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China cease and desistHardly a week goes by without an American or a European company contacting one of our China lawyers wanting to retain us to “stop the counterfeits” of their products online and offline. Far too often these people believe one of our IP lawyers can within 24 hours send out a “template” cease and desist letter and within another 24 hours of that, the counterfeit sales will magically cease.
Were it only that easy.
For us to send out a cease and desist letter to a Chinese company that allegedly is engaging in counterfeiting (note the switch to alleged here), we first must determine the legal grounds we have for threatening to sue. Is the alleged counterfeiter actually infringing any registered trademark, copyright or patent? Is any trade secret being illlegally employed? Unfortunately, about half the time, there is no legal grounds for claiming either infringement or counterfeiting at all.  
Do cease and desist letters work with Chinese companies? Sometimes they do, and really well. We have sent cease and desist letters that achieved great results within days. We’ve also sent cease and desist letters that were completely ignored. A cease and desist letter regarding IP infringement usually works well when we have strong legal grounds for sending it and the company to which we are sending it is a legitimate registered company. These letters are far less effective when the legal grounds is weak or non-existent or when the “company” to which we are sending it is little more than a pop-up operation set up merely to effectuate global counterfeiting. 
Why send a cease and desist letter? What can such a letter accomplish? One reason is to get the recipient to cease the infringing. Another is to stake out your rights so as to avoid any potential waiver of those rights. Sometimes we send these letters not so much to stop infringing, but to get the recipient to pay a licensing fee to be able to use our client’s IP. If the letter does not work and we need to pursue litigation, the letter itself — and the recipient’s subsequent ignoring of it — can help prove intentional copying and thereby increase damages at trial or in settlement. 
Something few seem to consider or even realize is that sending out a cease and desist letter is not without its own, sometimes substantial risks. Many years ago, a company sent a cease and desist letter to a client of my law firm that caused our client to investigate the products of the company that sent it. Our client determined that not only was it not violating the IP of the company from which it received the letter, but that company that sent the letter was violating our client’s patent rights. To make a long story short, the company that sent the letter ended up millions of dollars poorer from having acted so precipitously. It is also not uncommon for the recipient of a cease and desist letter to flip around and sue the sender to seek a court ruling of non-infringement.
Sending a cease and desist letter alerts the recipient of your IP concerns and may cause them to destroy evidence that would aid you in pursuing an IP claim or in collecting large damages. Sometimes the better tact is to gather up infringement evidence before sending out the cease and desist letter. It is also possible your cease and desist letter will give the recipient a claim against you for defamation, libel or tortious interference in their business.
Sometimes the best tact is not to send any cease and desist letter at all. 
24 hours from hiring to firing (off) of a cease and desist letter? I don’t think so, and hopefully, you now don’t either. 
China trademark registration
Do these look similar to you? Because they sure do to me.

We first wrote about the Under Armour vs. Uncle Martian dispute last May. At the time it seemed like just another story about a blatant Chinese ripoff, destined to be forgotten with the next month’s news cycle. But the story has kept on going, and was back in the news recently with the report that Under Armour had conclusively prevailed in its trademark infringement case against Tingfeilong Sporting Goods, the Chinese sports manufacturer behind the “Uncle Martian” brand.

According to Under Armour’s lawyers, on June 19, 2017 the Fujian People’s Higher Court issued an injunction requiring Tingfeilong to stop using the infringing “Uncle Martian” trademarks, destroy all infringing products, pay RMB 2,000,000 in damages, and publish a statement to “eliminate the adverse effect” of its infringement. This ruling followed a preliminary injunction issued on November 2, 2016.

The court’s ruling is surprising in two ways. First, it’s surprising that the court issued an injunction at all. Chinese courts are known for being reluctant to issue injunctions because they don’t have the same enforcement power as U.S. courts (China has no equivalent of the U.S. Marshals Service), and issuing an injunction that they know will be ignored just makes them appear weak.

Second, it’s surprising that Tingfeilong continued using its Uncle Martian logo — the infringement is about as blatant as you can get short of an outright copy, and the social media commentary in China was withering. When I wrote about this case last year, I speculated that Tingfeilong’s strategy was to get a bunch of free publicity for their cheesy product launch and the “Uncle Martian” name, then quietly drop the infringing logo and continue selling products using the “Uncle Martian” name. That may still be their strategy, but the penalty may be enough to put them out of business. Assuming they end up paying it. Tingfeilong has appealed the June 19 ruling, and I could imagine a settlement that involves Tingfeilong agreeing not to use the infringing logo so long as they can still use the “Uncle Martian” word mark. Or maybe other shenanigans are afoot – according to the CTMO website, the “Uncle Martian” word marks are now owned by another Chinese company, Quanzhou Changwan Trading Co. (泉州昌万贸易有限公司).

In an interview with Law360, Under Armour’s US counsel offered three lessons from the case. I’ve paraphrased those lessons below in underlined text, with my further comments afterward in italics.

