Grey Market Goods and ChinaIn this projected 4-part series we’ll take a closer look at grey market goods and China. In part 1, we discussed what grey market goods are and why manufacturers get so worked up about them. Today, in part 2, we’ll look at how grey market goods are regulated in China. In part 3, we’ll look at how grey market goods are regulated in the United States. And in part 4, we’ll look at grey market goods and Chinese factories, and what foreign companies can do to protect themselves.

Part 2: How Are Grey Market Goods Regulated in China?

One of the minor mysteries of modern China is how every mall has so many luxury-brand stores that seem never to have anyone shopping inside. I’ve read numerous explanations for this disparity, none of them entirely satisfactory: the shops are loss leaders in an effort to build brand loyalty in China; the shops are highly subsidized by mall owners to bring in other tenants and/or to give them face; all of the sales are made after hours to Party officials’ relatives and mistresses; people just aren’t paying attention at the right time.

But one answer for the empty stores, surely, is the enormous size of China’s grey market for luxury goods. In 2015, Chinese citizens spent $22.5 billion on luxury goods purchased in China – and more than twice that amount abroad.

As noted in part 1, grey market goods exist because there’s a market for them, and that market exists because grey market goods are either cheaper or have better availability. But in China there’s a third driver of the grey market: quality. It’s ironic because in the US, grey market goods have a strong whiff of caveat emptor; if you buy a product outside the normal channels you accept the risk that it might be lower quality. But in China, the calculus is flipped: because counterfeiting is so rampant, the chance of buying a fake is considered to be much lower if the goods come from overseas.

Historically, a significant proportion of grey market luxury goods in China have come via daigou, personal shoppers (usually young Chinese women) who live or travel overseas and purchase luxury goods for well-heeled clients in China. I’ve seen this in action: at Seattle Premium Outlets’ Burberry Store, you sometimes have to wait in line just to get in the store, only to be ignored when it becomes clear you’re not there to drop twenty thousand bucks.

Other grey market goods in China are purchased directly by consumers, either while traveling overseas, or from foreign reseller sites like eBay. Grey market goods can also be found on Chinese e-commerce sites like Taobao and 1688.com; these goods are usually purchased “on spec” overseas and then resold in China. (The daigou as impersonal shopper.) Baby formula and iPhones have, at various times, been extremely popular grey market goods in China.

Grey market goods are legal in China, or at least not an infringement of the brand owner’s IP rights. Indeed, Shanghai’s Free Trade Zone has a car dealership that specializes in grey market automobiles.

But many grey market goods in China run afoul of the law in another way: customs fraud. When the goods are brought into China, they are not declared at all or are declared at lower values. Defrauding Chinese customs is an essential part of many a daigou’s profit margin, because China has historically imposed significant duties on a range of luxury imports.

China has attempted to crack down on illegal grey market importation through a number of means, including (1) higher taxes on goods brought in by travelers as part of their luggage, (2) lower taxes on goods imported through legitimate channels; and (3) increased penalties for those caught falsifying customs declarations.

The effectiveness of these measures is a bit hard to gauge: some reports say the measures are eliminating large-scale daigous; others suggest that the enforcement is both haphazard and overbroad, and that when Chinese people attempt to order directly from overseas retailers, the packages are frequently rejected at the border, with the result being that people are even more reliant on daigous to get the products they want.

On a certain level, foreign brand owners might not be that concerned about grey market imports in China – Christian Louboutin gets paid whether a pair of pumps is bought in Shanghai or in Houston and then taken to Shanghai and resold. But they should be concerned, for several reasons. First, they want to be seen as cooperating with the Chinese government on tax and customs issues. Second, having to deal with so many purchases by Chinese travelers overseas is a drain on resources (staffing, marketing, logistics) and distorts the worldwide revenue stream. Third, sometimes the prices in China, even accounting for taxes and tariffs, are higher than they are abroad — although a number of brands have normalized prices in China in an attempt to dissuade gray market sales. Fourth, the daigou phenomenon increases the amount of intermediation between brands and their consumers, which is exactly the opposite of what companies want. How can you market to customers when you don’t know who they are? And how can you control your brand identity when you are not the seller?

In part 3 of this series, we’ll look at how the United States regulates grey market goods.

China copyright lawI spoke in Beijing last week at a conference on legal protection of sports broadcasts, organized by the National Copyright Administration of China (NCAC) and the United States Patent and Trademark Office. Other speakers included Chinese judges, Chinese and American lawyers and academics, sports league and broadcaster general counsel, and American and European IP officials. What follows is based on the speech I gave at the conference.

Copyright in sports broadcasts is not explicitly recognized in China by statute, though it has been recognized in some Chinese copyright cases. One of the ongoing debates in China copyright circles is whether explicit statutory recognition ought be given to copyright in sports broadcasts. Any such recognition would involve introducing a new class of copyright subject matter or the expansion of an existing class.

