China WFOE complianceWhen I was in high school, a friend got a job at a liquor store, and was often asked to work there by himself. Soon enough, word got around and (human) nature took its course, as the store became extremely popular with a certain segment of the school. My friend hadn’t sought or even anticipated this sort of attention; he was 16 years old and just wanted some extra cash. But when the store got cited for multiple infractions, it came as no surprise to anyone. As my friend observes to this day, “What sort of business owner lets a teenager run a liquor store by himself?”

I was reminded of this story when I read the news that Disney had terminated Meng Dekai, International Special Project Director in China, upon discovering that he had signed numerous unauthorized deals for new Disney projects in provincial cities that few people outside China have ever heard of, including Zhengzhou, Hefei, and Baotou.

Meng had been at this since at least 2009, and in addition to signing deals on behalf of Disney, it came out that Meng had also formed a number of companies with names similar to Disney’s Chinese name and registered a number of trademarks that were similar to those registered by Disney.

It’s unclear what Meng’s master plan was. Yes, Disney knockoffs are rampant in China, notwithstanding the Chinese government’s one-year campaign (tied to the opening of Shanghai Disneyland last year) specifically designed to combat counterfeit Disney products. But it’s one thing to sell knockoff Mickey Mouse backpacks at a mall in Nanchang, where you could clear out in a day if you had to. It’s quite another to build and operate a theme park. Even if Meng received massive kickbacks from the local governments, it’s hard to imagine how he expected to get away with this. It’s also hard to understand why government officials of these lesser-known cities bought the snake oil Meng was selling.

When the China practice group at my firm saw this story, we just shook our heads ruefully, because this is the same problem, writ large, that we see all the time when companies go to China. Once companies have established a presence in China (e.g., a WFOE), a foundational question is: how are they actually going to do business in China, and who will have the authority to act on their behalf?

We regularly conduct audits of firms’ China operations, and the disconnect between the parent company and the WFOE can be shocking. We regularly turn up everything from FCPA violations to employees who cannot be terminated because they were engaged without written contracts to company seals that have been missing for years. And pretty much once a month, we hear from an American or a European company that has just learned (usually via an anonymous email) that one of its employees (usually a trusted senior employee) is secretly operating a competing business on the side. Sometimes though there’s no bad intent on behalf of the Chinese employees; it’s just that there’s no clear oversight and they are operating the “Chinese way.” This is a recipe for disaster, even under the best circumstances. And if you’ve got someone untrustworthy holding the reins in China, things can go from bad to worse in a hurry. See also China Compliance: Don’t Rely on Your China Staff and China Compliance: Don’t Rely on your China Staff, Part II.

Many foreign companies are in a quandary because of personnel or geography or both: they want to have one of “their” people managing operations on the ground, but none of “their” people are willing and/or knowledgeable enough to move to China. And so they end up delegating authority to a Chinese employee who is unprepared and/or unwilling to manage the operations in accordance with the parent company’s wishes.

It’s an awkward situation, and made worse by the quirks of Chinese corporate law, which require every WFOE to decide three things:

  1. the identity of the legal representative, a person with the ability and obligation to act on behalf of the WFOE;
  1. the identity of the general manager, a person who is in charge of the WFOE’s day-to-day operations; and
  1. the location of the company seal, a physical artifact that makes a document legally binding on the WFOE.

The most efficient solution is to appoint a single person as the legal representative and general manager, and have that person be resident in China and in possession of the seal. But this solution places a tremendous amount of authority with a single person, and many foreign companies are understandably reluctant to do so unless they have someone in China that they trust implicitly. As a result, the typical solution is that the legal representative is an employee of the parent company who lives outside China but is tasked with overseeing Chinese operations, the general manager is a Chinese national who lives in China, and the seal is held by a trusted third party in China like an accountant. Yes, it’s as inefficient as it sounds, but it’s usually better than the alternatives. Many of these problems have their genesis when the WFOE is formed without any legal advice on how to handle (and mitigate) these three decisions.

I don’t know what sort of contracts Mr. Meng signed on behalf of Disney, but they better hope he didn’t have access to the company seal and wasn’t the legal representative of the Disney entity he was representing. Right now, this story is just bad publicity, but it may end up costing them millions. And (because every good China Law Blog post ends with a moral) it’s also an instructive story for every company operating in China. How much do you really know about what’s going on in your Chinese office?