  1. Chinese courts are willing to grant injunctions. Obviously this case is a step in the right direction, but one case is hardly enough to establish a trend. China is not a common law system and a ruling by the Fujian Higher People’s Court’s does not set a precedent. That we even have to discuss this point is noteworthy; in any court system providing meaningful injunctive relief, this case would be a slam-dunk. But it’s not the case that this sort of relief will be readily and easily available. As I understand it, the key to this case is the significant and indisputable evidence of infringement presented by Under Armour at the time it requested an injunction. To submit that amount of evidence takes a lot of time and effort – it’s not just pasting a bunch of screenshots into a complaint. Note that the Uncle Martian knockoffs were first announced last April, and the preliminary injunction wasn’t issued until November. I’m sure Under Armour would have loved to have a TRO in May – as would have happened in the US or EU — but there’s no way they could have prepared the evidence in time.
  2. Local counsel is crucial. Unquestionably true. Non-Chinese firms are not allowed to practice law in China, so it is legally impossible to proceed without a Chinese local counsel. And as with any case here in the US, the better the local counsel, the better your odds. But as the Law360 article implies, to an increasing degree in China what makes local counsel “good” is not their connections with local government officials or their guanxi but rather their expertise in the legal field at issue. That is: if you have a trademark infringement case, hire a firm that excels at IP and has a history with those cases. 
  3. Chinese courts outside Beijing, Shanghai, and Shenzhen are issuing sophisticated, consistent legal rulings. Again, though this ruling is certainly a step in the right direction, one ruling does not make a trend. And the facts in this case were pretty much served up on a silver platter for the court. It would be a stretch to call this a sophisticated ruling, when it was obvious to just about everyone who commented on social media that this was trademark infringement. Another key point is that if you want any shot at enforcing a court ruling in China, you need to file your case in a court with jurisdiction over the defendant. If the company knocking off your products is based in Xi’an, you probably will need to file in Xi’an, like it or not. It should go without saying that you will be better off filing in a second tier city court that has jurisdiction than getting your case tossed out of a court in Shanghai for lack of jurisdiction. 

I would add one additional takeaway, which is implicit in the commentary on the Uncle Martian ruling and hopefully second nature to anyone reading this blog. The only reason Under Armour was even in a position to file this lawsuit was because Under Armour had already registered its trademarks in China. This was not a case of an American company trying to prove that its trademarks were famous in China; this was simply a company enforcing its trademark rights that already existed.

China counterfeit lawyers
X out China counterfeits

Full disclosure. This post is on more than what to do when your product is being counterfeited in China. It also is on what to do to position yourself so that if your product is being counterfeited in China, you will have real options on what to do.

Barely a day goes by without one of our China lawyers getting contacted by an American or European company telling us that its products are being counterfeited and would we please get so and so — either the alleged counterfeiter or the online site on which the counterfeit products are posted — to remove the offending items. Were it only that simple. We have for years been writing about how our lawyers have a near 100% success rate at getting counterfeit products removed from Chinese e-commerce websites like Tmall and Taobao and the same holds true for American websites like Amazon and Ebay. But our success rate depends largely on the advertised product is truly a counterfeit, as that term is commonly defined by lawyers not businesspeople.

All of the big American and Chinese e-commerce sites, including the Alibaba family of sites (Taobao, Tmall, Alibaba, AliExpress, 1688.com, etc.), have formal internal procedures for removing product listings that infringe a third party’s IP rights. To secure the removal of infringing listings, you must follow their procedures to the letter. Among other things, you must provide documentation proving (1) the IP owner’s existence and (2) the IP owner’s rights to the IP in question. Only after you have submitted these documents and had them verified by the e-commerce site can you even submit a takedown request. When you do submit your takedown request (assuming everything goes smoothly), most e-commerce sites will remove the counterfeit products within a week or so. When things don’t go smoothly with a Chinese e-commerce site (which judging from our volume of phone calls is rather frequently) it is vital to have a person on your side who speaks Chinese, understands Chinese intellectual property law, and is experienced in dealing with the particular Chinese website that is posting your products. This person is necessary to get to higher-level employees at the e-commerce site and explain to them why the listing does in fact violate your IP.

To date, we have succeeded with every takedown request seeking the removal of products that infringe our client’s trademarks or copyrights. But probably half the time, we have to tell the potential client there is no point in hiring us for the product removal. Why is that? The below email from one of our China lawyers who regularly works on takedown matters across multiple websites (both in China and elsewhere) explains.

Every Chinese website has its own takedown protocols, and the key to getting products removed is to follow that site’s protocols. You express an interest in suing these websites and we do not advise that unless and until we have sought to get your products taken down and failed. Lawsuits are expensive and based on our track record in securing takedowns, the odds are overwhelming that we will never need to file one on your behalf. To put things in perspective, we have never filed one. The lawsuit you mention against Alibaba deals a lot more with why so many counterfeit products show up on Alibaba websites in the first place than on Alibaba’s failure to take down counterfeit products once on one of their sites.

You are correct that only the copyright or trademark owner or its authorized representative can make takedown requests. However, sites vary as to the sort of authentication they require for a Power of Attorney and most of the sites know our law firm well enough that they almost never require we provide them with a formal Power of Attorney to achieve a takedown.

