Chinese Enterprises Need to Know the U.S. Law System

Issue 31 By Harry Yang, China IP,[Comprehensive Reports]

On June 20, 2009, Jon Dudas, the former Under Secretary of Commerce for Intellectual Property and Director of the United States Patent and Trademark Office (USPTO), was invited to People’s Daily Online IP Channel for an interview by China IP.

China IP: Could you please explain the meaning of your Chinese name Du Dazhi(杜达知)to us?

Jon Dudas: This name was given by an IPR attaché working with me. He said this name worked well with my title and background I had in the USPTO. “Da (达) ”means “achieve” and “Zhi (知)”means “intellectual”. I’m very glad to have this name.

China IP: After leaving the USPTO, you chose to be a lawyer. Is your work closely related to China’s intellectual property? As a U.S. lawyer, how do you see the prospects of intellectual property in China?

Jon Dudas: I had worked in a law firm before I worked for Congress and the USPTO. I chose Foley & Lardner LLP after my leaving the USPTO. When I worked for the USPTO, fortunately I had dozens of opportunities to come to China and had opportunities to work with Chinese government officials and businesses. I believe, in this office I will have the same opportunity in collaborating with businesses and government in China. China has one of the largest and the most fast-growing intellectual property markets. I believe there will be a good prospect.

China IP: When you worked in the USPTO, we see great progress in the communication and cooperation between China and the U.S. Could you please tell us the efforts have you made?

Jon Dudas: During my time in the USPTO, the collaboration between China and the U.S. grew greatly. The Chinese government and the U.S. government were both greatly involved. Our collaborations are in numbers of ways and got many achievements. We have the same agreement that in the five largest IP countries in the world, China has been growing from the forth largest to the third largest. If China still grows, it likely becomes the first IP country in the world.

I met dozens of times with the Chinese government officials. We signed memorandums of understanding to collaborate with China and the U.S. I also had a good opportunity and pleasure to sign a memorandum of understanding with Commissioner of the SIPO which set a long-term collaboration between the U.S. and China on intellectual property in October, 2008. I’m very proud of the agreement we made, but I should know the Chinese government officials’ efforts. I think it is of strong significance to the whole world.

China IP: Do you have any comment on the intellectual property protection in China?

Jon Dudas: I think there has been great focus on intellectual property protection in China. The Outline of the National Intellectual Property Strategy has given more focus. We have seen a great deal on intellectual property courses and a great deal on administrative agencies with other nations’ collaborations.

There are still challenges on intellectual property protection in China. I think the collaboration between China and the U.S. has been improved. The intellectual property environment in China is good and needs improving in some parts. Both China and the U.S. are in the process of changing intellectual property laws as well. I think it is a good opportunity for both the two nations to watch what the other nations are doing.

China IP: You mentioned the Outline of the National Intellectual Property Strategy which has been released for one year. What are your comments on it? Is there a similar IP strategy in the U.S.?

Jon Dudas: I think this Strategy is excellent which need collaboration of the government agencies. Also, it is quite open and transparent both in China and the world. Much of the challenges are in cooperation and collaboration among government agencies. I think the Strategy does that for China.

In the U.S., we have varieties of different agencies. They need to cooperate as well. They really get something significant from China. There is currently a new position in the U.S. called intellectual property coordinator which coordinates the government agencies and makes the intellectual property grow strong. One of the phrases I have seen in the Strategy is “moving from ‘Made in China’ to ‘Invented in China’”. I think the Strategy is a good path for innovation for China and also for the world.

China IP: Copyright has been a focus of China and the U.S. IP negotiation. Copyright protection has its own particularity. In your opinion, what kind of cooperation there will be between China and the U.S.?

Jon Dudas: The U.S. and China have signed the memorandum of understanding. There have been numbers of scholar and officials coming to China to share our experiences and also exchange with China. I think one area we are cooperating closely is the copyright on the internet. Copyright is an area that presents many challenges and I think it’s very promising to cooperate, particularly on the internet. China and the U.S. are the two largest countries on internet usage. I think there will be more cooperation in the future. I think the memorandum of understanding between the U.S. and China is a significant progress.

China IP: Counterfeiting products are seized in the Customs in a lot of countries. It has become a global problem. Do you know something about the international buyers of these goods? What are their functions in the counterfeiting chain?

Jon Dudas: There are many challenges in trademark protection, particularly in counterfeiting. It’s a problem of both the buyers and the sellers. So in the U.S. and many other countries, one of the strategies is to make these products do not come into the country. Also, we need to make people understand “do not purchase counterfeits”. So, the departments of justice and the copyright offices of China and the U.S. cooperated very closely to know where the counterfeits from as well as the areas these counterfeits go to stop these.

There are many challenges. There are many education programs in China, U.S. and other countries to address this problem, not only to tell the suppliers not to produce counterfeits, but also to tell the buyers not to buy. People who produce counterfeits have already broken the law. They do not care about the quality of the products, particularly the counterfeit medicine which will affect the body.

China IP: In the time of financial crisis, do you think the financial crisis had an impact on intellectual property? Whether it will slow down innovations? Whether it will reduce patent applications?

