China cybersecurity lawsThe PRC government promulgated its Cybersecurity Law on November 7, 2016, with an effective date of June 1, 2017. To say that foreign tech firms are concerned about the impact of this new law on their business in China would be an understatement. In addition to tech firms, our China lawyers have received a steady stream of questions from clients with China WFOEs who are concerned about an entirely different set of issues. Article 35 of the law states that “personal information and other important data gathered or produced by critical information infrastructure network operators during operations within the mainland territory of the People’s Republic of China, shall store it within mainland China.” Our clients keep asking what this will mean for them.

The surprising answer is not much.

Any company that operates a WFOE in China collects personal information about its employees. China’s new cybersecurity law defines personal information as “all kinds of information, recorded electronically or through other means, that taken alone or together with other information, is sufficient to identify a natural person’s identity, including, but not limited to, natural persons’ full names, birth dates, identification numbers, personal biometric information, addresses, telephone numbers, and so forth.” Certainly, the standard information any company maintains on its employees will qualify as personal information under China’s new cybersecurity law.

In the EU and various other jurisdictions, such personal information must be maintained within the jurisdiction and there should be no transfer of such information across borders. This causes many problems for companies that seek to manage an international workforce through a central location.

So what clients keep asking our China attorneys is whether China’s new cybersecurity laws will establish the same sort of protective system within China? The simple answer is that it will not. China does not have a comprehensive law or regulations relating to the collection, processing or transfer of employee data gathered by a WFOE or other business entity in the normal course of its China business operations and China’s new cybersecurity law does not change that situation.

The cybersecurity law specifically provides that its personal data maintenance and collection rules apply only to critical infrastructure network operators. Network operator is defined as “network owners, managers and network service providers.” In more general terms, this means telecom operators and Internet ISPs. The requirements do not apply to the China business operations of normal private businesses with respect to their normal record keeping requirements for their employees.

Even though nothing has legally changed in China, it is still best practice for foreign companies employers in China to follow the basic rules the PRC government imposes more generally in the consumer context on the collection and maintenance of personal information, including the following:

1. Be sure the disclosing party (your employee) is aware that the company maintains personal information. The company should have a written policy (in Chinese and in English) on how long that information is maintained and that policy should be revealed to the employee.

2. You should not collect more personal information than necessary.

3. You should maintain the confidentiality of the personal information you collect and maintain. That means you should limit internal access to that information and you should take proper security measures to prevent a data breach of the company’s online systems.

4. You should not sell or otherwise transfer the personal information to any third party. Stated more bluntly, do not sell employee personal information to marketers or spammers.

China arbitrationThe below is a summary of recent decisions impacting China arbitration.

Anti-monopoly disputes are not arbitrable in China

In August 2016, the Jiangsu Provincial Higher People’s Court held that anti-monopoly cases involve the public interest and therefore such disputes cannot be arbitrated between private parties. The court was hearing a case where the plaintiff had entered into a distribution ggreement with a manufacturer that contained an arbitration clause. The plaintiff sued the defendant in Nanjing Intermediate People’s Court accusing it of abuse of market dominance. Defendant alleged the court lacked jurisdiction as there was an arbitration agreement between the parties. The court not only rejected the jurisdiction objection but it also rejected the request for arbitration becuase the agreement designated more than one arbitral institute which made the arbitration agreement invalid.

The Jiangsu Provincial Higher Court affirmed the Intermediate Court’s ruling on appeal and listed the following three reasons why anti­monopoly cases may not be arbitrated:

  1. Relevant laws and judicial interpretations expressly provide for civil litigation to resolve civil monopoly disputes.
  2. Public policy considerations favor litigation over arbitration.
  3. Anit-monopoly cases involve the public interest, third­-party interests and consumer interests and therefore override the preference of the parties for private dispute resolution under the arbitration clause.

Failing to Specify The Arbitral Seat in An Arbitration Clause May Result in an Unenforceable Award: 

In Wicor Holding A.G. v. Taizhou Haopu Investment Limited the Taizhou Intermediate People’s Court refused to enforce an ICC arbitration award because the arbitration clause in the Joint Venture Agreement was invalid for having failed to specify the arbitral body for the arbitration. The Joint Venture Agreement mandated that the parties’ disputes be arbitrated “in accordance with ICC mediation and arbitration rules“ but the Court found this did not clearly specify that the ICC be the arbitral body and without a clear choice for the seat of arbitration, the arbitration provision was deemed invalid. The Supreme People’s Court upheld this ruling and since the ICC award was improperly rendered on the basis that the arbitration agreement was valid, enforcing the award would contradict the social and public policy of China.

