One of the core issues of the recent dispute between AMSC and Sinovel stems from intellectual property (IP) rights held by AMSC and allegedly violated by Sinovel. Specifically, AMSC has brought suit against Sinovel in the Chinese court system (specifically, before the Beijing Arbitration Commission), alleging that Sinovel violated AMSC's copyright and trade-secret rights by misappropriating software developed by AMSC.
Essentially, AMSC is attempting to control and protect its software by utilizing the tools of protection granted by IP law. While software may also be protected by patents and/or trademarks, these forms of IP protection are not at issue between AMSC and Sinovel, and will not be discussed in this article. Instead, the focus will be on copyright and trade-secret rights.
Copyright in the U.S.
A copyright protects "original works of authorship" that are fixed in a tangible form of expression. In the context of software, a copyright may apply to source code, object code and user interfaces. A work is automatically protected at the time the expression is created – for instance, when the source code is written.
In order to enforce a copyright in a U.S. court of law, you must obtain a certificate of registration from the U.S. Copyright Office. If the application for copyright is filed before the work is published, or prior to an infringement of the work, the copyright holder may have additional remedies (e.g., statutory damages and attorney fees) in court.
For works created after Jan. 1, 1978, the term of a copyright may vary, but in no case does it last less than 70 years from creation. An application for copyright may be completed online for as little as $35 and is processed in about 130 days.
Copyright protection may be sought for all copyrightable expression in a computer program. This includes source code, object code and screen displays, but not ideas, program logic, concepts, algorithms, systems or layouts.
The copyright application process also allows the copyright owners to designate various portions of the source code as a trade secret. Copyright is beneficial because it provides a fast, inexpensive mechanism for securing IP rights. Further, the ability of a registered copyright holder to obtain statutory damages and attorney fees may substantially reduce the cost of enforcement.
Trade secrets in the U.S.
A trade secret is proprietary, confidential information used to provide an economic or competitive advantage. Trade secrets are not obtained by registering or filing an application with a government entity – in fact, the value of a trade secret is derived by preventing any public disclosure of the secret.
Rather, trade secrets are established and maintained by the actions of the individual or company seeking to protect and maintain the confidentiality of the trade secret. Specifically, the individual or company must employ reasonable measures to protect the trade secret from public disclosure and develop levels of access to certain information.
Typically, reasonable measures include entering into confidentiality, non-compete and non-disclosure agreements (with third parties and employees), as well as establishing guidelines and taking other precautions to hide the idea from the public.
Trade-secret protection is a relatively low-cost mechanism for an individual or company. Trade secrets do not require publication and may be maintained indefinitely. However, policies to establish and maintain the trade secret must be reasonable and diligently maintained.
Further, if a competitor fairly and lawfully gains access to a trade secret, the individual or company maintaining the trade secret may have no legal recourse and lose the competitive advantage associated with the trade secret. In addition, if a third party lawfully obtains a patent on the concept covering an existing trade secret, the company or individual may be unable to continue using the trade secret without negotiating a license to use the third-party patent.
Copyright and trade secrets in China
China provides copyright protection for many types of written works, including computer software. For the most part, China's copyright statutes resemble those in the U.S.: One cannot steal or profit from some else's work.
Legislation specific to software protection was enacted in 2001. As in the U.S., a tangible expression need not be registered to receive a copyright, but registration is strongly encouraged to enforce a copyrighted work.
The duration of copyright protection in China varies but is no less than 50 years. Causes of action against an alleged copyright infringer may take place as an administrative proceeding, a civil proceeding or a criminal proceeding. However, because China does not criminalize copyright infringement, and because damages are low enough that most infringers are not deterred, enforcement is difficult, to say the least.
China also provides trade-secret protection – both for Chinese companies and companies in countries belonging to the World Trade Organization. Specifically, the protection of trade secrets falls under China's Unfair Competition Law, enacted in 1993.
The provisions of this law are enforced by the Administration for Industry and Commerce (AIC), so private individuals or companies cannot bring a lawsuit for infringement of trade secrets. Instead, one must complain to a local AIC office, which will then investigate the complaint.
If a violation of a trade secret under the Unfair Competition Law is found, the penalties may include fines, confiscation of illegal income, revocation of the party's license to operate, an injunction ordering the party to cease the illegal act, and/or imprisonment.
The bottom line
Although both China and the U.S. have similar laws and processes designed to protect copyrights and trade secrets, the differences rest in the enforcement of these laws, as well as the governmental nature of each country.
To date, there have been very few IP-related disputes brought by a U.S. company before a Chinese court. On the other hand, there have been many instances, particularly in the software space, of Chinese entities violating other countries' IP rights.
One of the reasons for this disparity is that the potential reward for winning such a dispute, especially for copyright infringement, is small relative to the cost of enforcing IP rights in China. Violation of trade secret, however – especially for what appears to be such a gross violation, in the case of AMSC v. Sinovel – may be another matter.
Another reason for the disparity is the perception that Chinese courts would tend to favor Chinese companies over U.S. companies in such disputes. AMSC's decision to bring its case before a court in Beijing, however, appears to have been a deliberate choice by AMSC.
Regardless of the final decision in the AMSC v. Sinovel case, one thing is clear: The dispute between the two companies has cast IP infringement into the limelight, and the case may set a precedent for the enforcement of IP rights by U.S. companies doing business in China.
Timothy M. Smith is a consultant/patent agent, Jill McWhirter is partner and Bryan Adams is an associate at King & Spalding's Houston office. They can be reached at tmsmith@kslaw.com, jmcwhirter@kslaw.com and badams@kslaw.com, respectively.
