Navigating The IP Waters In China

Saturday, December 1, 2007 - 01:00

Editor: Mr. Caplan, would you tell our readers something about your professional experience?

Caplan: I am a partner in Kramer Levin's Intellectual Property Department, where my primary focus is on patent litigation and counseling across a variety of technologies, in addition to prosecution and transactional matters. My undergraduate degree is in electrical engineering.

Editor: How did you come to Kramer Levin? What were the things that attracted you to the firm?

Caplan: I joined Kramer Levin in 1999. Prior to that, I started my career at Kenyon & Kenyon, a specialty IP firm, and I then worked at another general practice firm before coming to Kramer Levin. I was really drawn by the chairman of the firm's IP Department, who has a long history of building outstanding IP departments in general practice firms. I was, and am, committed to that concept because today IP clearly is a mainstream discipline, not something to be limited primarily to boutique firms. In addition, a general practice firm like Kramer Levin allows us to draw upon resources across a whole range of disciplines and practice groups to better serve our clients. Kramer Levin has been a great platform for IP. The group consists of 50 lawyers at present and continues to grow.

Editor: In addition to your domestic patent litigation, counseling and prosecution practice, you are involved in the firm's China IP practice. Would you give us an overview of this practice?

Caplan: The China practice had its start with IP, which has always been an international practice. In almost all areas of technology, what begins with patent rights in one country often propagates out to a variety of countries and, eventually, leads to obtaining worldwide rights. A few years ago, we were fortunate to find several highly qualified lawyers who were Chinese-born and educated, who had come to the U.S. for law school or for post-graduate work and who were looking for positions with U.S. firms. We brought them in to work on the various matters then in hand, but it became clear very quickly that with so much activity in China, these Chinese lawyers, with their relationships and abilities, represented a wonderful opportunity to help focus on a China IP practice. To that end, we embarked upon several strategies to improve our exposure in the Chinese market, including working with our existing clients having business interests in China as well as connecting with a number of Chinese professional organizations looking to assist their members enter the U.S. market. As a result we have been able to develop a robust China practice, which includes representing Chinese companies starting to do business in the U.S., handling corporate matters such as IPOs and, of course, representing both Chinese and Western clients in connection with a variety of IP issues.

Editor: How many practitioners?

Caplan: Our China practice is comprised primarily of people from three different departments: Intellectual Property, Corporate and Immigration, with a total of about 125 attorneys in those departments. The attorneys actively involved in our China matters are growing monthly. Our China practice resides principally in our New York offices, where the majority of our lawyers are located and where we have strong institutional relationships with clients in the investment banking and financial services industries who work closely with many of our Chinese clients.

Editor: As you know, our readership consists of general counsel and the members of corporate legal departments. Would you share with us your thoughts about the IP pitfalls that general counsel of an American company might expect to face in China?

Caplan: With respect to IP rights in China, the Chinese have good intentions. They have been diligent in improving the laws that govern IP in order to address the concerns that people most commonly have with that market, i.e. the ability to assert IP rights in China in a meaningful way and the ability to control counterfeiting.

While things are certainly improving, it is a difficult and often frustrating exercise to enforce IP rights in China in an effective way. For an American company looking to do business in China while, at the same time, protecting its IP rights, it is important to take a conservative approach and to be realistic. The American company should file for patent protection in China, and it should see that those rights ultimately are issued there. In addition, it is essential for the company to do the appropriate due diligence on its Chinese partners, including controlling how those partners are able to access and utilize the company's technology. Knowing your partners is probably the most crucial thing to be done to safeguard IP rights.

I am not sure that it is possible today, even where the company has taken every step to obtain patent protection, to enforce IP rights throughout China. In the major cities, enforcement is usually available, but as you move out into the countryside, those rights become increasingly difficult to enforce.

There are quite a number of anti-counterfeiting technologies available today, and that is some comfort to the extent they are feasible with the company's products or services. Nevertheless, if the company makes a business decision to carry on its activities in China, and to utilize its technology to do so, it should take all appropriate measures to protect that technology, but it should be realistic about the risks.

Editor: What are the key differences between U.S. and other Western patent protection regimes and that of China? What should an American general counsel know going into China?

