This post is the second in Foley's blogs on China telemedicine and the first in the blog series, "Realizing the Potential of Telemedicine in China," meant to address top issues facing U.S. companies looking to enter the Chinese telemedicine market. We hope to expand the series to include additional issues.
At a Glance
- Companies expanding into China must register IP assets separately in China; registrations must be filed in English and Chinese
- Contracts in China are used to manage expectations; to avoid getting lost in translation, they should be drawn up in English and Chinese
- Thorough due diligence in China is critical if U.S. companies are to avoid being "home turfed."
Telemedicine device manufacturers and software developers face different challenges related to IP protection when expanding into China, including when it comes to trade secret protection, IP asset registration, contracts, and due diligence.
To start, U.S. companies must change their approach to IP asset registration, as registration in the United States is insufficient to ensure protection abroad. Patents, trademarks, copyrights, and other assets registered in the United States must also be registered separately with Chinese agencies, and the registrations must be completed in English and Chinese, to avoid ambiguity and leave them open to interpretation by Chinese courts. For U.S. suppliers of telemedicine devices and software, it would be wise to file patent applications and/or copyright registrations in China as early as possible to deter competitors from copying their proprietary devices and software.
Meeting With a Potential Partner
For U.S. telemedicine companies that heavily rely on trade secrets to protect their proprietary technical and business information, they should consider taking various precautions before, during, and after meeting with a potential Chinese partner. For example, before meeting with the Chinese partner, the U.S. company can file a U.S. provisional patent application directed to their proprietary technical information that they have considered as trade secret. The provisional application does not publish and gives the U.S. company an option to file a regular patent application in many countries, including China, within one year. If, within that year, the U.S. company found that the Chinese partner has acted to disclose such proprietary technical information without authorization, thereby disclosing aspects of the trade secret, the U.S. company will still be able to avail itself of some level of protection of such proprietary technical information in the form of a patent application.
Of course, highly proprietary information should not be shared before proper due diligence has been undertaken on the party receiving access to such information in order to "seal the deal" with a US telemedicine services company, including a company offering devices and/or software. Even then, where sharing can be limited (i.e., summaries of proprietary technology documentation), risk of significant financial and other harms to the US company can be reduced.
During the meeting and contract negotiation with the Chinese partner, the U.S. company should consider asking the Chinese partner to sign an acknowledgement and description of all proprietary information disclosed by the U.S. company. A three-way confidentiality agreement can also be executed between the U.S. company, the Chinese partner, and the Chinese partner's relevant employees to maximize protection of the U.S. company's trade secrets.
In addition, U.S. and Chinese companies view the purpose of contracts differently. For example, in China, contracts are generally drawn up to manage expectations (cooperation agreements), rather than as a tool to be used in litigation, should parties not live up to the contract, as they are in the United States. That said, it is critical that if a U.S. company is to effectively manage expectations, all contracts should be drawn up separately in both English and Chinese, to ensure that nothing is lost in translation and in the event of an issue, the interpretation of an English contract is not left up to a Chinese court.
Due diligence in China is just as critical, if not more so, than due diligence in the United States. Understand the entities you are doing business with, both inside and out. By spending a bit more on front-end due diligence, U.S. companies can avoid being "home turfed," finding themselves stuck with contracts with Chinese partners that are unenforceable.
Furthermore, after the meeting, due diligence investigation, and the execution of contracts, the U.S. companies should continue monitoring the situation to ensure that access to its trade secret is properly limited and that precautions are taken when a relevant employee resign from the Chinese partner or becomes an independent contractor. If the precautionary steps discussed herein are properly taken, a U.S. telemedicine company could place itself in a good position to safeguard its trade secrets in China.
Are you interested in learning more about telemedicine in China? Foley offers two opportunities to get up to speed with the latest developments:
English Translations of China's NHFPC Opinions (Issued August 2014)
Members of Foley's Telemedicine and China Practices have completed English-language translations of an Interpretation and associated Opinion on the Promotion of Medical Institution Telemedicine Services, issued in August 2014 by The National Health and Family Planning Commission of the People's Republic of China.
The translations are available online.
Upcoming Complimentary Web Conference on Telemedicine: Doing Business in China
- The current landscape and business opportunities related to devices, software, and service providers for telemedicine companies and hospitals seeking to do business in China
- A look at the recent China telemedicine guidance and opinions issued in August 2014, against the backdrop of historical telemedicine rules
- Challenges and best practices regarding telemedicine business in China, including tackling IP and trade secret protection
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.