China copyright law

Okay, maybe not spectacular. But definitely real.

An article in yesterday’s Wall Street Journal, How a Plague on the Movie and Music Industries Became Their Chief Protector in China: Chinese search giant Baidu’s transition to creator and buyer of content has changed its priorities, sums up the change that is happening with China IP protection and enforcement:

Chinese search giant Baidu Inc. BIDU 3.47% was once a scourge of Hollywood and the U.S. music industry, which accused it of being a pipeline for pirated content.

Today when Baidu is involved in a copyright infringement case, chances are it is the one casting the blame.

Baidu’s about-face in the copyright fight reflects its emergence as a creator and buyer of content, a transition that continued recently when the company struck a deal to license original shows from Netflix Inc. NFLX 0.85% Other Chinese media companies are undergoing similar transformations, upending how entertainment is protected in the world’s second-largest economy, legal analysts say.

This article quotes Mathew Alderson, our lead China media and entertainment lawyer on how intellectual property protection in China is moving from something that was formerly done to make foreign companies and governments happy to something China now sees as economically important.

“One of the old rationales for copyright protection…is that it provides an incentive to invest. We are seeing that in play here in China,” said Mathew Alderson, a partner and entertainment lawyer at Harris Bricken in Beijing. “Copyright is no longer something imposed on China by the U.S. It is now a tool in Chinese hands.”

The Wall Street Journal notes that in the last ten years China’s courts have seen a 15-fold increase in copyright-related lawsuits:

One way to measure the change is by the escalating flood of lawsuits aimed at protecting intellectual property.

Nearly 87,000 copyright-related cases were filed in China last year, according to data compiled by China’s Supreme People’s Court, a 15-fold increase from 2006. These cases include claims of illegal distribution, or unauthorized reproduction, of written content, videogames, movies and TV shows.

And here’s the point that stems from this massive increase in copyright lawsuits in China: the companies that are bringing these lawsuits are not doing so for their health. They are spending time and money on these lawsuits because they believe that the economic rewards from doing so will be greater than their costs. They have rationally decided that China’s enforcement of its copyright laws warrants this conclusion.

All this is leading to big changes in how Hollywood and Western TV studios are handling their content these days, with most of them choosing to license their content to Chinese companies (like Baidu and Tencent), rather than work at getting that content into China on their own:

For Hollywood studios, striking deals with Chinese partners is much easier than trying to defend their copyrighted content on their own, said Eric Priest, a University of Oregon School of Law professor who researches copyrights and the Chinese entertainment industry.

“If you’re a content producer with an office in Hollywood, you aren’t going to be familiar with where Chinese netizens are getting unlicensed content,” Mr. Priest said. “You won’t be familiar with the shadowy set-top manufacturers who are installing apps that people buy that allow direct access to unlicensed content. You’re going to be much better off with a partner in China that can do that.”

 

Also just last week, a Beijing court awarded Tencent more than US $1 million in damages in a copyright infringement case. The defendant in the case was Baofeng Technology, a high-profile streaming site and manufacturer of VR hardware. Baofeng has been found liable for copyright infringement numerous times previously (including for unauthorized distribution of films, television, and the most recent World Cup), but that’s surely in part because it’s so visible. After its 2015 IPO on the Shenzhen exchange, Baofeng soared to a valuation of more than US$8 billion, and although its current valuation is closer to US$1 billion, it is a real company, with real assets.

In the case decided last week, Baofeng was found to have streamed the first 6 episodes of season 3 of The Voice of China without permission from Tencent, which had licensed exclusive streaming rights. The Voice of China (or whatever name it’s going by these days) is one of the most popular programs in China and it generates significant revenue for all of the companies involved with it. Tencent wanted to protect its investment.

Tencent’s victory in the litigation regarding The Voice of China is of a piece with other recent lawsuits regarding enforcement of motion picture copyrights in China, including Disney’s victory over a film that ripped off the anthropomorphic vehicles from Cars, decisions holding private cinema operators liable for exhibiting content without permission, and the recent controversy and lawsuit regarding Wolf Warriors 2. Copyright owners in China no longer have to just grin and bear it.

