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Intellectual Property - Engaging with
China
By:
Paul Ward
China is well entrenched in the global marketplace,
but with Chinese piracy reported at 90 percent, it's the third least
friendly country for protecting intellectual property (IP).
China's accession into the World Trade Organization started four years
ago. With this commitment to regulatory and economic restructuring,
China has indeed been a country of economic opportunity for
multinational corporations.
In theory, WTO accession means that WTO members can enjoy IP
protections. In China, secure those patent protections carefully. Dot
the i's, cross those t's and 'watch your language.' Also, anticipate
litigation.
According to attorneys A. Jason Mirabito and Carol Peters, in a March
2005 article published in Chip Scale Review: "In the past there was
little enforcement of IP in China. However, in 2002, Chinese courts
litigated more than 6,000 civil cases involving IP issues. About 2,000
cases involved patent suits. The rest were trademark and copyright
actions."
Those 2002 statistics pale compared to recent figures, reported by the
International Herald Tribune: In 2005, "Chinese courts dealt with 12,205
civil intellectual property cases, an increase of 32 percent from 2003
and a few dozen two decades ago."
Consider one recent case, which demonstrates that China's legal savvy is
climbing with its growing stake in US markets and the global economy.
The case also demonstrates the role of US courts in patent and IP
protection, along with the perseverant or 'energized' stance required by
US companies threatened by counterfeit goods or the prospect of piracy.
Energizer & Eveready vs. Just about Everybody
The dispute started in the spring of 2003, when Energizer Holdings, a US
company, and its subsidiary Eveready filed a lawsuit with the
International Trade Commission (ITC). The complaint addressed a
signature product, a long-lasting battery design—affecting in particular
a line of zero mercury-added alkaline batteries that Energizer has held
a patent on for three decades. Also mentioned in the suit are games,
toys, and other products manufactured with batteries whose designs are
protected.
Energizer asked the ITC to issue a cease-and-desist order and to ban US
imports of these products, claiming the batteries exported to the United
States by the 26 manufacturers, affiliates or distributors named in the
suit had infringed on Energizer's US patent. Among the multiple
respondents named in the complaint, nine were Chinese manufacturers,
including Fujian Nanping Nanfu. Nanfu Battery is one of China’s largest
alkaline battery manufacturers and suppliers. Energizer requested the
ITC investigation under Section 337 of the US Tariff Act.
At the time of the original filing, China was considered the world's
largest manufacturer and exporter of this specific battery with an
estimated 75-80 percent of its goods being exported to overseas markets.
According to a China press report, "Chinese batteries usually cost
between a 10th and a third less than US-made ones, making them very
popular in overseas markets."
The ITC handed down a preliminary ruling in 2004, deciding that nine
manufacturers from the Chinese mainland and Hong Kong infringed upon
Energizer's patent, and recommended banning imports of the batteries.
But four months later, the ITC closed its investigation, and ruled that
Energizer's patent was invalid because it was …"indefinite as a matter
of law…." Or, in the legalese: "The Commission held that Eveready's
"proffer of alternative constructions of 'said zinc anode' was an
admission of indefiniteness."
In plain terms, the main patent claim, or its language, was incorrectly
written. Attorneys Mirabito and Peters reported that the Commission
determined "there was no infringement of the Energizer Holdings patents,
and the continued importation of Chinese batteries was permitted."
It Just Keeps on Going and Going…
True to the brand as "the battery that never quits," Energizer kept on
"going and going," and appealed the ITC's final decision to the U.S.
Court of Appeals for the Federal Circuit. In the suit, Energizer named
the ITC as defendants. Energizer's main contention was that the issue
regarding language was not substantial enough to invalidate the patent.
The Court's January 25, 2006 ruling, and a follow-up March 20 mandate
reversed the earlier ITC opinion, finding that the ITC erred and the
patent draft was written correctly enough.
"In that regard, we conclude that 'anode gel' is by implication the
antecedent basis for 'said zinc anode.' The Commission's holding of
invalidity on the ground of indefiniteness is reversed."
In the unanimous ruling, the Court directed the Commission to proceed in
accordance with the Administrative Law Judge's prior ruling that the
Energizer patent is valid, according to Legal Times analyst, Emma
Shwartz.
