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

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

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

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

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

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

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

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

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

China trademark Lawyer
Don’t be late with your China IP renewals

Every so often one of our China IP lawyers will get an email from a foreign company (usually a North American or European or Australian company) whose China trademark registration (usually) or China design patent registration (sometimes) did not go as expected. And every so often, one of our China IP lawyers will discover that a trademark our new client paid to have filed in China was never filed. Not to mention the times foreign companies pay to have their trademarks registered in China, only to later learn that the whole thing was a complete scam. In an article entitled Is Your China Lawyer Real, I discussed fake China law firms:

We have many times represented companies that paid money to a Chinese “law firm” for registering a trademark in China or drafting a    manufacturing agreement or forming a WFOE, only to learn that they had instead paid money somebody who had set up a temporary website with the sole intention of bilking the unwary. I have never heard of a real Chinese lawyer doing this. The trick is knowing who is a real lawyer and who is not.

I then discussed the sort of due diligence you should undertake before hiring a China lawyer, or any other lawyer, for that matter.

As more foreign companies are getting to the point where they need to renew/extend their China IP, our China IP lawyers are getting an increasing number of emails involving trademarks or design patents that were filed properly ten or so years ago, but the attorneys/law firms that handled the original filing are no longer around to mind the store. The below email (with a few slight modifications to preclude any identification) is fairly typical of this new breed of problems with which we are having to deal:

Here is one that you may not have come across.

In 2006 I took out a trademark for a product we make through a law firm in Shanghai. It was a small office off Changle Lu and they were very helpful and seemed to know what they were doing. Today I had reason to check the validity of the trademark and noticed that it had expired. I don’t remember anyone talking about this and so rang the attorney’s office to check on what we should do about this. It turns out that the person I was dealing with left in 2009 and the owner of the firm died soon after. They were supposed to send out a renewal notice, which I am sure they did not. They say they did, but our address and phone numbers are unchanged and nobody has died either. It is just another one of those China things. I understand that I now have to go through a special approval process because I did not apply for renewal within six months before its expiration.

I was very new to China when I did this and was quite naive about this sort of thing, believing that I was in the hands of professionals before I realised that they are very thin on the ground here. Also we had yet to set up our systems in the office and so we did not have any automatic reminders popping up, so I accept that it is partly my own fault (but in 2006 I had much more pressing things to occupy my mind). Can you help us on this new go-round?

Fortunately, this particular company came to us in plenty of time to fairly easily remedy this minor misstep. But we are aware of other foreign companies that have lost or compromised their China IP protections by having missed IP filing deadlines.

Bottom Line: Choose your China IP counsel wisely and consider maintaining your own IP calendaring system as well. And don’t be late.

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

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

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

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

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

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

China trademark lawyersOur China lawyers do a lot of work for clients seeking to remove listings of counterfeit goods from Chinese e-commerce sites. Most of these listings are for obviously, sometimes extravagantly counterfeit merchandise, offered in vast quantities at far-below retail prices, with pictures either lifted from the real manufacturer’s website or showing products of dubious quality, and often featuring product variations beyond those offered by the real manufacturer. The sellers are usually unsophisticated trading companies trying to make a quick buck, and we have no trouble removing these listings.

But for some listings, it’s not so clear the merchandise is counterfeit. The quantities are sometimes limited. The prices are not unreasonably low. And the goods appear to be genuine. Many clients still want these listings removed because the sellers are unauthorized resellers, but an Aliprotect takedown request may not be the appropriate strategy.

These goods are by and large “parallel imports” or grey market goods – authentic products legally purchased in a foreign country, imported into China, and then offered for sale. China does not have a clearly articulated position on the legality of parallel imports for trademarked goods, but courts have generally held that selling such goods in China does not constitute trademark infringement.

China follows the “international exhaustion of trademark rights” standard, which means that once trademarked goods have been sold overseas, a brand owner’s exclusive rights to those goods in China have been exhausted, and a reseller’s use of that trademark in China does not constitute trademark infringement. The contrasting standard would be “national exhaustion of trademark rights,” which would only allow resellers to use the owner’s trademark if the first sale of the goods was in China.

But just because China has a de facto policy of allowing parallel imports does not mean that trademark owners are powerless to stop sellers of parallel imports on JD.com or Tmall. Sure, it may not be possible to stop the occasional seller of small lots brought over from America. But it’s the sellers who claim to be authorized dealers or exclusive resellers who are the real problem. And though a trademark infringement claim probably will not work against those companies, it may be possible to succeed with other claims. In the cases where the plaintiff has been able to stop parallel imports, the courts have ruled based on grounds such as unfair competition and consumer protection.

