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China IP lawyers

I am not a big fan of filing Madrid Protocol applications for China. In certain situations, they can work well, but when they don’t work (which is fairly often, especially when applications are filed without forethought) the trademark registration process takes longer and costs more than just filing a national application. See China Trademarks. Register Them In China Not Madrid.

Filing a priority application in China is another matter. As part of the IP modernization begun under Deng Xiaoping’s leadership, China acceded to the Paris Convention in 1984. Under the Convention, if you file a trademark application in one Paris Convention country, and then file an application on a priority basis in another Paris Convention country within 6 months of the date of the original application, you can claim the first filing date as the date for your subsequent applications as well. For example, if you filed a trademark application in the United States on May 1, 2017, you would have until November 1, 2017 to file a trademark application for the same goods/services in China and still be able to claim the May 1, 2017 filing date for your China trademark application.

The vast majority of countries in the world are signatories to the Paris Convention, so the convention has wide-ranging effect. Priority filing is particularly important in first-to-file countries – most notably China – where there often truly is a race to the trademark office between legitimate IP owners and unsavory trademark squatters. See Register Your China Trademark or Go Home.

Priority filing can be an extremely useful tool for China trademark protection, but there are a couple common misconceptions about it. First, priority filing will not improve your odds of registration. The only thing priority filing does in China is establish an earlier filing date. An application filed on a priority basis is considered a national application, and once it is submitted it goes through the same examination process as any other national application. In other words, if you have priority filing for a brand name or a logo that has already been registered as a trademark in China, you will not succeed in getting your brand name or your logo registered in China.

Second, priority filing is not the only option for filing in China. Sometimes clients will contact our China IP lawyers in a frantic rush because they have received notice that they have only a few days before the priority filing window closes on their trademark, and they believe that once that window closes they will not be able to file a trademark application in China at all. Not so! The only effect of the priority window closing is that you cannot claim an earlier filing date. Going back to the earlier example, if you filed a trademark application in the United States on May 1, 2017, and then filed an application in China for the same goods/services after November 1, 2017, the deemed filing date in China would be the actual filing date for China. Priority filing changes the deemed filing date, nothing else.

Another important point regarding priority filing is that priority filings are limited to the same goods/services as in the original application. In this way, priority filing is similar to Madrid Protocol filing, and often not well suited to filing in China. But if the application only covers a narrow range of clearly stated goods/services, and those are the only goods/services that you care about protecting in China, it will work just fine. Priority filing cannot be used for the “Starbucks strategy” of covering all goods/services. But if you use it to establish a beachhead and cover the most important goods/services, it will usually dissuade the first wave of squatters.

Because the description of goods and services for trademarks in the United States (and for many other countries as well) is often quite different than the description of goods and services for China trademarks, for clients interested in filing in both countries I generally recommend filing concurrent applications without regard to priority. But for clients who first file in the United States (or some other Western country) and then realize belatedly that they ought to protect their IP in China as well, a priority filing can be ideal. More than once, a priority application has meant the difference between securing a China trademark registration and having to deal with a trademark squatter with superior rights.

China AttorneysBecause of this blog, our China lawyers get a fairly steady stream of China law questions from readers, mostly via emails but occasionally via blog comments as well. If we were to conduct research on all the questions we get asked and then comprehensively answer them, we would become overwhelmed. So what we usually do is provide a super fast general answer and, when it is easy to do so, a link or two to a blog post that may provide some additional guidance. We figure we might as well post some of these on here as well. On Fridays, like today.

I speak often on China IP before all sorts of groups and companies and after I give my spiel on the topic, I always (if at all possible) open the floor up for questions. Both live and via webinar, the one question I am nearly always asked is some variant of when I think China will “start improving its protection of IP.”

My answer is usually something like the following:

First off, China is already improving on its IP protection and it has been doing so for at least the last decade, slowly but surely. China’s trademark protection is already pretty good and its protection of copyrights and patents has consistently improved. But what do you mean by IP protection? Do you mean government enforcement against counterfeiters? Do you mean the laws as written that allow a private party to sue for infringement? Because China’s IP laws as written have been pretty good for quite some time? When I say China’s IP enforcement has been consistently improving, I am usually referring to the whole package in terms of what a foreign company can do against a Chinese company that has been violating the foreign company’s IP rights.

