One of our China lawyers sent an email to a client yesterday, updating the client on the status of its trademark filings. I am republishing that email below because it succinctly sets out the current timelines for the various stages of trademark filings in China:
Good to hear from you. We submitted the trademark applications to the Chinese Trademark Office (CTMO) a few weeks ago, and are now just waiting for an official filing receipt from them. These are usually issued within 2 months, but the CTMO has been experiencing a number of delays recently, so I wouldn’t be surprised if it takes even longer. If everything goes smoothly, from that point it usually takes 12-15 months to receive preliminary approval from the CTMO, and then another 3 months after that for the trademark to be registered. Either way it will be a long wait, but the important thing to remember is that because China is a first-to-file country, the fact that you have filed your application first means that no one can cut in ahead of you.
We will keep you updated on the status of your trademark application. Don’t hesitate to contact me should you have any further questions.
There you have it: around 17-20 months from filing to registration.
Last week, China’s Supreme Court handed down what will likely be a seminal antitrust ruling. In the case of Qihoo v. Tencent, Qihoo alleged that Tencent had violated China’s anti-monopoly law, in particular by alleging that Tencent had abused its dominance. This was the first anti-monopoly case heard by the Supreme Court and the Court used its decision to elaborate on many key antitrust law issues. By doing so, this case offers substantial guidance regarding China’s anti-monopoly laws. A number of King & Wood lawyers have written a post, entitled, The Supreme Court Goes Online with Anti-Monopoly Law Principles：A Review of Qihoo v.s. Tencent Abuse of Market Dominance Case, deeply analyzing this case
I recommend you read that post if you have any interest with or concerns about China’s antitrust laws.
In his capacity as chairman of AmCham China’s Media & Entertainment Forum, Mathew Alderson, who heads our China entertainment team out of Beijing, frequently invites distinguished guests to speak about media and entertainment issues in China.
This Thursday (tomorrow), November 20, starting at noon in Beijing, Mathew will be moderating a talk by well-known journalist Clifford Coonan, Asia Bureau Chief of the Hollywood Reporter. Clifford will be talking about the relationship between Hollywood and China.” Go here for more information.
We hope to see you there.
Many of our clients that went into China years ago to have their products made there are now interested in selling those same products within China. One way for them to do that is to form a China WFOE for selling the products, but oftentimes the cost and the hassle of doing that is just not worth it, and there are other ways.
Foreign (non-Chinese) companies often ask our China lawyers how they can sell in China the product they are having made in China, without having to form a China WFOE. These foreign companies typically want to buy their own product from their Chinese manufacturer and then resell their product to a Chinese distributer or to Chinese end users. We usually have two major concerns with this sort of plan. One that VAT will need to be paid for both sales (the sale from the manufacturer to our client and the sale from our client to the distributer) and two, that a WFOE will almost certainly be required.
The key in these situations is to avoid having the foreign entity deal directly with the distributor. Typically the best way to do this is to have the sale made from the manufacturer to the distributor. The goal is to set up a system where 1) the foreign company earns a profit, 2) tax is paid on that profit, 3) the product is transferred to the distributor in way that provides for proper payment of VAT and proper credit for value of the goods for the subsequent payment of VAT by the distributor, 4) title to the goods transfers properly and 5) the foreign company remains in control of the process.
We usually handle these deals as follows:
1. The foreign company and the Chinese manufacturer enter into a manufacturing agreement that protects the foreign company’s intellectual property and deals with all other related manufacturing issues.
2. The foreign company enters into a separate license agreement with the manufacturer. This agreement provides that the manufacturer will sell the product within China to entities (distributors) selected by the foreign company. The sale to the distributors is made at an agreed price that includes profit to the manufacturer and a payment to the foreign company. We have characterized the payment to the foreign entity in various ways. In some cases, we characterized it as a license royalty, in other cases we characterized it as a sales agency fee. The characterization can also influence whether the agreement must be filed with the Chinese government, and where.
This arrangements are not without their complications and the following should be borne in mind:
- The exact method we use depends on the location of the manufacturer and of the distributor. Different localities have different rules. We make it a point to speak with the appropriate government officials before we draft anything.
- How to characterize the payment to the foreign company is critical and depends on the facts of the specific case.
- The manufacturing agreement can be simple or complex, depending on the nature of the product being produced.
