Intellectual Property - the new revolution

As Asia's economy grows, clients have been learning - sometimes the hard way - that they need to look to the protection of their intellectual property seriously, or face IP infringements that could end up costing them millions - and in some cases billions - of dollars.

The result is that foreign and local clients alike are now using the IP regimes under which they operate more proactively and with more versatility, with more now favouring a complete, holistic approach to the growing problem of IP violation.

"We're now getting into the picture earlier," Singapore-based Alban Tay Mahtani & de Silva (ATMD) IP and Technology practice head Sheena Jacob says. "Clients are recognising they need help before problems arise. They're coming to us with ideas and want us to focus on developing a strategy." Jacob says clients are frequently taking an "IP management" approach. "Companies are more open and receptive to dealing with IP issues broadly, and more of them have a plan in place than a few years ago," she says.

According to Jacob, clients often come to ATMD with a specific problem and, while dealing with this legal issue, get into a discussion of their overall IP strategy and the need to develop one. Clients then seek help in developing a strategy, aligning it to their business and rolling out a protection plan, through the likes of patent registration.

R&D takes the spotlight
An increased understanding of the ways clients can use their IP to protect their businesses has meant a growing focus on protecting their research and development efforts (R&D).

"I think companies that were traditionally not R&D focused have changed, and are now recognising this value and looking to protect their IP," Jacob says.

This has been the case in the non-R&D-focused banking and insurance sector in Singapore. Corporations that would have only looked at registering their trademarks for protection in the past are now actively looking to protect their products.

For law firms, this has meant a growth in patent registration work, as well as the enforcement of these patent rights. "Companies might now look towards protecting their technology by obtaining patent rights, so they're not just relying on their branding rights being infringed," Jacob says. She gives the example of the luxury goods sector and products such as jewellery and watches, where makers of these products are using patents with a view to stopping other entities from copying the original look and feel of their product, rather than relying simply on traditional design rights.

This trend has been driven by developments in the US, where over the past two years there has been a mushrooming of cases revolving around the patenting of business methods and the sale of 'compatibles', or spare parts products.

One such example was the case filed by Seiko-Epson against Hong Kong-based inkjet producer Multi Union, in which Epson alleged infringement of its US patents in that certain Multi Union inkjet cartridges were compatible with Epson's printer products and on sale within the US. The dispute was eventually settled, with Multi Union agreeing to discontinue the sale of some of the offending inkjet cartridges on the US market.

Asia-based companies are also taking these IP issues seriously. Singapore's Creative Technology initiated a dispute with iPod manufacturer Apple, which eventually led to the recognition of a Creative patent on the navigation menu of its own MP3 player, and the payment of a one-off US$100m licensing fee to Creative by Apple.

Jacob names China and India, as well as the Middle East, as markets that Southeast Asia-based companies are looking at more closely as important areas for IP protection.

"They're looking for advice on how to deal with R&D when engaging in business in these countries, as they're realising they mightn't be able to roll out the same thing they're doing in Malaysia, Singapore or Thailand, in China or India," Jacob says.

The move away from trademark registration toward patent protection has been reinforced in Singapore by the Madrid Protocol, to which it is a signatory. The international trademark registration treaty allows companies to file trademark applications in their home countries, giving them protection in the Protocol's member countries. However, there is an increase in work in terms of trademark enforcement and licensing, with more work also expected to come through objections from member countries on patent filings.

Governments move ahead
The importance of increased investment in IP is being recognised throughout Asia. According to the number of trademarks registered, China's patent office has become the third largest in the world, and this growth has happened in a period of less than 20 years. There are now more patents and trademarks filed in China than in the US.

"This is a clear indication that people are emphasising the need for the creation of IP in China," says Wang Xiang, Orrick Herrington & Sutcliffe's head of IP in China.

"IP is probably the busiest area in the greater China area amongst domestic and foreign law firms alike," Wang says. "The reason is that this area used to be neglected, and nobody was really taking any action. Then all of a sudden during the past five years, and more so the last three years, more and more companies, both domestic and multinational, have been undertaking major enforcement actions in Mainland China."

