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The China Bank Scam. It’s Every Week Now.

Posted in China Business

Not sure if the number of China bank fraud cases is increasing due to China’s declining economy or if the China lawyers at my firm are simply getting more emails on them simply because we so often blog about them, but the number of these emails definitely started accelerating rapidly a few months ago.

Just finished responding to yet another China bank scam email (I am so used to dealing with these China bank scam emails these that the whole series of communications took us less than five minutes), as per the following (modified slightly to camouflage the victim):

First email from the U.S. based victim, a not insubstantial manufacturing company:

I found you via your law blog. I am a current victim of Chinese payment fraud.

I have contacted my foreign exchange company to recall the wires–but I’m not very optimistic. What additional steps should I be taking?

I sent the payment only a few days ago. Any tips you can provide is much appreciated and I’m not asking for anything for free.

I immediately responded as follows:

What you are doing is most important of all. How much are we talking about? Was this a company with which you had a previous relationship?

 The U.S. company immediately responded to me with the following:

The company I intended to send the wire to is a company I have been buying from for almost two years. It was a balance payment on an invoice.

I believe that someone hacked their email.

It was around $55,000.

I then responded with the following:
1. Talk to the Chinese company and pressure them to share in the loss by insisting that it is their fault that this happened as they should not have allowed their computers to get hacked.

2. Report this to your insurance company. I know a lawyer who has handled a number of these cases against insurance companies and if your insurance company balks, you should consider hiring him. We wrote about this option in Cheated By China. Check Your Insurance.

3. Spend a lot of money trying to track down who got the money and then using a lawyer and maybe the police in China to try to get it back.

We can take over the above for you but we will charge American attorney rates for this and I would suggest you start out doing it by yourself. But move QUICKLY.

Good luck.

For more on this particular scam, check out the following:

China’s New WFOE Minimum Capital Requirements. Waiting For The Dust To Settle.

Posted in Legal News

China (nationally) recently changed its minimum capital requirements to zero. Many commentators have written on this change but none as far as I can tell have written on what it really means in concrete terms for foreign companies seeking to form a WFOE in China.

We have received a number of reader emails asking us about the significance of the change, including the following one yesterday:

I am hearing a lot recently about China’s new company laws released at the end of last year and implemented this year in March. As I am hearing, the most significant change is the elimination of registered capital requirements. What is not clear, it seams, is how the new law affects the establishment of WOFE’s. I searched your blog wondering if you had weighed in on the matter yet, and I couldn’t find anything. Perhaps you are waiting for the dust to settle, but I think this topic would make a great blog post.

Thanks!

I responded to that email as follows:

It’s important. Maybe. But we are staying silent until we know what impact, if any, this is going to have. The law until a few months ago was that the registered capital for WFOEs had to be a minimum of 100,000 RMB. But so what? Most cities set it much higher. So now that the law says there is no minimum, will cities go to zero? I doubt it. We are in the process of forming a number of China WFOEs and so we should know soon.

But also, even if it does go to zero, zero will not make sense for many (really most) companies as the last thing you want to do when you are forming your China WFOE is not have enough registered capital because then if you need more money you have to bring it in from the parent company and then China will tax you on that as income. So even if cities do cease to require any registered capital, we do not expect our clients to put in zero. So in the grand scheme of things, this all might be meaningless. Maybe this is will be our post.

This reader then responded with the following:

I think the other issue to consider for companies is that the registered capital amount provides a sense of trust in that company. Some companies will not work with suppliers with a registered capital amount below a certain level. Will other companies trust a WOFE with zero registered capital? Maybe looking at the registered capital amount is an old way of thinking but sometime habits are hard to break.

Also, I think a lot of SMEs still think the minimum is RMB1mm so they look at that as a big barrier to entry. Once the word gets out the minimum is gone we may see a big rush of activity.

I think you’ve got a good start to the post. I look forward to the official one.

This is “the official one.”

For more on WFOE formation and minimum capital requirements, check out the following:

The FCPA And China. Be Afraid. Be Very Afraid.

