Editor: Please remind our readers of how Kramer Levin's China IP practice came into being.
Caplan: This practice effort came about through the firm's opportunity to work with a young Chinese IP lawyer, who also was a member of the bar in New York. After we interviewed him and realized that he was a good fit for our department generally, we also thought that we could work together to explore what we perceived to be a very interesting opportunity for a grassroots approach to developing a China practice. Internally, we had the sense that the Chinese market could become a source of clients and consumers of U.S. legal services for our firm - and we have proved that to be the case.
Editor: What foresight you showed at the time! With President Obama's recent visit to China, I expect we shall see more interchanges with Chinese companies coming to the U.S. and vice versa.
Caplan : I absolutely think so. I am pleased to say from that perspective, we were pretty much on the mark from a concept point of view. Obviously, we weren't the first firm to try to set up a China practice, but we are on the leading edge and we have gone about it in a less conventional way than have many firms that have set up an office in China first, and then looked for client opportunities.
Editor: As an IP Lawyer, what areas of IP law are required in your China practice?
Caplan : Our China IP work has morphed into a number of legal areas in different kinds of transactions. It is most often the case that we are involved in patent counseling and some trademark counseling with our Chinese clients, while we have not done as much in the copyright area. In my practice area, we have a lot of experience in patent prosecution and especially patent litigation. Chinese companies are getting brought into U.S. litigation more and more frequently, whether in a regular district court patent infringement action or through an ITC proceeding involving exports from China. Our advice is often sought in these litigation matters.
Editor: Are the Chinese trying to protect their patents in the U.S. by registering them?
Caplan: While our firm does a pretty substantial amount of patent prosecution, we have not seen a huge increase in the number of patent filings from our Chinese clients. This may in part be due to the costs of filing in the U.S., as well as the legal fees and costs of ongoing prosecution. Many Chinese companies are still getting accustomed to protecting their IP in the U.S. Of course, there are certain companies and certain industries which are more proactive filers, but many Chinese companies we represent have been more focused on trying to establish a business here and less focused on IP efforts. As basic research and development in China increases, we expect to see more filings by Chinese clients, and, I think now we are starting to see that come to pass. One exception is the life sciences area, where we have seen a fair number of filings. But on the electronics and the consumer products side, we have not seen as much of a rush to do patent filings, although I expect that is coming as the global economy improves.
Editor: Our last interview with you was in December 2007. How has your China practice grown and what other practice groups in the firm are involved with Chinese matters?
Caplan : Our practice has grown in terms of its scope. Having started with a very heavy IP influence, which is still a big component, we have branched out into a number of corporate transactions as a result of working with numerous Chinese companies - from IPOs to reverse mergers, resulting in our taking over the corporate responsibilities for several Chinese clients that are public companies here in the U.S. We've also reached out into the employment area; we've set up a number of our clients with businesses here. This has resulted in also doing some real-estate work, some employment, a little tax work and a lot of corporate. Our broader corporate practice for Chinese companies has been growing very nicely.
Editor: Have you seen improvements in terms of protection against violation of IP rights by Chinese counterfeiters from two years ago?
Caplan : Most of our work involves representing Chinese companies for transactions in the U.S., but we do pay close attention to what is happening in terms of IP protection in China. What we've been seeing is a pretty steady increase and improvement in the scope of IP protection and enforcement of IP rights, both at the administrative level as well as in terms of court enforcement. I think there has been a regular increase in the number of IP cases that are brought in China, with increasing damage awards against infringers, and an overall growth in the sophistication of the companies doing business in China. The IP bench in China is improving, and the bar is certainly getting more up to speed on IP enforcement, part of which is attributable to a natural outgrowth of China's increased involvement on the international stage as a more sophisticated country in terms of doing business worldwide. China's IP protection also has increased in part because Chinese companies have developed their own IP and want their property to be respected - all parties in China benefit when that starts to happen.
Editor: What measures has the Chinese government undertaken to respond to criticism of the Chinese IP protection system?
Caplan: They are very sensitive to it. Their customs agencies are focused on infringement of IP rights, and have been pretty aggressive in working with those who have registered IP rights - to keep an eye on what is coming in or going out of the country. Many of these cases are brought in Beijing and Shanghai where they are really starting to develop expertise and an ability to deal with the more complicated IP issues. You are seeing, on all fronts, the evolution of the country's acknowledgment of the importance of IP rights at the administrative level.
Editor: Have you helped U.S. companies file their patents with customs or other authorities in China?
Caplan: We have represented some companies with their IP filings in China, mostly on the patent side and some trademarks as well. We also have done this in conjunction with the Chinese firms that we work with in China when we have to interact with Chinese government agencies, such as Customs.
