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Nike On China IP Protection: Just Do It With Green Tea

Posted in Legal News

Last week I attended the United State’s Patent and Trademark Office‘s two-day conference on “Protecting Your Intellectual Property In China and The Global Marketplace.“  China Law Blog’s own Steve Dickinson was asked to speak there on how to protect your trademarks and trade secrets while doing business in China, but work commitments prevented him from doing so.  Too bad, as it turned out to be quite a good conference.

I do not generally like lawyer conferences and I like China conferences even less.  They often get repetitive and a certain “we great lawyers are all in this against the Chinese” mentality often pervades.  I swear if I hear one more American speaker start or conclude a lecture by talking about China’s phenomenal growth and how it is a nation of both great risks and great rewards or one more Chinese speaker spew out statistics for twenty straight minutes, I will ….

But there was surprisingly little of that at this conference and there were a decent number of speakers worth writing home about — or at least blogging about — and that is exactly what I will be doing over the next week.  I am going to lead with my favorite speaker of the conference, Kevin R. Brown, Nike’s Director of Global Brand Protection. I knew I was going to like Mr. Brown’s speech from the get go when he started out by saying his bias is to always see the glass as half full, as I have that same predilection.  I ended up agreeing with nearly everything he said, and found many corollaries to an article I wrote a long time ago called “Four Essential Principles for Emerging Market Success.”

Mr. Brown candidly admitted that Nike’s first four years trying to protect Nike’s IP in China were hell, but he said that after he sought help from a Chinese national at Nike around six years ago, things got decidedly better.  He emphasized that if you do things the right way in China, you can achieve success in protecting your IP there.

Brown then put up a PowerPoint slide that asked the question, “How do I swim in this river?”  He answered it by saying:

  1. Learn the system
  2. Be the system
  3. Out-system the system

My admittedly personalized and overly interpretive view on what Mr. Brown is saying here (and please remember I am a lawyer, not a Zen master) is as follows:

  1. China is not the United States.
  2. Do not expect China to be the United States.
  3. Get used to China not being the United States.
  4. China not being the United States does not make it bad, just different.
  5. You can do things the U.S. way in China and fail, or you can work within the system for success.
  6. Learn all you can about the Chinese system.
  7. Work within the Chinese system.

Mr. Brown then talked about the need for humility. He put up a PowerPoint image saying “It is honorable in China to downplay your leverage and work within the system” and “This is not something that comes naturally to most companies.”  He talked about how Nike does not play up its role as a big company.

He then flashed the following sentence/image:

The Role of Green Tea

Mr. Brown talked about how he gets things done in China by drinking green tea and chatting with government officials.  He then said if you are not willing to drink green tea, send someone from your company who is.

He then gave concrete examples of instances where the Chinese government had worked with Nike to eradicate counterfeiting operations, including in one case going onto a Chinese naval base to shut down an operation led by the officers and their wives.  The lead officer involved in the counterfeiting soon thereafter took “early retirement.”

Mr. Brown put up an image showing the following fake Nike seizures by the Chinese government in 2006:

  • 1,049,000 pairs of shoes
  • 371,460 pieces of apparel
  • 98,672 sports bags/backpacks
  • 354,427 pairs of socks

Mr. Brown then extolled the virtues of working with Chinese customs and talked of Nike’s successes by doing so.  If you register your trademark in China, alert Chinese customs to that registration and provide customs with information on your product, Chinese customs will contact you if it sees possible counterfeits of your product going in or out of China.  Mr. Brown then mentioned that in Canada neither the importation nor the exportation of counterfeit product is illegal; only the sale of such products is.

Mr. Brown talked about how most of the Chinese governmental officials with whom he deals genuinely want to do a good job.  He said giving them recognition for a job well done — and not seeking to bribe them — is the best strategy.  “Face” is of greater importance to a Chinese government official than money.

In my next post, I will give my own views on Mr. Brown’s talk.

On a somewhat related note, Microsoft last week filed 26 piracy lawsuits in the United States.  I mention this because I did not see a single article on these lawsuits mentioning how the United States government is not doing enough to stop piracy.  The reason for this is that the prevailing view in the United States is that the company, not the government, is primarily charged with protecting its own IP.  More companies need to take that same view regarding China.  Waiting for the government to protect your company’s IP rights is not the way to go in either the United States or China.

  • http://www.asiagander.typepad.com Shawn in Tokyo

    Very interesting!
    In regards to your seven steps/phases, it pretty much goes for Japan as well in my opinion. Along with the green tea–warm in winter, cold in summer. As for Korea, my memory of tea drinking is crowded out by my frequent soju sessions!
    Looking forward to the next post!