What I said long ago is that when China’s powerful companies start caring about their IP rights will be when China as a whole will really accelerate in its caring about IP rights. And here’s the thing. There are plenty of powerful companies in China that now do care about IP rights and that number just keeps rising and for that reason alone I expect IP protections to improve substantially in China over the next 2-5 years.

Your thoughts?

China IP protectionOf course they do, but not always and not for every company doing business in China or with China.

Let me explain.

I just read an article on Engadget, entitled EU withheld a study that shows piracy doesn’t hurt sales, and subtitled, “The $430,000 study’s conclusions perhaps didn’t fit what it wanted to hear.” To grossly summarize, the study indicated that of books, movies, music and games, only blockbuster movies were negatively impacted by piracy. The study indicated that game sales may actually be aided by piracy.

I have from time to time been known to question the dollar losses often attributed to counterfeiting as well. The most commonly cited number is that United States companies lose $600 billion a year to counterfeiting. But the problem with this number is that it is based at least in part on an analysis that says every counterfeit purchased gives rise to a dollar lose equivalent to the real item that was counterfeited. This is usually true (especially when the buyer does not realize it is buying a counterfeit), but is this really true when someone buys a fake Rolex watch for $55 or a fake Gucci purse for $15? I don’t think so.

But let me be crystal clear here. I am not in any way condoning piracy or counterfeiting as both of those things are not only economically damaging, they can reduce innovation and be downright dangerous. Do you want fake brakes in your car? How does counterfeit medicine sound to you? No, all I am saying is that the extent and the damages caused by these things — as a whole — is sometimes over-dramatized. And that, as I will explain below, can have real-world business consequences.

Piracy and counterfeiting and the lack of strong IP protection in China are huge issues. They are a huge issue for some companies, a big issue for some companies, an issue for some companies, and really not much of an issue at all for other companies. Nonetheless, for most (not all) companies they are not a valid reason for ignoring China entirely.

Really, only a small percentage of companies need to worry much about IP theft in China. It exists, of course, but how much impact does it really have on your business? With very few exceptions, my firm’s China clients have either not been hit with piracy/counterfeiting or are too focused on making money from their own products to worry about it much. It is not nearly as much of an impediment to profits as believed.

Too often companies are so afraid of being copied that they fail to do things they should be doing. I can tell you that far more of my law firm clients have expressed the wish that they had gone into China to manufacture or sell their products sooner than have suffered negative IP consequences from having done so.

And on the flip side, every few months a company will come to one of our China lawyers overly concerned with their China IP protections after having read our blog. Oftentimes, they will believe they are too late and other times they will give us a long list of the IP protections they are convinced they need, usually including one or more of the following:

  1. NNN Agreement
  2. Product Development Agreement
  3. Contract Manufacturing Agreement
  4. Trademark Registration
  5. Trademark Registration with China Customs
  6. Design Patent Registration
  7. Copyright Registration
  8. And much more

And maybe 10 percent of the time they are coming to us with an astronomical quote from some other law firm for all of the above contracts and IP registrations. But here’s the kicker. Well under 1 percent of the time does a company need all of the above, and even less than that does it need all of the above immediately. Most of the time, in fact, the typical company doing a typical China deal or transaction usually needs less than half of these. And guess what? Probably 25 percent of the time none of the above makes sense for the company either because none of these things will be effective or because the company is too early (or worse, too late) or because the company would simply be better off spending its money elsewhere, at least in the short term.

So the point of this winding post is simply this: there is no one size fits all when it comes to best practices for protecting your IP from China and you should not let scare tactics and big numbers scare you into believing otherwise. Instead, treat China and China IP protection the way you treat the rest of your business and weigh the costs and the benefits of your IP actions accordingly.

 

China tradmark squatter
China trademarks. Very crowded.

The United States and China are the two busiest jurisdictions in the world for trademarks, with radically different approaches. The USPTO requires applications to be narrow in scope: the identification of goods/services can only include goods/services the applicant is actually using or has a bona fide intent to use, and before the application can proceed to registration the applicant must provide proof of such use. Subsequently, in order to maintain a valid registration, trademark owners must provide proof of continued use.