Editor: What governmental instrumentalities are available to foreigners doing business in China to enforce their IP rights? Which is the preferred route for patent cases, for trademarks and copyrights - the administrative side through customs or the judicial?
Caplan: I think it is generally acknowledged that there are two prongs to how you can enforce your IP rights in China - the administrative route and through the court system, whether criminal or civil. The General Administration of Customs (GAC) is the main administrative agency for registering trademarks, patents and copyrights for enforcement. If you register those rights with GAC, you can work with them to proactively watch over exports and imports. Or, if you are aware of particular allegations of infringement, you can work with them to seize goods coming in or leaving the country, thus giving you a chance to establish your case and get some redress or possibly get the goods, if they are infringing goods, destroyed. The administrative side of monitoring counterfeit goods is an area where the Chinese have made a lot of effort, and you see more and more use of these sorts of proceedings.
Editor: Is there any particular type of case that should go the administrative route as opposed to the court system route?
Caplan : I think that like any legal issue, there is a significant business component to this inquiry. Any case has to be looked at from the context of what a particular client needs in terms of a business result. For example, if there is a load of counterfeit goods coming in or going out of China, the most important thing may be to stop those goods from getting to market. If that is the case, you would want to take the administrative route and get the goods seized as quickly as possible. There's no reason you cannot pursue both (administrative and judicial) routes in parallel, but in times and situations where you want to stop a large quantity of goods from hitting the market (e.g., the quality is poor or labels would cause confusion or other damage could be done), working with the customs authority to immediately prevent these goods from getting to market is vital - and could lead to the administrative route over the judicial route.
Editor: Can Customs effectively screen trademarks and copyrights?
Caplan: I believe it can and it is regularly improving its ability to do so - especially if the goods involved are copyrighted DVDs or movies, or goods that bear a particular trademark or service mark. In terms of seizing goods, the customs route is a very important one in stopping goods from leaving China or being introduced into the markets in China. However, from a competition perspective, if a company is trying to get damages or seek criminal charges, then going to court would be necessary for that sort of relief.
Editor: What safeguards of our common law system are absent in China, which has a civil law system? Why is the absence of discovery a problem, especially in patent law cases?
Caplan: Litigation in China is very different from what we are all used to, the biggest problem being that there is no discovery to speak of. Generally, the best you can get is preservation of evidence. If you are the plaintiff in an action, there really is a big premium on collecting all of your evidence as quickly as possible, particularly before you initiate the action because, unlike in the U.S. where normally you'd have a fairly extensive and deep discovery period along with depositions, document testimony and third party testimony, as a general rule these safeguards are not available in China. Your best approach is to act on whatever you can collect as evidence by the 30 to 60 days following the initiation of the action. Similarly, if you are a defendant, there is an even higher premium on collecting information as quickly as possible since once the 30-to-60- day period runs from the time the complaint is filed, whatever evidence exists in the case at that point is pretty much all there is for the balance of the case. That probably more than anything is the biggest difference between litigation in the U.S. and China. As a result, however, the litigation costs are much lower in China because so much time and money is spent in U.S. litigation on discovery. Also, there are not the number of witnesses in a Chinese action as are usually involved in a U.S. litigation.
Editor: Why is it important for foreign companies to record their IP rights with the customs offices, particularly the Beijing or Shanghai customs office?
Caplan: In order to get the proper assistance from the Chinese government, you need to register your rights in China, and primarily with the customs service ( e.g., GAC). The reason for this is simple - when you ask the government to search for goods or seize goods, one of the requirements to obtain assistance is that you are registered, (although there are some circumstances where if you haven't registered, you can still get help while you go through the process of registering). Thus, the better policy, as a general rule, is to enlist the assistance of the administrative agencies in China to help you protect and enforce your IP rights by facilitating their processing and making their job as easy as possible. So when you ask the customs agency to seize counterfeit goods, it is going to ask you for information about your registration in China, the products that are being copied, what licenses you have in China, etc. Having registered your IP rights with the agency is going to greatly increase its ability to help you, especially in a very short timeframe. IP rights basically are territorial, so anywhere you go to enforce your rights you need to make the appropriate effort in that jurisdiction - that applies in China as well.
Editor: Do you expect any measures relating to protection of IP rights to result from the most recent Group of 20 meeting in Pittsburgh or Obama's China visit?
Caplan : I am skeptical about the rhetoric reported from any international meetings. However, I think that the practical necessities of companies that want to do business all over the world is really what is going to drive better cooperation between countries and respect for IP rights. So perhaps those international discussions will have an incremental effect, but I think that it is the business people on the ground who will lay the groundwork for greater comity among business people in other nations. It is my experience that the business people are usually pretty far out in front of their governments. They want to do business together and will find ways to get it done, and the governments should try to help move along that process.
Published December 1, 2009.
