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Copyright Takedowns in China, Part V: The End of Online Anonymity?

Posted in Basics of China Business Law, China Film Industry, Internet

China copyright takedownsThis is the fifth in our series about online copyright takedowns in China. In Copyright Takedowns in China, we provided a general summary of the regulations that establish the takedown procedures. These regulations enable enforcement of the “right of communication through an information network” as it applies to sound recordings and audiovisual recordings. In Copyright Takedowns in China Part II: Searching, Linking or Storing? we looked at how providers of storage space face more liabilities than those merely providing searching or linking services. In Copyright Takedowns in China Part III — Audiovisual and Sound Recordings in the Cloud, we discussed how China’s takedown regulations apply to cloud service providers. In Copyright Takedowns in China, Part IV: Whatever you do, Register your Copyrights First, we made clear that “if you ever expect to have infringing content taken down the single most important thing you should do is register your copyright in China in advance.”

In this post we discuss your options after you have succeeded in taking down copyright material.

One of the problems with China’s notice and takedown system is that, after the material has been taken down, a copyright owner’s further recourse against an infringer is uncertain. This is because it’s hard to identify an infringer who has allowed material to be taken down in response to a notice. Infringers are only required to identify themselves to the copyright owner if the infringers object to the takedown. Without the identity of the perpetrator it’s hard, though not impossible, to initiate copyright infringement proceedings in China. The infringer tends to remain anonymous.

Solutions and practices are only slowly emerging in response to this problem in China and elsewhere.

One possible solution is a “notice and trackdown” procedure. With such a procedure in place rights owners can identify infringers and hunt them down. The implementation of something like this would require a balancing of the rights of copyright owners with rights of privacy. It would require an exploration of whether there should be an expectation of anonymity in cyberspace.

Some time ago, Frederick Mostert and Martin Schwimmer provided an excellent discussion of the issues in “Notice and Trackdown,” a paper published in Intellectual Property Magazine.

The issue is one of several covered recently in “Notice and Takedown in Everyday Practice“, a report by Jennifer M. Urban and Brianna L. Schofield, both of UC-Berkeley School of Law, and Joe Karaganis, of Columbia University. Part of the “Takedown Project“, the report considers the effectiveness of the notice and takedown process since The Digital Millennium Copyright Act was passed by Congress in 1998. In their findings, the authors conclude that, “Analyzing the effectiveness of [the] procedures in responding to infringing materials on specific sites, balancing copyrights and speech rights … is severely limited by the law’s lack of requirements for publicly disclosing information on notices sent and [online service provider] responses.”

Will we see the balance tip away from online anonymity in China? It would certainly suit copyright owners but it will be hard to say where anonymity should end and accountability should begin.

How to Find the Right Lawyer in China, Spain, the United States or Really Just About Anywhere

Posted in Basics of China Business Law

How to Choose your china lawyer

A foreign company client recently asked us to handle what he viewed as a “very simple” domestic matter for his company. We turned it down, explaining that we were not experts in that legal area and that we did not feel comfortable taking on this matter for his company. And then we gave him a list of excellent attorneys that do such matters pretty much every day.

The client was surprised at our unwillingness to take on this matter and in response to that, I explained to him (which explanation I give at least once a month both when turning down work and when pitching work that many legal matters are  “easy” 90% of the time, but difficult the other 10% of the time and that the tough part is in knowing when the 10% is in play and how to handle it when it is. Our firm — like most law firms — is just not willing to fail ten percent of the time.

The point of this post is that when your lawyer begs off on representing you, take his or her word on it and get another lawyer. We are in business to do business and when we do not say “no” to doing business without a good reason. The same is true of our China work. We do certain things pretty much every day but those things we do not do we almost always refer out. Just by way of example, hardly a week goes by where we do not tell someone that we do not 1) represent employees seeking to sue their China employers, 2) handle China family law matters, or 3) deal at all in China-US estate planning matters. Note to young lawyers out there: there are incredibly few international lawyers who take on “personal” legal matters and yet with people traversing country borders like never before, the need for such lawyers is exploding.

