JK Sucralose Inc. (or “JK”) is a young company: that was established in early 2006, with only a registered capital of 500,000 Yuan. However, in a few short years, JK has seen its assets grow from 1 million Yuan in 2006 to today’s 150 million Yuan. It has rapidly risen from an obscure small business into the world’s second largest sucralose producer.

This is partly a result of the famous USITC Section 337 Investigation two years ago, in which JK was originally not a defendant but voluntarily joined and won the suit. JK’s exceptional mastery of the “tool” of intellectual property has won its general manager An Lijun the name “conspirator”.

As a Chinese company, JK was not born for “conspiracy”, and has its course for learning and using intellectual property rights. The company and its chairman have a cool-headed understanding of the future: “it is premature to talk about an IP layout, while no infringement is the first step to be taken.”

 

Sucralose is an intense sweetener. It is 600 times sweeter than sucrose but two thirds cheaper. It can hardly be absorbed by the human body and therefore is welcomed by patients suffering from diabetes, high blood sugar and obesity, and widely used in food, wine, drugs and toothpaste. It is a household necessity in European and American countries.

The British company Tate & Lyle invented sucralose in 1976 and in cooperation with Johnson & Johnson applied for a U.S. patent in 1983. It was not until 2005 that the 20-year protection period expired, and sucralose was approved by the FDA as a generic sweetener. Supply was short for a time and the price soared. Tate & Lyle became the world largest sucralose provider.

China started large-scale research on sucralose in 2003, when the patent was about to expire, but most of it failed due to sophisticated chemical reactions of sugar that were hard to control. At the end of 2005, three successful sucralose producers emerged in China, increased supply and drove down the market price from 3 million to 1 million Yuan per ton.  

An Lijun had been in domestic trading before 2005, and saw the vast opportunities in sucralose. “The sucralose industry possesses the three ‘genes’ most vital to a good commercial project: safety, which leads to government support; stability in processing, which means corporate willingness to accept, and taste, which means consumer acceptance.”

Fully convinced, An decided to take sucralose as a lifelong cause.

He shifted to international trade in 2005, and entered the world of intellectual property.

“Like many other Chinese entrepreneurs, I knew little about intellectual property. But I was alarmed by a voice that said: would your products violate rights once exported? Would lawsuits arise? Many foreign clients took this as the most important topic. So I decided to make it clear.”

With an awakening awareness of intellectual property, An started capital and strategy management. He took over the international selling of sucralose from a corporation in Shijiazhuang, north China’s Hebei province, and set up a company in the U.S.

This opened his lifelong devotion to sucralose as well as a wrestling match with Tate & Lyle.

In May 2006, the Shijiazhuang company for which An acted as an agent faced the first wave of Tate & Lyle infringement accusations. Overnight, all American resellers stopped ordering to avoid legal liabilities except An’s, which consequently maintained the entire productivity and kept Chinese factories running. Meanwhile, An set the company in a “war of attrition” defense strategy. Finally, their lawyers found a weak point in the other party strategy which caused a withdrawal of the case due to a lack of standing.

However, this was only a procedural victory. Once the Shijiazhuang company was determined as infringer, An would lose the US market, the world’s largest for sucralose consumption. Facing the challenge of Tate & Lyle, An, who had always stressed market protection, had a new idea.

“You have to remove any obstacle in your pursuit of career, and in my case it is intellectual property,” said An, “Sucralose is my career on which I’m ready to spend all my life.”

So, while preparing the defense An quietly looked for an opportunity. “I was looking for another company, not the small one accused, because it would be hard to have a defendant as your producer. Then I discovered JK, a very small company.” Quickly, An took over JK and began financing. “From the day I invested in JK, I covered up all its market information — I could not let it come out until I worked out a strategy.”

An started paving the way in the American market. He knocked open various channels, decided to set up a company in Europe, and at the same time brought in new capital—LMZ, a listed company.

But JK’s market influence was weak after all. “We laid down our network, but clients didn’t know us,” he said.

 

 

On March 5, 2007, Tate & Lyle put three Chinese sucralose producers in a federal district court for infringement in five aspects including intermediate, finished product and application, and applied for an ITC section 337 investigation. ITC accepted the case a month later.

The most fatal point of 337 was its general exclusion order, which drives accused products from the US market permanently. Once the infringement was found, JK would be affected and lose the US market forever.

While continuing with fund raising, JK studied the case. On July 5, four months after Tate & Lyle’s prosecution, JK applied to join in after patent evaluation on itself and Tate & Lyle.

“I must grasp the right to play card,” said An, “at that time I had no money at all, not like some people who had money but didn’t know how to play, and I dared to play without money! One point was certain, I can bring in money. How? I knew a very good market prospect, a very good production base, and a very good project. I believed I could attract clients and investment.”

Facing the uncertainty in a suit, An said with confidence: “we would be the biggest winner even if defeated.”

During the investigation, clients could order products from JK instead of from others because it joined in a non-infringing status. Since the list of accused can be added at any time, JK’s non-infringing status could prevent its clients from becoming defendants and enable it to lay the market quickly.

On the day of ruling, one had to pay earnest money if his products were banned for sale. An said: “I was ready to pay. I would rather be fined than losing the market. This is also an investment. I could cut a workshop in China and invest in the US. I have opened channels and I can use others’ factory. This investment awareness was active and reproducible. The most important is where we put money in.”