The most important thing is that we show proof that you have registered your IP (your trademark or your copyright) somewhere. Some Chinese sites sometimes will take down products with foreign IP registrations, but China registrations are always much better. Technically, China is obligated to recognize copyrights registered in any Berne Convention signatory nation, but explaining China’s WTO obligations to a 21-year-old customer service representative seldom works. And as you can probably imagine, securing the removal of copyrighted IP for which a copyright has never been registered anywhere is even more difficult. This is why gaming/video/music companies so often complain about how difficult it is to secure counterfeit takedowns from Chinese websites. By the time they get their China copyright registration and can submit a takedown request, the damage has been done. How many people will still be downloading today’s big game six months from now? US websites are not all that different.

Another thing to consider is that the more sophisticated/well-heeled the website, the more likely it is that they have a formal takedown procedure. For the smaller websites, we generally have to contact someone directly because there are no instructions on the website or they are hopeless. But unless the website is a pirate site (which is rarely the case), it does not want to be sued for hosting counterfeit or pirated items and so long as we do all the work for them, they’ll be happy to take down rogue products and content.

Finally, you should be aware that once this whole takedown process begins, it’s pretty much ongoing. The pirates and counterfeiters don’t just give up because their first upload got taken down. And even if we stop one or two of the counterfeiters, we should expect more to pop up. This is why companies hire us to monitor and report and after we remove the existing counterfeits, we should discuss what sort of future programs make sense for your company and your situation.. One of the things we can and should do though is try to figure out who is doing the counterfeiting, how they are doing it, and what we can do — if anything — to try to stop it or slow it down.

My law firm has an Alibaba account that makes us eligible to seek removal of links that infringe our clients’ IP. We do this by submitting proof of identification and authorization, as well as information regarding the IP which is being infringed upon. This is accomplished by our providing the following to Alibaba: (i) our client’s “business license,” (ii) any formal IP registration documents and (iii) (sometimes) a power of attorney signed by the client, authorizing us to file the complaint on its behalf. We also submit the following information: the IP registration number(s), the title of the IP, the name of the IP owner, the type of IP, the country of registration, the time period during which the IP registration is effective, and the period during which the IP owner wishes to protect its IP rights. We translate these documents into Chinese to make things easier on the Chinese website company and because doing so greatly speeds things up. After submission, it typically takes Alibaba a few days to verify our information.

Once Alibaba verifies the information we provide, we provide the infringing links and removal virtually always quickly occurs. For complaints concerning patent rights, we also need to provide proof of the connection between the infringing material and the IP being infringed. Alibaba normally takes a few more days to process the complaint, which typically consists of passing along the complaint to the infringing party.

If the infringing party does not respond to the complaint within three working days of receipt, either by deleting the infringing link or by filing a cross-complaint, Alibaba will delete the infringing link. Absent prior written permission from Alibaba, the infringing party would then be prohibited from posting the same information on Alibaba again. If the infringing party files a cross-complaint, we would then need to deny the cross-complaint, and then Alibaba would handle the “dispute.” Alibaba normally resolves such disputes within a few days. As you would probably imagine, counterfeiters almost never file a cross-complaint; they typically just slink away.

We have achieved similar results with China’s other leading and legitimate online marketplaces. But as you would expect, China’s smaller and sketchier marketplaces are more problematic when it comes to IP protection.

If your IP (especially your trademark or your copyright) is registered in China, securing the removal from Chinese websites of products that infringe on your IP can be relatively fast and easy. If your IP is registered in a country other than China, securing the removal from Chinese websites of products that infringe on your IP can be accomplished, but not always. If your IP (your unregistered U.S. trademark, for instance, or your unregistered copyright) is not registered anywhere, your best strategy for securing removal of infringing products is to register it first and then seek removal, rather than to seek removal first. The same generally holds true for US websites, but US websites are a lot less likely to remove products that infringe on your patent rights than are Chinese websites. US websites typically take the position that you need a US court order stating that the product or products infringe on your patent for a removal.

In other words, plan now with your IP filings for takedowns later.

China e-commerceE-commerce for Foreign Invested Entities (FIEs) in China is in upheaval. Beginning with the much discussed liberalization of the investment cap for foreign entities conducting e-commerce business in China, and most recently with the draft e-commerce law, big changes are afoot. This post briefly summarizes the more important changes, briefly assesses their effect in practice, and speculates as to the underlying trends and future developments.

Backdrop. As pretty much everyone already knows, China’s retail e-commerce market has grown massively in recent years.  Matthew Crabbe gives some interesting totals and projections: firstly the Chinese online retail market was worth a total of 120.8 billion RMB in 2008, rising to 6,433.9 billion RMB in 2017, including B2C and C2C sales, with B2C overtaking C2C in 2015.  Cross-border e-commerce (Haitao –  defined as goods sold from outside China into China, not including foreign goods sold within China) as a proportion of B2C online retail was 1.3% in 2011, growing to 4.8% in 2017. This means the market estimate is 303.8 billion RMB in 2017, which is significant compared even to the total US online retail market, for example.

Summary of China’s e-commerce reforms. Since 2001, the Foreign-Invested Telecom Enterprises (FITE) Regulations have contained an investment cap on foreign investment in Value-Added Telecoms Services (VATS) businesses of 50% ownership.   There is now a limited exception to this relating to e-commerce business. The following brief timeline will illustrate the main events:

14 March 2011: China’s 12th Five Year Plan contains a broad injunction for the economy to move from an export-led manufacturing economy to a consumer economy.

