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Broad risk management strategy needed to protect intellectual property


Foreign companies should implement an extensive risk management strategy to guard their intellectual property in China, experts say.

Registering patents, trademarks and copyrights with intellectual property offices in China as soon as possible is the most important step. Fighting infringement without registering is virtually impossible, intellectual property lawyers say.

Registering intellectual property before entering into partnerships with Chinese companies is critical since business relationships can disintegrate and lead to infringement.

One client of Thelen Reid Brown Raysman & Steiner L.L.P. lost its intellectual property after terminating a relationship with a Chinese manufacturer over production quality issues because the manufacturer registered for a Chinese patent before the client did, said Meg Utterback, a partner with the firm's China practice based in Shanghai.

"You wouldn't think that the manufacturer you work with and trust would steal your product, but it happens," Ms. Utterback said.

Companies should perform intensive due diligence on their outsourcing partners before they sign deals with them, examining whether they have been guilty of intellectual property violations in the past and scrutinizing their internal procedures for intellectual property protection.

When DarwinSuzsoft was looking into potential acquisitions in China, the information technology service provider eliminated several companies from consideration because it was uncomfortable with their understanding and appreciation of the intellectual property issue, said Bob Kramich, executive vp, business development and corporate marketing in Wakefield, Mass.

Contracts with Chinese outsourcing partners should have provisions enabling the foreign company to do onsite audits, mandating the purchase of liability insurance and dictating penalties for the unauthorized release of protected information.

"The contracts have to be written in such a way that if somebody wants to manufacture for you, they have to be accountable," said Vincent Volpi, chief executive officer of PICA Corp., a Columbus, Ohio-based security, risk management and loss prevention company.

A critical step in intellectual property protection is to share only the minimum information that is necessary for outsourcing partners to produce the goods or conduct research and development activities. "Keep the IP crown jewels at home," said Harry Rubin, co-chair of the intellectual property transaction practice group at Heller Ehrman L.L.P. based in San Diego.