An organized a team of Chinese and American lawyers and experts. The USD 3 million spent on lawyers was big pressure. “Our purpose of the lawsuit was to control the market,” said An, “what I wanted was not profit, but the market. Once I knocked open the US market I would have the right of pricing. That was my investment awareness. I wouldn’t have done it if I took the USD 3 million as a trade loss. Many companies took it as that but I didn’t. I took it as an investment.”

 

JK adopted a series of tactics to address the cunning Tate & Lyle.

Its rushing out from midway took Tate & Lyle by surprise, which had to add a team lawyers and a budget of USD 5 million.

When submitting documents, JK submitted all. Unfamiliar with JK, Tate & Lyle was weighted down by so much material in such a short time, and then the witness and evidence stage followed closely. JK’s lawyers coached the inexperienced witnesses in a few days of simulated court. In the following spot investigation, Tate & Lyle discovered nothing, and only collected some factory dust for lab tests in an effort to attack JK’s techniques. Finally, the case opened in Washington, and it was critical. JK’s witnesses left Tate & Lyle to return empty-handed after a dozen days of simulated court training by U.S. lawyers.

Spending USD 3 million and 23 months and working in collaboration with lawyers, experts and witnesses, An with his insight into the market finally forced Tate & Lyle to abandon its appeal to the ITC and lawsuit in federal court. JK’s victory led to victory of the other three Chinese companies. During the two years, JK, unlike other defendants, had been vigorously exploring market channels and realized “legal war based on market war”. The sweeping victory won JK twenty years’ market, a production capacity 40 times higher and a market opportunity worth 20 billion Yuan. It finally hit the goal of “legal war pushing forward market war”.

However, to the great surprise of Tate & Lyle, JK set up a lab to analyze its opponent’s core patent, which was then questioned, challenged and finally announced invalid.

An saw through the game in his match with Tate & Lyle.

Intellectual property is often closely woven with market monopoly. The Anti-monopoly Law prevents market monopoly, but does not exclude one realized through the exclusiveness of patents. While protecting the exclusiveness of intellectual property, IP laws didn’t say what to do when that exclusiveness leads to monopoly. An said: “the ball is kicked back and forth. It means many corporations would grasp the loophole and monopolize the market through patent pool and patent net as a result of intellectual property. It is fairly easy to break it if you can see it through.”

“Usually only one patent is central for a certain technology, because there is only one best path. But other paths are also blocked for fear of attack. This means many patents of your competitor are vulnerable. There is only one vital part, but it doesn’t contain everything important out of considerations for commercial protection. It is nothing but the ‘reserve’ that forms the patent’s weak point that can be easily broken.”

Even if a patent is 100% perfect, when its experts cannot explain fully its rationality, it is still possible for you to accuse it of market monopoly through the abuse of intellectual property, and have it declared invalid. “So, it is highly likely that we win. The devil is not in our involvement in a lawsuit, but in our being unprepared, missing the point and dragged along by the game rules of your rival,” said An.

Some Chinese companies also started to use the game rules by splitting a patent into dozens to scare competitors away, since breaking each of them is tremendously energy-consuming.

An said: “this is exactly a common practice of your competitor. We should not be scared by the number, because many patents have loopholes. You can win by discovering these and using your capital. The fundamental point, however, is you must take the initiative and control the situation.”

 

Making use of the game rules, JK won the lawsuit on intellectual property.

Intellectual property will become a permanent part of JK’s development. In JK’s mind, it is an important part of market development, instead of a technical job. It should be part of the corporate strategy directly under the management, instead of being carried out by an independent department.

Despite the victory, JK remained cool-headed. An gave a surprising answer when asked how to plan an intellectual property layout after the suit.

“It is too early to talk about a layout,” he smiled, “now we are working more for not infringing rights, because both we and our competitors are studying patent application. New inventions might come over when we are trying to avoid infringement.”

As the WTO 2010 deadline of “tariff cancellation” is approaching, the competition of international trade is evolving into one of intellectual property. Many countries, especially developed ones, have boosted their IP exclusiveness into a level of trade barrier to control the market. As a big country in manufacturing, however, most of China’s corporations are imitating rather than researching. Once the deadline arrives, Chinese companies will face a bloody situation. Despite government avocation for intellectual property, most corporations stay at the level of patent application without going further to lawsuit.”

“Chinese patents are vulnerable to legal challenges, since they are not born in battles. This means your patents are useless in the market. They would either be announced invalid or lose their protective function, and finally become ornaments,” An said, “A patent is to protect your market, like a spear. But what Chinese companies need is a shield. Patent for patent’s sake is meaningless. Your patent is only useful when it prevents you from infringing rights. You have to find a new path in competitor’s blockade, and you need to survive first to find the best path. So the first thing for Chinese companies is to avoid infringing rights, and survival is the first step.”

Only by avoiding a mine can you find a new path.

“So it is too early for us to talk about layout, we don’t deserve that,” said An,” most Chinese companies need to prevent others from forming market monopoly through intellectual property. Under globalization, the competition in the international market is one of intellectual property. Now many countries set barriers to keep competitors at a distance. But you will certainly lose once you are face to face. Chinese companies will face a dead end in ten or twenty years if they don’t rise now and find a proper road!”