China trademark registrationFor many years, China has sought to wield the sort of “soft power” that comes naturally to many other developed nations: power not from military or economic might, but from having ideas and cultural exports that are popular in other countries. China has no shortage of ideas or culture, but few people outside China are interested in either, with the notable exception of Chinese food.

Most people outside China can’t name a single Chinese brand. Not one Chinese brand! It’s sad, but perhaps not that surprising. I’ve seen a range of explanations, usually some variation on the following: China doesn’t understand foreign markets; China doesn’t care about foreign markets; China can only copy products, not create them; and China’s authoritarian government stifles creativity. All of these explanations have some element of truth, but aren’t the whole truth. And though China hasn’t broken through on the world stage yet, to many observers it’s only a matter of time.

In fact, it may have already happened. The hottest thing in popular music is the app musical.ly, which allows users to create and share a 15-second video of them lip-syncing to a popular song. As a recent Rolling Stone headline put it, musical.ly has become “too big for pop to ignore,” and it is not only a way for existing pop stars to connect with their fans but also a platform for new stars to emerge. The app has more than 133 million users worldwide, is massively popular in the US (the company claims half of all US teens are users), and is a serious rival to Snapchat, Twitter, and Instagram. And it is 100% Chinese, developed in Shanghai by two Chinese programmers who returned to China after working in California.

Did the founders of musical.ly crack the code, or just get lucky? It’s too early to tell, but thus far the one place where musical.ly has launched and failed to catch on is … wait for it … China. Meanwhile, do the millions of American teens using musical.ly know it’s a Chinese app? Do they even care? My guess is that very few know, and even fewer care. And that’s just the way China should want it. Only when Chinese products are accepted on their own merits can they form the basis for soft power.

Meanwhile, musical.ly waited until September of last year to file for trademark protection in China, which is about two years too late considering that the app was launched in 2014. Luckily for them, no trademark squatters filed in the interim; a bit shocking to me, but perhaps that’s the upside of not being successful in China. I’m not sure if it’s gratifying or discouraging to see Chinese firms make the same mistakes as foreign firms when it comes to trademarks in China, but I’m leaning toward the latter. Especially when the Chinese firms are backed by VC money and represented by multinational law firms. What are they thinking?

China trademark email

Our China lawyers regularly receive inquiries from companies (and other lawyers) asking if an email they have received from China is legit. The email usually goes something like this:

Dear [owner of US trademark]:

According to our trademark research team, the following mark has been published in the Chinese Trademark Gazette on [date]. We note that this mark is identical to a registration owned by your company.

[details of allegedly published mark]

The Chinese Trademark Office has already completed its examination of this mark and the mark is now open to opposition until [deadline]. The deadline is not extendable. If no one files an opposition before the deadline, the mark will proceed to registration.

Please let us know if we can be of assistance in opposing this mark.

[name of Chinese IP firm]

A lot of scams come out of China, including several we write about regularly: the bank account scam, the fraudulent company scam, the fake company scam, and the domain name scam. The first three are “carrots,” luring the mark with a promise of potential riches. The latter is a “stick,” offering assistance with a problem the mark didn’t know existed (and in most cases, doesn’t exist at all). And the emails described above seem to fall into the latter category of scams.

In my experience, however, these trademark emails are oftentimes not scams at all — at least not complete scams anyway. The firm sending the email is usually a real Chinese IP firm, a copycat trademark application really has been filed, and the deadline to oppose really is pending. Though the emails are a ham-handed form of business development they do sometimes provide a valuable service by alerting US trademark owners to an infringing China trademark application.

The problem is that the emails, and subsequent interactions with these firms (if any), rarely provide the proper context. Yes, under Chinese law it is possible to oppose a trademark application. But unless the applicant is your former business partner, your odds succeeding with a trademark challenge are generally not good. It doesn’t matter that the pending application is for a mark identical to your existing U.S. trademark registration. China is a first to file country for trademarks and that means that if you wanted to protect your mark in China, you should have filed an application in China before anyone else had the chance to do so. See Register your China Trademark NOW.