The introduction or expansion of a class of copyright subject matter is often rationalized as limiting free riding and providing an incentive to invest. In the absence of a clear sports broadcast copyright in China, one might therefore expect to find at least some evidence of market failure. However, a quick look at the business of broadcasting certain sports in China indicates a strong market — perhaps even a bubble.

Consider, for instance, Chinese Super League matches. China broadcast rights are, I understand, currently held by an associate of China Media Capital for a five-year term ending in 2021. Rights for the first two years were reportedly acquired for 300 million USD. Rights for years three, four and five were reportedly acquired for a total of one billion USD. In an indication this was a good deal for the head-licensee, Le TV committed to paying 414 million USD for a two-year sub-license, though Le TV subsequently defaulted and, as I understand it, the rights now lie with online TV service PPTV.

Now consider English Premier League matches. China broadcast rights are, I understand, currently held by Super Sports for a six-year term ending in 2020. These rights were reportedly acquired for 65 million USD. Note that this figure represents an assessment of market value made in 2013. For the three years commencing in 2020, PPTV has reportedly bid 700 million USD. This makes China the Premier League’s largest foreign broadcast market.

If these deals are any indication, the market is apparently already behaving as though sports broadcasts are protectable. But there is no proprietary foundation for this protection. The present foundation is contractual. The organizer of the game, a sports league, is the source of all rights in the game. The sports league relies on the “economics of exclusion” — the ability to monetize by controlling access to a sporting venue, in much the same way a theatrical exhibitor of a motion picture controls access to a movie theatre. In some cases, and in some courts, copyright protection has been recognized in China but a consistent jurisprudence has not emerged. The more readily available legal means of protection involve anti-unfair competition laws or the use of administrative or even criminal sanctions. Chinese tort laws and “related rights” laws are also invoked by rights holders when they fight piracy. Whatever the actual or potential legal redress for piracy may be, in assessing the applicable law in China it must be appreciated that a sports broadcast is always a special type of broadcast presenting unique challenges.

What makes sports broadcasts special is that the viewer wants to watch a game as it is played at the venue from which the broadcast is being made. The replay or the highlights are not as valuable as the live feed. The threat posed by illegal downloads after a game concludes is minimal. From a technical perspective, a live broadcast of any kind involves the compression of pre-production and post-production into a seamless and immediate production. That production, and the broadcasting of it, must occur simultaneously. Incidentally, sports leagues report that the advent of hand-held live streaming technology is not a major threat to their businesses because the quality of the stream lacks the production values of a professional broadcast.

The unique challenge of a sports broadcast is that satisfactory relief from a pirated version must be swift. It must be pre-emptive (in advance of the game) or instantaneous (well before the game ends and, ideally, within the first quarter hour). In either case, only urgent injunctive relief can ever be entirely satisfactory. Non-urgent preliminary injunctive relief will not solve the problem, and damages and accounts of profits are insufficient remedies.

Even if sports broadcasts are accorded clear and consistent protection under Chinese copyright law, it is fair to say that uniform urgent injunctive relief (as opposed to preliminary injunctive relief) is still largely beyond the capacity of the Chinese legal system. Therefore, the recognition of copyright in a sports broadcast would not, of itself, solve the underlying need for urgent relief. Still, China’s legal system in its present form does allow rights-holders to tackle repeat offenders, and the large Chinese platforms are already mostly respectful of broadcast rights anyway. In many ways, the real challenges are presented by the smaller, and often ephemeral, pirate sites. Even if these pirate sites can be identified and located, the people behind them nearly always lack substantial assets and are therefore rarely worth pursuing. To be effective in the present environment a sports league (or its local partner) needs a team of Chinese-qualified in-house litigators who understand the piracy landscape and are capable of engaging in guerrilla warfare using technological as well as legal or administrative means.

Despite the existence of these other means, despite evidence pointing to a strong market, and despite the inherent limitations of an action for copyright infringement in China, there is little doubt that explicit statutory recognition of sports broadcast copyright would provide greater certainty and support greater market efficiency. This is especially so if this statutory recognition were given to a broad-based, technology-neutral right embracing traditional broadcasting as well as streaming.

Industry stakeholders are not resisting the recognition of such a sports broadcast copyright. There is apparently a broad consensus among broadcasters and sports leagues on the issue. There is apparently no division between foreign and Chinese interests on this point either. Nor is a sports game sensitive — it is not subject to the kind of censorship, quotas, and approvals processes applicable to motion picture or episodic content. Nonetheless, there is ongoing resistance to the recognition of copyright in sports broadcasts. Resistance has arisen, I understand, because recognition of copyright in sports broadcasts would require the NCAC to change its understanding of the meaning of a copyright “work” and the applicable standards of “originality.” Absent market failure this issue is perhaps not viewed as a major priority. Whatever the reason, until the NCAC resolves this and other current issues it cannot present a coherent solution to the State Council Legislative Affairs Office (SCLAO). The SCLAO is therefore not in a position to recommend final legislation to the National Peoples Congress. The discussion has been bogged down for nearly a decade. All the while, the sports broadcasting industry is getting further and further ahead of the law.