Posted in Legal News

The FCPA Blog recently did a post, China dominates the corporate investigations list, in which it listed out the number of ongoing FCPA (Foreign Corrupt Practices Act) investigations by country. This list appears to have been compiled using company disclosures so there are no doubt a number of investigations not reflected by it.

Nonetheless, it is a very useful list and what stands out (but is not the least bit surprising) is China’s dominance. The top five countries by number of ongoing FCPA investigations is as follows:

  1. China 37
  2. Russia 7
  3. Brazil 7
  4. Libya 6
  5. Poland 6

The post explains that Libya shows up so high simply because Ghaddafi’s recent overthrow allowed a review of government documents. The post calls Poland’s presence an outlier, but we disagree. Or should I say that one of my law firm’s lawyers disagrees. James Yrkoksi spent about twenty years as a lawyer in Poland and in his view Poland’s inclusion makes complete sense as so many American companies base their Central European operations there. Indeed, a growing number of American companies are basing their European operations there due to its educated and yet relatively inexpensive workforce. In other words, Poland makes the list simply because so many American companies are there.

And China makes the list for the same reason, along with the added reason that so many Chinese companies are embedded with government employees. Prevalence of corruption is obviously another factor.

If you are interested in your company not adding numbers to the above list, I urge you to read Doing Business In China Without An Anti-Corruption Compliance Program? Are You Crazy? and How To Do Business In China Without Jail Time? Kill A Chicken.

China Anti-Spam Laws

Posted in Legal News

If you have a China mobile number, you are no doubt getting at least one spam text a day. If your website is in Chinese or if you have a Chinese domain name, you are no doubt getting at least one spam email a day as well. So what I am about to tell you will probably come as a surprise to you, but China has (on the books anyway) some pretty tough anti-spam laws.

I was reminded of this when reading the post, Email Marketing and China’s Anti-Spam Laws, on the China Marketing Tips Blog.  The post points out the following regarding China’s anti-spam laws:

Here is the brief summary of the requirements for promotional emails (which is defined to include any email containing any type of advertisement), according to the post:

  • Verifiable Permission. Chinese law requires email recipient provide explicit permission to receive a mass mailing email and that permission must “be verifiable and stored indefinitely in case of an audit.”
  • The Word “Ad” Must Be In The Subject Line. Mass emailings must have the word “Ad” (in Chinese) in their subject line.
  • Content Restrictions. The Regulations on Telecommunications lists “thousands of words and topics that are currently banned and the list is very dynamic.”

Bottom Line:  Think twice (and check at least once) before sending email solicitations to anyone in China.

China’s Changing Economy And You

Posted in China Business, Legal News

One of our China lawyers got the following email this week (modified a bit to avoid any identifiers):

I am certain you hear this everyday…”my supplier has disappeared with my deposit.” For the first time in 20 years it has just happened to me. We are a small family business in Illinois importing promotional products from China for many years. I have been dealing with one trader since 2007. She sources almost 50% of my products and always delivers quality, on-time shipments.

She has since disappeared with my deposit from an order placed in February. Can you please advise me what steps I can take to recapture the funds? As far as legalities are concerned who can I contact and where do I start? Any insight you can provide would be greatly appreciated.

We promised we would respond to the above email here on the blog, so here goes.

First off, we do not hear this every day. In fact, during good times, we might go months without hearing something like this. And during good times, when we do hear something like this, it pretty much never involves a long-time relationship. But during downturns in China’s economy we get an email like this just about every week and too many of them do involve long-time relationships.

And we are in a downturn in China’s economy right now. Sort of.

Back in 2012, I wrote an article for the Wall Street Journal, China’s Slowdown and American Business Hardly a week goes by without complaints about payment problems or bankrupt debtors, with the purpose of warning American companies to increase their guard and to react accordingly. What I said in that article applies 100% to what is going on in China right now.

I started out warning about how China tends to increase regulation of foreign companies during downturns and we are certainly seeing that again:

Take regulation. The best assumption to make is that the Chinese government will respond to the slowdown by attempting to minimize citizen discontent so as to keep its hold on power. The government is much more concerned with social harmony than with economic numbers.

