January 5, 2012
Imp-Exp Executive Magazine
Authored by Raymond Chen, Ph.D. and Richard B. Racine
Chinese companies preparing to export products to the United States face a number of challenges. Overcoming these challenges are critical to the successful marketing and sale of that product in the United States. A number of these challenges revolve around intellectual property rights—patents, trademarks, copyrights, and trade secrets. How should a Chinese company handle the patent, trademark, copyright, and trade secret issues to make sure that their commercial introduction into the United States is successful?
Consider a few examples. A Chinese company has spent years of research and development to produce a new, battery powered automobile. The company plans to export these new automobiles into the United States. Or, in another example, a Chinese company has developed a new pharmaceutical for the treatment of cancer and now wants to market and sell that drug in the United States.
In both examples, the Chinese company may need to address a variety of U.S. regulatory issues from various governmental agencies, such as the Environmental Protection Agency (EPA), Food and Drug Administration (FDA), etc. This article will focus on only the intellectual property challenges, especially those revolving around patents.
Before shipping the product to the United States, the Chinese company should make sure that its product will not infringe a valid U.S. patent of any third-party. Why? If the product infringes a valid third-party patent, the Chinese company may be enjoined from selling that product in the United States and may be required to pay damages to the patentee for infringing the patent. These remedies could adversely affect the amount of profit the Chinese company plans to make from the commercial sales in the United States and could impact whether or not the product is indeed profitable. Plus, needing to pull the product from the U.S. market could adversely affect the Chinese company’s image in the marketplace.
How does the Chinese company avoid patent infringement? Before commercial introduction of the product into the United States, the Chinese company can have a search of U.S. patents performed for patents that might be applicable to the product. In the case of the new pharmaceutical product, this search typically would look for patents that cover the active ingredient drug, the overall composition of the pharmaceutical (e.g., the active ingredient drug along with other ingredients forming the pharmaceutical composition), and the intended use of the pharmaceutical (e.g., treatment of cancer). In the case of the automobile, the search would focus on the key features of the automobile that the company believes sets it apart from previous automobiles (e.g., the battery powered technology that differentiates it from traditional gasoline engine automobiles).
After this search, the patents are carefully reviewed to see if there are any third-party U.S. patents that could pose problems for the Chinese company. If such potentially problematic patents are identified, they should be carefully studied to see if they are valid and enforceable patents that cover the proposed product. If they are, then the Chinese company can develop a strategy to avoid potential liability by, for example, designing around the patents or obtaining a license under the patents. The key is to avoid the potential risk of an adverse U.S. district court or U.S. International Trade Commission (ITC) holding that the product infringes the third party patents. Such a judgment could result in the product being barred from importation into the United States.
The Chinese company shipping a product into the United States stands the most risk of a patent infringement action from a direct competitor or a non-practicing-entity (NPE). The competitor may try to use its patent portfolio in a patent infringement action as a way to keep the Chinese company’s product out of the U.S. market. Consequently, in any search for relevant third-party patents, particular attention should be paid to those of key competitors in the U.S. market. Likewise, some NPEs have acquired extensive patent portfolios that they use to target commercial products as a way to obtain revenue from licenses or damage payments.
The best defense is often a good offense. To help minimize the potential business interruption of a competitor’s patents being used against the Chinese company, it is advisable that the Chinese company build up its own patent portfolio. The Chinese company might be able to use this patent portfolio against a competitor who asserts that the Chinese company is infringing the competitor’s patents. This patent portfolio can also be used as a bargaining chip to ensure that the competitor’s patents do not block the sales of the Chinese company in the United States. That is, the Chinese company can use its own patent portfolio in a defensive action against the competitor so that the competitor’s commercial sales are also at risk. This often will result in a deal being struck that allows the products to coexist in the marketplace.
The Chinese company’s own patent portfolio will most likely be of less value in defending against a patent infringement action from a NPE. This is because unlike the competitor, the NPE does not have a product of its own in the marketplace. Lacking such a product, the NPE is not at risk from a patent infringement action by the Chinese company asserting its own patent portfolio. Instead, the Chinese company needs to defend against an action from a NPE by closely and carefully looking at the validity and enforceability of the NPE’s patents. Some of the recent changes in U. S. patent law from the America Invents Act (AIA), makes it more difficult for a NPE to sue a number of companies in the same action. This means that the NPE most likely would need to sue the Chinese company in a separate lawsuit, thereby making such an action more time consuming and expensive for the NPE.
What if despite its best efforts to avoid infringing another company’s U.S. patents, the Chinese company nevertheless gets sued for patent infringement upon sale of its product in the United States? All is not lost. There is no need for panic. The Chinese company can defend against such a suit by analyzing the validity and enforceability of the asserted patents. The asserted patents should also be carefully studied to see if there is a basis for the infringement action and to determine if there are relatively easy ways to make changes in the product to avoid or design around the patent.
Often now in a global economy, any patent dispute in the United States is part of a world-wide patent dispute. Consequently, the Chinese company might be able to defend against an infringement action in the United States brought by a competitor by possibly using its own patent portfolio in China against the competitor. In other words, if a competitor asserts U.S. patents against the Chinese company in the United States, it might be possible for the Chinese company to assert some of its own patents in China against the competitor. This countersuit in China might result in a global settlement being reached that allows the Chinese company to continue the sales of its product in the United States.
In closing, a Chinese company today thinking of eventual sales in the United States should start planning now. The company can start building its own patent portfolio. The company can also start identifying and reviewing the key patents of competitors. And, where it makes commercial sense, the company can look for licensing or partnering opportunities in the United States to minimize the business risks of a patent suit. Preparation today can result in a successful introduction of a commercial product tomorrow into the United States.
Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm’s clients.
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