Role of IP Due Diligence in Patent Area under Chinese Jurisdiction

Abstract

With the advent of economic globalization, a growing number of countries have realized the value of IPRs in enhancing their competitiveness in the world economy. Intellectual property protection has become a worldwide concern in terms of cross-border competition. The acceleration in technology development and money-spinning compensation in lawsuit makes patents particularly crucial among other IPRs for a company to compete towards market rivals. IPDD is of great legal importance in terms of listing, M&A, independent R&D and infringement lawsuits. IP assets, including but not limited to patents drive many high technology strategies. For a variety of reasons, too many high-tech companies own patent rights without having an accurate understanding of the true value and real/potential risks associated with their patent portfolios or without initially developing and executing an assessment to thoroughly understand what their patent portfolios will entail. Serious consequences of IP due diligence failures take place again and again. As a consequence, it is of particular importance to conduct specific IPDD based on different needs in different scenarios. From the perspective of patent rights, the IPDD project mainly includes dealing with patentable subject matter, patentability requirements, scope of protection, prosecution of patent applications, and, e.g. enforcement and patent litigation. All these issues find a close match in statutory rules and their court interpretation. Thereby the sight for many issues decisive for successful exploitation of patents, but also all other forms of IP rights, as well as the reasons underlying their justification, often fall short. This applies to decisions such as: whether to invest into a risky R&D project; whether and where to file and prosecute a patent application; whether to exploit a patent in own manufacturing activity, or to use it as a strategic tool against competitors; whether to license or assign a patent to a third party, or whether to take a license, or acquire a third party patent; finally, e.g., whether to acquire or not to acquire a company or to merge with it, in view of its patent portfolio. Taken these into consideration, the main discussion of the thesis includes the discussions on the objectives and limitations of IPDD, the instrument of IPDD and the role of due diligence in different scenarios. The study shows that conducting an IPDD will not only provide a pre-warning of a potential IP infringement but also assist in building up a promising business plan. IPDD can also help a company to determine the nature of IP protection in demand, estimate the possibility of IP disputes, avoid pitfalls in M&A and minimize the damage in the event the infringement established. For China, an IP latecomer, the experience and development of other jurisdictions may shed some light on how to make full use of IPDD in China. However, it is not advisable to transplant the other jurisdiction into China’s legislation totally and uncritically. China's IP protection system still leaves room for the judicial practice to evolve in many aspects. The full utilization of IPDD needs to be refined in the ongoing practice in conjunction with China's national conditions.