Caplan: If we talk about patent rights, it is important to realize that the rights themselves are not terribly different from one jurisdiction to the next, but enforceability is another story. The Chinese court system derives from a civil law model, and it differs substantially from what prevails in the U.S. There is very limited discovery in China, for example, and many of the things that are so essential to a conventional patent litigation in the U.S. - expert and fact discovery, for one - are simply not available. Similarly, there is no right to a jury trial in China, and, the Chinese system being civil law-based, there is no developed case law to serve as a precedent. Finally, Western-style lawyers are few and far between in China, and they are of fairly recent vintage. That translates to a lack of depth, in both expertise and experience, at the law firm level. While this will change over time, at present the general counsel of an American enterprise going into China should be aware of the limitations of the system, both at the bar and on the bench, compared to the expectations for U.S. counsel and the U.S. legal system.

Editor: On the subject of partners, what are the important safeguards for an American or multinational enterprise to have in place if it has a Chinese partner?

Caplan: By the time the company is ready to sign a partnership undertaking with a Chinese enterprise, it should have completed an exercise in due diligence that will provide at least some comfort on the partner's standing with the Chinese government, including the licenses it holds and the appropriate authorizations to carry on the business to be handled with its American counterpart. The due diligence investigation also should include a review of the principals of the Chinese partners, its facilities, including both manufacturing and office sites, its contractual relationships and its litigation or other dispute history. Most importantly, the American company should have achieved an appropriate comfort level concerning the Chinese partner's integrity, together with a level of confidence and trust in the partner's ability to meet its obligations and to navigate the business environment the partners propose to move into. These latter points are often difficult to assess. If the American company is uncomfortable, however, it is better to take a long, hard look at the relationship before being inextricably locked into the relationship, or at least locked in without having to spend a great deal of money and hardship to end the relationship.

Editor: Would any of the Chinese courts be comparable to say the Court of Appeals for the Federal Circuit in addressing patent law issues?

Caplan: In the U.S., the Court of Appeals for the Federal Circuit hears all appeals of patent cases from the various district courts and, for many patent cases, is the final word on patent law. The U.S. Supreme Court has been active in the IP area lately, but the Federal Circuit remains the primary appellate court for patent cases. There is no such comparable court in China. China has a four-level court system - a lower level court (borough level), a middle level court (municipal level), a higher level court (provincial level) and the Supreme Court. There are specialized IP divisions in the middle level courts, the higher level courts and the Supreme Court. Patent cases are specially treated by China's civil procedure law and only the middle level court or higher level courts can hear patent cases. As most patent cases are tried by the middle level courts, the decisions of provincial level courts, but not the Supreme Court, are normally final. However, China's Supreme Court has made a lot of efforts recently to unify the national standards in patent litigations by issuing judicial opinions, hearing important cases and training IP judges. It is not comparable to the U.S. system yet, however.

Editor: How about ADR? What are the arbitration tribunals most often sought?

Caplan: China has a long tradition of mediating disputes. For an example, China's civil procedure law requires judges to mediate disputes. However, mediation by an independent mediator is not yet popular. Arbitration also has been widely accepted in China's business communities. Due to the lack of transparency in Chinese courts, most western companies prefer arbitration over litigation at this time. The China International Economic and Trade Arbitration Commission has been the most sought arbitration tribunal in China for years.

Editor: Is the fact that Chinese companies are developing their own IP - and seeking to protect that IP through the laws - having any impact on the protection of foreign-owned IP in China?

Caplan: I think that the answer is yes. As Chinese companies increasingly engage in innovation and develop their own proprietary technology, they seek protection against third parties for that technology, which is having a positive impact on non-Chinese parties seeking such protection. In addition, this serves to enhance the expertise of the government agencies and courts called upon to address the protection of IP in China. There is a great deal of technology being developed in China at present, and that cannot avoid helping to accelerate movement to improve the protection of IP in the country.

Editor: What about the future? Where would you like this practice to be in, say, five years?

Caplan: From Kramer Levin's perspective, I would expect our China practice to continue with steady growth and considerable activity on several fronts: on the corporate side, raising capital for Chinese companies in the U.S. marketplace through reverse mergers and IPOs, and then working with them as they continue to grow through merger and acquisition activity as well as from organic growth, providing the conventional services we provide to all of our corporate clients; and providing IP services as many of the Chinese companies are technology-based. Immigration services also will be needed by our Chinese clients as they expand their presence in the U.S.

Please email the interviewee at with questions about this interview.