Asset security Featured

12:24pm EDT June 22, 2004
The United States may be the largest world market, but the fastest growing markets for manufacturing and consumption are China and India.

Unlike in the West, Chinese culture has traditionally viewed ideas and innovations as society-owned. Intellectual property (IP) protection is a fundamental building block of capitalism, so if incentives are provided to build better mousetraps, they will be built.

How, then, does an innovative company step into the Chinese economy? Carefully.

Before you enter the Chinese marketplace, employ a middleman to ensure your manufacturing partner is reliable and trustworthy. Deborah Wilcox, partner and co-chair of the intellectual property litigation practice at Baker and Hostetler says, "I have seen cases where a factory is producing legitimate product for a customer on one end of the factory and knock-offs on the other end. Having someone on the ground who is working for your interests is critical to keeping an even playing field."

As a member of the World Trade Organization, China must abide by the rules of the game, which include IP protection. However, it's not always easy to protect intellectual property.

"From a practical standpoint, it is very difficult to protect your IP interests," says Gary Yingling, director of business development for Asia at Rockwell Automation. "If you can, try and keep your 'kernel,' that is, the proprietary core that differentiates your product, out of your Chinese manufacturing activities. Do that work in an environment where it can be better protected."

That's because many Chinese factories that intend to knock off your product, idea or design will first check to see if you have protected your rights with the Chinese Trademark Office in Beijing. Because China is a "first to file" country, if someone else files your IP before you, your rights will be in jeopardy.

China is beginning to develop enforcement mechanisms to shut down factories that violate patent and trademark laws, and the Administrator for Industry and Commerce will investigate and raid factories producing knockoffs.

Cease and desist letters may have little effect coming from your U.S. attorney. However, if it comes from the U.S. Embassy or if the product is seized at U.S. Customs, the impact will be stronger.

As quickly as change happens in China, values and traditions evolve slowly. Until China sees clearly the benefit from protecting the IP rights of foreigners and its citizens, it is unlikely that protections satisfactory to Americans will come quickly. Taking the proper steps, however, can reduce the chance of having your valuable property rights ripped off.David Levey (jdl@interax.com) is an adjunct professor of Global Management in the MBA program at John Carroll University. He is the former manager of the Cleveland World Trade Association, the international business education arm of the Greater Cleveland Growth Association.