China, meanwhile, strongly prefers goods/services be identified according to the Nice Classification system, and it has no requirement that an applicant prove use at any time. The one exception is the non-use cancellation proceeding, by which a third party can challenge a trademark registration. Following such a challenge, if the trademark owner cannot provide proof of use within the three prior years, the trademark registration will be cancelled. But absent a third party challenge, the trademark will remain valid. The Chinese Trademark Office (CTMO) does not conduct sua sponte investigations.

Over the past 10-15 years, China has encouraged trademark applications in both explicit and implicit ways. In an interview last year with WIPO, Zhang Rao, the Commissioner of the State Administration for Industry and Commerce (SAIC), which oversees the CTMO, identified five factors driving the large numbers of trademark applications:

  1. The Chinese government’s goal of boosting “mass entrepreneurship and innovation.”
  2. The implementation of the 2014 Trademark Law, which was an improvement on the previous trademark law.
  3. SAIC authorities’ and market regulators’ work to create a level playing field for all regarding trademark rights.
  4. SAIC’s efforts to improve the efficiency and accessibility of trademark applications, with a particular focus on online applications.
  5. Extensive outreach efforts to increase public awareness of the value of registered IP.

To Zhang’s comments I would add:

  1. Because it is difficult to invalidate a trademark registration in China because of bad faith, it incentivizes trademark squatters to file trademark applications “on spec,” and similarly incentivizes legitimate brand owners to file far more trademark applications in far more classes than they would (or could) file in other jurisdictions.
  2. The Chinese government has operationalized its goal of boosting innovation (Zhang’s first point above) with a numerical pay-for-play scheme: more filings = more money. Mark Cohen’s China IPR Blog has commented on this strategy numerous times with respect to patents; I don’t know for certain if trademarks have been promoted the same way but wouldn’t be surprised.

For all of these reasons and more, China has seen a staggering increase in the number of trademark applications: more than 760,000 trademark applications were filed in 2006, and that number increased to 2.8 million in 2015. In the US, the second busiest trademark jurisdiction, fewer than 400,000 trademark applications were filed in 2006, and slightly more than 500,000 in 2015. (The statistics are from WIPO using class count data: an application in two classes counts as two applications, an application in three classes counts as three applications, etc.) And China continues to widen the gap; in 2016, more than 3.6 million applications were filed.

Meanwhile, the CTMO has been hiring a number of young, inexperienced trademark examiners whose default position is to reject any application that seems like it might conflict with a previously filed trademark.

This all adds up to an increasingly inhospitable environment for filing trademark applications in China. Every new trademark application is another potential conflict for subsequently filed applications. Our China trademark team has seen an uptick in rejections in our day-to-day work, and though it’s hard to prove causation it sure doesn’t feel like a coincidence.

To make things even more complicated, there’s a disjunction between the standard for trademark infringement and the standard for trademark registration, with the latter being considerably more strict. That has led to a number of trademarks that are in a strange sort of limbo: too similar to existing marks to be registered, but not so similar as to constitute infringement were they to be used. This effectively places such trademarks in the public domain. If a company’s goal is simply to manufacture products in China without fear of someone else interfering with production or exports, all is well. But if the goal is establish a brand name in China, the only answer is to find a new brand name.

The moral of the story is that to succeed with trademarks in China you must register your trademarks both early and often, and conduct meaningful searches before filing each and every application. Even if a trademark squatter doesn’t take your exact mark, one of the millions of new trademark applications each year might block your application on other grounds.

China brandingWe’ve been writing for years about the need to register Chinese-language versions of your trademarks. Back in 2015 I wrote, “If you care about your brand in China, it’s not enough just to register your English-language brand. You also need to select a Chinese name and register that as a trademark in China. Otherwise, you’ll forfeit not only the right to use your Chinese brand name, but the ability to choose it in the first place.” See Don’t Be Like Mike: Register Trademarks In CHINESE.

Picking a Chinese name is tricky, and simply being fluent in Chinese does not make someone an expert in Chinese-language branding any more than being fluent in English makes a random American an expert in English-language branding. Far too often we see companies delegate this important decision to their “guy in China,” with predictably middling results. Yes, it’s better than having a non-native speaker pick the Chinese brand name by using Google Translate, but that’s not saying much. We work with several branding companies that specialize in this work.

