China's entrepreneurs are taking advantage of the country's first-to-file trademark and intellectual property laws, as well as lackadaisical attitudes of Western companies.
The latest blow comes from Shenzhen-based Baili after the little-known startup won an injunction against sales of Apple's iPhone 6 and iPhone 6 Plus in Beijing based on a patent covering a smartphone design. Apple issued a statement shortly after the news broke that they appealed the ruling in the Beijing region and iPhone remained for sale in China.
Oh, the irony of it all: While Apple won an appeal against Baili, the fight between who owns what designs is far from over, especially as Chinese competitors take advantage of local laws by registering patents. Many electronic component supply chains remain unprotected. Now companies must tighten design and delivery schedules, and put extra security in place to protect designs of components and finished goods.
China is a first-to-file country, which means the first company to register trademarks, copyrights or patents own the rights in that region, said Francis Bassolino, managing partner at Alaris, a corporate advisory firm that helps companies solve challenges in China. He said Chinese companies lay claim to patents even if they weren't the first to develop the technology, as long as they are the first to use them in a product in the market.
“Chinese companies are registering U.S. marks and patents as their own in China,” he told EBNOnline.com. IP theft in China has been a problem for years, but Bassolino said the government, nationally, seems to support the rights of patent holders more often these days, compared with 15 to 20 years ago, around the time U.S. companies moved manufacturing overseas.
He said Western company selling products in China must register marks and patents locally because the potential loss of not being the first to file and the first to sell the product is huge. If an infringement should arise, the original IP owner will need to prove to the Chinese court that it had prior sales of that product.
One challenge stems from the 18-month lag for the U.S. Patent and Trademark Office to make documents publically available, said Tyron Stading, president at Innography, Austin, Texas.
China's courts also take first disclosure into consideration. Let's say Apple files a patent on Jan.1, 2016, with the U.S. Patent and Trademark Office and it doesn't become available for public viewing until 18 months later. They keep it under wraps because it's a trade secret. A Chinese company could file the patent China on June 8, 2016, and claim it as their own.
Electronics companies, from components to finished goods, have filed a slew of patents since Jan.1, 2016. Stading estimates companies in China filed roughly 244,000 applications in 2014 and 222,000 in 2015. In the U.S., those numbers are much lower at 184,000 and 111,000, respectively.
Overall, Stading estimates Apple filed 5082 in 2013; 5238, 2014; and 3988 in 2015. The company was granted 3012 in 2013; 3898, 2014; and 4118 in 2015.
The most recent edition of the World Intellectual Property Indicators 2015 reported global growth in patent and trademark filings in 2014 of 4.5% and 6.0%, respectively. China drove that growth. Its local residents filed 12.5% more patent applications and 18.2% trademark applications that year.
Apple wants a presence in China. Forrester Research Analyst Renee Murphy said no one should overlook the $1-billion-dollar investment in Didi Chuxing Technology Co. Apple is clearly investing in China's future and that future will include Apple IP.
“Giving a Chinese firm a billion in capital to keep an American company (Uber) out of the Chinese market is a tremendous amount of goodwill to China,” Murphy wrote in an email to EBNOnline.com. The reference made to any forthcoming partnerships between Apple and Didi. “Tim Cook is investing personally by being on the advisory board of the Tsinghua University's School of Economics and Management.”