I hate to say we told you so on this, but we told you so on this Way back in early 2013, in China Intellectual Property Law. A Radio Interview For World Intellectual Property Rights Day, Dan Harris of my firm predicted that this day would come and explained why:

China is a lot better compared to ten years ago. I think very little of that has to do with the WTO. I think that China is better because China is getting wealthier, and because Chinese companies are starting to care more about IP. I am of the view that countries start doing well with IP when its own powerful companies really start caring about it. And I’ve seen this progression happen in Japan, I’ve seen this progression happen in Korea, I’ve read about how this progression happened in the United States. The reality is nobody is going to be able to force China to improve its IP from the outside, but big companies within China like Haier, like Huawei, like Lenovo — companies that care about their own IP — are going to be able to force China to improve. That’s what’s happening. And as more big companies come to the fore in China, China’s IP is going to continue to improve. And there’s not much that can be done to rush it. In fact, if anything China’s IP is improving nicely. Meaning, it’s improving at least as fast as Korea’s did, at least as fast as Japan’s did, and probably as fast as the US’s did, but the US was a long time ago.

In other words, China — like pretty much most countries, is a lot more likely to do what it perceives to be in its own self interest than to do something just because other countries are telling it that it should/must.

Granted, the legal principles in these cases are straightforward and from what I’ve seen, the facts patterns leave little room for interpretation. When the defendants explain why they weren’t infringing the copyright, they tend to sound like Vanilla Ice explaining why “Ice Ice Baby” wasn’t a blatant copy of “Under Pressure.” (I can’t wait to see who will be the Chinese Robin Thicke and state that they couldn’t possibly be liable for copyright infringement because they were drunk on baijiu throughout production.)

The point is not that Chinese courts are establishing new rights, but that they are enforcing the rights that already exist for copyright owners – and doing so in a meaningful way. Both Chinese and foreign copyright owners are turning to Chinese courts to enforce their rights, and are prevailing. At least with the easy cases.

In future posts, I will discuss what you can and should do to protect and enforce your copyrights in China.

China copyrights works for hireOver the past several years, an increasing amount of creative work has been outsourced to China: everything from special effects for movies to programming for video games to architectural designs for transit-oriented developments. These creative works are protected by copyright, but not always in a way companies expect. And because so much work in China occurs without a legally enforceable contract, once companies realize their IP portfolio is not nearly as robust as they thought, it’s often too late to do anything about it.

As a general rule, the creator of an original work (e.g., a song, movie, or video game) owns the copyright in that work. This is true in the United States and in China and in most every other country in the world. The main exception to the general rule is for “works for hire,” which are works commissioned and paid for by a third party. But this is not a clear-cut exception: it depends on the facts, and it depends on which country you’re in.

In the United States, a company will own the copyright to a “work for hire” by an employee if the work was made within the scope of that employee’s employment. A company will own the copyright to a “work for hire” by an independent contractor if the work was specially ordered or commissioned for use via a signed agreement that specifically states that the work is a work for hire and such work falls into one of nine statutorily defined categories (including motion pictures, translations, tests, and instructional texts). Many commissioned works (e.g., photography, software, and product design) do not fall into one of the statutory categories, and for those the company will need to have a signed contract that explicitly assigns the copyright. Even in the absence of a signed agreement, the company can argue that it has an implied license, but that’s not a great position to be in.

In China, the presumptions are somewhat different. China’s Copyright Law states that an employee will own the copyright to anything they create during the course of employment, except for engineering designs, product designs, maps, and computer software, and other works created mainly with the employer’s resources. For all other works, the employer essentially has a two-year exclusive license to use the copyrighted material, and thereafter a non-exclusive license. If an employer (a WFOE, say) wants to impose a different requirement on its employees, it needs specific language in a signed contract with the employee that assigns all rights in any “work for hire” to the employer. That contract should be in Chinese and governed by Chinese law, and it should be signed at the beginning of employment.