  • http://www.chinalawblog.com China Law Blog

    Shawn –
    Thanks for checking in. The green tea recommendation was certainly not meant to crowd out the role of beer and Baijiu in Chinese business. I am not a soju fan, but just thinking of Baijiu makes me feel queasy. It is the worst alcoholic beverage I have ever had in my life. Steve actually likes the stuff, which must prove something.

  • http://ipdragon.blogspot.com IP Dragon

    Great posting Dan and very interesting subject!
    To Shawn, I thought the best thing is to drink warm tea in the summer. Fight heat with heat.
    Anyway, I just read a great article from Yu Xiang, The New Regulations Regarding Customs Protection of Intellectual Property Rights of the People’s Republic of China, IIC Volume 36, 7/2005. The importance of registration, or in other words recordation, can not be underestimated for ex officio action (because of one’s office, so on one’s own initiative). I blogged about it here:
    Looking forward to your next seminar report. Thanks.

  • http://ipdragon.blogspot.com/2006/07/just-do-make-use-of-customs-but.html IP Dragon

    Just Do Make Use Of Customs, But Recordation Is Ne

    …I just read a great article from Yu Xiang, The New Regulations Regarding Customs Protection of Intellectual Property Rights of the People’s Republic of China, IIC Volume 36, 7/2005. The importance of registration, or in other words recordation, ca…

  • http://www.chinalawblog.com China Law Blog

    Katie –
    Thanks for checking in.
    Do you do much China IP work?
    I am of the view that countries start protecting IP when it is in their own best interests to do so. Has that time arrived for China? Not sure. Will it arrive in five years? Not sure, but I think so.

  • http://www.chinalawblog.com China Law Blog

    IP Dragon –
    Thanks for checking in and thanks for the link. I am too much of an American to drink green tea in the heat. It’s Diet Coke for me.

  • http://www.asiagander.typepad.com Shawn in Tokyo

    Dan,
    Yeah, obviously, the alcohol is still a mainstay. But only in China did I drink with a customer extensively during work time (after work drinking is of course a mainstay in Japan, Korea, China). That was in Jinan, and baijiu was the main course it seemed. I had three lunches like that, each time followed by afternoon naps until dinner rolled around.
    Although nasty, I handled the baijiu well enough that I think if I ever return to Jinan, I will have plenty of people ready to take care of me!
    As for soju, I once drank three bottles in an evening, but I am not sure that is something to be proud of besides being highly respected in Korea! I will be back there in September, so I am looking forward to breaking myself back in for a weekend. :)

  • katie

    Nice article. Looking forward to more comments from you on the conference.
    I agree with your sense and observation that the news coverage in North America on China’s lack of IP protection is lop-sided. Your example of Microsoft is a perfect one. I am a Canadian lawyer working in the IP field. I was born and spent my childhood years in China. I personally find a lot of the North American’s criticism on China to be somewhat self-aggrandizing and unfair. It is perhaps a reflection of the West’s general lack of understanding of the Chinese culture, particularly in the business and political arenas.
    One has to keep in mind that China only opened its door to the world in the last 20+ years. IP is not traditionally valued in China because in the Chinese culture, IP has not been viewed as a “business tool”, i.e. to exclude others from entering into a market. Trademark “mimicking” (and hence infringement) is not a new phenomenon against foreign multinationals. Take a look at the famous LongKou rice noodle, there are literally hundreds of variations of this brand flooding in the Chinese market, making it difficult, if not impossible, for consumers to identify which is the authentic one.
    It is only when Chinese businesses come to grasp of the idea that IP can be used as a business tool to fend off competitors will they invest in IP protection. Huawei is a perfect example. A leading player in the global telecom market, it only started filing hundreds of patent applications in the recent years after being sued by Cisco. Give it five years and the Chinese will catch up in IP protection. In the meantime, I agree with Mr. Brown’s approach: 1. Learn the system; 2. Be the system and 3. Out-system the system.
    Katie

  • http://www.chinalawblog.com China Law Blog

    Shawn –
    I’ll take the Green Tea. When you are in Seoul, you should make it a point to go to Insadong. It’s a great area with old shops, traditional restaurants, and great art. It’s about a five minute cab ride from City Hall and well worth the trip. Much better than Itaewon. Guaranteed.

  • http://www.automk.com seagull

    Very interesting!

  • http://www.chinalawblog.com China Law Blog

    Seagull –
    Thanks for checking in and thanks for the compliment. Mr. Brown’s talk really was quite interesting, even though it was very near the end of the day at the end of a two day seminar. I very much got the feeling Mr. Brown was giving us his true unvarnished views on China, rather than a watered down speech that had been signed of on by three people in corporate.