The government is encouraging wage growth—including a greater-than-normal tolerance for union-style labor activism at foreign-owned factories—even though higher wages make China’s factories less competitive. The calculation is that citizens happy with their higher wages will far outnumber those unhappy and unemployed because rising wages forced uncompetitive factories to close. American companies should no longer assume that the government will welcome low-wage manufacturing with open arms.

We are seeing this.

I wrote of how “China’s prioritization of its citizens’ contentment … [means] that China is going to get tougher on foreigners, just as it (and nearly every other country) has always done when times are tough. Everything foreign businesses do will be under heightened scrutiny”:

The authorities also are throwing new roadblocks in the way of foreigners seeking to form businesses in China. Such higher standards are not uniformly applied. Beijing and local governments are ever more eager to distinguish between “contributing” and “noncontributing” foreigners. Thus, it has never been easier for well-funded, nonpolluting foreign companies to secure approval to operate in China. Conversely, it has never been tougher for foreign companies that pollute, pay low wages, or have no plans to hire Chinese employees to get their foot in the door.

I then pretty much spoke to the email above:

The slowdown also is changing Chinese company interactions with foreign companies. Chinese exporters, particularly those that compete with companies from lower-wage countries like Vietnam and Bangladesh, are suffering—in particular in very low-tech, very low-wage industries such as textiles, clothing, shoes and low-end electronics and toys.

Foreign companies that do business with Chinese companies in these industries must be on their guard. Hardly a week goes by without my law firm getting a call from a Western company experiencing problems. Sometimes the Western company has paid for a product and the company it paid no longer exists. Sometimes the company still exists but it needs “more money” from the Western company to buy raw materials for the product it already promised to produce.

Now back to the real issue. What can foreign companies do to avoid problems in China stemming from the downturn? Wish I had something new to add from my article, but I don’t, so I will just quote it:

Foreign managers need to understand what is happening in their own industries within China. This might mean visiting your Chinese co-party’s factory, warehouse or office to look for warning signs of a company in distress. Or it might mean taking out insurance to cover your China business or transaction. A number of Chinese manufacturers are owned by Taiwanese, Singaporean or Hong Kong companies, and sometimes it is possible to secure guarantees from the foreign parent.

The key is to be proactive: If you find yourself in a bad situation with a Chinese company going under, there usually is no remedy after the fact. Bankruptcy in China more often than not consists of a company shutting down in the middle of the night and its owner fleeing to another town.

The key to weathering China’s slowdown will be for foreign companies to go back to basics: think afresh about what a company contributes to China’s economy and how that is likely to shape policy makers’ opinions; focus on scrupulous regulatory compliance; and renew focus on due diligence at a company-to-company level. Above all, no Western company doing business in China should blithely assume that a slowdown won’t affect it.

Yeah great, but what is this Illinois company to do in terms of getting its money back. Well one thing it should not bother doing is contacting the U.S. Embassy or Consulate, as we explained in Have A China Business Problem. Consulate Says “Don’t Call Us.”

The way my firm’s China attorneys analyze a matter like that of this Illinois company is by looking at the dollars and cents. If this company is out $5,000, probably the best thing it can do is not to spend any more money. It can keep trying to reach its sourcing agent and if it eventually succeeds, it can try to pressure her to return some or all of the funds. But for an amount that small, it probably does not make sense to spend any money on an attorney in China and it certainly does not make sense to spend money on a U.S. attorney. I cannot imagine a U.S. attorney taking such a small matter on a contingency fee and our experience (with considerably higher dollar figures) is that Chinese attorneys will be equally reluctant. On top of that, the filing fees in Chinese lawsuits are relatively high and what good is suing someone if you cannot even find them?

But if this were a million dollar matter (and we have been contacted on those), our advice would be entirely different. In those cases, we encourage the American company to retain my law firm and then we in turn will figure out the company’s best options for recovery. This typically involves our reviewing all relevant documents and then sketching out a collection plan that typically involves our bringing on a Chinese law firm (only a Chinese licensed lawyer can appear in a Chinese court) to pursue litigation or alternative means of collection.