Recent decisions have given a glimmer of hope to owners of famous brands and to owners opposing applications filed by notorious trademark squatters, but those exceptions are limited. For the majority of trademark owners, filing a trademark opposition will not make sense. And that’s the point. If you get one of these emails what you need is not a law firm (real or fake) with just one goal in mind: separating you from your money to pursue a China trademark challenge claim that may or (more likely) may not make sense to pursue. What you need instead is a clearly real China IP lawyer who is looking out for your interests.

This lawyer then can undertake the following analysis to determine whether and how it may make sense for you to challenge the purported China trademark filing of your company or brand name or logo:

  1. Determine whether there really has been such a filing.
  2. If the email you received is not true and there has been no such filing, it may still make sense for you to apply for your own China trademark(s) so as to block such future filings.
  3. If the email you received is true and an application has indeed been filed for a China trademark that matches a name or even a logo used by your company uses, the next step is to determine whether granting the China trademark will negatively impact your business and therefore worth challenging. If you are planning to have your product made in China or to sell your product or services in China or even elsewhere outside your home country, determining whether you should challenge the trademark filing will require serious legal and business analysis. But if your company just provides plumbing services in your hometown, what happens in China likely will have no impact on you and so there is no point in your spending your time and money trying to fight off a trademark filing there.
  4. If the email you received is true and the application described in that email could negatively impact your business, you then need answers to the following questions:
    1. What can you do to try to stop the trademark application from succeeding?
    2. What are your odds of being able to stop the trademark application from succeeding?
    3. What will it cost you to try to stop the trademark application from succeeding.

Before deciding if or how to proceed in China against someone who is seeking to secure a China trademark for “your” name, you should first have thorough answers to the above questions.

Even better, if you do care about what happens to your name in China, file your own China trademark application now. Your costs will be less and your odds will be greater than having to file a China trademark challenge, especially since winning such a challenge only means that you now get to file for your own trademark. This beats waiting for a Chinese IP firm to tell you that you left the barn door open.

China counterfeit lawyersThe New York Times had a fascinating piece recently on the problems small business are having with knockoffs on Chinese e-commerce sites run by Alibaba. The story presented three case studies of companies making custom products: Vintage Industrial, a 25-person furniture maker based in Phoenix, All Earz Jewelry, a 1-person online jewelry shop based in Atlanta, and Reignland Concept, a 2-person online clothing store based in Los Angeles.

These companies all discovered multiple Alibaba listings for products that had been reverse engineered based on photographs on the companies’ own websites. Finding the counterfeit listings was the easy part, not least because the infringing listings use photos from the companies’ own websites. Removing those listings, and keeping new ones from cropping back up, has proven to be difficult and time-consuming, so much so that the small business owners are at their wits’ end.

I don’t blame them. Alibaba has a platform where IP owners can request removal of infringing listings, but it’s far from user-friendly. Our firm has never failed to remove an infringing listing, but we’ve been doing it for years and we have a team of Chinese-speaking lawyers and paralegals who understand China’s laws on intellectual property.

The best strategy, of course, would be to design a product that cannot be reverse engineered from a photo. But only a few products can be designed and marketed this way. For everyone else, protecting against infringement starts with registering your IP in China, and in particular any relevant trademarks, design patents, and copyrights. Without China registered IP, asking Alibaba to take down infringing listings will usually be an exercise in frustration.

Trademarks are the easiest to understand and the most important, because as we’ve discussed ad nauseam, China is a first to file country and once your brand gains notice in China, if you haven’t already filed for it someone else will. None of the products in the Times article were even remotely famous, which just goes to show how low the bar is in terms of gaining notice in China. A brand does not need to be famous to be profitable. And here’s the thing: a canny Alibaba seller will not only use the name of the brand but also register it himself, and thereby prevent not only the “true” brand owner but also other infringers from using that brand in China.

Are you listening, startups? I ask this because it is the smaller companies that so often have the problems described in the New York Times article, not because they are small, but because they did not do the registrations necessary to help prevent such problems or to be in a position to solve them if and when they occur. Our China IP team does a lot of work for big companies as well but much of that work is like shooting fish in a barrel. We send Alibaba the proof of our client having registered its trademark or its copyright in China and the offending product comes down.