7 January 2014: the “MIIT SHFTZ Opinion 2014” made it possible for Foreign Invested Entities (FIE) in the Shanghai Free Trade Zone (SHFTZ) to own a 55% share in for profit e-commerce businesses with nationwide reach, an increase from the previously allowed 50% investment cap for (VATS) business under the FITE Regulations, thus meaning that a nationwide reaching e-commerce entity could be majority foreign-owned.

13 January 2015: the “MIIT SHFTZ Opinion 2015” took the changes in the MIIT SHFTZ Opinion 2014 further, by allowing 100% ownership of an e-commerce business by a Foreign Invested Entity in the SHFTZ.

10 April 2015: Part IV s20 of China’s 2015 Foreign Investment Catalogue made an explicit exception for e-commerce when discussing the investment cap of 50% in VATS business. This change was widely understood as removing the limitations on investment ratio in the nationwide regime for e-commerce FIEs.

7 May 2015: The State Council E-Commerce Opinions contain an instruction to various Chinese governmental bodies to remove the current investment cap for FIEs in e-commerce businesses, expanding the SHFTZ liberalization nationwide. Various simplifications relating to licensing were also included. (see China E-Commerce: The New Rules for discussion of the State Council E-Commerce Opinions.

19 June 2015: MIIT Circular 196 appears to be the implementation of the State Council E-Commerce Opinions, and it allows foreign equity ratios in e-commerce businesses to be raised to 100%, explicitly stating that this is a nationwide extension of the SHFTZ pilot program.

27 December 2017: the Draft PRC E-Commerce Law was published. It applies to all e-commerce business within China, including e-commerce businesses outside China that sell into China. It differentiates between third-party e-commerce platforms (e.g. TMall and Taobao) and other e-commerce operators, such as self-operated retail portals. Chapter 5 deals specifically with cross-border e-commerce. However, detail is lacking, and its main point seems to be that China wishes to promote development of “cross-border e-commerce,” which is defined as “imports and exports of goods or services through the Internet or other information networks’.” Chapter 5 deals in particular with customs clearance, “electronization,” and personal information.

There have also been a number of other initiatives, such as e-commerce pilot zones, for example in Hangzhou and elsewhere.

What is behind the reforms? On the face of it, there seems to have been major progress in opening the Chinese market to international e-commerce operators. As is so often true when it comes to doing business in China, all may not be as it seems. It is hard to ascertain what is happening fore foreign companies seeking to do e-commerce in China, but since the above changes were implemented, very few VATS licenses have been issued to FIES. One example is Heiwado (China) Co., Ltd, a Chinese WFOE reported to have two Japanese shareholders and a market capitalization of around US$50 million, and which has been involved in traditional and online retail in central China for several years. See First WFOE Obtains VATS License From MIIT.

So what is going on?  There are several possibilities.

Firstly, one factor may be “bringing order to the market” and eliminating legal grey areas. Much of the selling of foreign goods online in China has consisted of informal grey-market imports, often brought into China as personal goods in suitcases and then retailed on Taobao via “Taobao Agent Purchasing.” This means goods are entering the Chinese market without the relevant customs clearance, duties, and product standard compliance. China has a strong incentive for bringing this industry within the scope of its regulation.

A related point is that although the FITE Regulations contain strict investment caps in telecoms business, foreign investment in telecoms is in fact pervasive in China, through the controversial Variable Interest Entity (VIE) structure. Another argument is that removing the investment cap for e-commerce companies is a pragmatic move to enable full compliance by foreign-invested e-commerce businesses. Why though bring e-commerce businesses under the regulatory umbrella, but not other internet businesses? One hypothesis is that full compliance in e-commerce is seen as an achievable and desirable medium-term aim, with overall benefits to China, whereas the policy pressure on other areas of the internet pushes in the opposite direction, with no desire to liberalize and allow foreign participation.

It is also important to remember that discussion of “cross-border e-commerce” in China includes outbound as well as inbound e-commerce. In fact, the focus of the policy seems to be on encouraging outbound e-commerce. One much-discussed theme in the development of China’s economy has been inviting foreign partners in, learning from them, then applying this knowledge internationally once it has been digested by Chinese entities. Opening the market with one hand, and yet maintaining restrictions with the other hand gives the illusion of liberalization while allowing domestic companies to dominate the market. With respect to examples like Heiwado, it is really a very minor player. One interpretation could be that an example like this makes little impact overall, and yet helps maintain an illusion that the market is opening.

Interestingly, online selling on domestic Chinese third-party retail platforms like Taobao is now relatively easy for foreign businesses. This in some ways represents an ideal scenario for China. If inbound cross-border e-commerce takes place under supervision of a Chinese entity, Chinese government oversight is much easier and Chinese businesses get a piece of the pie. For the foreign retailer, this is also a low-risk strategy. The availability of this alternative may be a strong factor in the apparent lack of applications for e-commerce VATS licenses by WFOEs. Does conducting standalone e-commerce in China as a WFOE even make commercial sense?