For “independent contractors” (whether individuals or entities), the contractor will own the copyright unless there is a specific agreement between the parties in which the contractor agrees to assign the copyright to the commissioning entity. And yes, this contract ought to be in Chinese and governed by Chinese law also.

This all sounds reasonably straightforward but a vast number of entities – including huge multinationals – still operate in China without proper agreements with their employees, let alone their “independent contractors.” These companies are essentially operating on the honor system, and sooner or later they’re going to pay by losing valuable rights.

China licensing agreementChinese companies are seeking out technology wherever and however they can find it and our China lawyers have been writing a slew of China technology licensing agreements of late. Sometimes these deals come to us as China licensing deals, but other times, they come into our law firm as putative joint ventures, but after our China lawyers explain the difficulties and the costs involved in doing a joint venture our clients seek to restructure their relationship with their Chinese counter-party into a licensing arrangement.

We are big fans of China licensing deals because we have seen them be a financial stimulant for so many companies, including companies with admittedly outdated or “second tier” technology. China licensing deals can be win-win transactions because the Chinese companies and Chinese citizens get perfectly fine technologies (I presume) at a good price and the Western companies get a revenue source from a formerly moribund or nearly moribund technology.

The licensing deals our lawyers have been handling in the last year or so have mostly involved computer or industrial or medical technologies where the Chinese company wants to use the licensed technology to jump-start its own technology development. These Chinese companies initially plan to license the technology from our American or European clients as stepping-stone to building their own cheaper products in China and then later using that technology and the funds they receive from new product sales to further develop and refine (and perhaps even localize) the technology and their own products to compete better with Western companies on the high end. Sometimes though the deals are with a Chinese company that wants to put the technology to immediate use to improve on existing products they sell in China.

The below is a list of initial questions I pulled from an email (modified to eliminate anything that could possibly serve as an identifier to anyone) from one of our China IP lawyers to a client based on the licensing term sheet to which the client and the potential Chinese company licensee had signed off. The email posed some initial questions, the answers to which were necessary to allow this lawyer to being drafting the licensing agreement.

1. Territory:

a. For “China,” does this include Taiwan? Hong Kong?  Macao? These three jurisdictions all have an independent patent/trademark system. We do not use the term “China” in our agreements since it is not clear. We use the term PRC to refer only to Mainland China. Given the PRC’s aspirations, even that term is not perfectly clear. To which of these countries were you referring?

b. The term “Southeast Asia” has no precise meaning. Please identify the specific countries intended to be included. In particular, what is the status of Singapore, Indonesia, Malaysia, and The Philippines?

2. Note with respect to Territory. There are a number of separate issues:

a. Place of manufacture.

b. Place where patents/trademarks must be maintained.

c. Place where sales are permitted.

The three are quite distinct and it will be important we be clear on all three. It seems to me you are proposing the following:

a. Territory of manufacture is the PRC.

b. Territory of patents is PRC, Republic of Korea, Hong Kong and Japan.

c. Territory of sales is PRC, Republic of Korea, Japan, Taiwan, Hong Kong, Macao, Viet Nam, Thailand, Cambodia, Laos, Malaysia, Indonesia, Singapore and The Philippines?

Please advise on whether the above is correct? If yes, this will require some complex drafting. But it is doable.

3. Your statement of the license grant is a typical U.S. grant, which includes the right to sublicense. We though generally advise against giving a Chinese licensee the ability to sublicense. What is you position on this?

4. For a manufacturing license, we prefer to see our clients limit the Chinese side to manufacturing only in China at a manufacturing facility you the licensor have approved in advance. Do you agree with this?

5. This agreement is for two products. How do you want to deal with the trademarks and logos for both of these products? Will the patent license also include the associated trademarks and logos? What is the current status of registration of those marks in the applicable territories? Your controlling the trademark is a powerful way for you to control the right to manufacture and sell the products and if you have not registered your trademarks in the PRC and in the other countries in which they will be sold by your licensee, you should consider such registrations in connection with this project. Let’s discuss this.

