On 7th November, the China-Britain Business Council (CBBC) and Tom Duke, the UK’s IP Attaché to China, hosted a workshop on managing IP risk in UK-China collaborative research and technology commercialisation.
Nathalie Cachet-Gaujard, CBBC’s Director of Education and Innovation started the workshop pointing out that ‘China is on the way to being the lead innovating nation in some fields, for example in AI and bio tech’. Thanks to its massive investment in universities, research and development, China has climbed 5 places and made it into the top 20 on the Global Innovation Index 2018 (17th).
China also has a seemingly insatiable appetite for working with world-leading technology experts in order to step up its technology development. Against the backdrop, there are a lot of opportunities for UK-China cooperation in innovation and technology.
However, it is important for UK companies to ensure that IP risk and cyber security are properly managed throughout the cooperation. Tom Duke explained that this means ‘your partners will not use your IP in China beyond terms that are under your control’.
During the seminar, he suggested a number of measures to help UK companies mitigate intellectual property and cyber security risk in China:
- Apply for your IP rights in China – Chinese companies and education institutions in China highly value IP certificates. Make sure you get your intellectual property registered in China, including copyright for software.
- Make sure your contracts are China ready – It is perhaps surprising to know that contracts are increasingly well respected in China. Work with a lawyer with China experience to make sure your contract complies with Chinese regulations and your business needs. You will find that having a legally binding contract is helpful to shape the behaviour and attitude of different parties.
- Be Innovative – Under rapid economic transformation and fierce competition in the market, most businesses in China are determined to improve their products and services. Other than binding your partner with legal terms and IP rules, bringing innovation and new ideas to projects is much more helpful to incentivise successful partnerships.
- Gain political support – Chinese companies are usually very sensitive to political signals. Get the government and embassy to provide you with some support. Showing your partner and the people in the industry that you are aligned with the political agenda will give them confidence.
During the seminar, Tom Duke also introduced Technology Import-Export Regulations (TIER), the key regulatory barrier on technology transfer from China, and the ways to mitigate it.
TIER is a part of the Chinese regulatory environment that is often linked to the concept of forced technology transfer (bringing technology into the Chinese market, losing control over it and it being absorbed into the Chinese supply chain), which the US and others are currently considering as regards to Chinese policies and Chinese IP practice. TIER is important to consider when licensing intellectual property into China, particularly if it is for a technology, software or creative content. The key thing to note is that there are three parts of TIER, which can sometimes present challenges to international entities doing business in China or licensing IP into the Chinese Market:
- Loss of control over the use of and access to foreground IP, with technology absorbed into the Chinese supply chain with no long-term benefit for UK partners (TIER Article 27).
- If any improvements are made to that technology after it has been licensed, it should be owned by the entity that made those improvements, which is typically the entity in China.
- Overseas licensors must assume full third-party infringement liability (TIER Article 24.)
- The overseas licensor should be made to assume full third party infringement liability, so when a Chinese partner uses the technology that a British business is licensing to them, if they are accused of IP infringement, the British business needs to take on liability for that infringement.
- Burdensome mechanism for licensing Chinese background IP into international research and innovation projects (TIER Articles 33-38).
- In some R&D collaborations where UK and Chinese entities are pooling their technological expertise and are developing new IP, some of the provisions of TIER make applying Chinese IP and Chinese technology into those collaboration projects somewhat cumbersome.
There are two ways that TIER can be mitigated, and there are others, which experienced Chinese lawyers will be able to help businesses do to make sure that they can keep control of the technologies they are licensing into China, also after new iterative improvements that are made to the technology that they are licensing:
- If possible, a business could license to themselves, their subsidiary in China or their joint venture company in a way that they have majority or equal control in China. The risk is significantly lower with a domestic Chinese technology licence, rather than one which crosses the border.
- A British business may be able to license to a Chinese partner outside of Chinese mainland, so again, businesses are not licensing across and into the Chinese border.
The key thing to remember is that it’s that crossing of the border, the licensing of that technology into China and the payment coming back to businesses in the UK that is the crucial thing to watch.
Both speakers concluded the seminar saying that ‘IP risk is always there when doing business with China’. However, there are a lot of things businesses can do to lower the risk to an acceptable level. It is important that companies proactively identify the potential IP risks and formulate mitigation strategies tackling the risks.
For all IP enquiries, please contact Nathalie Cachet-Gaujard at email@example.com