From the point of view of foreign investment in third-party retail platforms, the dominance of the domestic players presents formidable obstacles to the market. It is probably more plausible for Alibaba to take on eBay and Amazon internationally than vice- versa. Interestingly, Alibaba, the owner of Tmall and Taobao, is itself structured as a VIE. See Why Alibaba is good for China VIEs.

Future developments. China’s removal of its e-commerce investment cap does not appear to have led to any great increase in market access for foreign investors. However, it does fit into a general picture of increased access to the Chinese market for foreign goods, albeit on Chinese terms. Although the e-commerce market as a whole will continue growing, Matthew Crabbe’s prediction is that the Haitao market will peak at about 5% of total online retail sales in China. If that is correct, China’s e-commerce gold rush may not be quite what everyone expected, and today’s status quo is also the shape of things to come. The future of China’s e-commerce market lies largely in selling through established Chinese channels.

* This post was written by Edward Hillier, a New Zealand-qualified lawyer and researcher. This post is based on academic research he submitted to Anglia Ruskin University in 2017 for his LLM dissertation entitled New Opportunities in Online Retail For Foreign Investors in China. The author would like to thank Matthew Crabbe of Mintel for market and retail industry insight.

China trademark lawyersThe New York Times has a story today on Donald Trump’s trademark filings in Greater China, entitled, Trump Company Moves to Protect Brand in Chinese Gambling Hub. And here is something I never thought I would say: there is a lot to be learned from how Donald Trump (or at least one of his companies) is handling things, with respect to China trademarks anyway.

According to the NYT article, “the company that manages the Donald J. Trump brand has moved to protect the name in Macau” by filing for trademark protection there. There are at least five things to be learned from Trump’s Macau trademark filings.

The first lesson to be learned from is that protecting your brand name via trademark registrations in the PRC does not protect your brand name in Macau. To protect your brand name in Macau, you must register your brand name as a Macau trademark. This also holds true for Hong Kong and Taiwan. As I wrote in China And Hong Kong Trademarks. Think Puerto Rico, Mainland China, Hong Kong, Macau, and Taiwan all have separate and independent trademark systems:

Hong Kong and China are the same way [as Puerto Rico and the United States]. And Taiwan and Macau too. I am constantly having to explain this to our clients, at least half of whom just assume that a trademark registration in the PRC operates as a trademark registration in Hong Kong and vice-versa. And who can blame them, since Hong Kong is one with the mainland, right? Same with Macau, right? Many have this same view regarding China and Taiwan as well. None of this is true.

If you want your brand or mark registered and thus protected in China, Hong Kong, Macau and Taiwan, you must register them in China, Hong Kong, Macau andTaiwan. If you thought you were protected in more than one of these places simply because you had registered in one, you had better get moving and start registering in one, two, or three more.

The New York Times article goes on to note that Trump’s filing for trademark protection for Trump hotel and casino brand names in Macau does “not necessarily indicate that President Trump or the Trump Organization will eventually open a Trump hotel or casino there.” This gives rise to the second lesson, which is that it often makes sense to register your brand name as a trademark in China (and elsewhere) even if you are not doing any business there, at least just yet. China is a first to file country, which means that whomever registers “your” brand name there first gets it. So if you are thinking you will be selling your product or your services in China say three years from now, it probably makes sense for you to register your brand and your logo as trademarks there now. See Register Your Trademark In China: Now. Just Ask MikeChina Trademark Basics and Register Your China Trademark Now. Then Register It Again With Customs.

The third lesson to be learned is the need to make sure your trademark registrations are both current and include sufficient classes to truly protect you. Our China trademark lawyers are constantly getting contacted by foreign companies seeking IP protection based on their trademark filings, only for us to have to tell them that gaps in their trademark registrations are big enough for rival companies to drive a truck through or even that their registrations have expired or never existed. The article notes how Trump’s company already owns more than a dozen trademarks in Macau (for casinos, constructions, hotels and real estate) and it is not clear whether it is adding to that total or just re-upping existing trademarks. For the need to stay on top of your trademark filings, check out New Year’s Resolution: Check Your China Registrations. Just last week I got a call from a U.S. company that four years ago paid a company in China to register three of its trademarks there and just learned that despite having received “official confirmation of the approvals,” no such filing was ever made. Needless to say the Chinese company (a fake law firm) that did this no longer shows up on the web nor probably ever really even existed. See Is Your China Lawyer Real? I have no doubt Trump is using a real law firm for his filings.

The fourth lesson to be learned is that once you secure your trademark registration you monitor it to make sure nobody is treading on it and if they are, you do something about it. The article notes how Trump last year “won a legal battle with a Macau company that had registered to use the name ‘Trump’ in coffee shops and restaurants.”

 The fifth lesson is that you should consider securing a trademark that protects your brand in both the English language and the local language. The article notes that Trump’s registrations “include ‘Trump,’ ‘Donald J. Trump,’ ‘Trump Tower,’ ‘Trump International Hotel and Tower’ and ‘Chun Pou’ — a Cantonese version of Mr. Trump’s name.”

Chun Pou, who knew?

