As the business environment changes and companies face challenges in their development, rights holders may feel anxious about not being able to effectively protect their intellectual property (IP) rights. Big and small, there is the real danger of falling into an unfavourable situation in defending their rights because of a too-hasty preparation.
Based on observing IP protection in the past 20 years, the author believes that a proper strategy and firm confidence are equally important. Actual cases will be used to briefly explain the IP protection issues of companies at different phrases of business adjustment.
Ownership transfers
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Due to a business adjustment, company A transferred its IP rights to company B. After company B took over the IP rights, it immediately started to establish its own agent and distributor system in China and licensed the IP rights to its co-operative distributors.
However, at this time, company C claimed to be the exclusive distributor of the brand in China and clashed with distributors of company B. After an investigation, it was found that, before the intellectual property transfer, company A had indeed granted a long-term exclusive licence in China to company C by agreement, which stipulated that the licence was not affected by the transfer of IP rights. In this case, company C was the lawful exclusive licensee of the IP rights.
The oversight by companies A and B during the intellectual property transfer process regarding the previous licence granted to company C has now entangled all three companies in a dispute. Joint negotiations and dispute resolution mechanisms are being employed to find a resolution.
Performing due diligence on existing licences before transferring intellectual property could have prevented these disputes, saving considerable time and resources.
This scenario is not an isolated incident. It underscores the importance of reviewing the licence of IP rights when adjusting a business. For further insights into IP issues during market transitions, please see “Business market shift raises IP issues” in China Business Law Journal, volume 14, issue 7.
Pre-emptive registration
Company D, a leading multinational corporation in its field, is involved in domestic production and sales. Over the years, it has established a strong presence in the industry. However, company D neglected to register trademarks for its core product categories. It was not until it realised that there were similar products in the market, leveraging its brand influence, that it began to pay attention to trademark issues.
At that time, based on the situation of company D, the author proposed a complete and tailormade trademark registration and protection plan. However, because of its market position and commercial advantages, company D did not adopt the comprehensive solution. Instead, it opted just to defend its core trademarks that had been registered by distributors.
However, regaining trademarks that have been registered by others is a complex and lengthy process. It involves not only filing trademark registration applications but also invalidating the opposing party’s trademark registrations. This process can take several years.
During this process, company D lost patience but was eventually convinced to persist in its efforts by an objective analysis of the likelihood of success conducted by the author. As a result, it recently secured trademark registrations for its core product categories, realising the power of persevering in its rights and employing a sound strategy.
For other concerns about the long-term perspective of the protection of IP rights, see “Viewing early IP strategies from a long-term perspective” in China Business Law Journal, volume 14, issue 3.
Co-operative operation
Company E, a multinational corporation, was interested in the technology of company F in China. To this end, it acquired company F and rehired its two founders, who were also the core technical staff, to the acquired company.
The company operated well in the initial period after the acquisition. Business continued to grow with the support of company E’s brand influence and marketing.
However, two years later, new competitors emerged in the market. They offered similar products at significantly lower prices than company E. More fatally, some of company E’s old customers gradually became customers of the competing company.
Company E originally acquired company F because of the uniqueness of its technology in the field. It would have been difficult for other companies to independently develop similar technology in a short period of time if there was no disclosure of information about that technology.
Therefore, company E began to suspect that the competitor might be using the same technology to manufacture its products.
An investigation revealed that many employees of the competing company, including core personnel, were relatives and fellow townsmen of the two founders of company F.
Moreover, there were suspicions that the core technical information of company E had been leaked to company F. However, due to limited evidence, company E cannot act hastily. It can only be patient, until evidence is sufficient, and then seek the right time to take action.
For other concerns regarding the timing of IP protection actions, see “Timing is everything when implementing IP strategy” in China Business Law Journal, volume 13, issue 8.
Conclusion
In the world of business, it is common to seek partners, engage in collaborative ventures, or adapt to changing market dynamics. However, in these scenarios, it is crucial for businesses to carefully assess and proactively deploy strategies to protect their core IP assets. Neglecting these critical aspects or failing to monitor IP regularly can lead to ownership disputes and, in the worst cases, the loss of IP rights.
In addition to devising comprehensive IP protection strategies tailored to their specific circumstances and adjusting these strategies in response to changing realities, businesses must also maintain confidence and a resolute commitment to safeguarding their rights. It is through this steadfast dedication that IP can better serve a company’s growth and development.
Frank Liu is a partner at Shanghai 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