Typically, a foreign company’s Chinese name falls into one of the following categories:

  1. A direct translation. (This usually only works with companies that use actual, translatable words in their name.) This is what Microsoft has done: 微软, Chinese characters for “micro” and “soft.”
  2. A transliteration, in which the Chinese characters approximate the sound of the English-language name. This is what Google has done: 谷歌, Chinese characters that make the sounds “gu” and “ge.”
  3. A new name with a positive connotation with no obvious connection to the English-language antecedent. This is what Pfizer has done: 辉瑞, Chinese characters that make the sounds “hui” and “rui” and mean “brilliant and auspicious” (more or less).
  4. A combination of the above. This is what Starbucks has done: 星巴克, the Chinese character for “star” and Chinese characters that make the sounds “ba” and “ke” (“bucks,” more or less).

Selecting your Chinese name is just the first step, though. You then need to register the mark as a trademark, and you also need to think about copycat or soundalike marks. Because China has a limited number of syllables, it is easy to come up with homophones to a foreign company’s Chinese name – especially when that Chinese name is a transliteration. This makes it even more difficult to protect your Chinese name. Chinese trademark examiners might reject a mark that has all of the same characters as yours except one, but if the mark has all different characters and they just have similar pronunciations, the mark is much more likely to be approved.

Where we see this most often is the following scenario: a foreign company has a word mark, and that is what they register in the U.S., Europe and China. They incorporate this word mark in a logo that is slightly distinctive – say an oval around the text and in a specific color. The foreign company is careful, and comes up with a Chinese language version of their mark that they register in China. Then a Chinese entity registers two completely different Chinese characters, often with a similar sound, which they then insert into a graphic with the same shape and the same colors. In this way, the Chinese entity produces a deceptively similar trademark without infringing on the specific word mark the foreign company registered.

This is a problem, and it’s made even worse when (1) the client has only registered the Chinese-language version as a word mark or (2) the logo is too generic to be protectable as such.

What can you do? If you’re going to have a logo, make it distinctive, and make sure you register that too. And when you come up with a Chinese-language name, think about also registering other Chinese-language names with characters that have similar sounds and/or meanings. It’s a prophylactic measure akin to registering multiple domain names – annoying, but better than the alternative path of brand dilution or litigation. Trademark owners should also seek, via contract, to constrain their Chinese manufacturers, distributors, and other business partners (especially their distributers and resellers) from registering any trademarks similar in any way (including soundalikes and marks with similar meanings). This won’t affect the trademark squatters, but a significant percentage of trademark infringement comes from current or former business partners.

Bottom Line: Think through what you are trying to accomplish in China with both your English language and Chinese character branding and your logo and take steps to protect those things. Now.

China IP lawyers
Elephants are so noble. Trade wars far less so.

I have been called by reporters at least a half dozen times in the last couple of weeks regarding the Trump Administration’s planned investigation of China’s IP practices. But what I tell these reporters fits so badly with THE narrative that my name is not showing up in print. Sorry, but I can’t help it.

Here’s the situation. The Trump Administration is claiming that China’s government forces American companies to relinquish its IP to China and my problem is that despite my firm having worked on literally hundreds of China transactions that involve IP, I have very little proof of this. So no real story there.

Here though is the story as seen from my eyes and from the eyes of the China attorneys at my firm, readily conceding that we have not seen even close to everything.

We have never been involved in a China transaction where it has been clear to us that the Chinese government has forced our client to relinquish its IP to China. We have though been involved in a million transactions where the Chinese party on the other side — sometimes a State Owned Entity, but way more often not — has vigorously and aggressively sought to get our client to part with its IP for a very low price. Is the Chinese government behind this sort of pressure? Don’t know? Probably sometimes, but probably most of the time not. If the transaction involves rubber duckies, we can assume not. If it involves next generation computer chips, well that is probably a very different story.

Anyway, as we write on here so often, there are many terrible technology transfer and other sorts of IP deals to be had with Chinese companies and we have too often — even against our China attorneys’ clear counsel to our clients not to do it — seen our clients make bad deals that will involve them turning over their IP with little to no chance of receiving full value for it. But these companies have not been forced, not in the sense that any government was forcing them to do anything. These companies were simply willing to take huge risks either because they could not grasp the risks or because they felt they had no other choice for financial reasons.