Design patents protect product designs or aesthetic appearance. In the Times article, both the furniture and jewelry could maybe be protected by a design patent. But a design patent has an absolute novelty requirement: if a product isn’t new, it isn’t eligible for patent protection. And patent protection is country-by-country, so even if the products were protected by patents in the U.S. they wouldn’t be protected in China unless the owner had also filed in China. For companies that can easily tweak their product, this problem can be easily sidestepped; make a new version and it’s eligible for a design patent.

Copyrights protect original creative works in a fixed medium. In the Times piece, the furniture and jewelry could probably also be protected by copyright. China recognizes the validity of copyrights from any WTO signatory country, but if you are serious about taking down infringing listings on Alibaba, you’ll want to register your copyright in China. It just makes the process more smoothly and it increases your chances in making the process go at all.

Unfortunately for Reignland Concept, clothing designs can be difficult to protect under IP laws. Sometimes a clothing pattern can be protected by a copyright and/or trademark (e.g., the Burberry plaid) but that is more the exception than the rule. So although Reignland Concept may legitimately feel that its clothing is being knocked off by an Alibaba, that may just be the way fashion works.

However, Reignland could almost certainly use the protection of copyright infringement in one way: when the infringing listings use the exact photographs from Reignland’s website. The clothing may not be protected by copyright, but the photographs of the clothing are. This takedown approach works when Alibaba sellers are too lazy to take their own photographs, which is shockingly often.

Small business owners should take the Times article as a shot across the bow: no one is too small to need a China IP strategy.

China Trademarks
by Meaghan O’Malley. http://bit.ly/2nE4kcw

The Boston-based hamburger chain Wahlburgers, founded by Hollywood star Mark Wahlberg and his brothers, recently announced plans to open three restaurants in China, with an ambitious goal of opening up to 100 restaurants in China over the next ten years.

The project was announced as a joint venture between Wahlburgers and the Shanghai-based Cachet Hospitality Group. I have no opinion on the deal Wahlburgers struck (aside from a general lack of enthusiasm for joint ventures), but I do have an opinion about their trademark protection: they don’t have enough.

According to the Chinese Trademark Office website, the only trademark registration for “Wahlburgers” is in Class 43 for restaurants (餐馆). Yes, covering restaurant services is essential, but it’s really the bare minimum, and almost certainly won’t provide as much protection as Wahlburgers would want.

To understand why, it’s important to realize how the Chinese trademark system works. With few exceptions, a trademark registration for goods or services in a particular subclass only provides protection for that particular subclass. That’s a double-edged sword. It means that you don’t have to worry about your trademark being rejected because someone else has a confusingly similar trademark in another class (or even another subclass within the same class). But it also means that your trademark registration won’t prevent third parties from registering your exact trademark in other classes.

Here, Wahlburgers should have filed a trademark application to cover not only restaurants but also food. Their trademark registration prevents third parties from operating a restaurant called Wahlburgers, but has zero effect on anyone calling their hamburgers “Wahlburgers.” Moreover, anyone else could register the trademark “Wahlburgers” to cover hamburgers and other food, and then use the tagline “Home of the Wahlburgers®” on their menu and in their advertising. I’m sure that wouldn’t sit well with the Wahlbergs or with their Chinese partners.

It’s possible Wahlburgers was under an actual or imputed contractual constraint, as the US registration for “Wahlburgers” had already been licensed from Tom Wahl’s, a Rochester, NY-based hamburger chain whose website proudly proclaims it is “Home of the Wahlburger®.” But any dispute about who had the right to file trademark applications in China should have been sorted out quietly before holding a press conference to announce that Wahlburgers would be opening branches in Shanghai, Hangzhou, and Wuhan. If Chinese trademark squatters haven’t already filed applications for Wahlburgers to cover hamburgers and other food, they will soon.

It’s 2017. American companies going to China need to get their trademark act together. When you’re filing for trademarks in China, don’t think that the same rules apply as in the United States. Operate within the system as it actually is, not as you think it ought to be.

