Chinese companies expanding overseas face plenty of IP risk, but it need not overwhelm them

Here at IAM’s first IPBC Shenzhen event, Chinese companies with global ambitions were given a road map for how to develop their IP strategies as rapidly as their commercial ones. One overarching message local firms heard from both global tech giants and Chinese success stories was while IP problems are bound to arise, they might not be as overwhelming as they seem.

For many relatively young firms here in the greater Shenzhen area – China’s Silicon Valley – the IP department is at a relatively embryonic stage. As they invest more resources in intellectual property, they face important questions about how to build up an in-house function. Shirley Chen, the director of intellectual property for Lenovo, advised companies in this situation that there are not necessarily wrong answers when it comes to organisation: “I consider myself quite lucky to have experienced working in an IP team that’s within legal as well as one that’s an R&D unit”.

Size is not necessarily the best benchmark either. Chen recalled a 2012 IAM feature profiling the China IP Elite which included team photos of many Chinese IP teams. The photo provided by Lenovo was an expressive portrait of a nine-person team, and it was juxtaposed with a competitor’s photo that included well over one hundred professionals. Operating as a smaller team in those days had its good points, Chen noted. “To be honest, it was a challenge, but not insurmountable”, she said.

While Shenzhen is home to an increasingly large volume of R&D activity, many local firms here have entertained the idea of playing patent catch-up through the secondary market. The first question of the day from the floor asked panellists how a Chinese company attempting to buy patents could get the leverage to obtain rights at a lower price point. Steven Liu, IP director at Mediatek, advised IP executives to stay on top of market developments in the United States. Questions about validity, he suggested, have been a drag on patent prices. Chinese buyers ought to use that to their advantage.

Traditionally, going global has been the top motivator for Chinese companies to start getting serious about IP protection. It’s not as simple matter of “trying your luck”, Chen cautioned, but a process that requires detailed preparation. Just making a few token patent purchases won’t cut it. “Patents are weapons that should be used smartly. […] Strike a balance between investment and output to make the best use of limited investment.”

Risk assessment is one of the most critical aspects of the necessary preparation, said Zhongli Zhang, IP director at Hisense: “The risk assessment should not be too general – it should be specific to the point of showing you the patent litigation conditions in each of your target countries.”

But while a detailed analysis is necessary, Chinese firms should not feel daunted by what may appear to be significant barriers. “Many Chinese companies are quite concerned because they sometimes overthink litigation and become excessively worried about it,” Zhang observed. From his own experience with Hisense, Zhang reflects that it is very difficult to think up the right countermeasures before a case actually occurs. Many of the best tactics arise during the process of a litigation: “In the beginning you may be very concerned – don’t be. As time goes by, you’ll generate more ideas and countermeasures.”

That leads to one more insight. Put plainly, don’t be a pushover. When it comes to negotiating licences and other deals, Zhang says, “Don’t blindly believe the documents sent to you by any potential partner.” Hisense has received numerous warning letters which include invalid or expired IP rights, Zhang said. When building an IP team, it is important to make sure it has a full complement of practitioners, including engineers and technicians who can suss out technical issues that arise in tough negotiations.

In negotiations, added Ningling Wang of Finnegan, firms ought to come well prepared knowing what issues they are willing to compromise on and which they are not. Chinese companies have a reputation for being very cost sensitive due to thin margins and fierce competition. Wang advised caution: “I’m not saying cost is not an important factor, but want to warn you that every negotiation is a whole package.”

There are plenty of challenges faced by Chinese tech firms overseas, especially surrounding the US-China trade environment. But in terms of purely IP opportunities, Chinese companies have never had greater access to assets, resources and talent. Today's discussion made that much clear.