7. In your Performance Metrics section, you raise the important issue of the obligation of [Chinese company] to pursue approvals in the appropriate territories and to engage in selling the two products in those territories. Note, however, that this is extremely complex. To list out just some of the issues:

a. What is the obligation of [Chinese company] to apply for and receive approval with respect to each of the countries in which you will be granting it the licenses? What happens if [Chinese company] receives approval in the PRC, but does not even try to secure approval in the other territories. What happens if [Chinese company] receives approval for Korea but not for the PRC? How are you intending for this to all work?

b. Is the stated sales goal just for the PRC or for the entire sales territory? Have you considered separate sales goals for each country?

c. What is the penalty to [Chinese company] if it does not achieve the performance metric. For example, what if they don’t even try for Korea? We could draft it so that you can either terminate the entire license or simply remove Korea from the territory. If the sales goal is cumulative, then you would terminate the entire license. But if the sales goal is by country, then you would remove the country from the license.

d. The same applies to your company. I doubt you mean that you must pursue patents in all of the countries listed. Am I right about this? Either way, we must be clear about this. We could perhaps clarify all this by providing for three territories:

i. Manufacturing territory: PRC.

ii. Patent territory: PRC, Republic of Korea, Hong Kong and Japan.

iii. Sales territory: PRC, Republic of Korea, Japan, Taiwan, Hong Kong, Macao, Viet Nam, Thailand, Cambodia, Laos, Malaysia, India, Indonesia, Singapore and The Philippines.

That said, we need to keep these various territories clearly demarcated.

8. In the performance metrics, you properly make clear that actively pursuing approval for sale is required for the license and you provide a hard deadline for one product. But since there are two products and as many as 15 different countries, this could get impossibly complex. We will need to provide a manageable way to keep track of two separate issues: the approvals to sell and the actual sales, for each product and for each country. There are many ways to do this. The simple way is to set an overall gross sales goal, without any specification of country of sales. If the sales goal is met, that’s the end of it. Then you can provide that if no approval is obtained for a particular region by a particular time for a particular product, you have the right to remove that country from the sales territory for that product. It seems this approach will work best but I would like to hear your thoughts on this.

9. Buy Back Right. It seems the buy back right for manufacture should only apply if [Chinese company] meets all of its obligations under the license. Do you agree?

Please consider the above and provide me with your comments and questions.

 

For more on what goes into a China licensing contract, check out:

China Licensing Agreements: The Extreme Basics.

China Licensing Agreements: Giving Your Technology a New and Profitable Life

China Difficulties, Netflix, and Why We Love Licensing

Nine Tips for China Licensing

China IP lawyerClients often ask us which of their entities should own their IP (patents, trademarks and copyrights) in China. The basic answer is usually simple: whichever entity will be using the IP in China.

There are some perfectly legitimate reasons for wanting to separate the ownership and exploitation of IP rights – reasons related to tax, liability, or corporate structure. But in the vast majority of situations, the only time IP ownership matters in China is when you are trying to enforce your IP rights. Chinese lawyers are expert at creating delay, and they know exactly how to exploit evidentiary gaps. And if you are attempting to bring an enforcement action in China but the plaintiff is not the registered owner of the IP, expect your dispute to take much longer than usual.

The Chinese lawyer on the other side will likely argue that someone who is not the registered owner of the IP cannot bring an action to enforce the IP rights and the mere fact the companies are under common control won’t be sufficient. A properly drafted license agreement might be sufficient – so long as the agreement is written in Chinese, registered with the appropriate authorities in China, enforceable under Chinese law, notarized, and authenticated by the Chinese Embassy, and so long as you do not run into any use issues. See China Trademarks: When (and How) to Prove Use of a Mark in Commerce. You can probably guess how often all of these things are done and done right by American and European companies. Most of the IP license agreements we are asked to review – no matter whether the company that comes to us is a two-person startup or a Fortune 100 company – are in English and governed by the laws of whatever country the plaintiff is in.