China entertainment lawyesSeveral stories came out this past week reporting on the recent failure of Chinese investments in Hollywood. Wanda’s highly publicized purchase of Dick Clark Productions, long rumored to be on the rocks, has fallen through for good, because Wanda paid only $25 million out of the $1 billion purchase price. Paramount’s deal with Huahua Media and Shanghai Film Group is foundering because Paramount hasn’t seen a red cent of the promised $1 billion. And more than a few people doubt whether Recon Holding’s $100 million deal to purchase 51% of Millenium Pictures will close.

Most – okay, all – of the lawyers who deal with China on a regular basis saw this coming from a mile away. Some context:

  1. Hollywood deals fall apart all the time. It’s the nature of the business, and hardly unique to Chinese-invested projects. But those deals have been getting more attention lately because so much of the money coming in is from China.
  1. Chinese investors have developed a not-completely-undeserved reputation as “tourist investors,” particularly when it comes to Hollywood: arriving with great fanfare, taking meetings with players across town, kicking the tires of every studio and production company that may be interested in Chinese investment (which is to say, every studio and production company in Hollywood), suggesting that a deal might be imminent … and then going back to China without agreeing to anything. See China Business Deals: What China Business Deal and China MOU. Like I Really Care.
  1. Because the Chinese yuan is a regulated currency, it’s always been difficult to get money out of China. We’ve been writing about this for a while, and in fact almost exactly one year ago I wrote a post in which I said, “Long story short, we can expect to see more US-China film deals fall through for lack of funding, and it won’t necessarily be the fault of the Chinese company.” Then my colleague Mathew Alderson wrote a three-part series of blog posts during the summer, followed by Dan Harris’ own five-part series in December. Chinese film companies are simply not free to do whatever they want with their own money; the government gets to decide.
  1. Chinese regulators are clamping down on any foreign investment deals, both because of the hundreds of billions of dollars leaving the country as capital flight, and because as a policy matter China wants to discourage “inefficient, uncreative Chinese companies that are simply achieving growth through acquisition.” Add to that increased scrutiny from U.S. politicians, and it’s not exactly Springtime for Renminbi.

Hollywood can bemoan the spigot being turned off, but there wasn’t nearly as much money coming in as was previously thought. It’s still not impossible to get money out of China, but you should say goodbye to buying sprees by Chinese companies snapping up Hollywood assets for no other reason than to convert their currency (cf: the scrapped sale of Voltage Pictures to Chinese metals company Anhui Xinke New Materials).

In light of the new reality, here are some tips on how everyone from studios to production companies to producers should proceed:

  1. Require the Chinese counterparty to pay a nontrivial amount of money upfront, and don’t begin performance until you receive it. If your contract doesn’t pass muster with Chinese regulators, you need to know as soon as possible. Your not receiving the upfront money is a really good sign that the deal itself will never work.
  1. If your deal is with a Chinese company with no presence in the U.S., don’t negotiate or draft it like a typical Hollywood deal. We review entertainment agreements all the time that are in English, governed by California law, and enforceable via arbitration or litigation in Los Angeles – and therefore virtually unenforceable against the Chinese party. You need an agreement written in Chinese, governed by Chinese law, and enforceable in Chinese courts. Do not fall into the trap of believing that because your counterpart Chinese company appears to have a tiny U.S. affiliate company that setting up your dispute for U.S. court resolution will work, because it almost certainly will not.
  1. Instead of fixating on money that your Chinese partner can transfer to the US to finance your slate of American films, start thinking about money that your Chinese partner can spend in China. Perhaps that means a shift toward co-productions in China. It might also mean more deals like the one for Resident Evil: The Final Chapter – ostensibly a buyout, but with profit participation for the production company.
  1. Consider forming a WFOE in China and having it becoming a profit center. China generally has no problem with WFOEs remitting money to their parent companies once all of the WFOE’s taxes have been paid.

It would be a mistake to assume this is just a temporary hiccup and that Chinese companies will be back investing huge amounts in Hollywood in a few months. China still has a ton of money, but for the foreseeable future, the money is staying in China.