In a 2009 case before the Changsha Intermediate People’s Court, French tiremaker Michelin was able to stop the sale of parallel imports by showing that the defendant that was selling its tires had not properly obtained China health and safety certifications. And in a more recent case, French cosmetic company Pierre Fabre was able to stop the sale of parallel imports by showing that the defendant was improperly holding itself out as the “Chinese official website” and “China shop” for Pierre Fabre, and had used Pierre Fabre’s trademarks and copyrighted material on its own website in a manner suggesting a formal business relationship.

On the other hand, in the past four years courts in Shanghai, Tianjin, and Beijing, respectively, have ruled against Victoria’s Secret, the French wine group Les Grands Chais de France, and the German beermaker Köstritzer Schwarzbierbrauerei in their efforts to stop the sale of parallel imports, because in each case the seller had purchased genuine products, distributed them through standard channels, and sold the products as is without suggesting any relationship between the seller and the plaintiff.

In other words, the appropriate response to e-commerce sales of parallel imports is fact-specific and usually requires additional investigation. Needless to say, before trademark owners even consider taking action, they better make sure they have properly registered their own trademarks.

China lawyer China attorney

Got an email this morning from a good friend and a very experienced China consultant in China. The email included this article on Why Foreign Companies are Shutting up Shop in China. My quick response was that China retail has always been difficult for foreigners to do directly, but that our China lawyers just keep writing distribution agreements that work. And we are doing it for the widest range of products you can possibly imagine.

Our China distribution contracts typically provide for the following, among other things:

  • An exclusivity provision, or not
  • Whether the distributor can subcontract out distribution, or not
  • The geographic and market territory given to the distributor
  • The term of the distribution agreement and what must be done to renew or terminate it
  • The specific products covered by the distribution agreement
  • The methods the distributor can use to sell the products
  • The pricing the distributor can use for the products
  • Payment terms
  • The distributor’s performance and sale requirements
  • Ordering and shipping procedures
  • Who is in charge of what when it comes to such things as defective products, advertising, warranties, technical support, obtaining permits, marketing materials, etc.
  • Rights regarding new or modified products
  • Whether the distributor can or cannot sell the products of others
  • All sorts of things relating to intellectual property (trade secrets, trademarks, patents, copyrights, etc.)
  • Non-competition during or after the term of the distribution agreement
  • FCPA compliance. Anti-corruption compliance
  • Damages for breaches
  • Dispute resolution (venue, choice of law, etc.)

And as noted in our recent post, China Trademarks and Your Chinese Distributor, our China attorneys also intensively focus on protecting our clients’ intellectual property even before the agreement is signed.

And the above is only part of what sometimes goes into such agreements), but for lawyers who do these agreements all the time, they do become at least somewhat standard.

For more on what it takes to distribute your product in China, check out the following:

 

China distributorsClients sometimes come to our China lawyers with an apparent conundrum. They have found a Chinese distributor for their product, and both sides are ready to begin selling products in China right away. As in, tomorrow. So far so good. But our client sells a branded product, and they haven’t registered their brand as a trademark in China. Not so good.

The client knows (perhaps from reading this blog) that the only realistic way to get trademark rights in China is by registering them, because China is a first-to-file country.

And then they learn that it usually takes 12-18 months to register a trademark in China. At this point they become concerned about the nontrivial period when their distributor will be selling their branded product in China without any sort of trademark protection.

They should be concerned. But not too concerned, as long as they file their China trademark application right away and enter into a written agreement with their Chinese distributor. The distribution agreement should contain provisions stating that the trademark belongs to the client and the distributor may use the mark in China, but will not file any competing applications, oppositions, or invalidations.

The distribution agreement should also include appropriate contractual language protecting the IP more generally. And if you want this agreement to work to protect your trademark in China, it is much better for it to be in Chinese.

A distribution agreement with the above provisions (along with countless others, of course) will sufficiently protect your IP as against your China distributor. The remaining concern, which cannot be addressed in a distribution agreement, is infringement by a third party while the trademark application is pending.

Without a valid registration in China, there usually isn’t much you can do to stop a third party from using “your” mark. But any legitimate Chinese company is going to shy away from a strategy that only gives them 12 months to establish and profit from a brand name, after which it must stop using it or risk paying damages. That leaves the counterfeiters, for whom 12 months is more than enough time to make a profit, but who aren’t going to be interested until a brand has developed enough name recognition to be worth ripping off. Still, yet another reason to file a trademark application now. Because the distributor is going to be the one who really bears the brunt of any infringement in China. Sophisticated Chinese distributors know this and so we often have situations where American or European companies come to us after having been instructed by their potential or actual distributors to file their trademarks in China.