The most difficult cases for us are those between $50,000 and $200,000.  In those situations, we do not generally think it makes economic sense for the American company to hire our law firm, yet at the same time, there has been too much money lost to suggest that the American company just walk away. We usually give companies in these situations the following three options:

  1. Walk away.
  2. Find and hire a Chinese lawyer on their own.
  3. Hire us to work up the case and then hire a Chinese lawyer and either walk away at that point or stay on to assist.
These are not easy cases….
Sorry.

 

 

 

Negotiating With Chinese Companies. The Pros And Cons of MOUs.

Posted in Basics of China Business Law, China Business

We have a number of times written on the problems that can arise from using memoranda of understanding (MOUs) with Chinese companies. See the following for some of those posts:

Mostly we have talked about how Chinese company (and to a large extent Chinese law and courts) are much quicker to view an MOU as the contract itself than are American companies and American courts. Because of that, we warned of the dangers in using an MOU.

Since we did these posts though, we have received a number of emails from readers saying essentially that they are having trouble completely eschewing MOUs in their China business and asking us what they should do. Also since that time, our China lawyers have probably done around a deal a month that involved an MOU. In other words, like them or not, MOUs are a fact of life when it comes to doing business with China.

That being the case, in this post we address why MOUs so common to China business and how you can and should handle them, short of just saying “no” and walking away.

MOUs are common with China business for the simple reason that Chinese companies love them. But why do Chinese companies love them? In our experience, we see them used typically to achieve the following two things:

  1. To memorialize in writing the existing state of the agreement before the underlings at the Chinese company pass it on to their boss or bosses for approval. We frequently see this at large Chinese companies, particularly SOEs.
  2. To memorialize in writing the existing state of the agreement and then to use that written document as a starting point for additional negotiations intended to favor the Chinese company only.

If you are negotiating with a Chinese company that insists on an MOU, you should try to discern the reason the MOU is so important and if it is for reason number two above, you should make clear that once the MOU is signed, you will not be in a position to re-negotiate critical terms and you should stick by that statement.

Let’s face it, China MOUs are sometimes necessary for getting the deal done and an MOU that gets a good deal done is a positive/pro. On the flip side, they can be used to lull foreign companies into going beyond where they wanted to go on their deal and as we have previously written, to create a binding agreement without the foreign company realizing that.

Those are the pros and cons of MOUs with China.

What do you think?

China Challenges U.S. Antidumping Policies In WTO

Posted in Legal News

The U.S. Trade Representative (“USTR”) announced last week that China, in a follow-up to its December 3, 2013 request for World Trade Organization (“WTO”) consultations, has asked for a dispute settlement panel concerning certain U.S antidumping methodologies. The USTR requests public comments on the issues identified by China in its panel request.

China challenges certain U.S. antidumping practices in the context of former proceedings on imported products such as coated paper, steel products, and shrimp. Certain of the allegations concern practices specific to antidumping cases involving “non-market economy” or “NME” countries, like China and Vietnam.The United States presumes that all companies in NME countries are subject to the central government’s control such that all of the companies should receive the same antidumping margin. Consequently, NME country companies must first demonstrate that they operate independently from the state before they may receive a separately calculated antidumping rate. The United States calculates these rates using a constructed home market NME price by valuing inputs, labor, and overhead items with prices from a market-economy country. In addition, companies not qualifying for a separate rate in an antidumping proceeding receive the NME country-wide rate.

As used in specific cases, China also alleges that the United States’ application of the “targeted dumping” methodology, and zeroing of dumping margins in “targeted dumping” cases, violates the WTO Agreement. Targeted dumping references the U.S. practice of employing a differential pricing analysis to determine if a pattern of export prices exists in which such prices differ significantly by purchasers, regions, or time periods. If such a pattern is determined to exist, the United States may calculate the antidumping margin by comparing an average of normal value prices to individual export prices. Zeroing in this context would reference the practice in which a Chinese respondent’s individual sales transaction negative margins are deemed zero for the overall antidumping margin calculation instead of including the calculated negative sales margin.