China lawyers China attorneys
Better to shut the barn door BEFORE your IP leaves

As China lawyers, one of the worst parts of our job as China lawyers is when a foreign company (usually an American or European or Australian company) contacts us after having essentially lost its IP to a Chinese company. In those situations, we review the relevant contracts and relevant IP (trademark, copyright patent and licensing) registrations to determine whether or not they have a good case against the alleged IP infringer. The overwhelming majority of time they do not and it is no fun essentially telling them that, “sorry, you’ve lost your IP and there is little to nothing we can do because YOU didn’t do what you needed to do beforehand to protect your IP from China, but hey, if you want to prevent this from continuing to happen to you….”

One of the best parts of our job as China attorneys is working with foreign companies to prevent the above sort of situation before it happens. The below email is a fairly typical sort of email we send to existing clients, explaining what they must do beforehand to protect their IP from their Chinese counterpart, which in this case is one of China’s largest and most powerful companies.

If ____________ [big and powerful China company] does “development work” absent a formal written agreement that deals with the development work, it can claim rights to the development work and it also can claim certain patent rights based on the development work on an incremental change, new work basis. China like Germany does not require very much of an incremental change to allow a new patent, especially for design patents and similar “junk patents” popular in China.

The way to deal with this is to enter into an product ownership/product development agreement that directly confronts the issue. In a situation where you are asserting the entire ownership of everything done with respect to your product, such an agreement is not complex. IF the Chinese side’s goal is to infringe on your product, they will be reluctant to sign the agreement. However, IF they sign the agreement, the protection is powerful, but only against the parties that sign. What we would do with _______ is to say: If you release our information to anyone, YOU are liable for the breach, without regard to your own fault. We can normally draft this as a very specific agreement, however, we can also just include this type of provision into any form of global agreement with these companies.

My cautions are as follows:

You should never do a deal with a company you believe intends to infringe; you are not looking for a lawsuit. As you know, recovery from infringement carried out by a huge entity like _______ will be difficult for a company like yours.

__________ is a giant company that basically “owns” _________ [a specific third tier China city]. Thus any legal proceeding against them in ________ would be difficult. This again calls for caution and a program where you receive adequate payment BEFORE it has a chance to infringe.

China trademark registration
When it comes to China trademarks, listen to Ricky Bobby

When talking about the China market one of the first things China experts often mention is that China is a first-to-file country. In short, this means (with very few exceptions) whoever files first for a trademark owns it. The policy can cause countless headaches for brands interested in China, and even for those who are not. Below are a few examples of why trademarking is important regardless of your intentions to enter China.

China Sales through grey markets may already be happening. China’s grey markets are huge and even if you are not officially selling your product in China, your product is likely available in China.

Daigou, meaning “buy on behalf of” are sending many hard-to-get products to China. They also specialize in products that are costlier in Mainland China due to regulations and taxes. The daigou market was estimated to be worth $6.5 billion in 2015 and is driven largely by students and young professionals living and traveling abroad.

329,000 Chinese students studied in America in the 2015/2016 year, with five-fold growth in the past decade. The number of Chinese students in the US is double the next largest source of students, India, according to the Institute of International Education. Starting a daigou business often begins by fulfilling friendly requests from friends and family back in China and sometimes expands into a business with tens of millions of dollars in revenue.

Daigou will not only increase your domestic sales, but often increase awareness of your brand in China should you wish to enter the market later. One of the first things we do for our clients looking to take their products into China is a Chinese language Internet search to determine existing brand recognition there. Not infrequently, our clients are surprised by how well-known and even in demand their brand already is in China. If daigou are already selling your product into China and you haven’t registered your trademark there, someone else may already have done so or is likely to do so.

Someone else registering your trademark in China will at best be just squatting on it, hoping to sell it to you for a handsome profit should you ever wish to enter the China market. A worse scenario for you is when someone registers one or more of your key trademarks in China and actually uses the trademark to sell their own products with your brand in China, such as what the large sports brand Qiaodan did with the Michael Jordan trademark. This sort of thing is not only frustrating, but it can harm your brand’s reputation among those Chinese shoppers who buy your brand from daigou or while traveling outside China, and make it more difficult for you to enter the market in the future. We have had clients who have chosen not to enter China because someone has already registered and is using their brand name there.

Chinese manufacturers producing products with your branding for China oftentimes will also export “your” products to other foreign markets. With 12% of China’s exports estimated to be counterfeits, this is a real risk and this means that not only might you be blocked from selling your product in China (and having your reputation damaged there), these risks can extend well beyond China as well.

China’s Connected Travelers may already know your brand. With the rise of outbound tourism, the army of selfie-taking Chinese visiting your land could also be buying your brand and building awareness for it back in China. In 2015, 2.6 million Chinese visited the U.S., growing 73% from 1.5 million in 2012 according to US Customs data. Shopping remains the most popular activity for traveling Chinese and Chinese travelers are also the highest spending travel group in the U.S., averaging over $10,000 per tourist per trip according to Xinhua.

Damage to your brand in China could harm the attractiveness of your products to Chinese tourists. Even if you don’t think your product appeals to Chinese tourists, you may be surprised. Chinese tourists are going further afield and looking for authentic local products such as one man’s retirement project in Tasmania found out with Bobby the Bear.