In Three Myths of China Technology Transfers, we wrote about how our clients all too often forge ahead with bad deals and why, and we nowhere mention government compulsion:

A Chinese company that intends to violate a licensing agreement and run off with the foreign company’s IP will usually have a very clear plan. What the China lawyers in my office call the Standard Plan works as follows. First, the Chinese company will negotiate in a way that guarantees a weak license that cannot be enforced against them by the foreign party. The tricks used to do this are quite standardized. Second, the Chinese company will ensure that it does not make any (or else it makes very few) payments until after it has already received the technology. If the Chinese company makes any payment at all, it will make a minimal number of payments, usually late and in violation of the agreement and then once it has received enough of the technology it seeks, it will cease making any payments entirely.

When our China attorneys encounter a Chinese company clearly working on the Standard Plan, we warn our clients. However, it is also typical for our clients to nonetheless want to forge on ahead. The client will usually explain how their situation is unique and that means the Chinese could not possibly be planning to breach.

We discuss again in China Technology Transfers: The Relationship and Deal Structure Myths how it is that American companies lose their IP to Chinese companies and we again leave out government force:

Due to a partnership relationship, the foreign side often wrongly believes it is somehow better protected against IP theft. The foreign side then lets down its guard, only to learn that its China partner has appropriated its core technology. This sense of partnership is most common with SMEs and technology startups, especially those companies whose owner is directly involved in the relationship with the Chinese entity.

In China and The Internet of Things and How to Destroy Your Own Company I rant about technology companies that literally destroy themselves by failing to do enough to protect their IP from China:

Well for what it is worth, I will no longer describe technology companies as a whole as our dumbest clients when it comes to China. No, that honor now clearly belongs to a subset of technology companies: Internet of Things companies. And mind you, we love, love, love Internet of Things companies. For proof of this, just go to our recent post, China and the Internet of Things: A Love Story. Internet of Things (a/k/a IoT) companies are sprouting all over the place and they are booming. Most importantly for us, they need a ton of legal work because just about all IoT products are being made in China, more particularly, in Shenzhen. And just about all IoT products need a ton of complicated IP assistance.

So then why am I saying they are so dumb about China? Because they are relinquishing their intellectual property to Chinese companies more often, more wantonly, and more destructively than companies in any other industry I (or any of my firm’s other Chinese lawyers) have ever seen. Ever. And by a stunningly wide margin.

I then list out the following as “my prime example, taken from at least a half dozen real life examples in just the last few months”:

IoT Company: We just completed our Kickstarter (sometimes Indiegogo) campaign and we totally killed it and so now we are ready to get serious about protecting our IP in China.

One of our China Lawyers: Great. Where are you right now with China?

IoT Company: We have been working with a great company in Shenzhen. Together we are working on wrapping up the product and it should be ready in a few months.

China Lawyer: Okay. Do you have any sort of agreement with this Chinese company regarding your IP or production costs or anything else?

IoT Company: We have an MOU (Memorandum of Understanding) that talks about how we will cooperate. They’ve really been great. They have told us that they would enter into a contract with us whenever we are ready.

China Lawyer: Can you please send us the MOU? Have you talked about what that contract will say?

IoT Company: Sure, we can send the MOU. It’s one page. No, we haven’t really talked much beyond just what we need to do to get the product completed.

China Lawyer: Okay, we will look at your MOU and then get back to you with our thoughts.

Then, a day or two later we a conversation like the following ensues:

China Lawyer: We looked at your “MOU” and we have bad news for you. We think there is a very good chance a Chinese court would view that MOU as a contract. (For why we say this, check out Beware Of Being Burned By The China MOU/LOI) And the Chinese language portion of the MOU — which is all that a Chinese court will be considering — is very different from the English language portion. The Chinese language portion says that any IP the two of you develop (the IoT company and the Chinese manufacturer) belongs to the Chinese company. So what we see is that as things now stand, there is a very good chance the Chinese company owns your IP. This being the case, there is no point in our writing a Product Development Agreement because your Chinese manufacturer is not going to sign that.

IoT Company: (And I swear we get this sort of response at least 90 percent of the time) I’m not worried. I think you have it wrong. I’m sure that they will sign such an agreement because we orally agreed on this before we even started the project.