As an important source of or influence on China’s copyright law, the Berne Convention, with its focus on works and authorship, provides a frame of reference for a consideration of the underlying problem in China. China became a party to the Berne Convention in 1992. Berne sets a number of minimum standards applicable to works and authors. A broadcast right is among those rights that must be recognized as exclusive rights of authorization. Authors enjoy the exclusive right of authorizing the broadcasting of their works.

China’s current copyright law has been in effect since 2010. It too applies to “works,” which include, among other things, works of literature, art, natural sciences, social sciences, engineering and technology, which are created in certain “forms.” With the exception of computer software, these forms are limited to specific kinds of works enumerated in the law. The sixth form in the list is “cinematographic works and works created by a process analogous to cinematography.” The ninth and final form in the list is “other works as provided for in laws and administrative regulations.” The rights comprising copyright in these works include the broadcast right. China also recognizes related, neighboring or “small” rights in other subject matter including video recordings. The protection given to these other subject matter is lower than that given to works. The standard of originality expected of a video recording is much lower than that applicable to cinematographic works.

In China, the sports broadcast copyright controversy arises for two reasons. First, because a game of sport is not generally seen as a “work,” so there is no broadcast of a work when a game is broadcast. Second, because even if it is accepted (as it is in the United States) that a broadcast always requires the simultaneous making of a recording, any such recording is insufficiently original to be regarded as a cinematographic work. There is little disagreement on the first reason. The real debate is about the second reason. The competing considerations on this point have been ventilated in the leading Chinese cases. Basically, the debate boils down to whether modern-day live broadcasts, with their professional directors, multi-camera units and advanced editing techniques, are producing content sufficiently original to qualify as a copyright work. It seems obvious to anyone with even a basic understanding of the production process that sports broadcasts are a form of entertainment every bit as sophisticated and entertaining as motion picture or episodic content, the originality of which is already recognized in China.

It will be seen, then, that the minimum standards of Berne, as reflected in Chinese copyright law concerning “works,” are at risk of becoming impediments to the recognition or creation of other copyright subject matter. There is an opportunity here for China to go its own way over and above minimum standards.

Other nations have, of course, gone their own ways and I want to mention two that have found instructive solutions to the problem of “works”: The United States and Australia. Both are obviously common law countries. There are many others, including civil law countries. Incidentally, as a last resort, those who oppose grafting common law principles to the Chinese legal context are fond of saying that German law is the proper source of Chinese copyright law and German law is inconsistent with the common law point of view on the points at issue. The trouble is that claims of this kind are generally made without a German copyright lawyer on hand to clarify the point. A German copyright expert would obviously make a welcome addition to future panels dealing with this issue.

The United States became a party to Berne in 1989. US copyright law is concerned with protecting “original works of authorship.” The recognized works include motion pictures and other audiovisual works. In US jurisprudence, sports games are not “authored” in the relevant sense so they are not “works.” Even so, sports broadcasts in the United States are entitled to copyright protection. The key to their protection is that the broadcasting of a game is understood as always involving the “fixing” of an audiovisual work, and the fact that this fixing occurs simultaneously with a transmission does not matter. This elegant solution was applied in 1976 and obviously did not prevent the US from later joining the Berne Convention.

Australia became a party to Berne in 1928. Australian copyright law is concerned with protecting “works” and “subject matter other than works.” The scope of protection for subject matter other than works is lower than that for traditional works, but this has not stopped them being treated as full copyright subject matter. Subject matter other than works include sound recordings, cinematograph films, and broadcasts. Copyright in a television broadcast is the exclusive right to make a cinematograph film or sound recording and to re-broadcast or communicate to the public otherwise than by re-broadcasting. The maker of the broadcast is the copyright owner. In Australia, copyright protection applies to the signal itself. There is no need to stretch the definition of “work” to include a broadcast. There is no need for the broadcast to contain a work.

These two examples demonstrate how a nation can recognize a certain type of copyright without compromising the minimum standards of Berne or being strangled by a debate about originality standards.

The sports broadcast problem could be solved in China if broadcasts were recognized as involving the fixing of a cinematographic work, of a work created by a process analogous to cinematography, or even of a video recording. Alternatively, some form of recognition could arise within the existing category of “other” works or through the mooted inclusion of a new general category of “audiovisual” works. These solutions would involve minimal disruption to China’s existing copyright system. All they would require would be an acknowledgement that a modern sports broadcasts satisfies a minimum standard of originality. It would not be necessary for a game of sport to be deemed a copyright work. Ultimately, though, these solutions would need to embrace a broad-based, technology-neutral definition of broadcast and they would need to depend on continued improvement in the availability and efficacy of urgent injunctive relief for copyright infringement.

