response measures. In practice, the author has distilled the following experiences.
PROFESSIONAL ANALYSIS
Companies must establish an internal patent early warning mechanism. It is imperative to pay attention to the patent layout, and litigation dynamics of key competitors and active rights holders, reminding business of the risks and promoting product plan changes and avoidance design to quash risks ahead of time, or draw up contingency plans.
There should be a continual optimisation of the method of patent non-infringement analysis. In the course of responding to patent disputes, Hisense has analysed and negotiated hundreds of high-risk patents with rights holders and, in those tussles, we have accumulated a vast quantity of experience in patent non-infringement analysis and technical negotiation.
Through the distillation of successes, and reflection on inadequacies in analysis, we have derived improved patent analysis methods and analysis output criteria. We can effectively limit the scope of protection of disputed patents and the strength of our non-infringement defences.
Companies should increase their outlays towards patent invalidation, which is the most effective means of countering patent disputes. Hisense has assembled a patent search team, the members of which have backgrounds as examiners. This team continually absorbs and optimises its external search resource allocation, and so its invalidation search mechanism has taken preliminary shape.
With respect to high-risk patents, Hisense has made heavy outlays in patent search and invalidation, thereby greatly reducing the number of disputed patents. Patent invalidation has become an important weapon in efforts to rein in patent risks.
COMPLIANT RESPONSES
Although non-infringement and invalidation analyses are important factors affecting the success or failure of overseas IP disputes, the degree of compliance of the responses holds even greater importance.
Whether it is an intentional infringement that gives rise to multiples of damages in the US, or product recalls and sales bans due to injunctions in Germany, most courts assess the acts of the alleged infringer.
Through extensive study and summation of cases in which the company has been involved, of high-profile cases in the industry, of cases involving similar disputes, guiding court cases, as well as regular reflection, review and continual optimisation of its own responses, Hisense has elaborated compliant actions that comply with the legal frameworks in Europe and the US when responding to overseas IP disputes.
SUPPLY CONSENSUS, JOINT EFFORT
This relates to the establishment of a communication and mutual assistance mechanism with the IP holder and in-house counsel of suppliers, customers and OEMs. The mechanism is a method of sharing mutual concerns, ways of doing things and work processes, and enhancing understanding and trust.
This allows us to promptly assess the impact of major patent disputes on business and discuss handling approaches and co-operation mechanisms to build a community of interest. The process can produce a co-operating supply chain to counter patent disputes.
TRUE VALUE, BOLD RESPONSES
With the ongoing professionalisation of patent analysis and the increasing compliance of dispute handling in recent years, Hisense has become adept at managing overseas patent disputes. In no cases in which the company has responded to an overseas patent dispute has it been issued with an injunction or punitive damages, nor has any injunction legal action or 337 investigation hindered the progress in its international business development. Additionally, Hisense has gradually built up confidence in responding to IP disputes.
Hisense has changed from thinking “financial disaster”, as it did in the beginning when it was unfamiliar with how to respond to overseas disputes, to not fearing litigation and “only paying for truly valuable patents”.
With respect to attempts to use threats of litigation to “extort” settlements for low-value patents, Hisense no longer opts to compromise; rather, it leans towards compelling plaintiffs to unconditionally withdraw their suits by mounting a professional and vigorous defence.
Establishing an image of tenacity and pugnacity in responding to patent disputes has, to a large extent, discouraged rights holders from initiating disputes with and litigation against us.
RAISING OUR VOICES
It is advisable for Chinese enterprises to mutually share their IP practices and experience, increase exchanges with such organisations as overseas patent authorities, courts and IP policymaking authorities, and involve themselves in overseas IP governance.
In recent years, Hisense has involved itself in such work as: the call for standard-essential patent licensing policies organised by the US Department of Justice and Patent Office; the Supreme Court’s study of legal issues relating to standard-essential patent licensing conditions; and the formulation of guidelines on licensing mechanisms in the consumer electronics field, putting forward practical opinions from Chinese enterprises on patent dispute response practices and how to create an IP environment.
CONCLUSION
Dealing with IP issues against a background of a globalisation strategy requires Chinese enterprises to proactively study overseas IP policies and judicial environments, and actively explore global IP management systems and strategies suitable for enterprises and our industries.
We must shake off the old image of being “besieged and hunted”, empower ourselves through IP to transform from “made in China” to “created in China”, and endeavour to become the most trustworthy brands in the world, and enhance the international reputation of Chinese enterprises.
Zhang Zhongli is director of the intellectual property department at Hisense Group