This series of posts is on how to pursue litigation or arbitration against a Chinese company that owes you money or has wronged you. Part 1 dealth with jurisdiction and on Hague Convention service of process. Part 2 was on conducting discovery against a Chinese company. This post is on litigation strategies against Chinese companies and enforcing judgments against them.
Litigation Strategies Against China Companies. U.S. companies hold many advantages over Chinese companies in U.S. litigation. American jurors generally view Chinese companies unfavorably. Chinese companies frequently try to skirt the discovery rules and if you bring this to the court’s attention the Chinese company is at risk of losing credibility or incurring sanctions. Probably most importantly, Chinese companies tend to underestimate the importance of U.S. trial court decisions, often holding back on vigorously defending a lawsuit until appeal. From Chinese Companies Court Disaster:
Appeals in China are usually de novo, meaning that if a trial court judge disagrees with your version of the facts, you can make another attempt to tell your side of the story at the appellate level. But in the U.S., appeals courts take as a given the trial court’s findings of fact and will hear only disputes about the trial judge’s interpretation of legal questions. This means that in America you rarely get more than one chance to put forth your version of the facts, so you had better do it right the first time. In China the fight often begins only once a case hits the appeals court.
U.S. Judgments In China. U.S. judgments have virtually no value in China. There is no treaty nor any reciprocal arrangement between China and the United States regarding recognition or enforcement of civil judgments. For these reasons, Chinese courts disregard U.S. judgments.
If the Chinese company you are suing has assets in the United States or in another country that generally enforces U.S. judgments (such as the United Kingdom, Canada, or South Korea), suing in a U.S. court may be the best way to proceed. Otherwise, the judgment of a U.S. court may end up being of little to no use. In other words, you should think long and hard before you sue a Chinese company in a U.S. court because spending time and money to secure an unenforceable judgment is seldom a good way to go.
My fourth and final post in this series will address suing Chinese companies in China and in arbitration.
It is not uncommon for foreign companies that have been doing business in China through a Representative Office to want to shut it down. We get companies coming to us for this from two fronts. We get companies that have succeeded in China and now want to form a WFOE, which is usually in the long run a cheaper and more flexible way to conduct China business. We also get companies that have decidedthey no longer wish to be in China at all, but do not want to burn their China bridges by moving out of China Baltimore Colts style.
What does it take to close down a China Representative Office?
The first thing you must do is submit to the Tax Bureau a properly drafted and sealed company resolution along with a cancellation application signed by the Rep Office’s chief representative, along with various other required documents. Since the documents required — like so much else in China — can vary depending on the locale, you always should contact your local bureau to determine the exact documents they will require. More than anything, the tax bureau wants to make sure that your Representative Office has paid all of its taxes.
After you are have obtained a cancellation certificate from the tax bureau to close down your Represenatative Office, you must then de-register it with other agencies as well, with those agencies depending on where you are and the nature of your business. China wants to be sure that your Representative Office has paid all of its China debts, including employees.
Closing a Representative Office (or a WFOE for that matter) is more difficult and time consuming than it should be. In fact, it is one of the things on our short list of legal matters that our China lawyers will not do on a flat fee basis simply because the time involved is too unpredictable. Closing a Rep Office can take as little as three months or as long as 18 months, maybe more.
In Why you Need a Backup Factory for your China Production, Renaud Anjoran notes how a Chinese factory’s “communication and development skills DO NOT correlate with good manufacturing skills” and how so many “bad product” situations involve the following:
- The buyer does no inspection in the factory before shipment.
- The factory sends a few well-chosen samples taken out of production, which reassures the buyer.
- Upon arrival, the buyer finds that most products are defective.
- All the supplier offers is a discount on the next order, as well as profuse apologies (or excuses).
- The second shipment is bad too (there is an 80% chance that the second shipment is no better than the first one).
- I agree with the above but would put the chance of getting a bad second shipment at greater than 80%.
The above sort of situation virtually always results from the product buyer failing to do any or enough of the following:
- Due diligence on the China manufacturing company.
- Due diligence on the China manufacturing facility.
- Requiring the China manufacturing company to sign an enforceable OEM Agreement.
- Having an inspector check product quality before anything ships.
What do you do to ensure good product?