China NNN Agreement and China Product Development Agreement
Eight China counterfeiting myths go up in flames

1. There’s no way to protect my brand in China against counterfeits, so I may as well not try. This is both false and self-defeating. China offers a number of ways to protect your IP, and is getting better every year. The first and most important step is to file a trademark application in China as soon as possible to cover your goods and/or services. This will provide you with a first line of defense against counterfeiters and trademark squatters. Once your trademark is registered you will be able to submit takedown requests to Chinese e-commerce sites, request Chinese customs to seize goods, and bring lawsuits for trademark infringement. And, at the same time as you file your trademark application, you can begin to craft a comprehensive IP protection strategy that incorporates copyright and patent registrations.

2. My Chinese trademark registration for my blockbuster movie will allow me to take action against people using “my” trademark on other goods, like clothing or breakfast cereal or toilets. Trademark protection in China is limited by the classes and subclasses of goods and services covered by your registration. If you want protection for other products, you need to register in the appropriate classes AND subclasses to cover those products. For some companies this means registering in all 45 classes. For other companies it means figuring out which products or services you really, really don’t want someone else to be selling under your name. And for most everyone, it is critical to file directly in China and not in Madrid.

3. You can remove counterfeit goods from Chinese e-commerce websites with a US trademark. Alibaba has been amenable to removing listings from Alibaba and Aliexpress, its foreign-facing sites, with just a US or a European trademark registration. But to remove listings from domestic Chinese e-commerce sites like Taobao and 1688.com you typically must have a Chinese trademark registration. Many other e-commerce or social networking sites require a Chinese trademark registration and every site will take action more quickly with one. When counterfeit goods of your product are being sold, time is literally money.

4. China is the biggest source of counterfeit goods in the world. Totally true. According to the 2016 annual report from the U.S. Customs and Border Protection (CBP) and U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI), more than 80% of all seized merchandise that infringed intellectual property rights came from either China or Hong Kong.

5. Chinese customs will seize counterfeit goods even if you only have a US trademark. Trademarks are national in scope, and with few exceptions a US trademark has no relevance in China. It certainly means nothing to Chinese customs. Imagine trying to convince U.S. Customs and Border Patrol to seize goods based on a Chinese trademark registration. It would never happen. If you want to be able to have Chinese customs seize infringing goods you need to have a Chinese trademark registration and you need to have registered that trademark again with Chinese customs.

6. The only way to have Chinese-made counterfeit goods seized is when they come in to the United States. U.S. Customs does actively inspect incoming shipments, but Chinese customs also actively inspects outgoing shipments. If you can provide the who, when, and where details about an upcoming shipment of infringing merchandise, you can have that merchandise seized by China customs.

7. My brand is famous outside China so that means the Chinese government will take action against counterfeit goods. No. Just no. The only way to be sure you have trademark rights in China is to register your trademark in China.

8. If I have my products manufactured in China, there’s nothing I can do to stop my manufacturer from selling them out the back door. Wrong. There is a lot you can contractually do to prevent your own manufacturer(s) from selling your own products as its products, starting with a China-centric NNN Agreement and/or NNN provisions in your manufacturing agreement. Using a China Product Development Agreement also often makes sense when you are in the early stages with your China manufacturer.

China copyright lawsFormally, China’s copyright laws have been in line with those of the United States and other developed countries since China became a signatory to the Berne Convention in 1992 and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) in 2001. But it’s hardly news that you can get a pirated copy of pretty much any movie, CD, or book in China with only a modicum of effort. Years ago you could find bootleg DVDs outside nearly every supermarket and mall in the country. Nowadays it’s more difficult to find such sellers, but not because of China’s efforts to curtail counterfeit goods; it’s because the market has moved to the Internet.

But as China’s homegrown media companies like Baidu, Alibaba, and Tencent continue to pay serious money for the rights to stream tv shows, movies, and other copyrighted material, more lawsuits are being filed in Chinese courts seeking to enforce China’s copyright law, and more official efforts are underway to reduce the amount of pirated material available in China. A (slightly) more subtle form of copyright infringement is still thriving, however: creative works that coopt key elements from copyrighted material, from storylines to characters to music cues and beyond. Television shows in China will make a few slight changes to a copyrighted format and then insist it is an entirely new creation, as with The Voice of China last year. It’s not always clearly a copyright dodge, either; the popular Chinese singing competition I Am a Singer (我是歌手) is an official licensee of a copyrighted  Korean format – or was, until the title and format were altered recently in the midst of China’s unofficial restrictions on Korean content. Presumably it is no longer considered a Korean-content show, which as a side benefit probably means the show cannot be held liable for copyright infringement.