Editor’s Note: The clear lesson from this decision — and one we have many times emphasized on these pages, is that there is a right way and a wrong way to write an arbitration provision and you will pay the price if you write one incorrectly. We estimate that around half of the China contracts our China lawyers review or see contain arbitration provisions with readily identifiable errors.

SCIA Updates its Rules to Hear Investor-State Arbitrations.

The Shenzhen Court of International Arbitration (SCIA) published updated rules that will enable it to hear investor-state disputes and to administer arbitrations under UNCITRAL rules. These updated rules went into effect in December 2016 and they make SCIA the first arbitral body in mainland China to administer investor-state disputes.

* This post was guest-written by Chris Campbell, a foreign legal consultant who graduated from Tsinghua University with an LLM in Chinese law and international arbitration. Chris has worked on various projects related to trade and International Arbitration in mainland China, Hong Kong, and East Timor.

 

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.

In yesterday’s post, Defrauded by an Alibaba Seller? Here’s What To Do, we talked about what to do if you order and pay for a product on Alibaba, but receive nothing in return or something way way different from what you have ordered. In response to that post, I received two incredibly similar emails, about ten minutes apart (so similar in fact, that they may have been from the same person, using different email addresses). The emails essentially said the following:

Great post on recouping funds from an Alibaba fraud seller, but isn’t it true that even after doing all that you say in the post you will end up with nothing?

No, that’s not true. Not going to get up anyone’s hopes here, but recovering on this sort of fraud is a lot like recovering anything in China. If you can actually trace the actual scammer quickly your odds of getting maybe half of what you lost are probably a bit less than 50-50. This is just a somewhat informed estimate based on the experience of the China lawyers in my law firm and on what we have heard from other China attorneys who, but I think it is a fairly accurate measure to use to determine whether it will be worth pursuing the person or entity that stole your money. So just by way of one example. If you lost $300,000, you have a roughly 50% chance of recovering $150,000. It therefore would probably be worth it to you to spend $10,000 to get to a point where you can then make a new decision as to whether to proceed. But if you lost $30,000, you have about a 50% chance of recovering $15,000 and so it probably is not worth it to spend $10,000 to get a better feel for your chances.

Would love to hear from anyone else about how they do these sort of calculations.

 

Alibaba FraudLexology ran an excellent article the other day, entitled, Catching the Bad Guys: Recovery for a Defrauded Alibaba Buyer. The article was written by Kai XUE of DeHang Law Offices. Our China lawyers can attest to the need for this sort of article as hardly a week goes by where we are not contacted by someone with a major China Alibaba supplier problem. Note though that these issues are certainly not confined to Alibaba. The article nicely sets out how to handle a situation where you have sent payment for an Alibaba purchase but you receive “either junk or nothing and [you] can no longer reach the seller.” As noted in the article, most of these fraud situations involve a Chinese seller that “is a newly registered entity with little registered capital that uses a fake office address.”

Initiate a police report. The article notes that in a fraud case, you should report the crime to the police to try catch the fraudulent seller and to try to recoup your monetary loss. The article rightly notes the importance of going to the police quickly and ignoring various stalling tactics employed by the seller:

When confronted fraudulent sellers will reflexively claim that the matter is a commercial dispute to avoid involving the criminal justice system. For this reason, in cases of clear fraud it is advisable to proceed quickly to report to police and ignore last minute entreaties by the suspect to amicably settle. These apparent attempts by the fraudulent seller to settle not only may be an insincere attempt to delay for time but are also designed to create the appearance of a commercial dispute to dissuade police from pursuing an investigation.

The article notes the importance of going to the right police department (Hong Kong or Mainland) and of going to the police department with sufficient evidence to entice them to pursue an investigation.

Negotiating a settlement with the suspect. The article goes on to discuss how negotiating for restitution with the seller often should be undertaken, even in conjunction with the police pursuing its investigation of the seller:

Once put in detention and questioned by police, the realization of serving prison time acts as a strong impetus on the fraudulent seller to settle claims with the buyer. In exchange the buyer can agree to make best efforts to end the police investigation or ask for leniency for the fraudulent seller before the court if the case has advances to an indictment.

According to Chinese law, if an accused person returns some or all of the defrauded money and obtains a written pardon from the victim, her/his criminal responsibility may be mitigated. It’s on this basis that a fraudulent seller looks for a reduced sentence or release from detention by striking a deal with the buyer.