Grey Market GoodsIn this projected 4-part series we’ll take a closer look at grey market goods and China. In part 1, we’ll consider what grey market goods are and why manufacturers get so worked up about them. In part 2, we’ll look at how grey market goods are regulated in China. In part 3 we’ll look at how grey market goods are regulated in the United States. And in part 4, we’ll look at grey market goods and Chinese factories, and what foreign companies can do to protect themselves.

Part 1: What are grey market goods, and why do they matter?

Grey market goods are authentic goods sold by unauthorized means. Unauthorized does not necessarily mean illegal; it simply means the goods are coming from someone other than (1) the original manufacturer or (2) a third party to whom the manufacturer has granted permission to resell the goods.

E-commerce has made all manner of grey market goods readily available. When I purchase Gillette razor blades on Amazon for delivery in the United States, the cheapest sellers are all offering grey market blades packaged for sale overseas (typically, Asia, Eastern Europe or South America). Although it’s unclear if these blades are exactly the same as what I would buy at a drugstore in the U.S., the price difference is significant enough that I’m willing to take the chance. And that’s just one example. Any product that has a significant difference in price or availability across different countries is likely to be sold on the grey market. And the flow of goods could go in any direction; it just depends on price and the demand. As China’s consumer class has grown in strength, so has the market for grey market goods. Products as disparate as Apple’s iPhone and Pfizer’s Viagra did significant business in China as grey market goods before they were officially available there.

Grey market goods are hardly a creation of the Internet, though.

A Vancouver, BC man named Michael Hallatt grew tired of waiting for Trader Joe’s to come to Canada, and since 2012 he has operated a store in Vancouver called Pirate Joe’s that stocks nothing but goods bought at Trader Joe’s stores in Washington State. All of the goods are purchased at retail prices in Washington and then marked up for sale in Canada. Trader Joe’s has been trying to shut Hallatt down for years, and has sued him for trademark infringement, unfair competition, false designation of origin, and false advertising.

Two weeks ago Pirate Joe’s announced it was closing its doors, which would have made the lawsuit moot, but at the end of last week Hallatt reversed course and announced on the PJ’s website that he was back in business. What makes Pirate Joe’s story interesting for IP attorneys is how it calls into question the limits of grey market sales. Hallatt certainly seems to enjoy tweaking Trader Joe’s and skirting the edge of the doctrine, but as the Freakonomics blog pointed out in 2013, reselling Trader Joe’s goods is no different than reselling goods on eBay or at a yard sale. The case is still pending.

In another well-known story, Costco purchased large quantities of Omega Seamaster watches from an authorized reseller in Europe, then resold them in the U.S. as grey market goods. Because the prices in Europe were so much cheaper than the retail prices in the U.S., Costco was able to add its usual markup and still price the watches at a substantial discount. Omega sued, but after a protracted battle, Costco prevailed in 2015.

It may be self-evident that the reason grey market goods exist is because there’s a market for them: grey market goods are either cheaper than the goods available through standard channels (e.g., the Omega watches at Costco and the Gillette razor blades on Amazon) or they are simply unavailable through standard channels (e.g., the goods at Pirate Joe’s). A reasonable argument can be made that grey market goods are in fact good for many manufacturers, because they increase brand recognition and product loyalty. And profits! All of these products have been sold by the manufacturer at a price (if not a use) they deemed acceptable.

Nonetheless, grey market goods are often decried by original manufacturers for reasons including the following:

  1. Grey market goods are often difficult to distinguish from counterfeit goods, which harms the reputation of the brand and the manufacturer.
  2. Grey market goods are often customized for the particular market for which they are made, and are unsuitable for use in other markets. This too harms the reputation of the brand and the manufacturer.
  3. Grey market goods often have different warranty protection — or none at all — when sold or used outside the market for which they were made. This causes customer frustration and dissatisfaction.
  4. Grey market goods sometimes are of lower quality (hence the lower price), which harms the reputation of the brand and the manufacturer.
  5. Grey market goods often interfere with the business expectations of the original manufacturer and its licensees.

In Part 2 of this series, we’ll examine how China regulates grey market goods.

China CopyrightsOn Friday June 23, in collaboration with the National Copyright Administration of China, the United States Patent and Trademark Office will be putting on a one-day conference on legal protections for sports broadcasts. This event will take place at the Novotel Beijing Peace Hotel and run from 9:00 a.m. until 5:00 p.m. that day.

There is no charge to attend.

The leader of our China entertainment group, Mathew Alderson, will be speaking at this event. This event will explore the different ways countries protect the creative content of live events, with a particular focus on broadcasts of sporting events. As China continues to develop amendments to its Copyright Law, now is an opportune time for an in-depth discussion in this area.

The program will bring together US, Chinese, and European government officials, academic leaders, and industry representatives to discuss the importance of providing legal protection for sports broadcast programs, including the role of copyright protection, how sports broadcasts are currently protected in China, the United States, and the European Union, and international perspectives on the subject. Go here for more information on the event and here for more information on how to register or can just contact Ms. LIU Jia and provide her with the following registration information:

1. Your full name
2. Your organization
3. Your full position / title
4. Your email address

Hope to see you there.

