If you want to source in China, be prepared to take risks

A friend of mine reached out to me recently asking me to help him apply for China patents for a new product.  Apparently someone had approached him because he used to work for a FORTUNE 500 company in China and wanted to enlist his expertise. So my friend came to me, thinking IP protection was the place to start.  I told him what I tell a lot of people, namely if you are going to be paranoid about losing your IP in China then you shouldn’t be doing business over there in the first place. It is simply one of the endemic risks of doing business there, much as mosquitoes are one of the endemic risks when you go camping.

My friend left China in 1997 and since his return to the US he has worked in Silicon Valley, doing non China-related stuff.  I think he has forgotten that when you do business in China you cannot expect Western principles of transparency, accountability and integrity to apply there, because they often do not.  In other words, just because you apply for and are granted a China patent does not mean that you will be home-free to manufacture your product in China without problems.  Someone will always come up with something similar to your product and exploit a loophole in the Chinese patent application (which is a complicated and time consuming process)  and there would be little you could do about it,  short of costly international litigation.  Are you going to be able or willing to do this?  If you are a small business with a limited budget the answer is no.

I gave my friend the advice which I always give to others, namely to focus on securing IP in the country where you will be selling your product so as to protect your own market.  If you have registered trademark and patent here in the US no one can sell your product but you.  If you want to take your designs to China then don’t be overly concerned about IP and take refuge in the fact that unscrupulous individuals in China who are bent on appropriating someone else’s IP are usually focused on bigger companies where the payoff is much larger.  When you grow that is the time to start worrying about IP and taking the necessary steps in China to protect yourself such as Trademark protection.

I have written a lot on this subject.  Here are some other posts you will find useful.

China’s Great Leap Forward with IP

Trademarks in China

Some advice on IP protection in China

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The Chinese care more about IP than you think.

People come to me all the time who are worried about their IP in China. Are their designs going to be safe in China ? Is their China vendor going to sell their product to other companies ? etc etc. But I also have small US or Canadian companies who come to me asking me to help them source a US or Canadian competitor’s product in China. In other words their objective is to take someone else’s IP and have it made in China. And in the end the Chinese get the bad rap.

I really am uncomfortable when people come to me with these requests. I respect IP and I will not help someone source something unless it is their own or is such a widely sold i.e. generic product that there really is no IP e.g. blue jeans. Fortunately most of the people who approach me do so with their own designs and their own products in hand. And these are the people I love to help. But the inspiration for this post was when a start-up company asked me the other day about sourcing a much larger competitor’s product in China ( typical young 20-something start-up company mentality IMHO). They suggested to me that they could just go to the competitor’s factory and buy some of the product for themselves ( with my help of course). I told them that not only would I not help them but it was fanciful thinking. No factory in China is going to jeopardize a longstanding profitable relationship with an existing customer by supplying those same goods to a fledgling start-up. In the old days, it would have happened and did as vendors in those days cared only about maximizing profits. I have heard stories and have seen it myself. But this does not happen anymore. If it does it is rare.

And I thought back to a project I had a few years ago. A US children’s product company had asked me to source what looked to be a pretty generic item. I reached out to some vendors in China and one vendor told me that the product I was inquiring about was too close in design to one of their own customer’s products and so they could not help me. I was impressed by that response and ever since then I have advised clients of mine that when they give projects to vendors in China they should be sure about their IP, aware that, in spite of what they hear to the contrary, Chinese vendors do care about and respect IP. And I have to say that after the inquiry last week it seems to me that vendors in China sometimes respect IP more than their Western customers.

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