Our firm recently expanded to Europe by opening an office in Barcelona, led by an attorney, Nadja Vietz, who joined our firm way back in 2004. We are starting that office with two lawyers and a Spain Business and Tax Specialist. Nadja is a licensed attorney in Spain, Germany and the United States. That new office has already led us to get all sorts of new clients and new work and also to have to turn down an even greater percentage of “good work” than in the past, largely because many of potential clients from Europe are not yet familiar with us or with how the law works in Europe or the United States.

And it’s complicated and rarely clear cut.

I just returned from Germany, where I went to attend an ANTEA event. ANTEA is one of many large associations of professionals to which law firms often belong as a way of building and strengthening relationships with law firms and accounting firms from around the world. Going to Germany also gave me a chance.

While there, a number of accountants and lawyers discussed my law firm assisting their clients in the United States. One person wanted us to help his European client set up a business and a factory in a U.S. Southern State. Another person talked to me about our helping a client buy office buildings in New York City. I patiently explained why my firm would not be right for either company and then I emailed both people with a list of law firms and attorney contacts at those law firms that would make much better sense.

A recent phone call from a Spanish lawyer we know provides a great example of that. This lawyer asked us to help his Spanish client form a US company. Yes, we told him, we can do that, no problem. Then we started asking more about what the company would be doing and where and we learned that it wanted to open five restaurants in an East Coast city in a state where none of our lawyers are licensed. We then had to explain why we were not the right firm for this client, which was surprisingly difficult because in Spain such legal matters are handled very differently. Our explanation was something like the following:

Yes, we can easily form an LLC or a corporation for your client in xyz East Coast state, but very soon your client is going to need help with buying or leasing property and with construction contracts and employee agreements and liquor licenses and vendor agreements and all of these things will be under the laws of the state in which it is locating. We could bring on a local lawyer in that state to assist us, but what your client wants to do is not all that complicated and since our firm would not be bringing any super-specialized expertise to the matter, your client would do just as well directly hiring a law firm in that state, without any involvement on our part. And if in the unlikely event you find you want to bring us in for our expertise in Spain-US cross border law or for our ability to explain in Spanish the differences and the similarities between Spanish and US law, you can always do so.

What made the explanation complicated — and this is often true of countries in Europe — is that lawyers in Spain operate very differently than lawyers in the United States, simply because lawyers in Spain are licensed for the entire country and they generally feel comfortable operating country-wide. Japan is a classic example of that, where foreign companies that do business in Japan pretty much always hire Tokyo lawyers for all of their Japan legal work, no matter where it is. I can remember the first time my law firm had a litigation matter in Sapporo, (which is just about as far from Tokyo as you can get while staying in Japan) I was unable to find a lawyer in Sapporo to take on our case and had to use instead a far more expensive lawyer out of Tokyo, and we’ve been using Tokyo lawyers ever since. I dare you to find a foreign company with a lawyer anywhere other than in Tokyo.

China is interesting in that in terms of hiring a lawyer it is somewhat of a mix between the United States and Spain/Japan. On most non-litigation matters, Chinese lawyers can and do generally operate nationwide. A corporate transaction or a company formation or an IP issue in one city is going to be so similar to that in another, that it does not usually matter in what city the attorney is based. This though is not always true of real estate and litigation matters. Take litigation for instance, where it can be important to line up the language and the culture of the local lawyer with that of the relevant court or government officials. Just as you would generally not want to bring a New York City lawyer to handle a basic tort litigation matter in Biloxi, Mississippi, so too you would not generally want to bring a Qingdao lawyer to Shanghai to handle a basic business litigation matter there.

You would be surprised how much of our work (especially for our existing clients) involves our finding them the right lawyer. From time to time, we have even been retained by new clients to do exactly that. In the end, what I always tell people is that the first best place for them to go to find the right lawyer is to seek help from a lawyer they already know and/or trust. That lawyer — either on his or her own or by using his or her existing network — ought to be able to find you the right lawyer no matter what the location or subject matter.

 

China Employment Law: The Myths and the Realities of Employee Severance

Posted in Legal News
China Employment Law

    Would that it were this simple.

Generally speaking, once an employee has completed his or her probation period, termination requires severance payment. Note also that even when the employer and the employee mutually decide to terminate their employment relationship, a severance payment is usually required if the employer is the one that initiated the conversation about ending the employment relationship.

