Honeywell's East for East innovation strategy explained: interview

What is the greatest challenge you have experienced when it comes to asserting Honeywell's IP rights in China?

While Chinese IP law at the central-level is generally good and further improving, enforcement at the local-level is still quite unbalanced. You may not be able to expect consistent results for similar cases at different locations and sometimes it can be frustrating. Potential reasons include unbalanced quality of individual judges and enforcement officials in terms of their legal education and understanding of the law. Other considerations include local economic development levels, local protectionism and sometimes corruption.

What are some of the most important things you consider when choosing external counsel?

I care most about a counsel's firsthand experience and business sense in general, and then his cost-effectiveness in handling specific matters. The major advantage of Chinese firms is their firsthand experience in IP filing and enforcement. That is why I value and use them the most in those areas. While English communication, paperwork quality and understanding of international client's business and legal culture are still the less competitive aspects for most Chinese firms, some of them are catching up. They are recruiting well-trained IP lawyers with international education backgrounds and international law firm experience. For us, as long as they loyally keep delivering good results at reasonable fees, we are happy to continue working with them and helping them grow. However, we do give more credit to international firms in terms of IP transactions like IP licensing, technology development agreements and IP due diligence in M&A projects for their cross-border transaction experience, insights and recognised paperwork quality. In general, we are selective with outside counsels based on nature of work.

What is your basic IP strategy for China?

In short, our China IP strategy is business driven. I do not think our China IP strategy has ever fundamentally changed, but we do fine-tune it as necessary based on Chinese IP policy changes, as well as our business development in China. We have grown our China business five-fold compared to 2004. We do not just bring products and technology from abroad to sell in China. Instead, we invest more and more in our “indigenous innovation” in China to develop new products to particularly meet Chinese customer's needs or the so-called East for East (E4E) strategy. We have over 1400 full time engineers based in China who are creating an increasing number of new inventions each year. We do not just play on our own but also actively cooperate with many Chinese partners including universities.

These business developments require new reflections in our IP strategy and processes in China to match and support them. For instance, our patent filings, especially first filings, either national or PCT filings, have been increasing as we attach more importance to the Chinese market. We also established local patent committees in China to selectively review and make filing decisions for those E4E inventions. Under these circumstances, such filings can be approved to be made and owned by the local Honeywell subsidiaries should there be any justified business or financial reasons, which may be pioneering among multinationals. We also carefully conduct freedom to practice (FTP) clearance for each of our new products for the Chinese market to reduce infringement risks.

How do you find managing Honeywell's large patent and trademark portfolio in China?

It is a challenging job given the portfolio size. You cannot just deal with everything case by case or by improvising. At Honeywell, our function, like many other functions is process driven. We design and implement effective internal processes that fit our business operations to manage our IP portfolios under a clearly set strategy for IP protection. These processes do not just work for the legal department but also cover the business teams, supporting staff and outside counsels in terms of their respective roles to play. Some high level suggestions include:

1. IP filing – if you do not go to the airport first, you cannot catch the plane. Keep in mind, China is a first to file jurisdiction for both patents and trademarks. Do file as early as you can and cover broadly as necessary if China is important enough to your company for whatever reason. This is not just a job for the legal department, so closely work with your business people to figure it out. Otherwise, pirates can steal your IP – it always happens. The last thing you want is to be sued by a pirate in return.

2. IP enforcement – fight hard but selectively, because your budget is probably limited and you cannot take down every single infringer from a practical perspective. Do some publicity if possible to let people know you enforce hard (supply side) and at the same time educate consumers not to deal with infringing products (demand side).

3. IP litigation – among others, evidence keeping and collection, not only in legal department's files but also in daily business management pipelines is very important because China does not have a discovery system like it in the US.

4. Government lobbying – try to proactively partner with the government, identify common needs, understand their initiatives and concerns, then work with them to address and help solve the problems together as needed, and finally, recognise their support when appropriate.

5. IP due diligence and product clearance – the recent iPad trademark lawsuit should be a strong enough lesson despite all the case facts in dispute. You should know what needs to be done before you launch a new brand or product into the Chinese market.

Interviewed by David Tring

Further reading:

Three ways to rescue the Trademark Law
Shanghai boosts brand owners with famous mark system
Outstanding Achievement winner Liu Chuntian on IP reform: interview