In 2005, while attending the National Hardware Show in Las Vegas, Mark Brandon, president of Diamond Machining Technology in Marlborough, noticed something rather surprising at one of the exhibitor tables.

A Chinese company had produced a knockoff of DMT’s patented diamond-coated sharpening tool.

DMT filed a lawsuit against the company, Jing Yin Lixin Diamond Tools in China, and about a year later a U.S. District Court judge in Nevada ruled in favor of the MetroWest company. The court ordered Jing Yin to cease sales of the infringed product and to pay DMT’s attorney fees.

“It’s really important to protect your products,” Brandon said. “You’ve got to stop these companies, because if you allow a knock off, then down the line there will be a knock off of the knock-off. It’s a race to the bottom.”

And that race ends up hurting companies based right here in Central Massachusetts.

The economic Asian powerhouse that is China can be viewed as a huge opportunity for businesses in America to sell their products to the billion-person market, or as a place to manufacture their widgets more cheaply. But the country is also known for its notoriously lax enforcement of intellectual property rights, according to lawyers and businesses that specialize in IP.

“It’s the Wild Wild West of IP,” said Stephen McCready, of the Northborough-based law firm of Puritan Faust.

Taking Notice

Each year the U.S.-China Business Council, a Washington, D.C.-based group that represents companies that do business in China, surveys its more than 200 members on the most pressing issues are related to trade with China. In 2005, IP issues topped the list. Last year the issue fell to fourth, according to USCBC President John Frisbee.

Intellectual property can be the lifeblood of a business. IP rights protect the core function of a business: its ability to make money.

And, according to Mirick O’Connell lawyer Brian Dingman, chair of the Worcester-based firm’s IP group, there is a pronounced apprehension about IP rights in Asia’s largest country.

“When I’m talking to clients, they’re obviously looking at the size of the potential marketplace in China and they’re balancing that with what they hear and read in the process about the lack of respect for IP in the country,” he said.

So is that a fair judgment to make?

Not completely, Dingman said.

China has in the past few years instituted broad-based IP protections regarding patents, trademarks, copyrights and trade secrets.

“As China is becoming more and more of an important force in the world economy, they seem to be making an effort to normalize their business and legal issues with the rest of the world,” Dingman said.

Enforcing those laws is a whole different situation, however.

The best way to protect yourself is to “file early and file often” for patents, said Michele Young, an IP lawyer for the Worcester-based law firm of Bowditch and Dewey. While the U.S. Patent and Trademark Office awards patents to the original inventor of a widget, in China and many other countries, patents are given based on the first to file. So there is a race to file first.

IP laws are also territory-specific, so a U.S. patent is not enforceable in China.

If an infringement is found, Young said it’s important to make an assessment of which knock-offs to target.

Perhaps the largest competitor knocking off the product or a company that has a large web presence could be the best to start with, she suggested.

Know Thy Business Partner

 

To compensate for potential fraud, business have developed innovative approaches. For example, if a product is manufactured or assembled in China, a company may produce an integral component in the United States.

Cognex Corp., the Natick-base producer of factory automation hardware and software, has taken another approach. Less than 10 percent of the company’s $290 million in sales last year were in China, but the company hopes to grow that figure in the coming years. Cognex already has a 75-person sales staff in the country, and is expecting that number will be 100 soon.

Todd Keebaugh, Cognex’s vice president and general counsel, said one of the best ways to protect the company’s IP rights is to get to know the culture.

In the last few years, the company has created a wholly foreign owned enterprise , which allows Cognex to do business with its Chinese customers in local currency and without international taxes and currency exchanges.

“I think really understanding the culture better, having that long-term commitment to the company, really shows that we’re serious about the market,” he said.