You better believe the Chinese lawyer for the Chinese company you sue in China for infringing on your China IP will be questioning each link in the evidentiary chain of your IP and pointing out each potential problem. If you’re lucky, you’ll have the chance to fix each of these problems in time before you sue, but doing so could add weeks or months or years to the process. And meanwhile, the infringing party will be going about their business using “your” IP. It’s death by a thousand (paper) cuts, and it’s a losing game.

Unless you have a really good reason to split ownership and use of your China IP into different entities, just keep it simple and use one company.

China contract lawyers
Too many China contracts deserve this appellation

Pretty much every week, at least one of our China lawyers will — after a five minute review — have to tell a potential client their contract is worthless. We see all kinds of worthless contracts. NDA and NNN Agreements, Manufacturing Agreements, Licensing Agreements, Distribution Agreements, Product Development Agreements, Employment Agreements. It goes on and on. And as tempted as I am to ask why they would think a US law contract that calls for disputes to be resolved in Boston or Des Moines would make sense in China, I always refrain from doing so, and I have seen some doozies, including the following:

  • A Seattle company that was being sued by about a dozen of its China employees and its employment contracts were drafted in English under Washington State Law. Their Seattle lawyer had told them that he had drafted their employment contracts this way because China “has no real law.” I explained their problem by pointing out how my law firm cannot hire Chinese people in Seattle and use Chinese law to pay them a dollar an hour because that is the minimum wage over there. They got and we ended up settling as quickly as we could with all of their China employees.
  • Countless companies that have used US or European style NDA agreements and have had their IP or trade secrets stolen by the Chinese company that signed that NDA. They want to know their chances of prevailing in a lawsuit against the Chinese IP thief and I have to tell them that unless the Chinese company has assets in the United States (and incredibly few do), it would probably not be worth it to them for our China lawyers even to look at their agreement. I then explain how China does not enforce United States court judgments and if they are going to continue doing business in China or with China they can do better the next time with a China NNN Agreement.
  • An American company that was using a Chinese company to market and sell the American company’s product in China came to us after the Chinese company had started selling its own products under the American company’s name and was refusing to cease doing so, even though the distribution agreement between them prohibited exactly that. The American company wanted to retain our China legal team to make this stop, but we had to tell them that we probably would not be able to succeed at that because their distribution agreement provides for US law and US court jurisdiction and because the Chinese company had registered the American company’s brand name as its own Chinese trademark. See How To Protect Your Trademark In China; How To Stop Your Distributor From “Stealing” Your Trademark.

Oh and one more thing. Far too many times when we tell someone how their contract precludes us from being able to help them, they tell us something like “we knew it would not work but we knew we needed something.” Wrong. Many times no contract at all is better than a bad contract. 

China has its own laws and its own official languages and its own court system and its own way of doing things, just like every other country in the world. So if you are going to do business in China or with a Chinese company, you almost certainly will need a contract that satisfies China’s legal requirements. There is nothing our China attorneys hate more than having to tell potential clients there is nothing we can do, but we have to do this all the time when given contracts that were not written with China in mind.

Please don’t let a worthless contract happen to you.

china content licensing agreementsIn Netflix finally finds a way into China, CNN’s Sherisse Pham explains how “six months after admitting defeat in its bid to crack China, Netflix has found a way to tap into the vast market.” To summarize, Netflix for years was trying to set itself up in China, so as to be available to viewers in China, just as it is available in “over 190 countries.” To quote from Netflix’s own site, “Netflix is not yet available in China, though the company continues to explore options for providing the service. It also is not available in Crimea, North Korea, or Syria due to U.S. government restrictions on American companies.” Netflix is not available in China because China tightly regulates foreign content and foreign publishing. No surprise there, right?

So how did Netflix manage to all of a sudden make its way into China? By licensing its content to China.

And that makes total sense.

Both here on the blog and in real life with our clients, our China lawyers are always touting the benefits of licensing products, intellectual property, brands, technology and content to China. Licensing deals make sense under many circumstances, but they make particular sense in situations where it is difficult or impossible to get your “widget” into China any other way. In other words, it makes particular sense for content. And because of that, much of my law firm’s China media and entertainment work involves drafting content licensing agreements for written, visual and audio content for magazine and newspaper and book publishers and for television and movie producers and studios. Just by way of an example, virtually all of the China-language editions of foreign magazine titles you see in China are there via licensing. In the typical magazine licensing deals we do, our client, a US or European magazine publisher, will license its magazine’s name and a certain amount of content (to be translated into Chinese) to a Chinese publishing house. Our movie and television and gaming deals are not substantively much different.