China licensing agreements
China Licensing Agreements: The 101

As IP protection in China continues to grow stronger, foreign companies are seeking to access the Chinese market in increasingly sophisticated ways. For many such companies, a license agreement makes the most sense, and to no one’s surprise at our firm, we have been drafting more than ever before. But just because a license agreement makes sense doesn’t mean ANY license agreement will work. You need an agreement specifically drafted for use in China.

1. Require an upfront payment. It makes sense to require Chinese licensees to make an upfront payment. An upfront payment shows good faith on the part of the licensee, and also motivates the licensee to monetize the licensor’s IP. Even more important, an upfront payment establishes that the Chinese side is actually able to make payments. This sounds trivial, but we have stopped counting the number of deals that fell apart because the Chinese side’s bank refused to make payment because of a license agreement’s content. (Deals involving Chinese educational institutions are particularly tricky.) Even a payment as small as a few thousand dollars can be sufficient to provide an adequate test, but ideally it would be more than $50,000 so you can be sure the payment was not made under the annual $50,000 exemption. And the payment should be from the company that executed the agreement. If you get a payment from an individual (like the licensee’s CEO) or a related company, chances are that the company is just playing games.

2. Register the agreement with the relevant Chinese authorities. Every license agreements in China should be registered, and in many cases registration is mandatory. For instance, any technology transfer agreement for technology on MOFCOM’s “restricted” list must be approved by MOFCOM before the agreement can become effective and the technology can be imported legally. Almost every bank in China requires license agreements to be registered with the relevant IP authority before approving payments: trademark license agreements must be registered with the Chinese Trademark Office (CTMO); patent license agreements must be registered with the State Intellectual Property Office (SIPO); and copyright license agreements must be registered with the Copyright Protection Centre of China (CPCC). And any patent, trademark, or copyright license agreement must be registered before it can be recorded with Chinese customs – which is particularly important if you want Chinese customs to help with anti-infringement work and if you don’t want them to seize your licensee’s goods.

In general, you want the Chinese side to handle all registrations and for the license not to be effective until they have provided proof of such registration. The one exception to the former is trademark licenses, which are required by regulation to be handled by the licensor. Either way, the license agreement should provide that the license will not be effective until proof of registration is provided. This requirement goes hand in hand with requiring upfront payments, and serves as a good test of whether the agreement was properly registered. Registration takes at least a few days, so if you receive payment on the same day the agreement was executed, you know the agreement was not registered and the licensee is not being straight with you. Though you want the Chinese side to handle all license registrations (except trademark licenses), it is incumbent upon you to make sure that this was actually done.

3. Limit the territory to China. This is not an absolute requirement but often makes practical sense: Chinese licensees will often ask for rights to numerous ASEAN countries, but it generally makes sense for you to make them prove themselves in China before granting them rights to Malaysia or Vietnam or wherever. Also, China may not statutorily prohibit gray market sales, but you can contractually prohibit your licensee from selling extraterritorially via a well-drafted contract provision.

4. Include strong language on confidentiality and IP protection. Your license agreement should make clear that the IP belongs to you, not to your licensee, and that your licensee is not allowed to misuse the IP or to take any actions that would interfere with your ownership of the IP. And upon termination, the IP will all return to you. The proper language is critical to protect you from someone challenging your trademark three years down the road for non-use.

5. Make sure you own the relevant IP. This should go without saying: you can’t license something you do not actually own. But I am still going to say it, because we are regularly asked to help companies license IP they don’t actually own in China. For patents and trademarks, ownership in the U.S. or Europe is of little or no relevance to ownership in China; the way to own IP in China is to register it. Putting this requirement in the license agreement places the obligation on the licensor, but it’s an obligation you should be happy to shoulder.

6. Ensure the agreement is written in Chinese, governed by Chinese law, and requires dispute resolution in Chinese courts. For all the usual reasons.

Any questions?

 

 

China Entertainment LawThe leader of our China entertainment group, Mathew Alderson, will be speaking on a panel at Peking University School of Law on June 21st. The panel is entitled “Looking Beyond: Opportunities and Challenges.” It will be part of the 2nd Annual China-US Entertainment Law Conference, presented by Peking University School of Law, the US Patent and Trademark Office, Loyola Law School Los Angeles, and the Beijing Film Academy. Mathew’s panel will be one of four dealing with current issues in China film, TV, gaming and music. These issues include fair use of live game streaming, copyright protection of live broadcasts, music licensing issues, protection of celebrity names, risk management, and talent agency contract dispute resolution.

The titles of the other three panels are:

  • Year in Review — Recent Developments in the China-US Entertainment Industry
  • IP Issues in the China-US Film, TV, Music and Gaming Industries
  • Other Issues in the Film, TV, Music and Gaming Industries

This is a major event for which the organizers have assembled a great cast of Chinese and foreign experts. For further details see this flyer: US China Entertainment Law Conference.

