In the past few years we have seen more and more Chinese companies investing in overseas companies. Whilst there are numerous reasons why Chinese companies are looking to invest in the West one common driver is innovation. Historically China has built up a reputation for large scale, relatively low cost manufacturing but the majority of the products being manufactured have been designed elsewhere.
The Chinese Government has set up numerous initiatives in China in recent years to promote and encourage more innovation in China and Chinese companies have in turn been looking at how they can become more innovative. This has led to a large rise in the number of Chinese companies looking to invest in technology rich companies in countries such as the UK. By partnering with a technology rich company the Chinese companies are able to get a competitive advantage over rivals in a relatively short space of time.
The increase in Chinese companies looking to invest in the UK is obviously great news for the UK economy and for the UK companies being targeted. UK companies should, however, be mindful of the value of their intellectual property and ensure that they do not unwittingly endanger or give away their intellectual property when entering into collaborations with Chinese companies.
With so many things to think about when contemplating a collaboration with a foreign company the issue of intellectual property (i.e. – copyright, designs, patents, trade marks, etc.) and the protection of it can easily be overlooked. Identifying and protecting your company’s intellectual property should, however, be a priority from the start of any potential collaboration.
Before any commercially sensitive information (such as know-how, plans, inventions, methods, etc.) is disclosed to a potential partner make sure you have a robust confidentiality agreement in place. Disclosing and/or publicising certain confidential information can not only lose you competitive advantage (if it is leaked to third parties in the same line of business) but it could result in you losing the right to protect certain types of intellectual property. For example, under English law in order to patent an invention it is necessary to prove that it is new and that it has not already been made public. Companies are often hesitant to ask potential partners to sign up to confidentiality agreements as they worry that starting the relationship in this way may be viewed negatively by the other side. Whilst it is important to be aware of cultural differences when conducting business in China confidentiality agreements are common place and so do not be afraid to request that one be entered into.
Once the structure of the collaboration has been discussed and agreed make sure that you have everything documented. Existing intellectual property involved should be identified and set out in the documentation. Any licences of intellectual property should be properly drafted so it is clear where the intellectual property can be used, how long the licence is for, whether it is transferable, whether a royalty will be payable for the licence, etc. The documentation should address who will own any improvements made to existing intellectual property. It is also advisable to make sure you agree and set out who will own any new intellectual property created as a result of the collaboration and what (if any) rights the other party to the collaboration will have in respect of that intellectual property.
Another consideration is what intellectual property may form part of the collaboration and whether any intellectual property may be licensed or assigned to another entity as part of the collaboration. If the collaboration may result in technology being licensed or assigned from the UK company to a joint venture or another entity this should be carefully thought through and documented particularly if there may be a transfer of intellectual property to China. Technology transfer into China is highly regulated by Chinese law and so it is essential to get Chinese law advice if this will be an aspect of the collaboration. If there is a possibility that your intellectual property may be used in China as part of the collaboration consider protecting it there by registration (in China it is possible to register copyright, software, patents and designs (known as design patents in China)).
An issue often overlooked by companies is that of improvements and who will own any improvements made by the Chinese party. It is important to address this issue at the outset as the position under English and Chinese law is different and the parties expectations based on their knowledge of the law in their own country may by very different. Chinese law in respect of improvements to intellectual property is a key example of why UK companies need to think very carefully about the intellectual property they contribute to any collaboration that may result in intellectual property being transferred to China. Under Chinese law improvements are owned by the party that makes the improvements and any contract terms stating that improvements will automatically be owned by a foreign party will be unenforceable. Another point to note is that that Chinese law will not permit restrictions on a Chinese party from making improvements to technology that has been licensed/assigned.
The issues raised above are all factors to consider before entering into a collaboration with a Chinese company but there are ways of addressing these issues with the help and advice of an experienced legal practitioner. By having a clear and detailed plan in respect of intellectual property from the start many problems later on down the line can be avoided.