  • http://www.china-ready.com/about.html Paul Denlinger

    Mr. Brown offers excellent advice. Having lived most of my working life in China and Europe, the general perception of American business practices is that they are often based on heavy-handedness, pressure and arrogance, combined with a lack of understanding of local situations and cultural sensitivity.
    This style is so deeply ingrained with Americans by the culture, I’m convinced that many American business people fall into this mode without even realizing it. (If they did, they would be able to nip it in the bud.)
    However, experienced hands such as Mr. Brown are aware of this, and know how to handle issues in a mature manner which simply gets things done.
    If more American businesses realized this, then they would stop being their own worst enemy.
    The good thing is that since the economic world is multilateral, with the US being just one among many players, Americans will need to make this adjustment.
    As for focusing on IP issues in China, I believe that US companies are taking too narrow a view. Instead, American law firms should continue to subtly push for an independent Chinese judiciary to first handle commercial disputes which is free from outside interference. This is already happening, but the trend needs to continue. Like many things in China, one needs to take the long view.

  • http://www.chinalawblog.com China Law Blog

    Paul –
    Thanks for checking in.
    I completely agree that American companies need to clean up their acts in terms of “understanding of local situations and cultural sensitivity,” but I think it unfair to single out Americans for an inability to operate in foreign countries.
    When I was in high school I lived in Turkey and it was the German businesspeople who were viewed as the least culturally attuned, by far. I would also bet that you would not disagree with me that the Chinese companies coming over to the United States are, at least so far, doing a generally horrible job of dealing with American cultural and business realities.
    I like your advice, but I would expand it to include all companies doing business outside their home countries.

  • katie

    Yes, part of my practice involves China IP work. Currently most of the IP work involving China is still inbound (i.e., from foreign companies) rather than outbound (from Chinese companies). But I suspect this will change. The Chinese Patent Office (SIPO) revealed recently that in 2005 the total number of Chinese domestic patent applications (including invention, utility model and design patent applications) numbered 383,157, a 37.4% increase compared to that of 2004. Of these, foreign patent applications reached 93,107, representing 24.4% rise while Chinese domestic invention patent applications amounted to 93,485, accounting for 53.9% of the total number and a 42.1% rise compared to 2004.
    As Chinese businesses become up to speed on IP protection, especially for ambitious companies with an eye on the world market such as Huawei, Lenovo, ZTE, etc, it will only be a matter of time for them to catch up in PCT/foreign filings.
    Based on my interactions with Chinese companies and associates, they are particularly keen on learning how to deploy patents strategies to leverage market competitiveness. In fact, I will be in China this September to speak on this topic.

  • http://www.chinalawblog.com China Law Blog

    Katie (twice):
    Where and when will you be speaking in China?
    I like your descriptions on the differences between green tea and Biaju and I tend to concur. I like how in Korea there is the view that at around 40 years old you can claim a doctor’s excuse to get out of the drinking.

  • katie

    This is OT:
    Drinking tea is an important aspect of Chinese culture. It somewhat reflects how relationships are developed in China, i.e. slow and over time. In China, tea is supposed to be drunk while hot (as opposed to ice-tea in the West). Hence, one must be patient, take his time and enjoy the “delicious flavour” from the tea (note: Chinese do not drink tea with milk, sugar or lemon as these ingredients will “destroy the pure flavour”), this is difficult to achieve if one is in a rush to get on with a topic and not want to “waste” time on social niceties.
    Baijiu, on the other hand, represent the Chinese macho mentality. If you are at a banquet, after three drinks, testosterone literally oozes from the drunks and the machismo is palpable. I personally find the Chinese men’s view of Baijiu is somewhat ritualistic – the more you drink, the more you are like “one of us”, presumably there is more trust among the guys when they are drunk, as alcohol takes out the repression and everyone tends to make a fool of themselves.
    If you are a foreigner, it is possible to get out of it. But if you are confident about your alcohol tolerance level and intend to drink with the Chinese, make sure you eat some food before pouring the alcohol down – this is not the “wine and cheese cocktail party”, the alcohol content is quite strong and it will get straight to your head if you are on an empty stomach. My advice would be either do not drink at all, or drink till you are the last man standing.
    Katie

  • katie

    Dan,
    I will be in Shanghai and Beijing during the last two weeks of September.
    Katie

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  • casa

    Great post. This is exactly how a big company like Nike should act in China. Only problem though is that something like half of all “Nikes” in the world are supposedly fakes.

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