The country's strong push for innovation has meant more work for lawyers: the Chinese Patent Office issued more than 580,000 patents in 2009, up 41% from 2008. New patent applications grew to 947,000 in 2009 up from 252,000 in 2003. Over the last year, the Chinese Patent Office has become the third-busiest patent authority in the world, following closely behind Japan and the US.

To handle the growing demand, leading IP firms like Lifang & Partners have expanded their legal teams. Last year, Lifang recruited over 30 IP lawyers, some of whom joined from DeHeng's IP division. The firm later also merged with Guangzhou-based IP specialist firm Liu & Partners.

Fair IP litigation

Last year The Supreme People's Court announced that 30,626 civil IP litigation cases were filed, up over 25% on the 2008 figure. Meanwhile, with over 24,206 IP suits filed in 2008, China surpassed the US to become the most litigious country in the world for IP disputes. 

But who are initiating these cases - large-scale foreigners given China's reputation for counterfeits? Out of those 580,000 patent applications, only about 10% were filed by foreign companies. A foreign company was one of the parties in less than 5% of those 24,206 IP suits in 2008.

The trend that becomes prominent is how foreign companies have abstained themselves from the IP litigation process. "Preventive litigation", lawyers say, is where foreign-related work is mostly derived. "Foreign companies care more about the new laws promulgated; they want to know how it affects them and what they should do to avoid damages. They just want to be compliant," says Long Chuanhong, a partner at CCPIT.

Understandably so, patent litigations making the headlines seem to indicate that the legal system favours local companies which are litigating against foreign competitors. The landmark case of Schneider Electric and Chint Group closed with Schneider paying damages of around US$48.5m in 2007. In 2008, Samsung was also hit with a US$7.4m fine for infringing a mobile phone patent held by Holley Communications. 

Seemingly frightened foreign companies have been taking the backseat, trying to lay low by diligently taking proactive measures to make sure they are compliant. But while the locals are feeling more empowered in light of the Schneider case, many international enterprises have been forced to take the hot seat. "We are acting for and defending a lot more international companies against Chinese companies. Chinese companies have taken heart from recent favourable awards and are flexing their muscles," says Rouse & Co's Shanghai-based partner Elliot Papageorgiou. "Since a lot of incentives have been created for companies who protect their IP rights, that has given the locals a lot of confidence to enforce their rights on their own turf," he adds.

While many of those foreign companies are still wary of rumours that the legal system is somewhat biased, and are therefore hesitant about trying to enforce their rights in China, recent IP litigation cases, however, seem to suggest that the local authorities are attempting to move away from the stigma. Many local lawyers have also listed fairness as one of the most significant traits seen by courts trying IP cases.

In January last year, Neoplan, a German bus company, was awarded US$3m in its litigation against two Chinese infringers. The compensation represents the largest infringement damages ever obtained by a foreign company in China. Earlier this year, the Beijing No 1 Intermediate People's Court ordered two Chinese companies to pay a combined total of US$1.3m in damages to Strix, a British manufacturer of electric kettle components.

Clients' perspectives

Big companies who have gone to smaller firms due to budget constraints in the past 18 months are encountering IP issues due to slipshod work that some smaller firms have produced. Now more than ever, quality of legal advice once again becomes key. A more commercial approach, greater industry knowledge and quicker turnaround were the most frequent reasons cited by respondents for the use of specialist IP law firms over their full-service counterparts.

Fee flexibility was also noted as a strength. Specialist IP firms were, according to a number of respondents, more willing to look at capped fees, delayed or deferred payments. For some, specialists were preferred to big firms because of their better attitudes. "In my experience, smaller firms will never think twice about giving 110% in even the smallest or routine matters we give them," says an IP counsel. "This is certainly not the case with larger law firms I have used. Work will go through a hundred pairs of hands before someone even reads the brief."  

Creative use of legal technology was an area where boutique law firms were noted as having made "strong progress" over the last 12 months. Boutique firms are embracing internal software such as annuity agents, patent searching, docketing and proofreading tools more often and "it's showing in the calibre of their advice," according to one patent counsel. They are also more willing to use technology as a tool to communicate with their clients more effectively and efficiently.

"Our external firm provides us with access to an intranet through which I can access the status of a matter whenever I, or a member, of my department wants," said a general counsel in Hong Kong. "It also reduces my legal costs and saves time." 

But there is still a widespread recognition that all firms - whether specialist or full-service - must improve their levels of service if they are to increase their market shares. For larger firms, areas for improvement include leveraging the commercial nous from elsewhere in the firm - something mentioned often by respondents from mid-sized companies in the region.

"When we hire a corporate firm, we want them to act less like our 'external' counsel and more like our internal IP counsel," said one respondent. Respondents note that this was a particular strength of specialist law firms, but the challenge for smaller firms was to increase their bandwidth. 

In-house lawyers and IP counsel while cognizant of the fact that "smaller firms generate smaller fees," were nonetheless looking for them to invest in increasing their manpower. "We would use smaller firms across the board if we were convinced that they had the resources at hand to do everything."

However, many in-house lawyers and IP counsel also suggested that larger domestic and international law firms were better placed to provide a one-stop shop. "Firms that are able to handle more than just vanilla work are what we look for. We look for an ability to handle multi-jurisdictional work and a firm that has the resources to deal with the heavy duty work, things like discovery in litigation and the IP issues that arise in the context of acquisitions, JVs and other big transactions," said one in-house counsel.

But just as in other areas of practice, while the largest companies will invariably hire the largest law firms, smaller companies, some of whom are engaged in just as complex and high-value IP litigation, are increasingly looking to smaller law firms. Their rationale here is that they would rather have the same firm deal with their patent prosecutions and any ensuing litigation.

"It provides good continuity of service and it saves time and costs to use lawyers who know our portfolio inside out," says one respondent.

Taiwan IP market overview

Taiwanese firms have admitted that IP practice in the island has been hard-hit. Drastically falling numbers in IP-related applications prove so: in 2008 there were 54,000 patent applications, 46,000 in 2009 and 17,000 for 2010 to date. "The volume of patent applications by companies has significantly decreased and the number of new patent applicants has also fallen," says CF Tsai, a partner at Deep & Far.

"Companies which would usually apply for hundreds of patents a year are filing less because of legal budget issues," he explains.   

IP firms are fighting to survive, and many have sought to do so by cutting legal fees. According to Tsai, even mid-sized IP firms with 30-40 legal professionals have had to shut down over the past 12 months. "It is very competitive, domestic firms are offering 50-60% discount in legal fees but the Chinese firms can go even lower than that."

Given the IP drought in the market across the Strait, Deep & Far, which has had to lose many clients due to their budget constraints, has been forced to devise alternative billing arrangements. The firm now offers an option to clients - an exchange of legal advice for stock shares. "Clients who have had to resort to engaging legal service in exchange for their shares are a minority. But so far it has proven to be rather workable."

According to Tsai, clients may choose to buy back their shares but the selling price might fluctuate according to market trends. "It's a "new kind of business," he says. ALB

CHINA

HONG KONG

GREATER CHINA - INTERNATIONAL FIRMS

TAIWAN

TOP 10 Chinese IP litigation cases 2009- 2010