No interest in China? Failing to trademark can still get you! Even if your company has no interest in doing business in China, you still might have good reason to file your trademarks and protect your IP in the Middle Kingdom. Take for example the famous California fast food establishment, In-N-Out Burger, which had no immediate plans to enter China. Four California-educated law graduates trademarked the chain’s legendary menu items throughout Asia and Europe. Opening their restaurant Caliburger in Shanghai, they promised many of the well-known In-N-Out staples such as Double-Double, Animal Style, and Protein Style burgers and fries, and even included an iteration of the iconic palm tree on their branding. See Trademark Registration for Companies That WON’T Be Doing Business In China. Do You Want Some Fries With That?

In-N-Out saw this as a risk to their brand, given how connected America’s West has become with Chinese tourists, students and migrants, and also with Americans visiting and living in Shanghai.  A confidential settlement followed – rumored to involve a significant sum of money – and Caliburger changed its burger names and décor then closed up shop in Shanghai and has now expanded to the States.

It’s not only competitors in China against which you must be on guard, but also your own partners. It’s much better to protect your brand upfront no matter what your China ambitions. Though my company has had clients who’ve won back their trademark from squatters in China who weren’t actively using the trademarks they had registered in China, doing so has always been significantly more expensive, time-consuming and stressful than if they had just simply trademarked their brands in China earlier. Save yourself the troubles; whether you are currently selling overseas or simply open to the possibility of doing so (and maybe even if you are not) covering your bases ahead of time by filing for a trademark in China is essential.

 

* This post was written by Ann Bierbower of China Skinny. China Skinny is a marketing, research and online agency based in Shanghai with offices in North America and Europe. I asked Ann to write this post because we are always emphasizing the need to register your brands and logos as trademarks in China from a legal perspective and I thought it would be good to have someone set out the branding case from a marketing perspective as well. I am a big fan of China Skinny’s newsletter; it is one of the few to which I subscribe. Earlier this month, Ann wrote another post for us, entitled, China Trademarking that Resonates and I urge you to read that one as well.

 

China CopyrightWhen I was growing up, I watched a lot of television. A LOT. I was a latchkey kid and every day after school my brother and I would come home and turn on KTVU and watch TV Powww! and Captain Cosmic shows like Ultraman. Ultraman, if you don’t know (Philistine!), was a Japanese science-fiction show that ran from 1966-67 but, much like Star Trek, circulated widely in reruns (leading to numerous remakes, spinoffs and movies) and had an outsize influence on subsequent sci-fi pop culture.

So when I read last week’s China Film Insider story about an allegedly unauthorized Ultraman film being produced in China, it felt like a personal insult. A Chinese fan-created Ultraman movie a la Axanar would be amazing, but the producer of this film, Chinese film company Blue Arc Animation, is just making a blatant ripoff.

Or are they?

Japanese company Tsuburaya Productions Co. Ltd., the creator of Ultraman, alleges that Blue Arc Animation has no right to make an Ultraman film in China. But Blue Arc contends that they got the rights from UM Corporation, another Japanese company. And UM Corporation contends that they own all foreign rights based on an alleged 1976 agreement in which Tsuburaya’s president Noboru Tsuburaya granted to Thai filmmaker Sompote Saengduenchai the exclusive, perpetual foreign rights to Ultraman. Sompote’s rights were then assigned to his son Perasit Saengduenchai, who in turn transferred them to UM Corporation, who in turn has licensed the rights to a number of companies all over the world.

Tsuburuya has consistently held that the 1976 agreement is a forgery, not least because Sompote didn’t even mention the existence of such an agreement until 1995, after Noboru Tsuburaya had passed away. The dispute has led to a number of lawsuits between Tsuburuya on the one hand, and Sompote and his successors in interest on the other. Back in the mid 2000s, Tsuburuya won several victories in Thai and Japanese courts, which seemed to bring things to a close, but not so much. The victories were only partial victories, and the key piece of evidence in Sompote’s favor is that the 1976 agreement, despite having a number of inaccuracies and other indicia of inauthenticity, was nonetheless chopped with Tsuburuya’s company seal. And so the litigation has continued. Most recently, UM Corporation sued Tsuburuya in a Los Angeles federal court on May 19, 2015, alleging copyright infringement, breach of contract, and intentional interference with contractual relations. I just checked the docket and the case, staffed by a number of big-firm LA litigators, is still going strong.

What does all this have to do with China? First of all, this should be a wakeup call for anyone with a Chinese entity who thinks they don’t need to know where their company seal is at all times.

Second, it’s an example of how NOT to license copyrighted content in China. What sort of due diligence did Blue Arc Animation conduct regarding the rights they were allegedly getting from UM Corporation? We have conducted due diligence on numerous film projects in China and our efforts have saved more than one high-profile project from guaranteed litigation over the source material.