In A China IP Reality Check, Part 3, we explained what is typically necessary for a China content licensing agreement to work:

As a preliminary matter — before you license anything to anyone in China — you should register, in China, any of your intellectual property worth litigating over. That means registering not only your English-language trademarks but also the Chinese-language versions of those trademarks. If the Chinese-language versions don’t exist, it’s time to create them. That also means registering copyrights for any meaningful content. For television shows, that means at the very least registering the show bible, scripts, and any produced episodes. It’s true that China is a signatory to the Berne Convention and therefore a valid copyright in the US or Europe is valid in China without registration, but for practical purposes, it’s much easier to enforce a copyright in China if you have registered it in China.

Do not delegate the task of registering your IP in China to your Chinese licensee. The licensee’s interests may not always be aligned with yours.

Once you have registered your IP in China, you should draft an enforceable contract to protect your interests in China as against the Chinese licensee. A contract with the licensee’s Hong Kong affiliate, with disputes resolved by arbitration in Hong Kong (or any other country other than Mainland China), achieves none of these goals. Yet this is what we see again and again from companies who either don’t trust or don’t understand the Chinese court system. The problem is usually not that Chinese law won’t protect foreign content owners. The problem is usually that content owners (and their lawyers) often decline to take advantage of the protection Chinese law offers. They write contracts designed to be unenforceable in China, and then complain about China’s legal system when their contracts prove to be worthless.

A properly drafted China content licensing agreement should address the following issues:

1. Make sure the contracting party on the licensee side is the actual Chinese entity that will be licensing the content, and not a Hong Kong affiliate. As a corollary, choose the right law and the right jurisdiction for your dispute. If you want to sue a Chinese company for breaching your contract by using your IP in China, choose Chinese law and dispute resolution via Chinese courts in the hometown of the Chinese licensee. See China Contracts: Make Them Enforceable Or Don’t Bother and China Contracts. Watching The Jurisdictional Sausage Get Made.

The issue with contracting with a Hong Kong company is not so much that the Hong Kong company may be a shell company with no assets (although that is often the case). Rather, the issue is that any legal resolution in Hong Kong is unlikely to be effective in China. And if you’re licensing content to China, China is where the action is going to be. Hong Kong still has the common law system passed down from its days as a British colony; it favors injunctive relief and disfavors liquidated damages (aka contract damages). China is the opposite. What good is injunctive relief in Hong Kong if you’re trying to get the judgment enforced in China, which disfavors injunctions? You might argue: we will arbitrate in Hong Kong but provide that Chinese law governs. For a variety of reasons that almost never works, particularly if the defendant is a Hong Kong company. Meanwhile, the infringement in China continues.

2. Provide for upfront payment of the license fee in an amount that makes the deal worth it to you even if the contract is terminated early. See China Licensing Agreements: The Extreme Basics. Provide for substantial contract damages for late or non-payment of the license fee, and do not provide the Chinese side with any of your content until it has paid the license fee and the funds are in your bank account.

3. Provide for substantial contract damages for (1) early termination and (2) each instance of infringement. Do not mess around with lengthy provisions about injunctive relief. Unlike the common law systems of the United States, Canada, Great Britain and Australia, contract damages are not disfavored under Chinese law. In fact, use of contract damages is well established in China and favored by statute. On the other hand, though Chinese judges may be legally empowered to issue injunctive orders, they have virtually no power to ensure those injunctions are implemented. There is no Chinese equivalent of the U.S. Marshals Service. For this reason, Chinese judges are hesitant to issue an order they know is likely to be ignored. Instead, they will seek to convert every decision to an order to pay a sum certain in damages. Including a contract damages provision gives a China judge the roadmap. Most importantly, since Chinese companies know well the power of contract damages provisions, your merely having one in your contract greatly increases the odds of your Chinese counter-party abiding by that contract.

