Intellectual property strategy and best practices for R&D services in China

China's Ministry of Commerce issued guidelines in March on attracting foreign investment in 2007. According to the guidelines, China intends to continue to encourage foreign investment in research and development (“R&D”) centers. This paper examines intellectual property (“IP”) strategy and best business practices for research and development services in China. Such services are provided in China either by a wholly owned subsidiary (a wholly foreign owned enterprise (“WFOE”) operating as an R&D center) or by a third party such as for outsourced software development services, integrated circuit design services or contract research in the drug discovery process. Many companies have established a WFOE to be an R&D center in China in order to reduce the costs of and speed up R&D. Advantages of using a WFOE (as opposed to a third party) include that there is more practical control over the results of the R&D and IP can be better protected. A disadvantage is that the parent company also must pay for the infrastructure costs of the WFOE.