Under the PRC Labor Contract Law, the amount of severance that must be paid to the employee is based primarily on the employee’s wages and years of employment. The law provides that for each year (which is any period longer than 6 months) the employee has worked for the employer, the employee will be entitled one month’s wages. For any period of employment of less than 6 months, the employee will be entitled to half a month’s wages. So for example, if your employee worked for you for 30 years and 4 months, you must pay 30.5 months of his or her wages as severance payment.

However, as one of my favorite law professors at Beida used to say: in your practice, you will find a general rule on a particular issue and then you will find an exception to the basic rule and then you will find an exception to that exception. One exception to the basic rule above is that if your employee’s monthly wage exceeds 300% of the local average monthly wage, then the latter should be used in calculating his or her severance payment. Here is an additional wrinkle: in this situation, the number of years of service used to calculate statutory severance will be capped at 12 years.

However, this is not the end of the story. For example, things can get even more complicated when you are dealing with an employee who started working for you before the current PRC Labor Contract Law came into effect on January 1, 2008. Suppose you are terminating an employee whose monthly wage during the last 12 months of employment is higher than 300% of the local average monthly wage. Because the Labor Contract Law does not operate retroactively on this, the employee’s years of employment before 2008 will not be subject to the 300%-local-average-monthly-wage cap and thus the employee’s actual monthly wage should be used for those years. The years of employment after 2008, however, will be subject to the 300% cap.

As is true of nearly everything related to China employment law, the application of what is a relatively clear national law can vary on the local level. For instance, some municipalities apply a 12-month cap under a wider range of circumstances than the national rule. And in Shanghai, if the employee is forced to unilaterally terminate the employment contract due to the employer’s fault (e.g., violence or threats by the employer), the statutory severance will also be subject to a 12-month cap.

At the end of an initial employment term, if an employer does not wish to extend the contract to its employee, it must pay severance. Furthermore, if the employee quits because of employer abuse (e.g., failure to pay the employee wages on time per the employment contract), the employer must pay statutory severance to the employee as well. And don’t forget that the employer is required to withhold any applicable individual income tax on the severance payment.

Quick Question Friday, China Law Answers, Part XXIII

Posted in Basics of China Business Law

 

China lawyers

Because of this blog, our China lawyers get a fairly steady stream of China law questions from readers, mostly via emails but occasionally via blog comments as well. If we were to conduct research on all the questions we get asked and then comprehensively answer them, we would become overwhelmed. So what we usually do is provide a super fast general answer and, when it is easy to do so, a link or two to a blog post that may provide some additional guidance. We figure we might as well post some of these on here as well. On Fridays, like today.

The below is from an email that one of our China lawyers got this week and it if we had a series of common myths about Chinese law, this one would certainly make the top ten.

I am trying to work out a distributorship arrangement with a company in China and they are saying that Chinese law requires we give it an exclusive for all of China. Is this true?

No. This is not true. Nor is it true that you must give your distributer an absolute minimum to make a go as your distributer (which is also often claimed).

For more on the exclusivity issue check out China Distribution Agreements: Exclusivity Is NOT Required and for more on what should go into your China distributor contract, check out China Distribution Agreements In Real Life.

China Product Development: What You NEED To Know

Posted in Basics of China Business Law, China Manufacturing

China Lawyers

I regularly read of the Quality Inspection Blog because it consistently provides actionable and accurate advise to companies looking to have their products manufactured in China. It’s written by Renaud Anjoran, who has more than a decade of China sourcing experience and he just gets it. Last year, Renaud wrote a post, entitled, How Can Inventors Develop a Custom-Made Product in China? I somehow missed that post but I learned of it today when a potential client looking to have its IoT product made in China told me that what I was telling him about IP in China “completely matched” what Renaud had said in this post.

It did and here’s what Renaud and I agreed upon:

OEM factories generally don’t invoice customers for new product developments — that cost is factored in the product price.

Chinese companies tend to believe the IP rights of the products they have developed are theirs — even if they assure you that’s not the case when you interview them. When the time comes to give you critical files, they might say no.