It was a happy day at Energizer headquarters in St. Louis. "We are
pleased that this case has been sent back to the ITC for review," said
Michael Pophal, Senior Patent Counsel at Energizer, quoted in a company
press release (http://tinyurl.com/kfb6m). "By issuing this mandate, the
appeals court has cleared the way for additional inquiry into whether
those companies that import mercury-free alkaline batteries into the
United States are doing so illegally. If it is indeed determined that
they are doing so illegally, the ITC will then determine the appropriate
remedy for that illegal activity."
As before, Energizer will seek the general exclusion remedy in the ITC.
If the ITC upholds the company's claim, this remedy will bar infringing
batteries, including those made or sold by the remaining respondents
from importation or sale in the US, and will permit sanction enforcement
by US Customs.
What’s Next? A Changing Landscape?
Energizer expects a favorable outcome from the ITC. But even as they
await the ITC review, the Internet-surfing public has been reading about
the recent ITC mandate in starkly opposite terms: in China, recent press
accounts erroneously have been reporting that the Court ruled in favor
of Chinese manufacturers. They fail to report that the jury, with
respect to the ITC, is still out.
It appears that a gentle, collaboratively toned communication between
Energizer and China has helped the situation. Many of the erroneous
reports have been pulled from news sites.
While Energizer seems to be battling questionable imports the longest
and hardest, they aren't the only company doing battle with Chinese
manufacturers and companies alleging technology violations of patents,
trademarks and IP infringements. The litigious ranks include Hitachi-IBM
and Cisco, who won its patent battle over the Shenzhen-based Huawei in
2003. Cisco eventually proved that Huawei, arguably the top Chinese
provider of switches and wireless infrastructure, had copied the U.S.
companies' firmware code line for line into its products. Huawei
settled.
Still, other recent cases are coming to favorable conclusions for
plaintiffs defending goods in China courtrooms, an indicator that China
is serious about its place in the WTO and in the global economy.
-- In late 2005, java giant Starbucks Coffee won its two-year-old case
against 'Xingbake' (translation Star Bucks), for trademark and logo
infringement. The case was decided in Shanghai No. 2 Intermediate
People's Court, and was considered a landmark judgment and litmus test
of China's amended trademark laws. Xingbake has filed an appeal.
-- In 2004, Swiss agribusiness and agricultural chemical maker Syngenta
was awarded an apology and compensation after its patent infringement
lawsuit was successfully concluded against a Chinese business group. The
case was heard in a Nanjing court, one known for its expertise in
intellectual property.
There is little doubt that China's government will quickly improve its
IP stance, but this analyst believes the most effective pressure will
come from its own domestic companies, particularly as they evolve from a
heavily manufacturing-depending economy to a service and integrated
products economy. This more sophisticated economic profile makes IP
rights even more critical, because more Chinese companies will have more
at stake when IP is violated.
Recent positive announcements make it clear that rule of law
increasingly will be guiding China's economy. In the meantime, keep your
intellectual property under a close watch, and build trust with your
Chinese partners. Good contracts, good guanxi, and good sense will prove
invaluable.
Sources: Chip Scale Review, International Herald Tribune, China Daily,
China.org, Legal Times, Syngenta, Energizer Holdings / Eveready Battery,
Starbucks, Energizer Court of Appeals Ruling: http://www.ll.georgetown.edu/federal/judicial/fed/opinions/05opinions/05-1018.pdf
Article Source: http://www.articledashboard.com
Paul Ward is a strategic consultant specializing in
global CRM (Customer Relationship Management), and writes regular
columns on branding, marketing and strategy Recent articles include new
research frameworks on global marketing as well as financial strategies
for globalizing companies. He also created a web portal for the Screen
Actors Guild and the Writers Guild of America, west, to help them
protect the intellectual property and labor rights of producers, writers
and actors when the Digital Millennium Copyright Act (DMCA) was first
passed in the late 1990s. For more information about Paul, visit
www.pkward.com. For more information about the Energizer/Eveready ITC
case, visit
www.corporate-ir.net/ireye/ir_site.zhtml?ticker=ENR&script=410&layout=-6&item_id=845832.
Paul is currently developing business and serving clients in Russia,
China, France, the UK and Malaysia, as well as in the United States and
Mexico. Paul may be contacted at paulblog@pkward.com.
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