Although China’s WTO challenge is based on specific U.S. antidumping proceedings, it is significant.  A determination that the U.S. antidumping methodologies are inconsistent with U.S. WTO obligations could result in revisions to the U.S. antidumping regulations and the way in which they are administered – specifically with regard to NME proceedings.

U.S. manufacturers and importers involved in, impacted by, or considering future antidumping actions will want to consider submitting comments to USTR to address the issues raised by China. There is a May 2, 2014 deadline for that.

This post was written by Chris Priddy, an international trade lawyer at Harris Moure.  

China Trademarks. Register Them In China Not Madrid.

Posted in Basics of China Business Law, Legal News

Whenever clients ask about filing a trademark in China via the Madrid System, my answer is simple: filing a national application directly with the Chinese Trademark Office (CTMO) is better. Co-blogger Steve Dickinson takes an even stronger position. In his opinion, filing a China trademark via the Madrid System is a waste of time, and he categorically refuses to do it.

The Chinese trademark system is complicated: at once idiosyncratic and highly regimented, and overseen by capricious examiners. But the one-size-fits-all Madrid application elides all of this and makes registering a trademark in China seem easy. Really easy: all you have to do is check a box marked “China.” As a result, Madrid applicants are lulled into a sense of complacency, and all too often the result is a rejection that could have been avoided with a national application in China. Madrid applications are supposed to be cheap and quick, but fixing Madrid problems after the fact is neither. This problem is exacerbated by U.S. lawyers who are comfortable with filing in Madrid but have no experience filing in China.

Trademark prosecution in China is highly mechanical; for the vast majority of applications, you file an application, wait 18 months, and at the end of that time your trademark is either registered or rejected. (A slight oversimplification, but not by much.) There is no CTMO equivalent to a USPTO office action, no back-and-forth with trademark examiners, and no chance to amend an application that has been filed.

For this reason, the meaningful work for Chinese trademark applications occurs before the application is filed.

First of all, it is essential to conduct a pre-application trademark clearance (a.k.a. a trademark screening) to assess the trademark’s registrability. Is the mark inherently distinctive? Does it run afoul of China’s statutory prohibitions on trademarks? Does it conflict with any preexisting trademarks?

Next, assuming the screening results don’t scare you away, you must determine which class(es) to file in and the specific products or services (“items”) to be covered by the mark. This is a lot trickier than it sounds because the CTMO divides each Nice class into a unique system of subclasses. For purposes of trademark registration, each subclass is treated discretely: a trademark for one item in a given subclass covers all items in that subclass, but is not effective on items in any other subclass.

To see how this works, let’s look at Nice Class 41, for which the official heading is “Education; providing of training; entertainment; sporting and cultural activities.” The CTMO divides Class 41 into seven different subclasses:

Subclass 4101 – education

Subclass 4102 – organizing educational, cultural, and recreational activities

Subclass 4103 – library services

Subclass 4104 – publishing services

Subclass 4105 – sports and entertainment services

Subclass 4106 – animal training

Subclass 4107 – otherwise uncategorized services.

Because Class 41 has seven subclasses, that means that seven identical trademarks, each held by a different entity, could theoretically coexist in Class 41. To show how this can work, I did a search of the trademarks in Class 41 for “MGM” and found that four different entities have filed applications:

(1) Marilyn Licensing Corp. has registered “MGM” in subclass 4107;

(2) A Chinese company, Great Wall International Communication Co. Ltd, has registered “MGM” in subclasses 4102 and 4104;

(3) Metro-Goldwyn Mayer Lion Corp. has registered “MGM” in subclasses 4101 and 4105, and (needlessly) again in subclass 4105; and

(4) MGM Resorts International has attempted to register “MGM” in all seven subclasses, but will almost certainly be rejected in all but subclasses 4103 and 4106 because of the conflicting prior registrations.

When you file a China national application, you determine the subclasses that you want your application to cover. But when you file a Madrid application, your list of items goes straight to a CTMO trademark examiner, who will decide from your list which subclasses the items should go in without consulting you. This lack of consultation, combined with the examiners’ often-tenuous grasp of English (or French or Spanish), means that imprecise descriptions of items can lead to problems of both overinclusiveness and underinclusiveness.