 

What this means in real life — and trust me when I tell you that our China lawyers see this all the time — is that you will have spent years thinking up and prototyping your product in your home country. And then you spend many months working with a Chinese factory to develop your product further so it can be easily and cheaply produced. And then: you have nothing. No rights to your own product. No molds or tooling that relates to your own product. And maybe no files on your own product. You are back to square one. In the meantime, the Chinese manufacturer that now possesses all of these things can easily go off and sell your product to whomever it wants or manufacture it for whomever it wants. The latest trend here (of which we will be writing shortly is for Chinese manufacturers to design patent your product in these situations (and in many other situations) so as to slow you down even further.

Now if you are wondering why or how this so often happens, I will tell you via an example. We had a company that made a unique water bottle. This company had spent a year or so developing the product and prototyping it in the United States. It then went off to China for further development work on its “revolutionary” product. It found a leading water bottle manufacturer  “willing” to further refine the water bottle for “free.” Six months later the finished water bottle was ready and the two companies sat down to negotiate pricing. The U.S. company wanted to pay around $2.50 for the water bottles, basing that price on the pricing for fairly comparable water bottles priced elsewhere, along with the proviso that the Chinese company could not sell these same water bottles to anyone else. The Chinese company wanted to charge around $7.50 for the water bottles, allegedly basing this price on its need to “make up for all the time and money incurred in developing it.”

The U.S. company came to us and there was pretty much nothing we could do beyond tell this already pulverized American company that the reason the Chinese manufacturer would not budge even one RMB from its pricing was because it did not want to sell the water bottles to our new client under an exclusive arrangement at all. And why should it? It now had everything it needed to make these water bottles and sell them to whomever it wanted. In other words, the Chinese manufacturer had no further need for the U.S. water bottle company.

You want to pay your China manufacturer to help you develop your product. Because if you don’t pay your Chinese manufacturer to develop your product, the Chinese manufacture WILL believe (not just tend to believe) that the product the two of you developed together belongs to the Chinese manufacturer and not to you. And guess what? You will not have any good proof otherwise. And you also, of course, want a China-specific product development contract documenting what you have paid and who owns what. That is unless you have no problem giving away your product and its associated IP.

 

 

 

China Employee Terminations and the Importance of Getting It Right Beforehand

Posted in Legal News, Litigation and Arbitration

China employment lawsOur China employment lawyer, Grace Yang has been writing often of late regarding the finer points of China employment law, in large part because Chinese downturn has led to a substantial increase in ill-conceived employee terminations. See e.g., Grace’s relatively recent posts on China Employment Laws and Lifetime EmploymentChina Employee Vacation Law, China Employee Probation, Dealing with Pregnant and Nursing Employees, and China Employee Mass Layoff Laws.

Today, I am going to reveal an email I sent to a potential client, a company that had messed up on many of China’s employment law technicalities in large part because it had simply not realized that the applicable local employment rules were different from the national rules. This company had shut down an office and terminated a number of employees in a number of different China cities, without any regard for how those cities differed with respect to their local employment laws. The below email has been modified so as to make it impossible for anyone to know the company involved.

I think it important that I be upfront on how we view China employment arbitration cases. We view them as nearly unwinnable and, more importantly, almost never worth the money to fight. Your case is no different, especially since it appears that your company’s termination violates local laws.

Take the Qingdao matter. For us to sort through all of the legal issues would likely cost you close to what it will likely cost you to strike a deal with this employee. And once we sort through all of the legal issues, the best we could probably tell you is that you have somewhat of a chance to prevail on a few of them, virtually no chance to prevail on most of them, and absolutely no chance to prevail on some of them. I say this based on having briefly discussed your factual situation with our China employment attorney.

Employers very seldom win against their employees in China employment arbitration, foreign employers even less so. And with the recent downturn in China’s economy, the odds for employers have gotten even worse. And if you did anything wrong in shutting down your Qingdao office (and the odds are good that you did), your chances will be even lower. Even foreign employees (and I see some of those were involved here) nearly always win at these arbitrations.

And then there is the cost of preparing for the arbitration and the cost of arbitrating.

