Recently, companies going abroad have become a hot topic, and more and more companies have begun to pay attention to the relevant compliance requirements. When going abroad, in addition to language, labour, business environment, policy compliance and other challenges, intellectual property rights (IPR) security issues should not be underestimated, especially those arising from geographical changes.
Key points
Partner
Shanghai Pacific Legal
The principle of territoriality. IPR is limited to the principle of territoriality. However, the author finds from actual cases and consulting that many companies, particularly those with successful operations in China but no international experience, do not fully understand this principle.
Some companies with many years of business experience and patented technologies in China recognise the demand for those technologies in foreign markets. However, when applying for patents domestically, they often neglect to consider the international layout. As a result, they may miss the patent priority period when expanding abroad and cannot use the domestic application date as the filing date in the target country.
Consequently, exploiting a domestic patent abroad may leave the company without patent protection in the target country and at risk of infringement. In addition, trademarks may also encounter in international market expansion challenges such as not being able to be registered in core classes or having been registered by others, which may lead to disputes.
Many companies, focused on market share and profitability abroad, are prone to replicating their successful domestic strategies, prioritising business expansion while delaying IPR protection until issues arise. Although survival and development are the basis for enterprises to go abroad, in today’s world, where intangible assets are increasingly central to a company’s core competitiveness, ignoring preliminary IP planning and failing to understand IP protection and related legal liabilities in the target country can lead to severe consequences.
Companies may find that their hard work in the target country is undermined by neglect of IPR, leading to legal disputes and ultimately forcing them to withdraw from the market.
Rights protection measures and infringement consequences. In the early years, companies often encountered IPR infringement issues when expanding abroad. These issues included complaints from rights holders on cross-border e-commerce platforms or at exhibitions abroad. In addition, some companies also faced lawsuits filed by right holders directly in foreign jurisdictions.
In recent years, as domestic companies have become more innovative and begun securing IPR abroad in advance, they have also encountered infringement by local companies. In either case, a lack of understanding of the legal consequences of IPR infringement in the target country, and of effective ways to protect rights, can hinder a company’s ability to defend its rights, whether as a rights holder or as an alleged infringer.
Companies also need to be aware of IPR licensing or transfer regulations, customs protection measures and antitrust compliance in the target country.
Methods of response
After recognising the IPR risks that companies may encounter when expanding abroad, it is essential not only to rely on relevant professionals in the target countries for analysis of freedom to operate (FTO) but also to establish a sound internal system to proactively manage the relevant risks and formulate an action plan. Although companies’ individual situations vary, the following points are critical for solving IPR issues.
Understanding the IP strategies of businesses in their home and target foreign countries. As mentioned earlier, the first crucial step in addressing IPR issues when expanding abroad is ensuring a proper IPR arrangement. Without a solid IPR foundation in the target country, companies will be in a passive state. Companies should ensure a solid domestic foundation of IPR and, based on the needs of expansion abroad, proactively apply for and strategically organise IPR in target countries.
In addition to considering the territorial nature of IPR, attention must also be paid to their statute of limitations, especially the filing dates for patents and trademarks. Utilising the priority period of international treaties can help maintain earlier filing dates and prevent many legal issues in a target country. It is also important to engage professionals in the target country to address various challenges encountered during the process of establishing rights abroad.
Management of infringement risk. During market expansion abroad, companies may experience IPR infringement or be accused of infringing others’ IPR. When claiming infringement, companies should not rely solely on their previous domestic experiences but must understand the processes, steps, possible damages and other legal consequences of dealing with infringement, and the corresponding cost of protecting rights in the target country, as well as whether the cost can be transferred to the infringer.
IPR protection requires a systematic approach. In addition to trademarks, a product’s appearance, structure and manufacturing preparation may involve others’ IPR in the target country. When infringement is claimed in the target country, a response that is based on local judicial practice will be crucial, especially in destinations where infringement damages are disproportionately high.
In summary, companies expand abroad to seize more business opportunities, and with intellectual property rights being a crucial tool for market expansion, the security of these rights must be prioritised by these businesses.
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