China Lawyer: That’s fine, but I still think it makes sense for you to at least make sure that the Chinese company will sign a new contract making clear that the IP associated with your product belongs to you, because if they won’t sign something that says that, there is no point in our drafting such a contract and, most importantly, there is no point in your paying us to do so.

So far not a single such IoT company has been able to come back to us with an agreement from their Chinese manufacturer to sign.

Again, no government force, just an overzealous and insufficiently careful foreign company.

Now before anyone excoriates me for ignoring reality, let me say that I have read about instances where the Chinese government has “forced” foreign companies to turn over their IP to China; high speed rail is an often cited example of that. And I do not doubt that it happens in critical industries (nuclear power would be another example). And I am also not unaware of how China is increasingly forcing foreign companies to store their data in China, which absolutely puts technology at risk. But even in these instances the foreign company has some choice. Not good choices, I know. And arguably it is no choice at all when the decision is between doing business in China or not. The last thing I want to do is get all philosophical on anyone regarding what constitutes choice so I will leave it to our individual readers to determine for themselves where on the continuum of force and choice they want to put any and all of the above.

There is plenty to complain about how China protects IP and there is plenty to complain about how China protects foreign companies that do business in China or with China, but I am just not sure complaining about forced IP transfers goes at the top of that list for most American companies. When I talk with American and European and Australian companies about China their biggest legal complaint is invariably how expensive it is for them to comply with China laws and how they resent that their Chinese competitors generally are not held to the same legal standards.

A couple of years ago, I gave the following testimony before The US-China Economic and Security Review Commission of the United States Congress:

I was introduced as an expert, and I’d like to qualify that by saying do not think of myself as an expert. I am just a private practice lawyer who represents American and Australian companies and some European and Canadian companies as well in China.

I’m going to tell you a little bit about what we do so you can get a little bit better perspective of where I’m coming from on this. The bulk of my firms’ clients are small and medium-size businesses, mostly American businesses, but some European and Australian and Canadian businesses as well. Most of them have revenues between 100 million and a billion a year. Our clients are mostly tech companies, manufacturing companies and service businesses.

About 20 percent of our work is for companies in the movie and entertainment industry. We have some clients in highly-regulated industries, like health care, senior care, banking, insurance, finance, telecom and mining, but those companies make up less than ten percent of our client base.

Most of the China work we do for our clients is relatively routine. We help them register as companies in China. We register their trademarks and copyrights in China. We draft their contracts with Chinese companies. We help them with their employment, tax and customs matters. We oversee their litigation in China, and we represent them in arbitrations in China. We help them buy Chinese companies.

For our clients, the big anti-foreign issue is whether they will be allowed to conduct business at all in China as that is certainly not always a given. Certain industries in China are shut off or limited to foreign businesses acting alone. For our clients, publishing and movies are most prominent.

Essentially anything that might allow for nongovernmental communication to or between Chinese citizens is problematic, but it is not clear to me that these limitations are intended to be anti-foreign, as China does not really want any private entities, foreign or Chinese, engaging in these activities without strict governmental oversight.

So do these limits against foreign companies arise from anti-foreign bias or just the Chinese government’s belief that it can better control Chinese companies? To our clients, that distinction doesn’t matter.

On day-to-day legal matters, our clients are almost invariably treated pursuant to law, and so long as they abide by the law, they seldom have any problems. The problem for our clients isn’t so much how the Chinese government treats them; it’s how they are treated as compared to their Chinese competitors who are less likely to abide by the laws and more likely to get away with it.

I have no statistics on this. I doubt there are any statistics on this, but I see it and I hear it all the time.

I see it when one of our clients buys a Chinese business that has half of its employees off the grid and has facilities that are not even close to being in compliance with use laws, and I know foreign companies cannot get away with that.

And I hear it from Chinese employees of our clients who insist that there is no need for our clients to follow various laws. They insist there is no need to follow various laws and to do so is stupid. Is this disparity due to anti-foreign bias or is it due to corruption? Again, for our clients, the answer is irrelevant.

Is the Trump administration’s IP investigation a negotiating ploy done as much to get at disparate treatment as it is to get at forced technology transfers? I do not think it is, but some who know more about such things tell me it may be.