What we do on cases like yours is try to settle, with all employees. Generally, Chinese employees want quick money and want to get on with their lives, believing that they can (and often already have) get another job. The down economy may impact this thinking somewhat, but interestingly enough, past downturns have really not. So if you were to retain us, the first thing we would do is some quick and relatively inexpensive additional research on the issues; just enough to be able to have a really good idea of the employee’s weak points that we can highlight in settlement talks. And then we work to settle and then when we settle we document the settlement in such a way as to ensure that the settling employees never assert any claims against your company again.

We would also want to look into the issues with your other (non-terminated) employees as well, to try to nip potential problems there in the bud. The earlier you can resolve these sorts of issues with employees the better. We have handled a number of office closings, including in Shenzhen, and we like to settle with the employees before the closing even happens, when they have a few more months even to work and are feeling safe.

If you agree with the above approach, we should talk some more. If you do not, well then you should not retain us.

How do you handle your employee arbitrations?

China Hostage Situations With a New Twist

Posted in China Business

China debt hostage

It has been nearly three years since we did a post on foreigners being held hostage in China. Since our China lawyers still regularly get contacted regarding China hostage situations, that has undoubtedly been too long. To make matters worse, we have recently started hearing of a new and horrific twist. But before I go into that, I will set the typical seen by harkening back to a 2009 post, entitled, China Hostage Situation. Now IS A Good Time To Pay Your Debts.

That post dealt with an email I had received from a trusted reader setting forth the following scenario:

Consumer product company had a rep office – staffed with people with US passports. Company had financial problems and needed to file for bankruptcy. The company sent one of their executives to China to advise their suppliers that they were declaring bankruptcy and would be unable at this point to pay their outstanding balances.

As you can imagine, the Chinese suppliers did not take this well, and they stormed the rep office and are now holding the US citizens hostage – literally. Its been days now -and neither the police nor the embassy will help to extract the people.
The whole thing was obviously not handled properly from the start – but this has turned ugly pretty quickly. Each factory is mainland owned.

I’ll let you know how this turns out – I’m not involved – just hearing most of this second-hand.

I hope to write a happy ending to this story when/if it resolves itself in a safe way that protects both the US people as well as the suppliers – but I am not so sure it will be.

Have you encountered similar experiences?

I responded to that email by saying that my firm has been involved in similar situations countless times and that had we been retained on this one, “our advice would have been so different that I would like to think things would have never reached this point. We would have told this company to get ALL of its personnel out of the country before letting suppliers know (from far far away) about the bankruptcy filing and the upcoming slow payments. That is actually always our first advice (both orally and in writing) whenever a foreign company contacts us for help with their China debt issues.

I then went on and discussed a somewhat similar situation my firm had handled and how I had written on that in a post, entitled, China, We Have A Problem. A Mostly True Story. The key takeaway from that post was the need to get everyone out of town. The situation in that post was as follows:

Young Chinese Child falls from a window in a room in which an American employee of our client is one of the few adults. Child is very badly hurt. Very badly. It now appears the child’s injuries will probably not be permanent, but he also may be in recovery for a year. His medical expenses by US standards were fairly low, but they are astronomical by Chinese standards, particularly for this less than large city. A day later, the parents of the child come with a lawyer to tell this employee that they want six figures (in US dollars, not RMB) from him and from his employer for the injuries that have befallen their child. They also go to the police and make the same request of this employee and his American employer.

The parents make clear to the employee that many in the town are behind them and that things will get much worse if payment is not received. The employer calls us and we immediately spring into action. We determine that the police do not seem to be buying into the parents’ story of guilt, yet they have not told this employee and our client’s other employees that they must remain in town as either witnesses or suspects. We learn that our client is not terribly happy with its joint venture partner in this town and that it has no problem taking its employees out of there and sending them home to sit this whole thing out. Though they feel terrible about the injuries that have befallen the kid, they do not consider themselves responsible. Our research of the facts and the law all indicate our client is not liable. However, as everyone who has ever been involved in litigation anywhere in the world knows, not being liable and not being subject to an expensive and time consuming lawsuit are two entirely different and only tangentially related things.