Go to this link to register.

We hope to see you there.

Eight Reasons to File Your China Trademark
Eight Reasons to File Your China Trademark

Spring is coming to an end, but it’s not too late to conduct a little spring cleaning. First on the list: get your IP in order and register your trademarks in China. The following are 8 reasons to do so.

1. Because you are having branded goods manufactured in China, and don’t want them seized for trademark infringement. China is a first-to-file jurisdiction for trademarks and this means that if you don’t register your trademark, someone else could and probably will. Trademark squatters with particularly bad intent will register the trademarks of foreign companies manufacturing goods in China, and then hold those companies for ransom by threatening to seize their goods for trademark infringement. Export-only manufacturing in China generally constitutes infringing trademark use and so even if you are just manufacturing your product in China for sale elsewhere, failing to register your trademark used on that product puts you at great risk of losing your brand name or your logo to someone else in China and not being able to continue having your product made in China. Why expose yourself to that kind of risk?

2. Because you want to take down infringing listings on Chinese e-commerce sites. If you only have a trademark registration in the US or EU or some other jurisdiction outside China, you should be able to submit takedown requests to foreign-facing sites like Alibaba. But to remove listings from domestic Chinese e-commerce sites like Taobao and 1688.com you almost always need a Chinese trademark registration. Many other e-commerce or social networking sites require a Chinese trademark registration and every site will take action more quickly with one. Do you really want to spend your time arguing with DHgate’s customer service representatives? Do you really want to take the risk of having someone selling products with your name on them all around the world (or even just in China)?

3. Because you want to enter into a licensing agreement with a Chinese distributor. If you are going to license your products to a Chinese distributor and those products will be sold in China under the same brand name, then you need to own that brand name in China. You can’t license something you don’t own. A good Chinese distributor will insist that you register the trademark first; a less experienced (or shady) distributor might register your trademark “on your behalf” without telling you.

4. Because you want to sell goods in China. This is an absolute no-brainer. If you are selling branded products in China without having registered a trademark, there is a near 100% chance someone else will register your trademark in China and then come after you for trademark infringement. China does not recognize common-law trademarks and only has minimal recognition for “famous” marks. Just register your trademarks. And register the Chinese-language version of your trademarks, too.

5. Because you want to have counterfeit goods seized by Chinese Customs. With few exceptions, a foreign trademark has no relevance in China. It certainly means nothing to Chinese Customs. Would U.S. Customs and Border Patrol seize goods based on a Chinese trademark registration? Not a chance. And the only way to have Chinese Customs seize infringing goods is to first have a Chinese trademark registration, and then register that trademark again with Chinese customs.

6. Because you want to file a lawsuit in China against notorious counterfeiters. This seems obvious but is sometimes overlooked. You do not have any trademark rights in China unless you have registered your trademark in China. If you attempt to file a lawsuit in China for trademark infringement without actually owning the trademark in China that is allegedly being infringed, you will be laughed out of court. You would be surprised (or maybe you wouldn’t) how often our China IP lawyers are asked to sue a Chinese company for trademark infringement, only to discover that the company that engaged us has no China trademark and hence no basis for a claim of infringement.

7. Because even though you’re not selling goods in China, you might want to someday. It’s no mystery that China is the biggest market in the world, with monstrous buying power and a rapidly growing consumer class. It’s the rare company that can say it is categorically uninterested in selling to China for the foreseeable future. Currently it takes at least a year from the trademark application date to the registration date, and that assumes everything goes smoothly. Having a trademark registration in hand will make it that much easier for you to enter the Chinese market.

8. Because you want to make your company a more attractive buyout target. This goes hand in hand with the above reason. The annals of history are rife with tales of companies who found out too late that a trademark squatter had already registered their trademark in China. Don’t be that company. A company that has its IP all zipped up will always be more attractive as a buyout target. We have represented many a smart company that registers trademarks in China for no other reason than to increase its value to investors.

China trademark lawyersA number of Chinese trademark law firms have of late been trying to drum up American clients on China trademark matters. I say this because our own China trademark lawyers have been getting a steady stream of emails from U.S. lawyers and companies contacted by these Chinese trademark law firms. The Chinese law firms are writing to US lawyers and companies to alert them of trademark filings in China of the same trademarks owned by the company in the United States. These emails from the Chinese trademark attorneys to U.S. trademark attorneys usually go as follows:

We, _________ are a specialized Chinese IP law firm. Our trademark research team took note of the following marks from a recent issue of the Chinese Trademark Gazette published on May 6, 2017, open to oppositions before August 6, 2017, Beijing time, NOT extendable. Particulars of the marks are listed below for your reference.

Gazette Clipping

IMAGE

Provisional Approval No.

2——-

Class

7

Goods

Capstans; Pulleys; Derricks, etc.