One final note: many foreign companies do not create a Chinese brand name before selling their product in China, only to discover that a name has been created for them and registered as a trademark – often by their Chinese distributor. If you haven’t already come up with a Chinese name for your product, do so now, and also make sure your distribution agreement requires the distributor to assign to you any Chinese-language marks that relate to your product that it has already registered.

China trademark takedown
China trademark takedowns

China’s lack of an affirmative trademark use requirement allows trademark owners to register marks in more classes and covering more products and services than what they actually sell. Starbucks is a prime example of a company that has taken full advantage of this strategy by (for example) registering “STARBUCKS” as a trademark in all 45 classes of goods and services.

The benefits of registering in a whole host of China trademark classes really comes into play when dealing with infringing goods on Alibaba and other e-commerce platforms. Many of our clients have found that infringement starts with their core lineup of products but quickly moves to things they haven’t released and perhaps never will. Any consumer product is fair game for knockoff artists. If they can imagine it, or more precisely if they can imagine someone buying it, it will turn up on Alibaba.

Though Alibaba is responsive when you request a takedown for a product covered by your trademark registration, they often will decline to take action if the product is outside the scope of your registration. So if an enterprising Chinese merchant began selling Game of Thrones brand deodorant on Alibaba, HBO might only succeed with a takedown request if it had already registered a trademark covering deodorant.

Registering your trademark is the only realistic way to gain trademark protection in China, and that protection is limited by the classes and subclasses of goods and services covered by your registration. If you want protection for other products, you need to register in the appropriate classes and subclasses to cover those products.

Registering in all 45 classes is not a realistic strategy for most company. But when devising your IP strategy for China, you should think about not just the products and services you intend to sell in China, but also the ones you don’t want someone else to sell under your name.

 

China Lawyers

Happy New Year, everyone!

 

I was asked at a party last night (not kidding) what the China lawyers at my firm saw as the biggest trends/issues for China in 2017, and my answer was the following:

  1. Getting money out of China. This will be THE big issue for 2017. It will be a big issue for both Chinese companies and for foreign companies that are doing business in China.
  2. Technology transfer and technology licensing agreements and, more particularly, the tension between Chinese companies wanting/needing top-line technology and their desire to acquire that technology for way way way less than it is worth.

The above two things took up a large portion of our the time our China attorneys spent during the last 3-4 months of 2016 and I have no doubt that they both will take a up large portion of our time in 2017 as well.

But, hey, if there are any China legal or China business or just pure China issues you want us to be sure to cover in 2017, please let us know via a comment below.

And let’s all do our best to make 2017 a great year!

China trademark registrationUnlike the United States, China does not have an affirmative requirement to prove that a trademark is being used in commerce. You do not have to prove use for a trademark application to proceed to registration, and once a trademark is registered you do not have to prove you are still using it to maintain or renew the registration.

Foreign companies have come to realize that China’s lack of a use requirement is a double-edged sword. On the one hand, it allows trademark squatters to register marks for a wide range of products and services they have no intention of ever providing. On the other hand, it allows “real” trademark owners to register their marks to cover a much wider range of products and services than would be allowed in most other countries. As we have noted before, Starbucks employs this strategy better than anyone: it has registered “STARBUCKS” as a trademark in all 45 classes of goods and services.

However, China will require evidence of use if a trademark registration is challenged for non-use. The basic rule is that once a mark has been registered for three years, it is vulnerable to a non-use cancellation. At that point, if a third party files a non-use cancellation, the owner has two months to provide evidence of use within the past three years.

If you are actively marketing your goods or services in China, then it should be fairly easy to provide evidence of use. Your use of the trademark in question on packages, containers, labels, manuals, advertisements, product displays, signage or at exhibitions are all likely to be sufficient. In general, original documents are required, but when a product has a lot of ephemera this is a low bar.

Where it gets difficult is when the only use of the trademark in question is on a product manufactured solely for export. It is not completely resolved in China whether such use constitutes either (1) use in China with respect to a trademark infringement action or (2) use in China with respect to a non-use cancellation. But in our experience, the Chinese Trademark Office (CTMO) will generally accept manufacturing in China, even if solely for export, as sufficient to defeat a non-use cancellation.

But you still need original documentary evidence!

It is all too common for foreign companies to order products from their China manufacturer for years on end using English-only documents that never identify the trademark on the products, and often never even identify the product with sufficient specificity. That makes it almost impossible to prove use to the CTMO’s satisfaction. What you want is documents that are in Chinese and clearly demonstrate your use of the mark in China on the products covered by your trademark registration: documents like invoices, shipping documents, quality inspections, and customs export declarations. Photographs are helpful to provide context but, standing alone, are usually insufficient to demonstrate use.