We determine the best course of action is to get the employees out of this town as quickly as possible and on their way back to the United States. We figure that getting them out will change the leverage game entirely. The employees leave and the settlement amount demanded by the parents immediately plunges. Now we can talk with the child’s parents and  the joint venture partner (who actually owns and maintains the building from which the child fell) from afar, pretty much stripped of any imminent threats. Our client agrees to pay the parents something towards the medical bills and we (fairly publicly) ask that instead of the Chinese joint venture partner paying what it owes to our client, that it instead pay all of that to the family of the injured child. Written agreements in Chinese are signed on all of this and we move on.

If you are a foreign company without a China presence and you owe money to a Chinese company, you do not need to worry about a hostage situation (so long as you never send anyone from your company to China), but you do probably need to worry about Sinosure, and for how to deal with that you should read China Sinosure: What You NEED to Know.

Chinese Law Prof blog did an excellent post on this same topic, entitled, Debt Hostages. That post is on how the police often look the other way (or even assist) with these kidnappings:

When is kidnapping not kidnapping? Apparently when it’s for the purpose of getting a legitimate debt paid. This, at least, seems to be the social understanding of kidnapping in China, and there’s even legal support for it (the law calls it unlawful detention in that case). The latest case is reported in the Dongguan Times: a couple can’t pay the hospital bill for the wife’s delivery of a baby, so the hospital is holding the baby hostage until the parents pay up. They’ve had the baby for over 100 days so far. One amazing thing about it is that this is apparently a government-run hospital, and the hostage-takers have even held a press conference to justify their actions (apparently they felt the father had not been “sincere” in his efforts to pay). The other amazing thing about it (to me) is that this is seen as relatively acceptable. The newspaper report uses quotation marks around the word “hostage,” as if the baby somehow is not really a hostage. And the most a local lawyer can bring himself to call this is “inappropriate.”

The post goes on to note how taking debt hostages just isn’t that big a deal in China and the police even sometimes assist:

I’ve been seeing reports of creditors taking debt hostages for years, and they are always similar in key points: the creditor keeps a human being in forcible detention and demands payment of a debt as a condition for release. What’s more, the hostage-taking and the identity of the kidnapper are not secret; that would defeat the whole purpose. And finally, the police do nothing. They think of it as a civil dispute having nothing to do with them. For example, back in 1992 I read of a case where a jilted suitor took a woman’s baby as hostage for the return of over 1,000 yuan in gifts. The police didn’t immediately arrest this known kidnapper; instead, the go-between, the village committee, and “judicial departments” tried for five months to persuade him to return the child. Only then did they finally give up and arrest him.

Actually, I was wrong to say the police do nothing – sometimes they actively assist in taking debt hostages. In a book entitled One Hundred Strategies for Using Law to Clear Up Debts (运用法律手段清债百策), the writer mentions as an aside that a plaintiff trying to collect a debt asked the police and the procuracy to assist. They helpfully detained three people from the defendant organization for up to eight months, but were unsuccessful in collecting.

So what is the new twist? We are increasingly hearing of situations where someone calls up the partner (with that term so broadly defined as to include a life partner and a business partner and really anyone else who might be relevant) of the hostage and says that if that person pays x dollars (usually ⅓ to ½ of what is actually owed), the hostage will be released. The partner then pays the money and the company owed the debt then claims it never received a yuan of it. Lacking any proof that any money was paid on the debt and without anything in writing actually from the company, the hostage and its partner(s) are right back where they started from in terms of getting the hostage released, but now they are out a good chunk of money.

So what are the takeaways from all of this?

  1. If you are in a debt dispute with a Chinese company and you have people in China, you should try to get them all out of China as quickly as possible.
  2. If you are in a debt dispute with someone in China you should not go to China to try to resolve it.
  3. If you must go to China or if your employee(s) must remain in China, think about using a bodyguard or two and think very carefully about where you or your employee(s) stay and go. Most importantly, be careful with whom you meet.
  4. Consider preemptively suing the alleged creditor somewhere (preferably in US Federal Court) so that you can very plausibly claim to the Chinese police and other authorities that you –or your employee(s) — have been seized and held hostage not because of a debt owed, but out of retaliation for your having sued. If you are going to sue, carry proof of your lawsuit with you at all times while you are in China.
  5. Take these situations very seriously and get experienced assistance immediately.
  6. Do not pay money to anyone without a good mechanism in place (and in writing) to ensure that your payment will resolve the debt and immediately lead to a release of the hostage. We typically structure these resolutions where full payment of any settlement amount does not occur until all hostages have been released and are out of China.