Application Date

June 14, 2016

Applicant

___________ Outdoor Supplies Co., Ltd.

Address of Applicant

________City, ________ Province, China

For your information, we, ______ IP, are a Chinese IP law firm and member of various international organizations, including INTA, ____, ____, ____. The majority of our clients are based in China, which enables us to regularly send business to our foreign associates. We will be more than pleased to establish reciprocal relationship with your esteemed firm.

We look forward to your reply. If you are NOT interested in our reporting emails of this type, please feel free to let us know via return and we will refrain from bothering you any more, your understanding is highly appreciated.

The U.S. trademark lawyers — oftentimes not knowing whether the email they just received is a scam or not — then write us asking us what is going on and what their client should do. Our response is usually something like the following:

  1. Yes, something is actually happening with the marks in China. On June 14, 2016, the Chinese company _______ Outdoor Supplies Co., Ltd. filed applications for the stylized “_________” mark in Classe 7. I have attached copies of the relevant trademark information. Though it’s in Chinese you can see that the stylized mark is an exact copy of your client’s. The marks have been approved by the CTMO examiners and were published in the May 3, 2017 edition of the Trademark Gazette. If three months pass and no one files an opposition, both marks will proceed to registration.
  2. Your client could indeed file an opposition to one or both marks. But unless the Chinese company has or had a business relationship with your client, the odds of a successful opposition are low. China is a first-to-file jurisdiction and the grounds for a bad-faith filing are limited. It is unlikely your client’s mark would be considered “well-known” enough to convince the CTMO that these filings were in bad faith. The Supreme People’s Court did issue some guidance suggesting China would be taking a harder line on trademark squatters, but we haven’t seen much difference in the way trademarks are examined. Note though that these oppositions are relatively inexpensive.

It does not appear the Chinese company is a trademark squatter per se; they only have two other trademarks (both registered) in their name. My guess is they actually intend to use your client’s mark in China to market or sell their own goods.

Your client has the following options at this point:

  1. File an opposition to one or both of the cited marks. If these marks are important to your client and they understand the low odds of success, they probably should do this, in large part because the costs of their doing so are so low.
  2. Contact the Chinese company and attempt to purchase the mark.
  3. Wait three years to see what, if anything, the Chinese side does with the mark. As you perhaps already know, if the mark has not been used in commerce for three years it can be cancelled for non-use. See China Trademarks: When (and How) to Prove Use of a Mark in Commerce.

Please let me know if you have any questions or would like to discuss further.

The real key is what we are always saying here on this blog: Register your trademarks in China. Like today.

Have you gotten one of these? What did you do and with what results?

Amazon lawyers
How to keep duplicates off Amazon

American and European companies that have their consumer products made in China constantly have to contend with their own products or a counterfeit of their own products showing up on Amazon. Our lawyers frequently get inquiries from companies that sell their products on Amazon and have seen their sales fall by 30 to 80 percent because they are now having to compete with duplicate/counterfeit products sold on Amazon. These inquiries spiked when Amazon started encouraging Chinese companies to sell their products on Amazon.

The following are five key things you can do to reduce the risk of your product showing up on Amazon and to better position yourself to remove those products if they do show up.

  • File for United States Trademark Protection. Amazon is quick to remove products that clearly violate a registered U.S. trademark. If you ask Amazon to remove a product because it “duplicates” yours, but it does not use your trademark, Amazon virtually never will do so. This is true even if the offending product violates one or more of your patents. In our experience, Amazon typically will not take down cloned products without a court order. 
  • Block your China Manufacturer From Competing with you. In Your China Factory as your Toughest Competitor we noted how our China attorneys have become fond of pointing out to our clients, “since you will essentially be educating your Chinese manufacturer in how to compete with you, you need contracts that will at least limit what it can do when it does so.” The most deadly copiers of all are those that are literally making your exact product. How do you compete with that if they are selling it for 50% less than you are?
  • Copyright your key photos in the United States or in China or in both countries. Counterfeiters are often lazy. It never ceases to amaze me how often Chinese copiers will use our client’s own photos (oftentimes downloaded straight from Amazon) on Amazon to sell their products. We have on many occasions been able to remove entire listings because the photo or photos on those listings violate our client’s registered copyright in either the United States or in China. Technically, in both the United States and in China, you do not need a registered copyright to hold the copyright to a photo, but you are far more likely to get a listing removed from Amazon for copyright infringement if you have a registered copyright. A registered copyright in one country (either China or the United States, or even some third country) should be enough for this, but where you choose to register should depend on a whole host of factors. It is true that if you remove a listing for copyright infringement of one of your photos, the company that violated your copyright can just put up a new listing with a new photograph that does not violate your copyrights. Surprisingly enough, we have found that they generally just move on instead, either because they were blocked by Amazon from listing or because they simply choose a different product to push.  See China Copyright Law: We Need to Talk.
  • Build your brand, be distinctive, and change often. This is non-legal advice, but I have found that companies that work from day one on building their brand and their image and have well-crafted Amazon listings are simply more difficult to copy. Being difficult to copy not only means that you will be copied less often than your competitors but it also means that when copied the negative impact on your business will be less. And if you are constantly changing up what you do, you can sometimes stay at least somewhat ahead of your imitators.

