Technology Transfer to China
by pepesale gmbh
Technology Transfer to China is a matter since I first got in touch with the “Doing business with China” theme during my Legal Apprenticeship at the Economic Section of the German Embassy in Beijing in 2001.
Since then this matter is regularly addressed by mentioning the catalogue of free importable, restricted and prohibited technologies to be imported to China. In addition, the foreign investment lists should be consulted in order to learn about further restrictions and investment requirements. But in my experience if a foreign party wanted to transfer its technology to China, for whatever reason, it was never a problem of “if”, only of “how”.
So from how I see it, when talking about Technology Transfer to China it is essentially about existing Intellectual Property Rights on the one hand, and Trade Secrets such as Know-How, Specifications, Technical Drawings. Plans etc. on the other hand, AND how they should and could be protected when imported to China. This aspect of Technology Transfer is in my view still very actual and pressing:
- Intellectual Property Rights, such as all kinds of patents, but also copyrights and trademarks should also be protected for the Chinese market, hence all such IPR should be registered for Mainland China also, as far as possible, before being transferred to China.
- All Trade Secrets should be secured through Confidentiality Agreements, also called: Non Disclosure Agreement, in short “NDA”, before being disclosed to a Chinese partner.
The form of the specific Technology Transfer of course depends on the related IPRs, and/or the Trade Secrets attached to it. However, basically Technology Transfer to China is conducted either contractually through Commercial Agreements, or as an asset on corporate level, such as Joint Ventures. For both forms the options are basically either licensing, or the transfer of ownership, the difference herby is, that through licensing the Licensor still remains the owner of the licensed technology, whereas while transferring the ownership of the technology it will be assigned to Transferee, and gone for the Transferor.
I think it is clear that basically licensing for use of certain technology by a Chinese Party should be the preferred option, rather than the assignment of the ownership of technology to a Chinese Party.
But even if you consider these points carefully for your technology transfer to China, the real problems with Technologie Transfer are about effective protecting of your Trade Secrets, and how to deal with developments of your technology:
- Signing of a NDA of course helps to secure your Trade Secrets - if flanked by contractual penalties, extended to the employees and reduced to a need-to-know-basis they can be quite effective. However, they require a trustworthy partner. In other words the destiny of your disclosed technology depends on whether your Chinese partners feels obliged by such NDA or not. NDAs are never a means that can physically prevent technology leakage, they just might limit misuse of the provided Trade Secrets when applied to a reliable business partner with mutual interests.
- An problem that in my view remains unresolved, is how to deal with the improvements of your disclosed technologies. Chinese laws do not allow to prohibit the Chinese partner to make own developments of disclosed Technologies, Know How, IPRs etc. They also do not allow to be automatically retained by the foreign party. So, for example if you disclose Know-How and Specifications to your OEM-Partner in China you basically can neither prohibit him from making further improvements or else developments to the technology disclosed by you - and eventually secure such improvements as IPR for himself(!). Nor can you require the Chinese party to “give back” the improvement, without proper remuneration or granting of related licenses.
Therefore here my legal tip:
“See it before you do it!” – only transfer your technology after you are fully aware of the IPRs and Trade Secrets you are going to transfer (see also my German legal tip “IP-Strategy for China”). Make sure that your IPRs are properly registered for China. Choose your partners well, and don’t transfer any Know How or else and Trade Secret of yours without a signed, valid and effective NDA.
Finally, make sure that you have an ironclad contract before you start transferring your technology - and make sure that at least you receive the agreed fees for the transferred technology.
We can advise you in your intended Technology Transfer to China, provide you with the tailor-made NDAs and secure your IPRs for China. Furthermore, I can draft, revise and negotiate your specific contracts for your intended Technology Transfer with your Chinese partner.
By the way: Did you know that a development made in Mainland China, e.g. through joint R&D collaboration, must basically be filed for patent protection in China first before it is applied for in a foreign country, otherwise it might be considered as invalid in China.
Take care of yourself!
Yours
Dr. Martin Seybold
German Attorney-at-law
Disclaimer: This legal tip is provided to the best of my attorney’s knowledge. However, it does not claim to be exhaustive. In order to be better understandable and manageable for the interested reader without any legal background, the legal topic discussed hereunder cannot be presented in a legally comprehensive and exhaustive manner. This legal tip is intended to provide general guidance and cannot replace individualized legal advice based on the specific circumstances of a particular case.
