Protection of IPR in the Automotive Industry in China

LandWindYour IP in the Chinese Automotive Industry

The automotive industry in China has seen rapid expansion over the last decade; the automotive parts market alone was worth RMB 1.5 trillion (€179 billion) in 2010 and the increasing volume of vehicle sales in the country predicts that the trend is set to continue. There are clear opportunities for European businesses to profit from this booming market but precautionary steps must be taken to meet the challenges that China poses.

When  it  comes  to  Intellectual  Property  (IP)  protection,  international  small  to  medium-sized businesses that invest in the local automotive industry should be aware of the IP risks that they run when operating in China, and the main tools at their disposal to protect against those risks.

Currently, the most important factors that allow international automotive businesses to operate in Chinese Tier 1 and Tier 2 markets, are their established contacts with global car manufacturers (the Original Equipment Manufacturers, or OEMs who produce parts or components for sale to other manufacturers to market under their own brand name – for more information you can watch the China  IPR  SME  Helpdesk   webinar  on  OEM  in  China),  their  technological  capabilities,  and  their reputation for quality. This gives them an edge over many Chinese competitors that are relatively new and lack the regimented processes that are required to guarantee a high level of quality. Therefore  IP  –  in  particular  with  regards  to  new  technologies  and  the  ability  to  protect  this technology from Chinese competitors – will be a key factor in the battle for market share.

Why is Protecting your Trade Mark Important?

Branding is key to the success of many international companies in the Chinese automotive industry. The strong reputation that these companies have built up in other markets allows them to compete effectively for orders from (international) China-based customers. Trade marks play a relatively small part when it comes to the purchase of OEMs because most car manufacturers will only purchase from known suppliers, so counterfeiters are unlikely to get a foot in the door. Lower down the supply chain trade mark infringements are a more distinct possibility, and European SMEs operating at this level should ensure their trade marks are registered in China.

Another  area  that  is  prone  to  trade  mark  infringement  is  the  market  for  spare  parts.  Parts distributors,  whether  wholesalers  or  retailers,  may   consider  selling  counterfeit  products  at real-product prices, increasing their own margin substantially. From a consumer’s point of view, the best way to curb the risk of being saddled with inferior counterfeits is to purchase only from qualified dealers. Automotive suppliers whose parts are being copied should be ready to file a complaint with the Administration for Industry and Commerce (AIC), to start an administrative IP enforcement action; or in the case of major infringements, a civil lawsuit which could lead to an injunction (a court order requiring the offender to immediately cease selling and producing the counterfeit items) and perhaps some compensation.

Companies in the automotive industry must remember to register their trade marks in China – if only to avoid third parties registering them first. As China applies the ‘first-to-file’ system, an international business that fails to register its brand name as a trade mark in China, may be prevented from using this brand name in the future, which could have a serious impact on its business. Additionally, owners need to register the Chinese versions of their brand names as trade marks in China, because very often the Chinese equivalent becomes better known and more valuable than the original brand name. For more information on trade marks in China and how to register them, see the China IPR SME Helpdesk guide to trade mark protection in China.

Patents and Inventions

China’s system to protect patents is relatively comprehensive and very similar to that of many other international jurisdictions. To be protected under the Chinese patent law, a technology must be registered in China, either directly or through depositing an international patent in China. Upon being granted, the patent holder will have the right to exclude others from making, using, selling, offering to sell, or importing patented products or technologies in China during the patent’s term of validity.

The  three  main  conditions  to  be  granted  a  patent  are  that  the  technology  must  be  ‘novel’, ‘inventive’, and have practical applicability. In the Chinese automotive industry, the requirement of novelty is by far the most challenging. Companies that develop a new technology, in China or elsewhere,  must  ensure  that  the  patent  is  applied  for  in  China  before  the  product’s  use  or publication (anywhere in the world). However, helpfully, China offers a twelve-month priority period upon application in another country or jurisdiction. This means that when a technology is invented and a patent is applied for in the home jurisdiction, then the company has twelve months to apply for the patent in China as well.

In addition, China has special rules that apply where a technology is invented in China. If the Chinese subsidiary of an automotive parts supplier has invented the technology, then the patent must be applied for in China first. For further information about registering and using patents in China, please refer to the China IPR SME Helpdesk Guide to Patents in China.

Additional Faster Access to Protection – Utility Model

Besides applying for an invention patent, companies also have the choice of applying for utility model patents to protect their technologies. Although the utility model patents cover much of the same kinds of technologies as the invention patent, the main differences are as follows:

  • Application: Utility model applications do not enter into a stage of substantial examination, which means that the State Intellectual Property Office (SIPO) does not need to review the patent’s novelty.
  • Timing: The application process for a utility model usually takes approximately one year (three or more years is common for invention patent applications) but the protection only lasts for ten years (as of granting).
  • Protection: Unlike invention patents, utility model patents do not require ‘substantial examination’, which makes them less effective when enforced and exposed to higher risk of invalidation.. An invalidation procedure may suspend any enforcement actions.

Utility model patents are no alternative to invention patents, but they still offer a certain level of protection if  the  invention  patent  is  no  longer  available  to  the  owner.  Moreover, an effective strategy to protect technical solutions is to apply for both a utility model and invention patent simultaneously (i.e. on the same day); and then to abandon the utility model upon being granted the invention patent. This practice allows patent holders to take advantage of the early approval of the  utility  model  to  obtain  a  first  level  of  protection,  until  completion  of  the  more  extensive invention application which provides the patent holder with maximum protection and for a longer period (of twenty years instead of ten).

How to Maintain Trade Secrets

The trade-off for the protection of inventions and utility models as patents is that they are fully disclosed to the public, through publication by the State Intellectual Property Office. Therefore while registering a technology as a patent offers legal protection in China, it also increases the risk that competitors are capable of copying the technology. A different approach to protect technologies is not to file for patent protection, but rather to try to protect the use of these technologies by avoiding disclosure to third parties.

Take Away Message

The automotive industry involves a broad range of intellectual Property, including trade marks, patents and trade secrets. Irrespective of the kind of IP, the first step for owners is to ensure that IP rights are valid and effective in China. For trade marks and patents this means that they need to be registered in China, and for trade secrets (a type of confidential information) certain active steps must be taken.

In general, all automotive companies that are in China or want to enter this market should be clear on their IP protection strategy, which should include a focused understanding of the IP they want to protect, and the measures taken to execute such protection.

China IPR SME Helpdesk Team

China IPR - latest

The China IPR SME Helpdesk supports small and medium sized enterprises (SMEs) from European Union (EU) member states to protect and enforce their Intellectual Property Rights (IPR) in or relating to China, Hong Kong, Macao and Taiwan, through the provision of free information and services. The Helpdesk provides jargon-free, first-line, confidential advice on intellectual property and related issues, along with training events, materials and online resources. Individual SMEs and SME intermediaries can submit their IPR queries via email (question@china-iprhelpdesk.eu) and gain access to a panel of experts, in order to receive free and confidential first-line advice within 3 working days.

The China IPR SME Helpdesk is co-funded by the European Union.

To learn more about the China IPR SME Helpdesk and any aspect of intellectual property rights in China, please visit our online portal at http://www.ipr-hub.eu/.

 

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