Chinese courts are getting better and better about enforcing copyrights. The dispute between Tsuburuya and Blue Arc Animation hasn’t resulted in a lawsuit in China – yet – but Blue Arc Animation has to be wondering what, exactly they have gotten themselves into. Are the Ultraman copyrights registered in China under either their name or the name of UM Corporation? Do they have a licensing agreement with UM Corporation written in Chinese and enforceable under Chinese law? Is the licensing agreement registered with the Copyright Protection Centre of China? Unless the answer to all of these questions is “yes,” Blue Arc Animation will be hard pressed to prove that they have any rights at all. (And meanwhile, if Tsuburuya hasn’t already registered all relevant copyrights for Ultraman in China, shame on them.)

If you’re going to spend millions of dollars on a film project (or even just tens of thousands, as may be the case here), don’t buy a pig in a poke.

China copyright lawyer
China copyrights for internet content

One of our China copyright lawyers recently sent the below email (slightly modified) to one of our clients, and since it nicely lays out the basics on what is required to secure Chinese copyrights on internet content, I am running the key portion from it below:

1. To secure copyright protection for the original elements of a website, you need to file a copyright application for a particular category of creative work: a compilation. Each webpage would be a separate item in the compilation.

2. The application must include a hard-copy printout (typically, a screenshot) of each webpage. Although it seems illogical, China will not accept webpages in digital format.

3. Note that a website is protectable via copyright in China regardless of where the website is hosted. However, China will not grant copyright protection to content it deems to be against socialist morality, the Chinese government, or the Chinese Communist Party.

4. Once a copyright application has been submitted, it usually takes about three months to receive a copyright registration certificate.

5. To have enforceable protection for your copyrights in China, you must first register those copyrights in China. You also must register any relevant license agreements to receive payments from China. Though China is a signatory to the Berne Convention and is obligated to recognize copyrights created in any other signatory country, proving the existence of a foreign copyright (and its contents) is often difficult and sometimes impossible in China, whether before a Chinese court, a Chinese agency, a Chinese e-commerce site or otherwise. From a practical standpoint, it’s always better to have a Chinese copyright registration.

Let me know if you need further clarification.

Your thoughts?

 

China patents and China copyrights
  Who owns your China IP? Get it in writing.

Conceptually, the basis of the “work made for hire” (often shortened to “work for hire”) doctrine is clear: employers should own (some) rights to work created by their employees, whether such work is protectable by copyright, patent, or some other IP right.

But legally, it’s as clear as mud. The “work for hire” doctrine actually only applies to copyrights. Patents are covered by the “hired to invent” and “shop rights” doctrines in the US, and by the “invention for hire” doctrine in China. And though the patent doctrines have some similarity with the respective copyright doctrines, they are not the same. Not even close.

Legal scholars have explored in some detail why copyrights and patents for employee-created work are treated differently in the U.S. (see here and here), and make the credible argument that a uniform doctrine should apply to both forms of IP. I am unaware of similar scholarship explaining why copyrights and patents are treated differently in China, but note that modern Chinese IP law is based on Western models, and was largely adopted as part of China’s (relatively) recent accession to the WTO. Suffice it to say, the default rules regarding copyrights and patents for employee-created work are different under both Chinese and U.S. law, and employers need to understand those differences or be caught unawares when it comes time to enforce their IP rights.

As I explained a couple months ago in this space, Chinese copyright law is quite employee-friendly.

Per Article 16 of the Copyright Law and Article 13 of the Regulations for the Protection of Computer Software, the default rule in China is that an employee will own the copyright to anything they create during the course of employment, except for (1) “drawings of engineering designs and product designs, maps, computer software and other works which are created in the course of employment mainly with the material and technical resources” of the employer and (2) computer software developed at the employer’s direction or as an inevitable consequence of the employee’s job description. For all other works, the employee will own the copyright; the employer has a two-year exclusive license to use the copyrighted material, and thereafter a non-exclusive license.

If an employer (say, a WFOE) wants a different rule to apply to its employees’ creations, it needs specific language in a signed contract with the employee that assigns all rights in any “work for hire” to the employer. Such contract should be in Chinese and governed by Chinese law, and signed at the beginning of employment.

Chinese patent law, by contrast, is rather employer-friendly.

Per Article 6 of the Patent Law and Rule 12 of the Implementing Rules of the Patent Law, the default rule in China is that an employer will own the patent rights to any invention for hire, which includes any invention created: (1) within the scope of employment, (2) outside the scope of employment but nonetheless assigned by the employer as a task, (3) within one year after the end of employment and satisfying either of the two previous conditions, or (4) mainly by using the employer’s resources. In other words, pretty much everything.

Employers do not need to sign a specific agreement with employees to own the patent rights to such inventions; nonetheless, it is always a good idea to do so, to avoid any confusion. If you’re an employer, the last thing you want is an argument with your employees about whether their creation is an invention protected by patent (and therefore your property) or a creative work protected by copyright (and therefore their property).

The bottom line is that all employers in China involved in creative work should enter into a comprehensive IP ownership agreement with each employee at the beginning of employment. The agreement should be in Chinese and governed by Chinese law, and should unequivocally establish the employer’s ownership of any works created by the employee, whether governed by copyright, patent, or otherwise. Putting all this in writing will protect the employer’s rights, and just as importantly, it will make those rights clear to both sides. A well-drafted agreement can stop a dispute before it even arises.