Harvard Law School Librarian Carli Spina has compiled a research guide that “provides an overview of some of the best resources for Chinese legal research in both Chinese and English.” In turn, that guide provides the following list of China law listserves, blogs and websites “covering a variety of subjects and fields of Chinese legal study”:
- China Law Discussion List. A discussion list hosted by Professor Donald C. Clarke at George Washington University Law School.
- China Politics and Law ListServ. A listServ focusing on China’s civil society and law, hosted by Professor Karla Simon.
- China Law ProfBlog. A Member of the Law Professor Blogs Network, edited by Professor Donald C. Clarke at George Washington University Law School.
- Supreme People’s Court Monitor. A blog created by Susan Finder, observing the Supreme People’s Court.
- China Law & Policy. A blog created and edited by Elizabeth M. Lynch.
- China File. A real time discussion on China news from Asia Society.
- China Brief. A journal of analysis and information by Jamestown Foundation.
- China Law Blog. A business law blog from the perspective of practice and edited by Dan Harris and Steve Dickinson.
- CHINA IPR. An IP law blog published by Mark Allen Cohen, visiting professor at Fordham Law School.
- China Copyright and Media. Provides insight on Chinese law and policy regarding public communication. Edited by Rogier Creemers.
- Chinadialogue. (中外对话) A Chinese/English website by chinadialogue.net (NGO) discussing environmental issues in China.
We are honored to have made this list.
Anything you would add to it? Anything you would delete?
Interesting South China Morning Post article by Jeffrey Towson, author of the incredibly popular One Hour China Book. The article is Keep away from the “unicorns”: Four Chinese businesses you should avoid. It starts out noting that “if something hasn’t happened yet, there are probably good reasons why” and then lists the following as “businesses everyone talks about but nobody has ever actually seen,” hence the term unicorn:
Senior living. Long predicted, but simply not profitable because the elderly in China do not have much money and because “separating families is not a great idea in a country with historic Confucian norms.”
Private hospitals. Difficult to compete with state owned hospitals and difficult to hire doctors and nurses.
Canned soup. “Hard to sell quality food in a can when the alternative is a fresh vegetable market down the street.”
Funeral and burial services. The regulatory environment and the limited availability of land for burial make it just too difficult.
Towson concludes his article by encouraging those looking to do business in China to let others tread the above paths first:
Basically my advice is: Never be first in and never be last out. If it looks like a unicorn, let someone else spend years knocking down all the barriers. Then if they actually succeed, you can follow them in.
Makes sense to me. What do you think?
There are all sorts of things you should be doing to increase your odds of securing good product from your Chinese manufacturer. When I speak on what it takes to successfully source product from China, I always emphasize the following four things:
- Good manufacturer (due diligence)
- Good OEM Agreement
- Good IP protection
- Good quality control
Years ago we did a China OEM Agreement for a really sophisticated client with a really sophisticated in-house lawyer. During one of our conversations this lawyer emphasized the importance of the specifications sheet for his company and talked about how it had instructions on drafting its spec sheets for securing product from China. I asked if he would send me those instructions for this blog. He did and I am just now finally getting around to running it, below.
We typically draft our China OEM Agreements to incorporate our clients’ spec sheets (a/k/a data sheets) as an Exhibit and when that is not possible or if the spec sheet were to change, they are to include the spec sheet as part of their PO, which in turn is specified as being incorporated into the OEM Agreement. So when I lecture on the importance of having a good OEM Agreement, that includes having a good spec sheet.
Note that the below spec sheet instructions are for one particular company and your requirements likely will vary enough from this company’s so as to make these instructions not perfect for you. But it should be a good start.
According to the instructions, all spec sheets should contain the following:
- Product description
- The SKU
- The specific materials for the product and the precise amount
- Product dimensions
- Product tolerances (if any)
- The Pantones (product colors)
- Testing requirements
- Order quantity
- Label specifications
- Packaging specifications
- Shipping specifications
- Special instructions
- Photographs of the product from multiple angles and with the dimensions indicated
The instructions also mandate listing “every appropriate detail not set forth above” and the requirement that everything be set out in “as much detail as possible” and “confirming with the manufacturer that you have not overlooked anything”and “that it [the Chinese manufacturer] has everything it needs to know exactly what to manufacture.”
Seems like good instructions to me. What do you think?