Its World Trade Week

May 5, 2009
| By Pete Daly |
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As West Michigan business owners and executives take note of World Trade Week, many might take time to wonder how secure their intellectual property is in this global economy.

Some companies already know that the globalization of trade hasn't necessarily included the globalization of law and respect for intellectual property rights: They've had their patents infringed upon and products counterfeited in foreign countries.

If it's any consolation: You aren't alone.

"Many companies have had this problem," said Scott Keller, a partner at Warner Norcross & Judd law firm in Grand Rapids, who spoke recently at an Intellectual Property Rights seminar held recently by the Van Andel Global Trade Center.

Tom Williams, a patent attorney at McGarry Bair PC in Grand Rapids, said foreign infringement of U.S. patents is "a little more prevalent than you would think."

He knows of local companies that have had their products "knocked off" in foreign countries, but he said they don't want to talk about it publicly because "they aren't willing to be the poster child" for IP theft.

Birgit Klohs, president of The Right Place Inc. economic development organization, said local companies victimized by overseas theft of their IP probably wouldn't want to talk about it because it is "too touchy of a subject."

One executive who has mentioned it in public is Rand Stille, president of a new manufacturing venture established last September near Shanghai, China, by Shape Corp. of Grand Haven, a major supplier of automotive bumpers. The new Chinese business, wholly owned by Shape, is called Shape-NetShape China Auto Parts Co. Ltd.

Stille, who spoke at the 11th Annual Automotive Suppliers Symposium at GVSU in early March, said that when Shape executives were planning the new manufacturing venture in China, they visited a Chinese manufacturer that was making and selling a part Shape was very familiar with — Shape Corp. had designed and patented it in the U.S. The Chinese manufacturer had simply taken the design and technical details from the Shape patent.

"All U.S. patents, once they have been issued, are available online," said Keller.

Stille said the concept of intellectual property in China is still evolving.

"There are many companies here making products previously patented outside of China, which by Chinese law were not previously recognized within China. These companies have been producing these products for some time and have established customers that rely on them."

That makes it difficult for the foreign owner of the stolen IP to get the Chinese government to do much about it, he added.

According to the British publication The Economist, China's communist government did not even allow things to be patented there until 1985. In the last few years, however, it is encouraging patents.

Despite rampant patent infringement, many Chinese companies are legitimately using American IP, paying up to $2 billion a year in licensing and royalties to American firms for those rights, according to the U.S. Bureau of Economic Analysis.

Keller noted that IP falls into three types: patents, copyrights and trademarks. Brand names and marketing slogans fall into the category of trademarks, and advertising is usually copyrighted.

"Very often these pirates will also take the advertising, almost verbatim," said Keller. They'll also steal copyrighted photography from the owner's Web site.

Keller said that with trademarks and patents, "rights are very geographic oriented." In other words, a trademark or patent registered in the U.S. isn't safe in foreign countries unless it is registered in those countries, too.

But if a counterfeit product is being shipped to the U.S., then the U.S. owner of the stolen IP can take legal action in the U.S. court system. Obviously, if the product has been selling here, that foreign company has some cash flow in the U.S., and that means the rightful owner of the IP stands a chance of compensation for the damages.

Keller said that a U.S. company can secure a Chinese patent on its invention, which then offers some protection if it is counterfeited in China. However, fines levied by the Chinese courts for patent infringements there are capped "at a level which is not tremendously high," and no damages will be awarded to the injured party.

Keller said some foreign companies that deliberately pirate IP from other parts of the world "look at the potential fines as just a cost of doing business."

A foreign company can also press for criminal proceedings in China against a counterfeiter there, but the number of those cases is "tremendously small."

Then there is the option of pursuing a civil suit against the Chinese counterfeiter, but Keller said "the Chinese courts are very backlogged and it takes a long time to get a case through."

According to Jovan N. Jovanovic, "If you don't file patents in those other countries, you're out of luck." But he emphasized that a company should not just run out and impulsively file for patents in China and other foreign countries.

Jovanovic is a principal at Watson Intellectual Property Group PLC, a group of patent, trademark and copyright attorneys with offices in Hudsonville and Chicago. Clients include major corporations such as Microsoft and Motorola.

"If you don’t have an international presence now, are you going to spend solid six-figure money getting a foothold somewhere else in the world, not really sure where the infringement is going to happen?" said Jovanovic.

He noted that getting a foreign patent can easily cost over $100,000, while the cost of getting a patent in the U.S. is generally "less than 25 grand."

Jovanovic said it might be a better investment to spend that money on several more U.S. patents than one in China. Overseas, he said, patent enforcement "is always lousy," while there is "some certainty in the U.S."

Europe is the most expensive place to apply for patents, said Jovanovic, and many countries charge yearly fees to maintain those rights.

"You have to weigh the cost of that foreign protection, and you’ve got to hit the right countries, and typically, you're going to have to decide this well in advance," said Jovanovic.

"You'll see even the largest of corporations limit where they file internationally," he added. "It's very much a cost-benefit analysis."

McGarry Bair’s Williams also emphasizes the cost of obtaining foreign patents, stating it "absolutely" can be in the hundreds of thousands of dollars for one patent.

"You could have a five or ten thousand dollar patent application here that would cost you a hundred thousand dollars, just to get it converted into the native language over there" and have it granted by a foreign patent office.

"This is not for the faint of heart, in the first place," he said.

There are now international patent application processes set up, which can help — but the cost is still daunting, according to the attorneys contacted by the Business Journal.

Williams said he has had clients "try all kinds of creative ways to prevent being ripped off," aside from the patent process. Some of those ways have included contract provisions where foreign companies using American industrial tooling must agree that they will not use that tooling for any other customers. In some cases, the specific use of those tools is spelled out, and when the project is completed, the tooling must be destroyed.

Williams mentioned the annual intellectual property law seminar held each summer by the Institute of Continuing Legal Education and sponsored by the IP law section of the State Bar of Michigan. This year, the July seminar includes a session on patent enforcement in China, focusing on the patent infringement and patent validity trail, evidence collection, calculation of damages, court approaches for solving technical issues and details of recent cases.

"Ideally, our clients are going to do business all over the world," said Williams. "Unfortunately, in some areas now, it's still a Wild West. Or a ‘wild east,’ as the case may be," he joked.

But IP theft is a serious issue in the global economy, which the trading partners cannot ignore.

"It kind of happens to everybody," said Williams. "If you are going to go in over there, you must go in with your eyes open. There are a lot of companies that just say, 'Why bother getting a patent over there?'"

But he said there will have to be a change overseas regarding IP rights, because no country that wants to be active in world trade will want to be known as the country where IP isn't safe.

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