In China, you can buy iPhone 5 knockoffs before the Apple release this month.  The “Goophone” looks remarkably like the iPhone 5 with the big caveat that it runs the Android OS.

Apple, never one to shy away from litigation, may have trouble fighting this knockoff out of the market. The company behind the Goophone, the smartphone business of Shenzhen Shenma Lianzhong e-Commerce, is said to have already patented the design in China.

Does that mean that Apple won’t be able to sell its iPhone 5 in the Chinese market? Quite possibly.

This is just an example of the type of intellectual property issues companies are, and will be facing in China. China was traditionally known as a place where you could get any type of knockoff, and where the brand name companies would not be able to enforce their patent or trademark. For years, China has been under pressure from countries like the U.S. to improve their IP protection. This is changing, and not for the better in my opinion. What you are seeing in China is companies basically using IP rights to protect their knockoffs or to squat on famous trademarks.

In July 2012, Apple paid $60 million to settle a trademark infringement suit involving its iPad, brought by Proview of Shenzhen. Other actions against Apple include allegations of violating the trademark “Snow Leopard” by a Chinese chemical company.

Indeed, the business of being a “patent troll,” or filing for a technology, design or trademark before global brands get around to it in hopes of getting paid off by the brand, has become big business in China. The recent Apple settlement will undoubtedly lead to many more Chinese companies jumping on the bandwagon to get into the IP game.

Just recently, GigaOm reported that several popular startups are fighting one specific cybersquatter, Qian Jin of Nanjing, China. Qian has registered trademarks for well-known brans like Pinterest, Foursquare, Twitter, Quora, and Instagram.

In Canada and the U.S., cybersquatting on domain names is discouraged, and can be challenged as bad faith domain name registration. That is what Pinterest is doing. They have launched an action against Qian in San Francisco.

The complaint can be found on scribd

Here is an excerpt:

“1. This action arises from Defendant’s bad-faith registration and use of numerous domain names containing, or confusingly similar to, Pinterest’s famous and federally registered PINTEREST trademark. Defendant’s conduct violates the Lanham Act…”

Chinese companies have been successful in securing their IP rights, and China has some powerful legal tools at their disposal to enforce their decisions, regardless of the unfairness of them. For example, if a company, like Apple, with manufacturing facilities in China, if they failed to pay the judgment an injunction could be issued.

There has been a surge of patents and trademarks filed in China. On the patent front, many of the patents are reportedly low-quality “junk” patents. Of the 530,000 patents granted in China during the first half of this year 107,000 were invention patents. The remainder of the patents filed was either design or “utility model” patents.

Beijing has set a goal of receiving 2 million patent applications per year by 2015. To achieve this goal, the government is assisting companies in patenting by providing cheap credit and other preferential policies to facilitate new patent registration.

Patent trolling and trademark squatting behaviors in China simply highlight the worst parts of the IP system in Canada and the U.S. I’ve often examined the problems with the patent system in the tech industry. With fees for filing a patent ranging from $12,000 to $25,000, it can be prohibitive for most businesses, especially ones that are just starting out. If, on top of it you have a country whose government is actively supporting the aggressive patenting of inventions and filing of trademarks, then what stops them from patenting the inventions of proven businesses before they can do so in that territory, as Apple has learned quite painfully.

Remember that most countries have moved to a “first to file” instead of a “first to invent” system. This means it doesn’t matter who invented it, it only matters who filed the patent it first.

It is obvious the Chinese government understands the value of innovation and owning intellectual property. Its important, and we need to be thinking really hard on how we can speed up our filing process while further protecting our intellectual property, and our filing strategy in other countries. In Canada, we are at a real risk of being left behind. We either need to find a way to make the costs of filing patents lower, and/or reduce the type or duration of the monopoly awarded through patents.

Otherwise we may end up with a slew of unfair Goophone, Pinterest squatting type cases popping up all over the place.

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