Chinese co. sues for IPR protection in US, hell freezes over

As the convential wisdom goes, China will not respect other's intellectual property rights (IPR) until its own IPR needs protection. If this is true, then IPR in China recently took a significant step forward as the Financial Times is reporting that a litigious Shenzhen USB flash drive manufacturer Netac has hired Morgan Lewis & Bockius to sue New Jersey computer hardware manufacturer PNY Technologies for infringing upon Netac's patent for USB flash memory drives, or key drives (that's US Patent #6,829,672 for you IP boffins out there).

According to the Law Times, such USB flash drives generate more than $2 billion in annual US sales revenue, and Netac is seeking "significant" but unspecified damages against PNY. The is a landmark case as it is the first time that a Chinese company has sought to use the courts to enforce its intellectual property rights in the United States.

Over the previous decade, US companies have used the US International Trade Commission (ITC) with a fair degree of success against patent infringment by Chinese companies, winning or favorably settling about 50 percent of their cases. Like other Asian nations before it, China is slowly discovering that intellectual property protection is a good thing, and the ITC can be used as a tool to protect intellectual property and ultimately, corporate competitiveness.

Moreover, Netac is not simply an isolated case. Rather it is indicative of a growing trend of Chinese companies that both own intellectual property and have the sophistication to protect it.

The Financial Times writes:

Tom Jarvis, a patent attorney at the US law firm Finnegan Henderson Farabow Garrett & Dunner, who practices before the US International Trade Commission (ITC), where many patent disputes involving China are heard, predicts that “within five years the number of patent litigations instigated by Chinese companies in the US will grow exponentially”.

This trend is due the fact that the Chinese companies have created a rapidly expanding portfolio of IP ownership which they will increasingly seek to protect through litigation. Netac, itself, is a good example of China's growing IP portfolio. On its website, Netac claims that currently it has over 250 patents that have been approved or are pending around the world, and on the ego-stroking section of the site, co-founder G. Frank Deng is even referred to as an "IPR warrior."

Accordingly, Chinese patent registration has grown rapidly in recent years, as the Financial Times writes:

The increasing importance of intellectual property to Chinese companies was demonstrated earlier this month by figures from the World Intellectual Property Organisation (WIPO), showing patent filings in China (half of them by Chinese) have increased sevenfold in the past 10 years.

Naturally, the hand of the central government is evident in all of this. Again, quoting from the Law Times:

Indeed, there are signs that China is beginning to take all its IP commitments more seriously. For example, Chinese courts have recently made findings favouring Starbucks and Dell Computer in IP cases. And China's national working group for IPR protection, which co-ordinates the country's IP policies and is led by Vice Premier Wu Yi, is in the throes of implementing an aggressive action plan, whose highlights include:

• making it easier to send people to jail for IP infringements;
• overhauling the rules governing disputes between trademark owners and business name owners;
• continuing the "Mountain Eagle" campaign launched in 2005 by police to crack down on IP crimes;
• holding a "China IPR Criminal Protection Forum" that includes representatives from business as well as the U.S. and E.U. governments;
• boosting co-operation between IP administrative officials and China's criminal law enforcement agencies; and
• translating China's patent examination guidelines into English.

"The action plan has been endorsed by the very highest officials and things can change very fast in accordance with that plan," says Jane Clark of Ottawa, who leads Gowling Lafleur Henderson LLP's China initiative and who filed one of the first foreign patents in China on the day China's patent office opened in 1985.

Clearly, it is good news for the firms whose IPR have been violated in China as it indicates that Chinese firms are begining to take IPR seriously in an endogenous, market-oriented way, which will ultimately grant foreign firms reciprocity and greater protection in China. Oddly, it is only when foreign corporations begin to violate their own countries' domestic IP laws, threatening Chinese IPR that the Chinese begin to respect those laws.

How very Chinese.