Better Patent Protection Attracts Foreign Capital, Helps Chinese Manufacturers Upgrade

Better Patent Protection Attracts Foreign Capital, Helps Chinese Manufacturers Upgrade

Chinese electronic security manufacturers are keeping a close eye on global trends. In particular, they are watching two international patent infringement and venture capital cases involving NICE, Verint and Milestone. reports on how major Chinese electronic security manufacturers are protecting intellectual property to continue attracting the foreign capital that they need to raise manufacturing abilities to the next level.

Just a few years ago, many Chinese manufacturers had nary a clue about intellectual property protection or patent applications. Lack of protection, however, became a barrier to innovation.

"Copying patented products of big-name companies," said Alick Wang, General Manager of Sebury Technology, which specializes in access control systems, video door phones and biometric devices, "is not going to get you anywhere. If too many manufacturers follow suit, then you face the inevitable price competition. There is no profit. In the long term, that is bad for the health of the Chinese electronic security industry."

Thanks to major improvements in the legal environment and rising awareness of intellectual property protection, electronic security manufacturers in China have begun to turn to the law to protect their R&D. Taking out patents is a major strategy.

"Our management team," said James Wang, Overseas Product Manager at Dahua, "puts great importance on protection of intellectual property and has invested a lot in patent applications, covering designs, models and technical innovation."

With domestic patent applications, he noted, the company can protect new designs, video circuits, embedded operating systems and network transmission algorithms. The company is also looking at doing the same overseas. "As a manufacturer of public security devices, we plan to move ahead of our rivals in the intellectual property protection arena," said Wang.

Other Chinese businesses, such as Sebury, Cameray, Minrray Industry, Jing Hualong Safeguard International and Minking Electronics (CSST 's subsidiary) are taking out patents on software and hardware despite the high costs, especially for international applications.

When asked about the case involving Verint, which won a patent case against NICE Systems, Alick Wang replied, "The ruling has served as a warning. We understand that to enter the global electronic security market, you must abide by the rules of the game in whichever market you are targeting. To become a big international brand, you must protect your innovations. The best way to do that is to apply for intellectual property protection."

"Once a patent infringement case is filed," said Alick Wang, "we negotiate with our counterpart while giving them a warning and demanding that the company come into compliance." "Suing a company is the last choice as it is a costly way of settling the dispute," added Wang.

Dahua and Minrray Industry both hold conservative attitudes about how to settle patent infringements. Executives at both companies are of the view that the best way to win is continuous product upgrades to stay ahead of the competition.

Besides legal means, many manufacturers have come up with other solutions to cope with patent infringement. "As a top name in the Chinese electronic security industry," said James Wang, "Dahua has long been a victim of patent infringement. To protect ourselves, we do a lot of after-sale service, educate our customers to enhance their awareness of intellectual property rights, improve product quality and reduce production costs."

Taking Advantage of Foreign Capital
Lack of capital has served as another obstacle to the ambitions of Chinese electronic security manufacturers to stride on center stage in global markets. This is doubly so for privately owned enterprises, which do not receive financial support from the Chinese government.

Chinese players know full well that the US$27 million that Milestone received from venture capitalists enabled it to get its feet off the ground. Key electronic security manufacturers in China like Dahua, Dali, BlueStar, CSST, Yaan and Keda Group have also pursued the option of going public to get their hands on funding.

"The Chinese electronic security industry," said James Wang, "faces two challenges: insufficient innovation and insufficient capital. For the latter, going public is a good solution. For Dahua, going public was not a means to an end but rather a path to a bigger global role."

Sebury, Sunell and WRT (a video door phone manufacturer) have also tested the waters. "Going public will enable us to expand globally," said Alick Wang.

Others are more cautious. "Venture capital is a mixed blessing," said Romeo Kwok, Senior Vice President of BlueStar. "You have to remember that the money does not belong to you or your company. Before you try to attract venture capital, you should think very carefully about what your core competences are."

When it comes to utilizing foreign capital, most choose to invest it in R&D, brand building and market promotion. According to Alick Wang, at his company, half goes into R&D and brand building. At BlueStar, 25 percent is invested in R&D, while only 10 percent goes into research at Dahua, which prefers instead to lavish such funds on overseas promotions.

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