[ANSOL-geral] The patent pitfalls on China's road of clones

[Lopo de Almeida]

Interesting article about patents.

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The patent pitfalls on China's road of clones
By Chris Buckley
International Herald Tribune 

*SHENZHEN, China* 
Andy Chen's dancing Christmas tree may not have been 
the most crucial invention since the days of his hero, Thomas Edison. But 
Chen, an inventor from Taiwan, said he thought his tree would at least win 
him a slice of China's $10-billion-a-year toy and game exports business. 
With the press of a button, as he demonstrated in his small workshop here, 
his plastic and metal creation gyrates and shakes to a frenetic rendition of 
"Jingle Bells." As his U.S. patent puts it, Chen's invention is a "dynamic, 
collapsible, rotating toy that is full of fun and amusement, that can be 
extended or retracted, rotate, play music and flash lights." 

Chen, who has lived in Shenzhen in southern China for nearly a decade, said 
he thought he had a hit for the Christmas market and had done everything 
right to ensure a profit on the $40,000 and five years that he invested in 
his invention. He courted customers in the United States and Europe and won 
patents in the United States, China and Taiwan in 2001 to protect his 
invention. 

But just when he had secured an order from an American buyer for as much as 
$20 million, Chen said, he ran into a problem that many businesses in China 
face: Clones of his product suddenly appeared at Chinese markets and trade 
fairs, and a shipping container filled with them turned up in Los Angeles. 
His American company dropped the deal, fearing the product would lose its 
novelty before the genuine shipment arrived. Since then, years of litigation 
against rival factories have brought Chen no compensation. 

"I didn't make any money from it," Chen said in an interview. "A lot of 
patents don't make money. It's the copiers who make money because they don't 
have any research and development costs." 

In 2004, counterfeit products accounted for almost 8 percent of China's 
economic activity, according to estimates cited in a report by the business 
consultancy A.T. Kearney. 

The U.S. secretary of commerce, Carlos Gutierrez, has warned China to crack 
down on the counterfeiting of patents, copyrights and trademarks or face 
repercussions from Washington. American and European trade groups have 
threatened to press for action before the World Trade Organization. 
Experts differ over the direction that China's protection of patents is 
heading. But there is little disagreement that, while China remains a 
powerful magnet for international investment, imitation and outright copying 
are unlikely to disappear soon. 

"China's IPR is improving in terms of China's objectives, but that 
improvement may not be in the interest of global IP owners," said Ken 
DeWoskin, who advises companies investing in China for 
PricewaterhouseCoopers in Beijing, using the abbreviation for intellectual 
property rights. "Improvement in this case doesn't mean China's going to 
become like North America or Europe." 

China has more than 10,000 toy manufacturers and makes 75 percent of the 
world's toys, including 60 percent of those sold in the United States, 
according to statistics provided by the China Toy Association. 

Chen, who has worked as a television editor, packaging maker and Internet 
entrepreneur, thought he saw an opportunity in combining Taiwan's expertise 
in mechanical engineering with the mainland's low-cost manufacturing. He set 
up a company, Uni-Pro Creative Product Developing, to make moving toys. 
Several years ago, he said, he had an idea: Why not create a Christmas tree 
that moved and played carols? 

Chen eventually developed a version of his tree that could be made for $4. 
He had always been aware of the threat of counterfeiters, he said, so he 
closely guarded his prototypes and applied for patents in China and the 
United States. 

Other entrepreneurs, Chinese and foreign, have done the same. In the face of 
complaints about China's lack of respect for intellectual property, the 
government has encouraged businesses here to take out patents. The number of 
invention patents approved in China grew from 54,000 in 2001 to 70,000 in 
2004, and last year local applicants surpassed foreign ones for the first 
time. 

Shenzhen has been making a special effort to encourage businesses to 
register and protect their patents, said Lan Hanling, chief of the law 
department of the city's Patent Administration Office. 

China previously treated inventions as common property, she said, citing a 
saying: "When one household makes an invention, a hundred more can benefit 
from it." But the Shenzhen government, she said, now wants to encourage 
innovation by protecting inventors' rights. 

But even here, Chen found that having a patent was not enough. The loosely 
worded description of his invention meant competitors could copy the tree 
without directly infringing on the patent, Chen said. Gordon Gao, a patent 
lawyer at Paul, Hastings, Janofsky & Walker who advised Chen, said, 
"Everyone else in southern China saw the patent." Soon they were devising 
ways to copy it without attracting lawsuits. 

Chen sued a local company, Win Hing, that produced a tree similar to his, 
but a local court rejected his case, finding that the other tree did not 
infringe on Chen's patent. Litigation against Kiuhung, a toy company in Hong 
Kong, over control of Chen's patent also fizzled. Win Hing has been 
dissolved, and representatives of Kiuhung declined to comment on the dispute 
with Chen. 

While China has been developing rules and laws to protect copyrights and 
patents, many businesses - even large multinational companies - fail to 
protect themselves by applying for rigorous patents and copyrights and then 
pressing their complaints through courts and intellectual property offices, 
Gao said. 

"If you do have a strong patent, you will always get an injunction," he said 
of China's courts. "I have yet to find a case where a patent was effective 
but failed." 

Others are less optimistic. China's patent and copyright rules are becoming 
more sophisticated, but the changes are tilted toward entrenching the 
advantages of Chinese companies, especially state-owned corporations in 
high-value industries like computers and software, medicine and 
telecommunications, said DeWoskin, the adviser with PricewaterhouseCoopers. 
He objected to the idea that China was evolving, however fitfully, toward 
the type of patent protection that companies have in the United States. 
"That's just not happening," he said. "They're heading in a completely 
different direction." 

Even Chinese officials involved in intellectual property issues say China 
should not "bow to" Western demands to overhaul its rules. 
"The U.S. government's abuse of the intellectual property rights system 
isn't just seriously damaging the interests of Chinese businesses and the 
public," Wei Yanliang, a researcher in the State Intellectual Property 
Office, wrote in a recent issue of the Chinese-language magazine Business 
Watch. "It's seriously impeding China's progress toward rule of law." 

He said China's expansion of a crackdown on counterfeiting suggested that 
Beijing had "totally bowed to American intellectual property hegemony." 
Even more than legal differences, investors and experts said, China's role 
in the global process of rapid, made-to-order manufacturing is putting 
profound pressure on traditional notions of copyright protection. The 
pressure to introduce products quickly into ferociously competitive markets 
tends to make patent approvals an afterthought. 

Novelty items depend on rushing products to market to meet fickle tastes. 
This often requires sharing technology with factories and clients before 
patents are approved, 12 to 18 months after an application is made, Chen 
said. "If you wait that long," he said, "you're dead in the marketplace."

http://www.iht.com/articles/2005/06/21/business/patent.php

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Best,

Lopo
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