Intellectual property ("IP") has become an important component of the Chinese economy. What may be less appreciated, though, are the steps being taken in China to protect IP.

In 2006 alone, Chinese courts concluded nearly 2,300 criminal cases involving IP, sentenced over 3,500 criminals, and resolved over 14,000 civil cases. China is making significant efforts to combat IP violations, including patents and trademarks. Accordingly, companies doing business in or with China should be proactive in protecting their IP in China.

As an initial step, companies should protect their IP in China by filing for patents on inventive technologies and registering trademarks using qualified Chinese counsel.

As more and more Chinese competitors resort to challenging the validity of patents held by foreign companies, hiring Chinese counsel who are adept at navigating the Chinese IP laws has become increasingly important to maximize chances of obtaining patents and trademarks that can withstand invalidity attacks.

Moreover, foreign companies should be willing to enforce their IP rights by litigating in Chinese courts. Not only can Chinese courts order infringers to stop infringing activities, they can also provide monetary remedies such as compensation for economic loss to patent and trademark owners (actual or statutory damages of up to RMB 500,000 (US $73,000)). Several recent cases illustrate the current realities of obtaining and enforcing IP rights in China.

In Starbucks Corp. USA v. Shanghai Xingbake Coffee Bar Co., decided on December 20, 2006, the Shanghai No. 2 Intermediate People's Court awarded Starbucks the maximum statutory compensation of RMB 500,000. Starbucks won its case against Shanghai Xingbake Coffee Bar Company for trademark infringement and unfair competition for using the trade name "Xing bake," which is a Chinese transliteration for "Starbucks." The court found that Starbucks's trademarks were well known and that the competitor registered "Xing bake" in bad faith. The court ordered Shanghai Xing bake not only to pay the hefty compensation, but also to change its company name and issue a public apology.

Before garnering the victory, Starbucks had taken proactive measures to protect its trademarks. In particular, Starbucks registered the trademarks "Starbucks," "Xing bake," and logo in China, advertised heavily with these trademarks, and opened the first store in Beijing before the competitor registered its infringing corporate name.

Contrary to the Starbucks case, Merck & Company was not so fortunate in Merck & Co. v. Henan Topfond Pharmaceutical Co., decided on February 27, 2007. Merck had a patent on a hair-loss drug. Meanwhile, Henan Topfond Pharmaceutical Company, a Chinese pharmaceutical company, conducted research and development on the same drug. It was not until Topfond received approval for production of the drug that it realized Merck had already obtained a patent on the product.

Instead of risking infringement, Topfond challenged Merck's patent at the Patent Reexamination Board of the State Intellectual Property Office of the People's Republic of China. The Board found the Merck patent to be invalid based on China's Patent Law and Implementing Regulations, which require that the patented invention have "practical applicability," meaning that the invention can be made or used and can produce effective results. Because Merck never marketed the drug in China even though it had the patent since 1996, its patented drug failed to have any perceived practical applicability. Therefore, to avoid the risk of losing patents in China on patented products, companies should consider marketing those products in China in view of the practical-applicability requirement.

As these recent cases demonstrate, foreign companies interested in doing business in China should timely and proactively protect their IP in China. Similarly, when faced with infringement or an imminent threat, companies should consider suing in Chinese courts for injunctive or monetary relief.

This article appeared in World Trade Magazine