Typically, most (or all) of the documents that can prove trademark use for export-only products are held by the factory. So while you are still on good terms with your factory, you should make sure to keep a complete, regularly updated set of documents for each of your China trademark registrations. If things go south with your supplier, you don’t want your trademarks to be at risk too.

China trademark. China Customs.
1. Register your trademark in China. 2. Register your China trademark with China customs.

One of our China lawyers got the following email from a client the other day about an AmCham China IP event:

Just saw that AmCham is putting on this Innovative Approach to Stop Counterfeit Goods and just wanted to congratulate you for having convinced me to institute that approach nearly five years ago.

The “innovative” approach to which both AmCham and the writer of this email are referring is the following, as described by AmCham in its lead-up to this talk:

Many companies with large overseas operations have to deal with lost revenues and reputational damage caused by counterfeit goods. As well as being a large potential market, China is also major manufacturing hub, for both fake as well as genuine products. Despite improvements in the legal framework regarding intellectual property rights, companies are often disappointed by the results of their attempts to prevent the proliferation of counterfeit goods through through the courts, the Ministry of Commerce and local governments.

Now there is a new, innovative approach to stemming the trade of counterfeit products. Based on their experience working with numerous clients, experts … will share details on how the Customs Bureau can help companies in the fight against counterfeits.

Seeing as how none of our China attorneys attended this event, we do not know what was discussed at it. But we can tell you what we have been saying on this blog and to our clients since at least 2013, and that is that not only must you file for a China trademark for your brands and your logos, but you should also then register your granted China trademark with China customs to stem counterfeits of your products from leaving China.

For instance, earlier this year, in China Trademarks: Customs Helps Those Who Help Themselves one of our China IP lawyers, wrote the following regarding the real benefits to be gained by registering your China trademarks with China customs: “For trademark owners, customs seizures can be a valuable part of an anti-infringement strategy. But don’t expect much help from the customs authorities if you can’t be bothered to help yourself.”

But long before that, way back in April, 2013, we wrote a post, Register Your China Trademark Now. Then Register It Again With Customs, where we called for exactly what the title of that post would lead you to expect: that you should not only be sure to file for a trademark in China, you should also be sure to take that China trademark once you get it and register it with China customs. It bears repeating what we said in that post because it so nicely sets out what exactly this will entail and why it is of such importance:

The implication for foreign companies doing business in China is clear: Chinese Customs can help protect your IP from infringement…. What the numbers [of China customs seizures] don’t tell you, however, is that nearly all of the seizures were of goods that infringed registered Chinese trademarks, and that those trademarks had been registered not only with China’s Trademark Office but also with Chinese Customs.

As we have written a number of times — see File Your Trademark In China. Now., China: Do Just One Thing. Trademarks, and China’s Changing Trademark Environment. Why You Need To Register Your Trademark Now. — the essential first step in any China IP strategy is to register your trademarks with China’s Trademark Office. Because China is a first-to-file country, until you register a trademark you have no rights in that trademark. But a trademark registration alone will not limit the spread of counterfeit goods. A trademark registration merely gives you the legal capacity to enforce your rights to that mark, and should properly be seen as one of the pieces in an overall strategy.

For any company concerned about counterfeit goods coming from China, the next step should be registering your trademark with Chinese Customs. This is not a legal requirement but a practical one: though China Customs officials have discretion to check every outgoing shipment for trademark infringement against the Trademark Office database, in reality they only check against the Customs database. No separate registration with Customs means no enforcement by Customs.

If you register your mark with Customs, they will contact you any time they discover a shipment of possibly infringing goods. At that point you have three working days to request seizure of the goods. Assuming you request seizure (and post a bond), Customs will inspect the goods. If Customs subsequently concludes the goods are infringing, they will invariably either donate the goods to charity (if the infringing mark can be removed) or destroy them entirely. The cost of destruction, and of storing the goods during the inspection process, will be deducted from your bond.

Registration with China Customs generally takes three to five months and can only be done after China’s Trademark Office has issued a trademark certificate. The latter currently takes approximately fourteen months, which means that within nineteen months of the date you file your trademark application, Chinese Customs could be helping to stop counterfeit goods from being exported from China.

Nineteen months can be an eternity in the retail world. Whether you’re a toy company producing dolls in Shanghai, a home video company making DVDs in Guangzhou, or a luxury goods company manufacturing high-end purses in Qingdao, there’s only one approach that makes sense. Register your China trademark now. Then register it again.

So though we never saw registering your China trademark with China customs as innovative, we have always viewed it as important, and that really is all that matters in any event.