On the trail of copycats in China: US molder pursues legal strategy

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GUANGZHOU, CHINA (June 13, 10:50 a.m. ET) — American lawyer Tim Schade knows better than most the challenges and successes foreign companies have protecting intellectual property in China.

Schade is leading an effort by U.S. blow molder Lifetime Products Inc., which claims to be the world’s largest maker of polyethylene folding plastic tables and chairs, to take its long-running legal battles against IP infringers directly into Chinese courts.

So far, the 2-year-old legal campaign is a partial success — Lifetime has won two lawsuits in Shanghai and been awarded about $50,000 in cash judgments, but it’s also had three key Chinese patents declared invalid after a Chinese competitor challenged them.

Tim Schade discusses China IP issues in this interview.

Whether it’s successful in the long run, the time and money spent has made Lifetime one of the more active U.S. plastics processing companies bringing IP cases in China.

Plastics News spoke with Schade, the company’s general counsel, in late April when he attended China’s largest export trade show, the Canton Fair in Guang­zhou, to collect intelligence and look for potential violations.

His visit came a week after the company had secured what it said is its biggest victory to date, an April 20 decision in a Shanghai court that found one of its Chinese competitors, Zhejiang Bestem Machinery Co. Ltd., had violated a Lifetime Chinese patent on one of its tables and had to pay the U.S. company $31,800.

Lifetime, which is based in Clearfield, Utah, has filed more than 20 IP lawsuits in the U.S. and elsewhere going back more than a decade, a defensive strategy trying to block products entering its biggest markets.

But it said it decided to go on the offensive and go to China in 2010 because that’s where most of the products it sees as violating its intellectual property come from. China has quickly become its second-most important IP battleground.

“These guys sell everywhere, in Australia, Europe, Canada, Mexico, all places where we have varying levels of intellectual property,” he said. “Rather than try to chase somebody in Spain and have them turn around and sell to France or Germany, we decided we should try to figure out if we can get some action where they manufacture.”

Hunch leads to win

As time spent with Schade on one of his Canton Fair trips shows, getting that “action” can involve a lot of detective work.

Unlike in U.S. courts, Chinese trials don’t really have a discovery phase where, after lawsuits are filed, companies are required to turn over mountains of documents to each other to try to prove or disprove allegations.

Instead, there’s heavy reliance on less-formal channels, from hiring detectives to walking trade-show floors. Lifetime doesn’t engage in “midnight raids” to get information, he said, but uses a lot of tools, including regular visits by Schade to the Canton Fair.

For example, information gathered at the show proved decisive in winning Lifetime’s first China case last year, a trademark lawsuit against Chinese table maker Zhejiang Lifan Furniture Co. Ltd. in Hangzhou, China.

Lifetime had been seeing tables in retail stores in the Philippines that were illegally using the Lifetime logo and falsely claiming to be from the U.S. company. Lifetime knew the tables were coming from China, but couldn’t identify which company made them, Schade said.

But it previously had gathered product catalogues at the Guangzhou fair from various Chinese firms, including Lifan: “That one was hard to get. They don’t like us,” Schade said.

“When we found this table in the Philippines, we went back to the most recent set of catalogues we had and just started thumbing through, asking, ‘Whose does this look like, can we identify it from the catalogues we have?’ ” he said.

“[Lifan] had a distinct feature on one of the tables that only they had, at least from the catalogues we had,” he said. “We felt pretty comfortable it was their table at that point.”

The hunch turned out to be on target. Lifetime provided its information to Chinese authorities, and that led Chinese police to intercept a shipment of Lifan tables bound for the Philippines, illegally using Lifetime’s logo. A Chinese court later fined Lifan $23,800.

At the time, Lifan argued that it was misled by a client in the Philippines, which said it had permission to use Lifetime’s logo.

Lifetime responded that Lifan was “disingenuous” because Lifetime had been pursuing Lifan on intellectual property issues for several years and Lifan should have known that Lifetime did not intend to allow its trademark to be used.

In an interview in early June, a Lifan salesperson repeated the argument that the Philippine client misled it, and suggested that Lifetime may be using the courts, rather than markets, to protect sales.

“Because Lifetime is the first one to make blow molded tables, they want to protect their own sales,” the salesperson said, speaking on condition of anony­mity.

IP protection is a strategic priority for Lifetime. Schade said he spends 70 percent of his time on IP, including enforcement, trips to China and patent filing.

The Lifan case has reduced infringement in the Philippines, he said: “We don’t see fake Lifetime tables in the Philippines. We don’t see anybody infringing on our trademark in the Philippines anymore, at least to our knowledge.”