What are you seeing out there?

China Employment Laws and Lifetime Employment

Posted in Basics of China Business Law, Legal News
China employment lawyer

The iron rice bowl lives on in China’s employment laws

In China Employment Contracts: Ten Things To Consider, I wrote about the importance of selecting an appropriate initial fixed employment term because in most places in China employees are automatically converted into “open contract” employees when the fixed term concludes. An open-term labor contract means the employer must (with very few exceptions) retain the employee until his or her retirement age.

China’s labor law provides that an employee is entitled to an open-term contract under the following circumstances:

  1. The employee has been continuously working for the employer for ten years.
  2. The employer is implementing the labor contract system for the first time or the employer is a state-owned enterprise and went through reorganization and executes a labor contract with the employee, and the employee has been continuously working for the employer for ten years and is less than 10 years from his or her legal retirement age;
  3. After execution of two consecutive fixed-term labor contracts (unless grounds for termination exists).

The PRC Labor Contract Law is very pro-employee when it comes to conversions to a open-term labor contract. At renewal or execution of the labor contract, unless the employee requests a fixed-term labor contract, an open-term labor contract shall be concluded. And many Chinese courts (especially outside Shanghai) strictly read this language and nearly always find that an open-term labor contract has been created.

For example, in a Jiangsu Province case, after executing two consecutive fixed- term contracts, the employer and the employee entered into a third fixed term contract, at the end of which, the employer chose not to extend the contract. The employee sued and the court held that the employer bore the burden of producing evidence proving the employee had been the one to request the third fixed term labor contract. Lacking conclusive proof of this, the court held that the employer had failed to meet its burden of proof and its decision to execute the third fixed term labor contract was wrongful. Since the employer’s decision to end the employment relationship upon expiration of the third fixed-term contract was illegal, the employee was entitled to be converted to a lifetime employee and the employer was ordered to pay the employee double the employee’s monthly wage from the time an open-term contract should have been entered.

Oh, and don’t forget that you could be deemed to have entered into an open-term employment contract with your employee if the employee works for you for more than a year without having a written employment contract.

Bottom line: I am going to keep it simple: make sure your employment contracts are current and you are using the right term of employment.

China film IP

Posted in China Film Industry
China Film IP

China Film IP

China film IP is hot.

During the Beijing International Film Festival last month, Mathew Alderson, who heads up our China media and entertainment practice, gave a presentation on China film IP. Presenting alongside Mathew was Tom Duke, Senior IP Liaison Officer at the British Embassy Beijing. This was a special event for the British Film Institute delegation to China.

Topics covered in the presentation included:

  • Top tips for film IP in China
  • The film business as a “restricted sector”
  • Sino-foreign film collaborations and co-productions
  • The UK-China Co-Production Treaty
  • Copyright in China
  • Contracts in China
  • The Internet and digital ancillaries

The UK Government recently published a Factsheet based on the presentation, stating as follows:

Increasing UK-China film cooperation is offering British films access to revenue streams in the Chinese market through a variety of business models. The Chinese intellectual property (IP) system has developed rapidly over the past 30 years. But a number of differences remain between international norms and the structures of the Chinese film industry and IP system. It is important for British companies to be aware of these differences and to prepare accordingly.

For more on China film IP see:

China motion picture copyrights

China’s film industry online — it’s about copyrights

China Distribution and Reseller and Licensing Agreements: Your Name is Almost Everything

Posted in Basics of China Business Law

China reseller agreement

With China shifting from “factory to the world” to “market to the world,” our China lawyers have been getting a ton of new clients seeking our firm’s help in drafting agreements with distributers and resellers and licensees in China. Many of these clients are worried about some vague (usually almost non-existent) threat of “violating Chinese law.” They virtually never are concerned with the biggest threat of all: having their name and reputation trashed beyond recognition.

Let me explain as briefly as I can, which isn’t all that briefly at all.