Chinese manufacturers have long excelled at taking the key elements of an existing product and incorporating them into a “new” product. So it’s no surprise that the same thing happens in entertainment. It’s been happening for decades with the most famous story in China, the 16th century novel “Journey to the West,” which has been adapted into a movie or tv series dozens of times. We complain in America about the overwhelming number of sequels and superhero movies, but at least most of them have a different plot. This would be like having one of our greatest stories – you know, like Point Break – remade multiple times in different formats every year for forty years.

It’s important to understand, however, that Chinese law prohibits the unauthorized use of a copyrighted work, or elements thereof, unless such use falls under one of the twelve specific exceptions listed in Article 22 of China’s Copyright Law:

(1) personal use;

(2) “appropriate” quotation in order to introduce, comment on, or explain;

(3) media use to report current events;

(4) republishing or rebroadcasting of another media entity’s story;

(5) publishing or broadcasting a public speech;

(6) translation or reproduction of a scientific work solely for use in teaching or research;

(7) use by a government entity “to a justifiable extent for the purpose of fulfilling its official duties”;

(8) reproduction of a work in its collections by a library, museum, etc. for display or preservation purposes;

(9) a free live performance;

(10) copying, drawing, photographing or video-recording a public artwork;

(11) translation of a Chinese citizen’s work from Mandarin into a Chinese minority language, for distribution in China; and

(12) transliteration of a published work into braille for publication.

The above exceptions are similar to the American concept of “fair use,” a doctrine that allows for unlicensed use of copyrighted material under certain conditions.

Although not always interpreted consistently, China’s fair use exceptions are quite limited. When you’re watching a Chinese reality show and hear a dozen music cues lifted from American pop songs, that’s not fair use. When you’re watching a Chinese television show that seems exactly like Mad About You, that’s not fair use either. That leaves copyright infringement (the former) and legal licensing of a copyrighted format (the latter).

As the value of copyrighted material in China increases, it’s increasingly important to take a broader view of IP protection. Licensing TV shows to China is a big and growing business. Anti-piracy efforts are still important, but it’s even more important to have a properly drafted license agreement. And to take legal action when you find another media company using your copyrighted material. If you don’t protect your own IP, who will?

China IP LawyersA few days ago the invaluable China Film Insider ran a piece about how American cable powerhouse Home Box Office is trying to stop the Wuxi, China-based HBO Studio Restaurant & Bar from using the HBO name without permission. But this movie-themed restaurant has every right to its name. As of 2013, it has owned a trademark registration for “HBO” in Class 43 for restaurant services.

HBO is perhaps emboldened by the recent, well-publicized victories of Donald Trump and Michael Jordan, who triumphed after years attempting to wrest “their” trademarks away from trademark squatters. Or by the judicial interpretation released by the Supreme People’s Court last month describing how China was going to take a stricter stance against trademark squatters.

But even if the Trump and Jordan decisions are harbingers of a new trend in protecting well-known marks, brand owners like HBO need to understand the limits of such rulings. Michael Jordan and Donald Trump only won partial victories. The trademark squatters’ rights were only invalidated with respect to those products or services for which Jordan and Trump were already famous. For Jordan: sporting goods. For Trump: construction services. Notably, the decision by the Trademark Review and Adjudication Board (TRAB) that paved the way for Trump to register “TRUMP” for construction services left intact the trademark squatter’s right to use “TRUMP” for mining and drilling services. Because, presumably, Trump was unable to show that “TRUMP” was well-known for those services.