Governments have been at the forefront of developing more robust IP regimes across the region in recent years to reap the resultant economic benefits. One example is Singapore, where Jacob says the government has made IP a lynchpin of the economy and has "pulled out all the stops" recently to encourage development in the area. Generous tax incentives have been luring US companies to move their entire IP portfolios to the jurisdiction, which is also a vote of confidence in the IP protection these companies can receive.

While less developed, other countries are also pushing ahead. China has revised its patent law for the third time, with the draft likely to be looked at by the National People's Congress at its next meeting in 2008. "The Chinese legal system is improving and the government is becoming very firm in enforcing IP, because it realises China cannot keep doing labour-intensive work in future and so must have access to IP," Wang says.

In India, The Indian Patent Act of 1970 was amended signifi- cantly by The Indian Patents (Amendment) Act in 2005, which conforms to the TRIPs Agreement and includes the granting of product patents, boosting its IP offering. Vietnam is looking a lot more attractive to investors after passing its Law on Intellectual Property, which came into force in mid 2006 (see this month's Regional Updates), and both Malaysia and Indonesia are also attempting to make headway on their piracy problems, with both looking at signing the Madrid Protocol.

China no longer 'Wild West'
China has attracted the most attention in terms of IP infringement, and cases involving Chinese entities continue to escalate in numbers domestically and overseas.

Lawyers are seeing a rapidly growing number of these cases going to court in China, a situation that was not palatable to many MNCs just a few years ago. This has been due to an improvement in the Chinese legal regime and court system, which has given foreign investors more confidence in achieving success in the mainland.

Figures from 2005 show that there were more IP litigation cases filed in China than in the US, with 2006 data yet to be released. The majority of these were filed by local parties against other locals, and only a small portion (3%) by foreign MNCs against Chinese companies.

However, Wang says this 3% figure is actually an 80% increase of MNC filings when compared to 2004, and he expects 2006 figures to reflect this growing trend.

Jones Day's Sebastian Hughes agrees. "We're hearing less and less people using the mantra about China being a 'wild west' where there's nothing you can do to stop IP infringement. That has never been the case, but the more success foreign IP owners are having, the less they're complaining about the situation," Hughes says.

Trouble abroad
As Chinese companies expand overseas, they are also encountering more litigation in overseas markets. More than 50% of cases handled by the International Trade Commission (ITC) are against companies in the greater China area. US law firms in China are picking up on this trend, and are helping Chinese companies defend themselves. Many US companies are favouring the ITC process over filing in the US Federal District Court, as while they are unable to obtain monetary damages they are able to get a faster resolution and injunctive relief against sales of the infringing product.

However, Chinese companies are also being proactive about IP. "Chinese companies have been quick on the uptake," Hughes says. "We're handling registration of trademarks in the US on behalf of Mainland clients, which include up and coming Chinese brands, and they're dedicating substantial resources toward identifying and protecting IP rights."

Despite this rosy picture for lawyers, Wang says enforcement in China is still a problem, and that getting litigation from start to finish can be very difficult, particularly in cases that involve processes, methods and trade secrets. He says as China has no formal discovery process as in the US, Hong Kong and the UK, proving an infringement is very difficult, even though the burden of proof is on the plaintiff.

Wang says many of the cases he sees are based on just this set of circumstances, typically involving a situation where a Chinese national in a responsible position with an MNC in the US returns to China with a patented process or trade secret and joins a competitor or starts a new company to manufacture the same thing. As there is often protection by local governments due to the benefits of taxes and employment that such a growing company might bring, enforcement can be a problem without the benefit of full legal remedies.

One area that is expected to be addressed by next year's National People's Congress is the filing of utility patents by Chinese entities, which allow them to register an almost identical patent to one filed overseas and counter-sue an overseas party, with no repercussions for the offending entity if the patent is invalidated. ALB

2006 saw major developments in the IP laws of Vietnam, following that country's admission to the World Trade Organization in January 2007. For more on these important developments, see this month's Vietnam Regional Update by Dang The Duc, Managing Partner of Indochine Counsel