Many many years ago, there was a really really big company (easily a Fortune 100) that was (and still is) involved in the maritime industry. This company got sued on some sort of personal injury lawsuit by a really good Seattle lawyer. I have to confess that I do not remember the core facts of this case very well at all because it was so long ago and because other lawyers in my firm worked on it, not me. Anyway, this prominent company got sued and as part of its settlement, it assigned over to the client of this really good Seattle lawyer, the right to pursue a fairly large and very well-respected international fishing company.

The Seattle lawyer sued the international fishing company on behalf of the really really big company and our firm was called on to represent this fishing company. In the lawsuit, the Seattle lawyer argued that because it had a mortgage on our client’s vessel, it was entitled to seize our client’s vessel AND our client’s fishing rights because those rights were a part of the vessel. I do not remember how it is that this really really big company thought it was entitled to seize our client’s vessel but what is relevant here is that this was pretty much (I think) the first time anyone had claimed fishing rights are part of a vessel, and it was this really really big company making this new claim. And remember, this really really big company had assigned all of its rights in this lawsuit over to essentially this one Seattle lawyer (who was representing someone, but essentially free to do whatever he wanted).

Now if you know fishing you may know where I am going with this. Fishing rights are a fishing company’s lifeblood and if you are going to go after fishing rights, you are in for a tough fight and there was no way my law firm was going to curl up and die on this one. So what we immediately did was to call our friends in the maritime press and publicize the hell out of this case, but in a certain way of course. We pitched the story as a family fishing company. As I recall, the face of our client — at least the person we made the face of the company for these stories — had started fishing at age 16. And now, we have this really really big company trying to crush his company and extinguish his livelihood. Our theme in every story was the following: this really really big company claims to be a friend of the fishing industry, but look at what it is doing here. Obviously, this really really big company cannot be trusted. So, hint, hint, fellow fishing industry people, do not buy from this company and certainly do not borrow from it either.

Remember, this Seattle lawyer was suing my firm’s client in the name of the really really big company, but the really really big company had zero control over this lawsuit and would garner zero reward from any result. So why then were we trying to embarrass this really really big company? Because we figured that eventually the marketing and sales people at this really really big company would start screaming so loudly about the damage this lawsuit and its resulting publicity was causing that the company would step in and buy the lawsuit back from the really good Seattle lawyer. The Seattle lawyer didn’t really care where his and his client’s money would come from, so long as it would come. And our plan worked. The really really big company stepped in and ended the lawsuit before we expanded our publicity blitz.

Why did I tell this story in a post on China distribution and reseller agreements? Because what this really really big company did was what my mentor when I started out practicing law said that you absolutely never never never do: it gave a third party essentially unlimited use of its name. Yes it was within the confines of a lawsuit, but you get the picture. Anyway, my mentor’s advice was spot on and it applies to distribution, and reseller and licensing agreements with equal force.

If you are going to let someone in China use your name as part of a reseller or licensing or distribution arrangement, you must put limits on that.

Time for another factually questionable story, and this one both because I do not remember all of the facts and also because I need to twist them so nobody can recognize the company, including the company itself.

So many years ago, a Canadian company called us (I actually do not remember in what country this company was based) because it had licensed its restaurant name (it wasn’t really a restaurant) to a company in China but had set no limits on the use of its name. Anyway, this Chinese company had gone out and used the name to make food and that food had poisoned people and all of this made the news under the name of this Canadian company (this part is also not what happened, but it is close and the problems did make the news worldwide). Anyway, this Canadian company called us to see what it could do to end its relationship with this horrible Chinese company and our answer was exactly what it did not want to hear: you entered into a ten year licensing relationship and your agreement does not really limit what this Chinese company can do with your name, nor does it have any provisions that would allow you to terminate the licensing agreement due to what just happened. But hey, if it makes you feel any better, your licensing agreement does not include North America and it will end in nine years.

We then talked about other options for this company, ranging from it changing its name to seeking to pay the Chinese company to go away. I think this company chose just to ride it out and since I cannot remember its name I cannot research what it ended up doing.

Anyway, there is a bottom line here and that is that you must must must always be sure to protect your name, because it is probably the most valuable thing you have.