What are you seeing out there?

 

China defamation lawMaking a biopic – a biographical movie about real people– is complicated. And one of the biggest concerns is liability for defamation. In an ideal world, filmmakers would get everyone depicted in the movie to sign a release. But that’s often impractical: people want too much money, too much control over how they are depicted, or both. And that assumes filmmakers can even find the people in question. It’s understandable; nobody wants to see the embarrassing things they’ve done memorialized onscreen. But a movie without conflict isn’t much of a movie.

In the United States, filmmakers have two main legal tools at their disposal when countering allegations of defamation. First, the truth is a defense to defamation. Even if Ike Turner didn’t like how he was depicted in What’s Love Got To Do With It, that he did in fact beat his wife insulated the filmmakers from liability. Second, you can’t defame someone who is dead. Which (in part) explains The Brittany Murphy Story and many of the other biopics on Lifetime.

But in China, the law on defamation is markedly different. Truth is not a defense, and you can defame someone even if they’re dead. That can (and does) have a chilling effect on biopics in China.

Chinese defamation law is not specifically spelled out as such, but has been developed from Articles 101 and 102 of the General Principles of the Civil Law (enacted in 1987), and several subsequent supporting documents: the Supreme People’s Court’s Answers to Certain Issues Concerning Trials of Cases Involving the Right to Reputation (released in 1993), Understanding and Application of the 1993 AnswersInterpretation of Certain Issues Concerning Trials of Cases Involving the Right to Reputation (released in 1998), and Understanding and Application of the 1998 Interpretation.

As explained in the 1993 Answers, defamation exists if (i) the defendant has committed an illegal act, (ii) the plaintiff’s reputation has been damaged, and (iii) the illegal act caused the damage. Such defamation exists in three circumstances:

  1. Written or oral insults or libel that damage a person’s reputation;
  2. Unauthorized disclosure of personal information that damages a person’s reputation; or
  3. A news report containing “gross error” that damages a person’s reputation.

In Understanding and Application of the 1993 Answers, the SPC clarified that truth was NOT a defense to defamation. If a work insults and damages a person’s reputation, it is defamatory regardless of whether it is true.

The 1993 Answers state that either the allegedly defamed person or their close relatives (defined as spouses, parents, children, siblings, grandparents, and grandchildren) have standing to sue. That rules out almost anyone alive from 1950 onward as a character that can be included without fear of liability.

To be sure, the difficulty in securing effective injunctive relief in China does not create the same sense of urgency to get releases as in the United States. But the existence of the defamation laws, along with the often heavy hand of the Chinese government overseeing content, no doubt explains why so many biopics in China are either hagiographies or set in ancient times. Why take the risk of depicting real people unless the Chinese government has specifically asked you to do so?

Perhaps emboldened by the not particularly artist-friendly laws, a recent lawsuit attempted to extend the protection against defamation to an absurd conclusion. A woman with the same name as a character referenced in Feng Xiaogang’s 2016 movie I Am Not Madame Bovary sued the filmmakers for defamation, alleging that her reputation and health had suffered because a character with her name was described as a slatternly woman of low morals. The character in question, Pan Jinlian, isn’t even in the movie per se – she’s a femme fatale from the classic Chinese novel, Water Margin, who is merely mentioned as a counterpoint to the film’s lead character. This would be like someone named Mata Hari suing a film that mentioned the World War I temptress/spy. If Ms. Pan has a complaint against anyone, it’s her parents for naming her after the character in the novel.

It’s one of the more ridiculous arguments I’ve heard, but at the same time it’s oddly encouraging for two reasons. First, it’s encouraging because the case was dismissed quickly; the judge noted that the character in the movie refers to the character in the book, not to anyone in China that happens to have the same name. Second, it’s encouraging to see that people in China feel confident enough in their legal system to bring a lawsuit when they have been aggrieved, even for something as nonsensical as this.

But if the characterization had been a little closer to the truth, the outcome might have been different.

Another recent Chinese movie, Dearest, was based on a true story about a couple whose child was kidnapped. The woman who was the basis for the lead character alleged the movie made things up about her life and suggested she was unchaste. She threatened to sue for defamation, but the director managed to resolve the dispute with a personal apology. It’s not always going to be that simple.

Even if a movie is not considered defamatory in the United States, it still might be considered defamatory in China. And the Chinese distributor/exhibitor would be held liable. As the Chinese media market continues to grow, and as the Chinese court system continues to gain strength and credibility, I wouldn’t be surprised to see many more defamation lawsuits in China, especially as US studios launch more partnerships with Chinese film companies to create Chinese-language content for the local market.

The bottom line for filmmakers is that getting releases has become all but mandatory. Especially for movies likely to be shown in China.