Our third article on managing IP in a downturn is a roundup on how litigation strategies are evolving in different parts of the world. Hard times present opportunities for IP owners who are prepared.
The effects of economic downturns on IP litigation are often nuanced and vary from region to region. Most IP owners will curb their litigation budgets, for example by sending cease-and-desist letters to infringers they would previously have fought in court. Other companies may increase their litigation efforts and use the effects of the downturn to create a strategic advantage.
“Unlike other areas of IP, Litigation is by nature unpredictable. Critical cases can come out of nowhere,” says Global Head of Dispute Resolution at Rouse, Chris Vale.
“Sometimes a rival company or a new player encroaches on your IP rights in a material way, and you simply have to engage in a ‘bet-the-farm’ fight. Big multinationals normally hold a reserve fund for these court battles, but medium-size businesses may need to pull the funding from other activities. This unpredictability can be more difficult to manage during a downturn” says Vale.
China – litigation and compensation on the rise
China is a fast-moving market, with new seasonal products and test brands created all the time.
Multinational FMCG and apparel brands that are strong in China typically take action when they see multiple infringements on the market. During a downturn, they may scale back on some of the more marginal cases. Or they may redirect budget to China from IP activities in other Asian markets – so China spend remains stable but ASEAN drops for example.
“We’ve seen drops in trademark filings in China, but litigation there is on the rise,” says Vale. “Before the downturn, activities were mainly about stopping an infringement, but now we see more companies actively pursuing compensation in China. there are 2 reasons – they are trying to recover some cash, and also because damages awards from the Courts are becoming more meaningful.
The combined effects of Covid-19 and the economic downturn meant that many western companies doing business in China suddenly saw their business drop. This in turn caused their some of their marketing departments to get much more aggressive and – unusually - infringe on others’ rights – driving an increase in litigation with some western companies in the unusual position of being defendants.
Another trend is that some IP firms in China have become very competitive for work and charging by contingency fees that come from winning cases has become more common,” says Vale. “This is also because compensation in China is now much higher than it used to be.”
Southeast Asia – strategic shifts with global impact
Geopolitical developments and pricing are driving multinationals to be less reliant on the China for all of its manufacturing. Companies often turn to Vietnam.
“If a company is operating five factories in China, then it may shift one or two of them to Vietnam to balance the risk.
This dynamic has had the effect of moving Vietnam up the value chain in terms of where IP budgets are directed. Companies now want to test out the Vietnamese IP courts and legal system, so litigation there is on the rise.
The IP Court system in Vietnam is less developed than China, in part because the other bodies supporting IP protection are good and work quickly. At least until now there simply hasn’t been the momentum to improve the court system but that should improve now,” says Vale.
With Indonesia’s fast-track system for handing IP cases - just 180 days from start to finish, the country is often a strategic option for companies fighting multinational battles. In a downturn, this may be even more relevant for IP owners.
Indonesia’s fast-track system has hearings every couple of weeks, so plaintiffs and defendants regularly get to hear arguments and at expert witness stage, they hear see the other side’s experts. There is thus a strategic dimension to considering which evidence to present in Indonesia, as it may be many months before the case is handled in another jurisdiction.
“This is why I like Indonesia and the fast-track system for certain types of cases. As a plaintiff, if you win the case in Indonesia it puts pressure on some of the other cases you’ve got going on,” says Vale.
“This strategic dimension to Indonesia arguably becomes more important in a downturn for IP owners who have expensive cases going on in multiple jurisdictions. You can potentially use Indonesia to put the pressure on, flush out arguments, and save on your overall legal costs.”
Malaysia and Singapore
“Malaysia is another place where we’re seeing growth in patent litigation,” says Vale. “The country has good judges and is one of the fewer jurisdictions in Asia with a common-law system based on precedents, so you get results at a lower cost than, say for example, in Singapore.”
“Singapore’s hopes to become Southeast Asia’s regional hub for patent litigation do not seem to have materialized, perhaps because of the downturn and with Singapore being an expensive place to litigate,” he says.
The other factor is that e-commerce is booming throughout the region. The e-commerce platforms are flush with cash and are strengthening their patent protection in their systems, which may in the future lead to litigation.
Middle East & North Africa (MENA) – reduced enforcement, increased competition
Most IP activity in MENA is driven by multinationals guarding against infringement in the consumer-goods space. Very little IP is generated in the region. MENA’s IP ecosystem is therefore mostly about speedy enforcement against counterfeits, rather than about the resolution of complex IP battles. Those tend to go through courts in other regions.
There are several ways the characteristics of the IP landscape in MENA may be amplified by a downturn. When a brand puts the brakes on spending money fighting against counterfeits, the market may suddenly become flooded with copies of their products. This presents an opportunity for a savvy competing brand.
“When a company cuts its enforcement budget and more counterfeits of its products appear on the market, a competing brand with cash in the bank can actually increase its enforcement activities and use the opportunity to gain a stronger position in the market,” says Vale, therefore the litigation cases arising from this enforcement will increase”.
“Strategic civil litigation is not hugely impacted given the strategic importance of such cases and will often be fought across several jurisdictions in this region”.