The application filed by MGM Resorts International was overinclusive because it attempted to cover all of the services in the class when most of the subclasses were already taken. But it could have been worse: it could have been a Madrid application. Because MGM Resorts filed a national application, it will only be rejected with respect to services in subclass 4101, 4102, 4104, 4105, and 4107. If it had been a Madrid application with an overly broad description of services, the CTMO examiner could have decided that the services covered all subclasses, and then the entire application would have been rejected.

Surprisingly, attempting to cover all items in a class can also result in underinclusiveness. We see this most often with a description of items that mirrors the official Nice class headings – because the official Nice class heading usually only covers some of the subclasses for that class. For instance, the official Nice heading for Class 25 products is “clothing, hats, and shoes.” If you filed a Madrid application with that description of products, you might think that your trademark would cover all products in Class 25, but in fact your trademark would not have any protection for socks, scarves, gloves, or belts. According to the Chinese subclass system, none of those are considered “clothing.” This sort of mistake is quite commonly made by trademark lawyers not familiar with China’s trademark system.

Apple Computer famously ran afoul of the “underinclusive” problem when it registered a Class 9 trademark for “IPHONE” in 2002 as covering computer hardware and computer software. Unfortunately for Apple, cellphones were in a different subclass, and in 2004 a Chinese company, Hanwang Technology, registered “I-PHONE” to cover cellphones. Because iPhone was not a famous trademark in China in 2004, Apple had to pay off Hanwang to gain ownership of the trademark.

It is possible to perform a pre-application screening before filing a Madrid application, and it is possible to craft a description of items in a Madrid application that will conform to the Chinese subclass system. But this requires working with an experienced China trademark attorney or agent, and it will cost nearly as much and take nearly as much time as a national application. In other words, you lose all of the advantages of the Madrid System, but keep all of the disadvantages.

Finally, even if your Madrid System trademark is registered in China without a hitch, you may still have trouble enforcing your rights. Upon registration, the only formal certificate for Madrid System trademarks is the one issued by WIPO. China does not issue its own separate trademark certificate. In theory, this should not be a problem, because the WIPO certificate should be sufficient to enforce your trademark rights under Chinese law. In practice – and I realize this may come as a shock to some readers – Chinese bureaucrats and e-commerce customer service reps generally could care less about China’s WTO obligations. Much of the time, before they will lift a finger against an infringing factory or website, they will demand a copy of a CTMO-issued Chinese trademark certificate. It is easy enough to request a Chinese trademark certificate based on a WIPO registration, but it takes another three to five months to get one. That can feel like an eternity when your trademark is being knocked off.

If a client has an extremely precise and limited list of items and is already filing a Madrid application for a number of countries, then I might consider adding China to that list. But for the majority of clients, I agree with Steve. The CTMO is fickle enough with national applications. Why make things more difficult by filing a Madrid System application?

China Design Patents. Because They Work.

Posted in Legal News

In 2012, the last year for which statistics are available, 657,582 design patent applications were filed in China – more than in any other nation in the world. In fact, more design patent applications were filed in China than in the rest of the top 20 jurisdictions combined. But only a paltry 2.3% of the design patent applications in China were filed by non-Chinese entities. These statistics, and the fact that vast numbers of foreign companies manufacture and/or sell products in China, lead to two fairly obvious conclusions:

  • Chinese companies are taking advantage of China’s legal IP protections for product design.
  • Foreign companies are not.

Two comments about the above statistics (which are from WIPO). First, Chinese WFOEs and JVs are considered Chinese entities, but even if they were reclassified as non-Chinese entities, the numbers would not change appreciably. A quick search on China’s State Intellectual Property Office (SIPO) website revealed the following:

  • Motorola: 635 of 653 design patents have been filed in the name of the American parent company.
  • Ricoh: 135 of 172 design patents have been filed in the name of the Japanese parent company.
  • Fuji Xerox:  23 of 24 design patents have been filed in the name of the Japanese parent company.
  • Unilever:  352 of 360 design patents have been filed in the name of the Dutch parent company.

