This year, Chinese exporters saw increasing numbers of US Section 337 investigations resulting from allegations of infringements on intellectual property rights (IPRs) of US companies.

A part of US trade law dating from 1930, a Section 337 ruling can exclude an imported product.

US law firm Heller Ehrman has now been contracted by Chinese flooring exporters to represent them in a Section 337 appeal. Sturgis Sobin, the chief IPR attorney with Heller Ehrman, talks with China Business Weekly about how Chinese companies should respond to Section 337 investigations.

Q: Chinese companies are seeing increasing numbers of Section 337 investigations of them. How should they respond if they are on the list of respondents? How can Chinese companies avoid the investigations?

A: Before answering the questions, I want to introduce some background. What is important to understand is that in the US, companies often file lawsuits as a competitive strategy.

After being sued, many Chinese companies think of the reasons they have been sued and think it is unfair, because the plaintiff has no reason to sue them in the US. In fact, being sued in the US is not only because you infringe on other's IPRs. It is more importantly a competitive strategy, just like you compete in the US with your products and prices. It also means Chinese companies should take a longer-term view. When we discuss it with our Chinese clients, they usually ask if there are any quick solutions, but unfortunately, things like this usually take a very long period of time to be resolved.

This long-term view means two things to Chinese companies:

First, the top management should think about matters on IPRs, rather than leaving them to middle managers.

Once Chinese companies are sued in the US, they must be persistent. We saw some companies hire good law firms, but they also saw mounting difficulties ahead and gave up. That is a big pity. The lawsuits can be difficult, the rulings of judges can be favorable or unfavorable to them, but they must pursue it to the end and the final victory may belong to them.

Now, let me turn to the second question: how to avoid such investigations. It is not always possible to avoid them. Even companies like Microsoft, GE or IBM face the possibility of lawsuits every day. Avoiding IPR lawsuits is difficult, but it is possible with the right moves.

First, companies should do their homework before entering the US market. This homework means due diligence research. In this procedure, you need to find out what patents and trademarks are there in your area, which you may have the risk of infringing upon. For example, if you are an MP3 music player maker, if you find out that your competitors already have patents or other IPs in the technology, you can revise or modify your products, so as to avoid infringement.

If you receive a letter or notice warning your company is infringing on a patent, you should do some homework on that too. We know many companies just throw the letter or notice into trash can, but this is not a proper strategy.

The best defense is attack. To achieve victory, companies should start to build their own IPR assets. It is just like the nuclear balance between the US and the former Soviet Union in the Cold War. They knew the other side also had the same weapons that could destroy this planet, so nobody dared to use them.

Q: On October 19, the International Trade Commission (ITC) issued a general exclusion order (GEO) on Chinese ink cartridges. When does the ITC issue such an order? Is it unfair that exporters who do not infringe on IPRs are also hurt?

A: ITC usually issues two kinds of exclusion orders: GEO and limited exclusion order (LEO). An LEO only affects the company cited as a respondent. But a GEO does not only affect companies on the list of respondents, but the whole industry. In this situation, many companies do not even know they face the issue too. Many Chinese companies only find out when their exports are banned from the US.

What I want to emphasize is when a GEO case is filed, it should be understood it could affect the whole industry, so the entire industry should defend itself.

It is also possible to try to create an insurance policy to reduce damages. Companies must follow the case very closely and try to redesign their products to avoid the impact of a GEO. Although a GEO is issued, redesigned products can still be exported to the US if the products do not infringe others' IPRs anymore.

Q: You have represented clients from many countries in more than 40 Section 337 investigations. So what are the major differences between Chinese and Western clients?

A: It is hard to generalize on this. But obviously, one major difference is experience. The reason is that in general, US companies have a lot of experience in handling lawsuits and have their own in-house legal staff, but Chinese clients have little experience. This also means more to lawyers because they must spend a lot of time and energy educating clients about how to defend themselves in lawsuits.

Another point is in Western or mature markets, companies regard lawsuits as part of their business strategy. There is a complete competition strategy, but in China, many companies do not have such a strategy in place.

One more difference is cost of legal services to defend in US litigation. US companies are used to being sued and are willing to pay a lot of money to hire high-quality law firms. In China, due to lack of experience, companies do not want to spend that much money to defend themselves in lawsuits.

But our Chinese clients learned very quickly and I am very impressed by their progress. As they gain more experience, they also begin to know how to defend themselves.

In the US, reputation is very important, because the costs of settlement are lower than fighting the suits, but if you give up easily, you will be seen as submitting easily and will have more suits. But if you are tough in defending yourself, other companies will also be cautious in taking action.

(China Daily 11/19/2007 page9)
 
 
 

2013-07-17