In the HBO Studio Restaurant matter, Home Box Office faces two big problems. First of all, HBO is not well-known in China in ANY context. Until 2014, when HBO signed a streaming deal with Tencent, the only place you could legally watch HBO in China was in high-end hotels that catered to foreigners. And HBO’s brand awareness in China hasn’t exactly taken off since then. A few months ago, Chinese actor Cao Jun, the star of the HBO Asia original production “Master of the Drunken Fist: Beggar So,” admitted to knowing very little about HBO. Frankly, HBO would have difficulty invalidating ANY trademark on the basis of being a well-known mark in China. But in this case, they have to climb an even steeper hill. They need to prove that the “HBO” name is well-known with respect to restaurant services. And that is almost certainly not going to happen. In the alternative, HBO could argue that the Wuxi restaurant’s trademark was filed in bad faith, but China has been unwilling to invalidate trademarks on this basis except in the case of marks filed by serial trademark squatters and former business partners.

Don’t get me wrong: this restaurant has shamelessly coopted the HBO name in their entertainment-themed Western restaurant, and the restaurant owner’s complaints on its Weibo account about being bullied for no reason by a big American company have the air of protesting too much. But HBO’s strategy is almost certain to fail, because the Wuxi restaurant has superior rights under Chinese trademark law.

It appears HBO has already been down this road before; they had filed an application on March 28, 2014 to cover Class 43 services (including restaurant services), but were rejected for everything but renting cooking equipment, renting drinking fountains, and renting non-theater, non-tv studios. The basis for the rejection is not publicly available, but it is almost certainly because the Wuxi restaurant had filed its trademark application first. I note that on June 6, 2016, HBO filed a new application for Class 43 services, apparently hoping for a different outcome on their second try. I wish them well, but am going to assume that they have a Plan B.

HBO’s better strategy would have been to quietly approach this restaurant and offer to buy the trademark. Maybe HBO already tried that and failed.

I took a quick look and there are dozens of registrations for “HBO” in China, covering all manner of goods and services. And most of them aren’t owned by Home Box Office. That’s a lot of invalidations and appeals to file. Good news for China IP lawyers, but not good news for HBO. Although HBO can take heart from one thing: HBO Studio Restaurant & Bar has a high rating on Dianping, the Chinese version of Yelp.

To reiterate: the recent trend in Chinese trademark jurisprudence to protect well-known marks is heartening, but only extends to those goods or services for which brands are already well-known. If you want to protect your mark for other goods and services, you need to file in a broader range of classes before anyone else.

WeChat and China WFOEAnyone who pays attention to China knows WeChat is the biggest name in Chinese social media. But the extent of WeChat’s dominance, and the way it has integrated itself into nearly every aspect of daily life in China, has significant implications for foreign companies doing business in China.

More than 95% of Internet users in China access the Internet via mobile devices at least part of the time. And of those mobile users, about 80% use WeChat. That is a stunning number, especially when you consider that WeChat is not just for sending messages and sharing news, pictures, and video; it also offers online shopping, mobile payments for everything from groceries to Lunar New Year “red envelopes” (gifts of cash), and Uber-like vehicle for hire services. More than 300,000 retail stores have already integrated WeChat Payment into their point-of-sale systems.

Given the ubiquity of WeChat, numerous companies have opened up official WeChat accounts and regularly use them to share information about products and promotions. Companies do exactly the same thing on Facebook in other countries, but because Chinese consumers can do so much more on WeChat, dispensing information via an official WeChat account is just the bare minimum. Chinese consumers have come to expect more.

A recent story about Starbucks becoming the first foreign company to become integrated into WeChat’s Wallet feature highlights the extent to which companies can benefit from WeChat. WeChat’s Wallet feature allows people to purchase Starbucks items and give them to their friends, all within WeChat. Given the love of social gifting in China – it’s how streaming celebrities earn money – I would expect this feature will increase Starbucks sales and it’s a great example of a foreign company adjusting its business strategy to take advantage of the idiosyncratic Chinese economy.

An official WeChat account can be opened by any company. But if you want Chinese consumers to be able to access that account – which is really the main reason to open an official WeChat account – the account must be formed by a legally formed Chinese entity.

That brings us to an old China Law Blog chestnut: do you really need to form a WFOE in China to sell your products? Of course not. There are a number of perfectly good reasons why companies might want to enter the Chinese market without forming a WFOE. But the more WeChat matters, and the more you want to control your company’s message to Chinese consumers, the more important it will be to have a China WFOE (or even a Joint Venture) to take advantage of all WeChat has to offer.