Patent litigation in China: a Christmas Less Bright?
The US company Fiber Optic Designs [David Allen, Jim Bruno) had developed "Forever Bright" Christmas lights, utilizing LED lights, which light string could be powered by standard electrical outlets. Allen got a US patent on the circuitry.
Fiber Optics contracted with a first, then a second Chinese manufacturer. Because of demand, they contacted a third. The third company got a Chinese patent on the design of the lanterns in the light string. The third company sued Forever Bright and the two other Chinese manufacturers for patent infringement.
To show prior invention, Fiber Optics submitted a copy of the Trenton Times from December 2001. The copy had to be notarized by a notary public. In turn, a state judge had to affirm the status of the notary. In turn, a state agency had to affirm the status of the state judge. In turn, the US State Department had to affirm the status of the state agency. Then, the State Department had to submit all of the above the Chinese embassy. This process cost $50,000.
In an article "Patent Litigation in Chinese Courts," [Intellectual Property Today, pp. 21-23, November 2005], Bai, Wang, and Cheng state merely that "A notary public is often used to authenticate evidence," without delving into the full scope of the requirements.
Experts Sabrina Safrin and Andrew Mertha opined on what Fiber Optics could have done differently. Individually, I think the first lesson is that non-disclosure agreements are not of great value, certainly not in China, and not even especially valuable in the US. The second lesson is that getting a patent application on file is what counts. Here, Fiber Optics filed nothing in China. Had they filed, it would probably have been on the circuitry, but in filing they could have disclosed everything about the product, including what appeared in the Trenton Times. The cost of filing would have been less than what they ultimately paid.
[Merges} explains that a crucial, but often-overlooked, role of patents and other (intellectual) property is to facilitate contracting. Specifically, companies that disclose or share their technology with others often do much better if they file patent applications prior to disclosure, instead of relying strictly on nondisclosure agreements or other purely contractual forms of protection.
The point being one gets IP protection first and then does a nondisclosure agreement. Having only a nondisclosure agreement is a big mistake.