CNN was the only one of the media companies that both interviewed me on the above issues and ended up quoting me and I like how it handled the issue in its article, President Trump is set to crank up the pressure on China over trade:

Beijing has other ways of getting its hands on valuable commercial information. Officials often insist on taking a close look at technology that foreign companies want to sell in China.

“Chinese government authorities jeopardize the value of trade secrets by demanding unnecessary disclosure of confidential information for product approvals,” the American Chamber of Commerce in China said in a report published in April.

Some experts say that handing over technology has effectively become a cost of doing business in China — a market too big for most companies to ignore.

“Many Chinese companies go after technology hard and the tactics they use show up again and again, leading us to believe there is some force (the government?) teaching them how to do these things,” said Dan Harris, a Seattle-based attorney who advises international companies on doing business in China.

“The thing is that the foreign companies that give up their technology usually do so at least somewhat of their own volition,” he told CNNMoney. “Yes, maybe they need to do so to get into China, but they also have the choice not to go into China, right?”

Closing the stable door?

Other analysts say that the U.S. administration is coming to the problem too late.

“Intellectual property (IP) theft is yesterday’s issue,” wrote Lewis of the Center for Strategic and International Studies.

“In part because of past technology transfer and in part because of heavy, sustained government investment in science and research, China has developed its own innovative capabilities,” he wrote.

“Creating new IP in the United States is more important than keeping IP from China.”

These are really complicated issues and I realize the above is more of a stream of consciousness “thoughts dump” than a coherent position paper. So more than ever, I’d love to hear your thoughts in the comments below.

China lawyers
Does New Balance’s recent trademark victory portend a new China IP balance?

What should we make of the most recent New Balance decision?

As widely covered in the press, a Suzhou court last week awarded the Boston-based athletic equipment company New Balance $1.5 million in damages in a trademark infringement case. Zheng Chaozhong, Xin Ping Heng Sporting Goods Limited Company and Bo Si Da Ke Trading Limited, who sold “New Boom” branded footwear in China, were found liable for infringing New Balance’s stylized “N” trademark and otherwise deceiving consumers as to the source of goods.

The decision has been rightly lauded as a landmark: the damages are the highest amount ever awarded to a foreign company in a trademark infringement case (and tied with the highest amount awarded to any company). Though rare, this sort of case sends a strong message both to those who would infringe on others’ trademarks and those who try to stop them. \

It’s important to keep things in perspective, though. How strong a message does this decision actually send? New Balance has sold shoes in China since 1995, and according to one report has more than 2000 stores there. The “New Boom” brand is only one of many Chinese knockoffs; I can only imagine how many lawsuits New Balance is pursuing in China. As another of the China attorneys in my firm put it, this win by New Balance shows progress but it isn’t groundbreaking.

I remember buying New Balance shoes when I was a graduate student in Shanghai. I went to a branded New Balance store adjoining a relatively high-end mall, but despite the location and the salesman’s almost self-righteous assurance, along with my Chinese classmates’ concurrence, I still wasn’t confident the shoes were authentic. I ended up purchasing a pair, and was happy I did, but you can see the problem. I was a discerning consumer, I wanted to buy genuine goods and I was willing to pay the going price, but because there were so many knockoffs on the market, I almost didn’t buy anything.

So yes, this is a great decision for owners of IP, but until it becomes commonplace it won’t send a strong message to foreign brands. And from what I’ve seen, this case is about as blatant a case of infringement as the Under Armour/Uncle Martian matter. In the United States, the infringing party would have been slapped with a temporary restraining order, soon followed by a permanent injunction, and this case wouldn’t even have made the local news.

This decision is yet another step in the right direction, and as both foreign and domestic companies continue to protect their interests in China through the legal system, I think we’ll see more decisions like this. But let’s not overstate things. This is just a Chinese court enforcing Chinese trademark law in a straightforward case. Foreign companies still need to be vigilant about protecting their IP rights in China, and that means registering their trademarks in China, monitoring the China Trademark Gazette and Chinese social media to try to spot infringers, submitting takedowns to Alibaba and other e-commerce sites, and filing lawsuits.

We must take the Chinese trademark system as it is, not how we want it to be.

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.