4. The contract damage amounts must be a good faith estimate of the actual amount of income that would be lost by the licensor in the event of early termination. These amounts are not guaranteed even if the plaintiff prevails: at trial, the defendant can argue that the contract damage amount is too high and the plaintiff can argue that the amount is too low. The utility of contract damages is that when a plaintiff seeks pre-judgment attachment of assets China’s courts will almost always allow attachment in an amount equal to contract damages if such damage amount is specified in the contract. In contrast, if the contract provides for injunctive relief and monetary damages in an amount to be determined at trial, it is virtually impossible to obtain a writ of attachment. To repeat: Chinese companies do not like putting their assets at risk of being seized and so having a contract damages provision is a great deterrent to that company breaching your China content licensing agreement.

Note also that an arbitration body cannot issue an enforceable assets seizure order and it is also virtually impossible to obtain such a order from a court outside the district where the assets are located. That is why we normally want to sue in the “home town” of the defendant, even though that sounds counter-intuitive to a most U.S. and European lawyers, who have been taught to avoid getting “home-towned.” The Chinese understand the “home town” issue, which is why there is an automatic right of appeal to a higher court in a different town, and also why such appeals are de novo. Home town favoritism is often reversed at the higher court level.

5. Do not rely on the default provisions of Chinese intellectual property law to protect you against your licensee. Chinese IP law and your IP registrations protect against random third-party infringement. If you want protection against your licensee stealing your IP, put it into the contract. Your contract with your licensee is your best chance to control your Chinese licensee and to protect yourself. Take advantage of it by using a contract that actually achieves those things.

6. The license term should be relatively long; say, five years. If the term is too short, then the penalty for early termination becomes irrelevant.

If your Chinese counter-party refuses to sign a contract that addresses the above, you know what they have in mind and you should reconsider whether to do the deal.

For more on China licensing contracts, check out China Licensing Agreements: The Extreme Basics and Nine Tips for China Licensing.

China law and business eventOn Tuesday, April 18, I will be speaking on China IP at the Global Sources Summit in Hong Kong. This summit is designed to teach entrepreneurs and small businesses how to create and build an Amazon FBA (Fulfillment by Amazon) business. In 12 Business Conferences In China You Should Attend, Bay McLaughlin McLaughlin in Forbes Magazine describes it as follows:

This popular summit shows entrepreneurs and small businesses how to create and build an Amazon FBA (Fulfillment by Amazon) business. You’ll learn actionable strategies to grow your Amazon seller business and get insider tips on successful China importing. With over 3,000 booths this conference in huge! It will be held April 17-19, 2017, in Hong Kong.

I will be speaking Tuesday, April 18 on “How to Protect Your IP From China, Especially From Your Own Manufacturer,” focusing on the following:

  • How to choose the right China manufacturer
  • How to identify the IP assets you need to protect
  • How to structure your China manufacturing deal
  • How to draft your China manufacturing contracts to protect your IP
  • What you should know about trademarks, patents, copyrights, and licensing agreements
  • What to do when you’ve been copied

You can register for the Global Sources event here.

I will then cross the bay to speak in the middle of the afternoon on April 21 at Global From Asia’s Cross Border Summit, whose theme is “Grow Your Business in Asia.” This event too made Forbes Magazine’s top 12 for China list and Forbes justifies this choice as follows:

Held in Shenzhen, China, on 21-22 April, 2017, this event encourages international participation among industry leaders in cross border commerce between China and the rest of the world with content related to marketing, management, manufacturing, and technology. There are numerous roundtable discussions and networking sessions to encourage collaboration and idea generation. This event is hosted by Global From Asia, which also has a fantastic podcast about doing business in China.

My talk will be on “Global IP, In and Out of China: Protecting your brand via trademarks, inside China and globally.” You can register for the Cross Border Summit here.

Both events have a plethora of great speakers and I hope to see you at one or both of them.

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.