The impact of the other China case, involving Bestem, is more ambiguous, Schade said: “We’ll see what the effect is. I think there’s still some story to be told.”

But for the Chinese companies, it’s not clear the cases have hurt them.

The Lifan salesperson said the company did not suffer economically from the Shanghai court ruling. Exports are increasing, the company said.

“Our business now is increasing so much. Because of the European economic crisis, people want lower-cost items,” the salesperson said.

But Lifetime believes that its decade of filing IP lawsuits in the U.S. has over time carved out a strong position and helped it protect its innovations and markets. It claims 75 percent of the U.S. market for folding PE tables and sells its products in 58 countries.

“We had to do a lot of work to bring litigation in the U.S. and I think it’s made a difference,” he said. “We’re in a position now there where we’re not done fighting, but that battle has largely been fought. We’re at the beginning of what we’re going to do in China, I think.”

China setbacks

But the China strategy has had setbacks.

Zhejiang Bestem, headquartered in Hangzhou, had three of Lifetime’s patents declared invalid at China’s Patent Reexamination Board, undercutting Lifetime’s legal strategy, which relies on having valid patents as the basis of other actions. Lifetime is appealing that decision.

“Ultimately we hope to prevail, but anytime some official board says your patent is invalid, I don’t consider that a win,” Schade said. “Anything that’s not a win is a loss. Those are setbacks.”

The patents at issue deal with ways of blow molding table edges and corners to provide additional strength, and molding depressions in the entire lower surface to make the tables stronger while requiring less plastic. While seemingly technical, the design can make the tables stand out among competitors, Lifetime argues.

Bestem declined to comment on its patent fight with Lifetime, but a statement on its website from late 2010 celebrated its victory before the board, declaring it means “we win the patent litigation.” It did not address the most recent court ruling.

The re-examination board case does show that Chinese companies will vigorously defend themselves in patent fights in China, said Tom Carver, intellectual property director for the Guangzhou office of the Birmingham, England-based law firm Wragge & Co. LLP

Schade said Lifetime will also look to strengthen its patent filings in China and seek more enforcement in court based on those updated patents.

Another area where the company has had to adjust its strategy has been at the Canton Fair, which is the country’s major showcase for its exporters and draws more than 200,000 buyers from 200 countries to Guangzhou every April and October.

Initially Lifetime hoped it could convince fair organizers to prevent companies it saw as infringers from exhibiting at the fair, but that was unrealistic, he said.

The company worked with fair officials and praised them for having infringing products removed from booths.

Companies can still give out catalogues showing the merchandise, but having tables removed sent a message that Lifetime was paying attention, Schade believes.

“We got the fair officials to remove what we thought were infringing products from people’s booths on a couple of occasions,” he said. “We accomplished those kinds of things but what we weren’t able to accomplish was having somebody precluded from showing at the fair.”

Trade fair organizers are walking a line between enforcing IP and wanting shows to be commercial successes for exhibitors. As well, Wragge’s Carver said, trade show booths in China are often subleased and that makes it more difficult for organizers to effectively ban firms.

“I think there are limitations to that process,” Schade said. “There is some tension between enforcing rights at the trade fair and people at the trade fair wanting people to sell things.”

Overall, though, Schade believes Lifetime can get a fair hearing in China. It has spent several hundred thousand dollars on Chinese litigation, more than in anywhere except the U.S., and anticipates more activity in China.

Lifetime’s experience is not unusual for companies that have gone to the effort to register patents and trademarks in China, an absolutely vital first step, said Wragge’s Carver.

“If they have registered in China, litigation is not expensive,” he said. “They should be able to enforce the rights they’ve filed.”

A patent case in the United Kingdom will cost at least $150,000, but a Chinese case can be litigated for closer to $30,000, he said. Litigating in China can have advantages, he argues.

“It’s the world’s factory and if you don’t exercise your rights here you have to fight rear-guard actions around the world,” Carver said. “It’s much cheaper to come to the country of origin.”

Within Lifetime, opinions about China’s IP environment are changing, Schade said.

“I think initially there was a kind of a feeling of us vs. China, but we’ve certainly gotten over that,” he said. “We feel like we generally get a fair shake.”

While the penalties in China’s legal system are small compared with those in the U.S. and only partially offset the cost of litigation, let alone lost business, Schade said the bigger value for Lifetime is having valid rights it can enforce.

“It’s not the same system as we’re used to, but we’re willing to work within the system and we’re willing to be patient,” Schade said. “It may take a little bit more time than somewhere else, but we think we can be effective.”