Thursday, March 27, 2014

U.S. Case Challenging Chinese IP Enforcement Bears Watching

Ineos Group AG, the largest chemicals producer in the U.K., has filed a lawsuit to enforce its IP rights against Beijing’s Sinopec, a large petroleum and chemical corporation. Foreign companies have brought many cases against Chinese companies for copyright, trade secret, or patent infringements to highlight importance and promote the practice of strong IP enforcement worldwide. But this suit is one of the first challenges brought by a foreign firm against a large state-owned enterprise in China.

The case will test the ability and willingness of Chinese courts to enforce IP rights and technology agreements in China. Although China’s courts have reportedly become more sophisticated in handling commercial disputes, IP theft in China is not under control and the legal system for IP enforcement is not nearly as effective as in foreign courts. The Global Intellectual Property Center (GIPC) ranked China 17 out of 25 countries in its International IP Index. China scored nearly 0 in its protection of trade secrets, market access, IP enforcement.

Ineos’ lawsuit may particularly highlight whether the court will enforce IP agreements against state-owned enterprises. Leaders in Beijing have said they are ready to reform China’s large state-owned enterprises, and this case will test the truth of those promises. The scale of China’s state-owned entities gives the country the means to significantly alter the global market. Ineos CEO Jim Ratcliffe stated, “If they build a half-dozen copy plants, they’ll destroy the [our] business.” The willingness of Ineos to bring this case is an encouraging development toward ensuring IP enforcement in China, despite the risk legal action may pose to business and political relationships.

On Ineos’ website, Mr. Ratcliffe articulated the crux of the issues: “We want to take our best technology to China but we need to know that it will be protected … the fundamental value of Ineos depends upon its technology. We have no option but to defend our hard won intellectual property.” As the Wall Street Journal [subscription required] reported, “The thing to watch is not necessarily the outcome … the question will be whether the Beijing court proceeds in a manner that outside observers would conclude is fair, and delivers a ruling that persuades technical experts that it got the case right.” China’s demonstration that it will enforce IP agreements through a fair process has huge implications for international trade, business, and investment, and the case definitely bears watching.