China is at the forefront of the AI development race. While many see China’s AI policies as a cover to curb freedoms and control society, the reality is that China is an active AI developer in a thriving market for AI applications in both the trade and industrial sectors. 

There are, however, several challenges related to obtaining IP protection for algorithms in China. Lack of IP protection may expose the development to theft, infringement and misuse by Chinese competitors and it may result in huge economic losses for the developers. Navigating these challenges in the proper way will be key to the selection of the appropriate business model for the exploitation and commercialization of the algorithms (e.g. licensing, assignment, JVs, cooperation and co-development etc.) in China. 

Before entering into cooperation agreements with businesses, developers and government institutions, including R&D centers or universities in China, foreign rights holders should conduct proper due diligence of their future partners and the related projects should be secured by registration of any relevant IP (patents and trademarks in primis) and written agreements to ensure that joint ownership, licensees, pledges or transfer of IP rights derived from the cooperation are properly regulated. This will help avoid surprises from the application of unfamiliar Chinese laws and regulations.

At the same time, internal safety procedures should be put in place to reduce the risk that secrets leak. Documents must be properly water-marked and classified; generally, procedures must be implemented in order to determine the flow of information and ensure its possession at all times. Employment or cooperation agreements must ensure confidentiality and include proper non-compete-clauses to avoid risk of theft by employees or other unauthorized parties. Additional software and technical measures are also encouraged to track and monitor flow of information and data.

If a secret is stolen, or the ownership or its proper apportionment are disputed, or if a third party is trying to copy software containing AI algorithms, the right holders must not shy away from taking proper enforcement measures. Given that China has no discovery system like in the US litigation, potential infringement must be thoroughly investigated by the rights holder, with evidence secured in the proper forms so that it can be admitted before a Chinese court or accepted by the Chinese police in case of a criminal action.

Litigating in China is a viable option and there are competent and experienced Specialized IP courts that can handle very complex patent and copyright infringement matters.  But rights holders must be prepared.

In his recent article, Paolo Beconcini reviews in depth China intellectual-property-related challenges that foreign AI developers can expect to meet when co-developing and commercializing their algorithms and software in China.