Second, a certain number of China design patent applications (especially at the end of the year) are filed to meet an artificial quota. Mark Allen Cohen’s China IPR blog has done a nice job of tracking this phenomenon. Without extensive analysis, it is difficult to know how much the numbers are skewed, but even if half of the filings were bogus, the point would remain the same: Chinese companies are filing vastly more design patents in China than foreign companies.

We have written a number of times about the need to register intellectual property in China with the appropriate authorities. And we have placed particular emphasis on registering trademarks in China, because doing so is an easy, obvious, and relatively economical first step in IP protection. But for those selling or manufacturing products in China, the analysis should not end there.

A design patent in China (generally analogous to a design patent in the U.S. or a Community design in the EU) covers novel product designs that (1) incorporate shapes, patterns, and/or colors, (2) are rich in aesthetic appeal, and (3) are fit for industrial application. It does not take much for a design to meet this standard. China does not even conduct a substantive examination of design patent applications. Such examinations only occur if a third party challenges a patent’s validity after registration. A design patent applicant need only submit an application to SIPO that satisfies the procedural requirements, particularly with respect to proper formatting of documents and drawings.

Does this mean many of the design patents in China are slight modifications (read: ripoffs) of existing product designs? Of course. But this cuts both ways. A foreign company deciding to enter the Chinese market would not be able to register a design patent for its own product that has already been on the market for five years, but it could add a twist (“Chinese characteristics,” if you must) and thereby make the design patentable. Since 2009, the rule in China for patents has been absolute novelty – that is, disclosure anywhere in the world will negate novelty and make a design unpatentable. Before 2009, the rule was novelty in China.

A registered design patent has serious value: its owner can sue for design infringement, and, perhaps more importantly, its owner can also register the patent with Chinese Customs and have counterfeit or copycat products seized at the border. Even if a company does not think its design is novel enough to be patented, there is a first mover advantage to filing, in that design patents are valid until successfully challenged by a third party.

If you make an arguably generic product, would you rather hold a presumptively enforceable design patent on that product, or allow one of your competitors to do so? Bamboo mat manufacturers found out the answer to this the hard way. The China lawyers at my firm have consistently been able to secure license payments from Chinese manufacturers that were infringing on our clients’ design patents by writing cease and desist letters and then instituting negotiations. These manufacturers chose to pay a licensing fee rather than contest the validity of the patent.

Chinese companies don’t like to waste money any more than foreign companies. By filing for design patents in such numbers, Chinese companies are recognizing the value in registration. Any foreign company that cares about protecting its design in China should follow suit and file for its own China design patent. Because they work.

Bottom Line: If you are selling your product in China or having your product manufactured there, you should consider applying for a China design patent.

Selling Your Product Or Services Into China. These Are Your Twenty Cities.

Posted in Uncategorized

In a post entitled, Map: Half of China’s GDP Comes From Major Cities Tea Leaf Nation uses a Foreign Policy map to graphically (both literally and figuratively) show “how much China’s GDP growth machine depends on a few regions.” Its post also sets out China’s leading twenty cities in terms of contribution to GDP. All of the twenty cities below contribute 1% or more to China’s GDP:

  1.  Shanghai (3.80 percent)
  2. Beijing (3.43 percent)
  3. Guangzhou (2.71 percent)
  4. Shenzhen (2.55 percent)
  5. Tianjin (2.53 percent)
  6. Suzhou (2.29 percent)
  7. Chongqing (2.22 percent)
  8. Chengdu (1.60 percent)
  9. Wuhan (1.59 percent)
  10. Hangzhou (1.47 percent)
  11. Wuxi (1.42 percent)
  12. Nanjing (1.41 percent)
  13. Qingdao (1.41 percent)
  14. Dalian (1.34 percent)
  15. Shenyang (1.27 percent)
  16. Changsha (1.26 percent)
  17. Ningbo (1.25 percent)
  18. Foshan (1.23 percent)
  19. Zhengzhou (1.09 percent)
  20. Tangshan (1.08 percent)

Makes for a pretty good roadmap for foreign companies looking to do business in China.