Jon Dudas: With the financial downturn, patent applications have been slown down in the world. In the U.S., it is predicting a 5%--15% decrease. In Japan, a 30% drop in request examination, but still a small drop in application. The application in Korea, the drop is 20%. I think there is a growth in China, about 10% which is very good compared to other countries, but it is lower than the growth rate in China compared to the last few years. There is an increase in application particularly among Chinese citizens and enterprises. I strongly believe that innovation will help us overcome the financial crisis. If you look back for history, it has almost always been economic recovery after financial crisis. I don’t think a drop in patent application means a drop in innovation. This is an opportunity to make companies focus on the quality of innovation to increase the quantity of application and patent.

Both the Chinese and the U.S. government are focusing on how to innovate and how to focus resource to innovate, but not only increase quantity. IP strategy and quality of innovation is of the most importance, not only quantity.

China IP: When some Chinese companies want to enter the U.S. market, they will face 337 Investigations or IP litigations. Do you think they need to do more preparation before they come to the U.S.? Do you have any advice for them?

Jon Dudas: That is not a problem of only Chinese companies, but a common question when companies want to enter into other countries’ market all over the world. They need to know the laws clearly in other countries. But some Chinese companies have not considered so much on this. Just like the U.S. companies, when they want to enter Chinese market, they have to know Chinese laws and IP. I still believe that, the Chinese companies need to understand the U.S. laws and IP system if they want to enter the U.S. market.

My advice to Chinese companies is to get a very strong legal understanding on the U.S. law system and potential changes on patent law like how they file a litigation, where the litigation occur, how large the damages will be and so on. Chinese companies also need to know the litigation strategies in the U.S. such as whether their patent will be attacked or challenged in the U.S. IP strategy as a legal strategy is closely related to the market. If the Chinese companies want to come into the U.S., it is critical to know that there are some special areas in the U.S. in which some U.S. companies like to bring IP litigation. Section 337 is another very important area, because products will be prevented to come into the U.S. There is a great eagerness among Chinese companies to know the U.S. law system and IP laws.

China IP: When some Chinese companies want to do some preparation work as they come into the U.S., they always think the legal fee is too high. They may give up because of it. What’s your comment?

Jon Dudas: I think focusing on the high quality of the legal opinions is very important. Even companies in the U.S. worry about legal fees. I think the legal fee seems relatively high, but they prevent incredible costs. You want to make certain that your lawyer is quite efficient, but more importantly, you want to make certain that your lawyer will help you to get very high quality patent. The worst thing that ever happens is strategy not for IP quality but quantity.

For example in the U.S., a company made a few legal mistakes early on, and then the judgment made them compensate USD 600 million. Another company missed the deadline of extension of patent term which caused the company cost USD 2 billion. More companies are focusing every dollar on innovation.

China IP: When you were in the USPTO, they launched the children web on USPTO website. Some Chinese media said that the patent education in the U.S. start from children. Do you have comments on this?

Jon Dudas: When I was the Director in the USPTO, I started more education program, particularly on innovation and intellectual property protection. We did a number of studies on what is the most effective in terms of educating the U.S. citizens on intellectual property and innovation. Varieties of the results pointed to the children. Particularly about the age of 8—11, they have the capacity to understand principles of intellectual property and innovation. It is still an opportunity to give them knowledge before they began on piracy or counterfeiting. Before they come into high school or college, if they don’t have education, they will probably believe their music downloaded from the internet or buying counterfeits are legal. We think that to educate children, innovation and protection over innovation are very important. So we did a number of things. We had a national plan to promote innovation and launched the children website to promote innovation. We also have a number of camps to attract more children to understand innovation and protection over innovation. We also launched many intellectual property programs that can be used at schools, from the grade school to middle school and also high school which are based on voluntary basis. We think we’ve had a great success.

China IP: Could you introduce the development of intellectual property in the U.S. and the changes of patent law?

Jon Dudas: In the U.S., there is a debate on what we need to do to reform or change patent law to make sure giving exactly the right to the right holders and promoting innovation in the past six years. The IP system in the U.S. is probably the most important system to promote technology and our economy.  In the history of the U.S., the IP system is very strong and important but still it has defects. Different business and companies have different views. We have seen a variety of different opinions from universities, pharmaceutical sectors, high-tech sector and small businesses. Our Senate and White House representatives on Congress are actively engaged on the patent law revision bills. I think we will see more changes when the bill passes in this year or next. The three areas are probably the most important focuses: first, damages. How do you calculate the damages? It is very important; second, administration challenges to patent. Right now we have three ways to challenge patent. This is a good example that companies would like to avoid patent litigations. Because it is costly; third, when facing litigation, you need very good attorney to help you. There is a good strategy that to attack the patent. Each of the three areas offers different level of opportunities to challenge patent.

This is one area again I think the Chinese companies should concern when entering the U.S. market. If the patent itself is invalid, they will have no basis to conduct 337 investigations.

Chinese companies should pay attention to its venue where companies in the U.S. can be sued. There are certain areas where the judges and juries are quite friendly. We feel strongly that the patents in the case have often been considered infringed. In fact, the U.S. companies also find them sued in these venues, no matter if they have branches there.

It is not local protection. There are district courts and right now there is a wide choice where people can sue. It is found that in some places, judges or juries are friendly. Not only foreign companies are sued there, most companies are the U.S. companies. We often explain to foreign companies because they do business in certain areas and that’s the most convenient and appropriate place to sue.

So these bills have detailed provisions which make stronger connection over the place and litigation,but not to sue in any place.

 (Translated by Li Wei)

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