Mr. Papageorgiou, protecting a company’s information and knowhow is increasingly entering public discussion. Your law ﬁrm, Rouse & Co. International LLP, is one of the leading IP consultancies in China. What work do you do to help companies in Germany?
German companies generally already have good advisors when it comes to intellectual property (IP) matters. Rouse mainly focuses on adapting IP strategies and processes for and to the Asian markets and especially China. The process requires acute awareness among German managers of the problems that may arise with the different approaches to a successful IP strategy in China. We examine the current IP strategies to identify weaknesses or potential for improvements, and we make sure we also devise a strategy for keeping track of and searching local competitors’ rights. We also provide support with the implementation of the agreed strategies for monitoring competitors’ IP rights. It is also important to have wellthought- out strategies on whether and when to challenge the competitors IP rights, and how to ensure IP law suits in China have maximum impact.
German companies have been operating in the Chinese market for some time now, but there are still challenges to be faced with the foreign business culture. What sort of problems do German businesses encounter in China?
The way I see it, the biggest challenge for German businesses in China is the same today as it was 10 years ago: Decisions are being made about China, and impacting their China prospects, based on experiences gained in other areas of the world. This begins with the strategy applied to deciding if and when to register IP rights covering China. In Germany, companies have a very effective system for IP protection and enforcement, some would say the strongest worldwide, so they only have to register the rights they really intend to use. In China, the IP system is weaker, so companies have to register more rights, especially rights which protect against losing ground to competitors or even being taken over by them. One thing that has changed in the last 10 years is the massive explosion of IP rights filings by companies. This is a serious threat for Germany companies in China as they could be sued for infringing the IP rights of Chinese companies. In the past, the ﬁrst (and often only) issue we had to address for clients was which measures needed to be taken to counteract Chinese IP infringements. Today we always start by searching whether the alleged infringers (which are probably best categories today as “competitors” or “potential competitors”) have their own rights our clients need to avoid or invalidate. In the past three years, I’ve advised dozens of European companies that have found themselves as defendants in IP lawsuits brought by Chinese IP holders.
Based on current trends, how do you expect this situation to develop?
China quite clearly has to work its way up the manufacturing value chain – this is something that was recognized in the last two Five-Year Plans. There will be an increasing number of genuine innovations deriving from China, not just adaptations, or petty or cost-reduction improvements (what I like to call “imi-novation”), but real innovations. As a result, German companies will increasingly run into obstacles if they try to set up business in China. We cannot keep seeing Chinese companies as mere imitators, we have to change our Weltanschau and see them increasingly as competitors. Since the Chinese company CHINT successfully sued the French company Schneider Electric (a lawsuit which was settled for allegedly around 23 million dollars), Chinese companies are no longer scared of taking potshots at foreign Companies for IP infringements. I think this trend will continue and even intensify. I also expect more and more Chinese companies to file applications for patents internationally.
The large number of German small and medium-sized enterprises, or Mittelstand, play a key role in Germany. Is it difﬁcult for smaller companies to enforce their rights in China?
Not at all. To enforce IP in China, Mittelstand companies ﬁrst have to ensure they own IP rights in China and this is precisely where many Mittelstand companies have catching up to do. If they register their rights, they are in an excellent position to impact the technology developments in China, and this in turn improves their chances of securing reciprocal licensing arrangements as well as protecting their market positions, their “Freedom to Operate” in China. Independent of their size, German companies can generally enforce their IP rights one way or another, however, I can see that there is a signiﬁcant need among the Mittelstand for advice tailored exactly to their needs and challenges they face. There is major economic potential in this respect, not just in terms of technology transfer but also in terms of product exports and licensing. In my experience, of strategic importance in this regard is the work undertaken by organizations like, and especially the Steinbeis Transfer Center Infothek. Experienced partners and “knowledge-multipliers” are essential when it comes to preparing for IP challenges faced in foreign countries. I also believe that in future, it will be important to offer support to the Mittelstand by financial means – after all, the Chinese government offers Chinese companies various and diverse incentives and subsidies which enables them to acquire or secure, exploit and in the end enforce, their IP rights.
The number of Chinese patents being registered is rising exponentially. How do you see them in terms of quality and quantity?
In the eleven years I have now been working in China, I have seen some robust local invention patents, utility model patents and design patents, but also registrations that can only be described as “junk” or a case of “patent piracy”. China is well aware that poorly targeted/incentivised subsidies are a blunt instrument for fostering innovation. Where subsidies are based on the number of filings, necessarily incentives will result in a situation where quantity trumps quality. Chinese authorities have started tightening the requirements for the grant of subsidies in an attempt to align the interests of the State in climing the innovation value-chain, with the interests of individuals to secure monetary rewards. The current system will however be around for some time, so the quality of IP rights will remain a challenge faced by German companies with any business interests in or with China, whether supplying, sourcing, manufacturing or selling. All IP rights that are registered in China automatically become part of “prior art”, meaning that they have to be considered assessing novelty and inventiveness of all inventions made and filed even in Germany. So the more such “prior art” that exists, the harder, arguably, it becomes for German inventions to meet the necessary standards of novelty and inventiness. In short, German companies must update their search strategies for IP rights in China so that they become and remain aware of all relevant China origin “prior art”. Additinally, this will also allow German companies to identify ahead of time where future threats from China may originate.
Tell us what your advice would be to German companies that want to enter China with their products: What should they think about? What’s the best way for German companies to prepare themselves for future challenges in China?
Ten years ago I would have advised German companies to check if they have registered all the rights they do not want to lose. Now that approach is no longer sufficient, and I now recommend they carry out periodic “freedom to operate” searches to ensure they do not “trip” over Chinese IP rights. Going forward, German companies should never underestimate their Chinese competitors. To adapt one of Sun Tzi’s stratagems in “The Art of War”: Only if German companies know their own strengths and weaknesses, and know the strengths and weaknesses of their Chinese competitors, and choose their moment and venue of engagement in light of such knowledge, will they be successful in their IP battles in China!
Elliot Papageorgiou is a Partner in the law ﬁrm Rouse & Co. International LLP and has worked in Melbourne, Oxford, London, as well as stints in New York, in addition to spending the last 11 years in Beijing, Guangzhou and Shanghai. Elliot advises European companies on intellectual property (IP) rights strategies, on how to prepare for and successfully enter the Chinese market with their IP and how to protect and enforce their IP. He has been a speaker on four occasions at the Steinbeis Symposium on Security in Business, which takes place annually in Villingen- Schwenningen.
Rouse & Co. International