The article notes that one way to be able to tell whether the fraudulent seller has exhausted its available resources is “the extent that the fraudulent seller’s immediate and extended family make contributions:”

If a family member of the fraudulent seller provides a mortgage over real property or liquidates real estate assets to pay for restitution, then it’s likely that the fraudulent seller has cobbled together the maximum possible restitution payment.

 

Bottom Line: If you have been defrauded by an Alibaba seller (or any other China seller for that matter), the key is to act as quickly as you can in going to the police and in trying to negotiate repayment from the defrauding seller. The quicker you act, the more likely you are to get at least some of your money back.

China employment lawI have been writing a lot lately about various myths regarding specific aspects of Chinese employment law. The below posts — all written this year — set forth many of those myths:

But I have yet to write about the most common China employment law myths overall. Until now.

Myth 1: A China employer can hire an independent contractor to avoid having to hire someone as a regular employee and have to pay all kinds of employee benefits. Though retaining someone as independent contractor is not entirely impossible, it can only be done under very limited circumstances. First, you need to consider the tasks of the person you are seeking to hire. For example, if you are a software company and this person is expected to work as a software design engineer, you probably need to retain this person as an employee. If your “independent contractor” is being managed according to your rules and regulations and all other company policies, it is very likely that such person will be deemed an employee for purposes of Chinese labor law. Moreover, if you wish to have full control over such person’s behavior, you might as well hire him/her as an employee in the first place. This is not something you want to get wrong and yet we constantly see foreign companies get this wrong.

Myth 2: In China, employment at will is possible, provided there is a well-crafted contract in place. Wrong. China is not an employment-at-will jurisdiction. Nonetheless, China employees can leave pretty much at any time for pretty much any reason so long as they give advance notice (generally speaking, 3 days notice during the probation period and 30 days written notice once past the probation period). In some Chinese cities (but not in others), with a well-crafted employment contract in both English and Chinese, it is possible to have an at-will arrangement with a non-Chinese employee.

Myth 3: A China employee on an open-term contract cannot be terminated. Ever. You cannot terminate a lifetime employee without cause just like generally you cannot terminate an employee on a fixed term contract without cause. Having an open-term contract means the employee has much more leverage when it comes to negotiating a mutual termination and that you will likely need to pay much more to dismiss the employee than to an employee on a fixed term contract. However, such employee is not untouchable. For example, if he or she has materially breached your rules and regulations, you may have valid grounds to terminate.

Myth 4: Employer rules and regulations are just a formality. I cannot stress enough the importance of having a set of English and Chinese rules and regulations that work for China. If you don’t have one, you should get started on drafting one NOW.

Myth 5: Overtime rules are not enforced and I know this because most other employers in my locale don’t follow the overtime rules. Wrong. The general direction in China is toward more enforcement and furthermore “foreign” employers are always going to be under closer scrutiny than their Chinese counterparts. Most importantly, even if the local human resources and social security authorities are not cracking down on illegal practices in your area, this does not mean your employees will not pursue you in labor arbitration for overtime.

Myth 6: We acknowledge our sales people are employees and we give them all social insurance and other employee benefits but because they get so much in commissions, we don’t need to provide them with any base pay. Wrong. If someone is hired as an employee, the safest route is to pay him or her a monthly base salary. Generally speaking, the absolute minimum is the local minimum wage standard. It usually does not matter that the employee’s average monthly pay is a lot higher than the local minimum. Where there is no base pay each month, the argument that the employee made a ton during the busy season is likely to fail and you will be deemed to have violated minimum wage laws.

China manufacturing lawyersIn Part 1 of this series, I discussed how the increasing complexity of products made in China has led to a corresponding increase in the complexity of the molds for those products, and of how that means our China attorneys increasingly must draft contracts to protect our client’s IP within those molds. I concluded the first part of this series by noting how most mold IP issues arise in two settings: dealing with third party mold fabrication shops in China and dealing with the Chinese outsource factories themselves. In Part 2 of this series, I addressed mold IP issues when dealing with third party mold fabricators, sometimes called mold fabrication shops. In this, Part 3, I will discuss the sorts of issues our China lawyers have been seeing lately with Chinese manufacturers on mold issues.

The Chinese manufacturer has produced a series of molds for a product for its foreign buyer. Now that the product has become commercially successful, we often see the following three basic problems arise:

  • The Chinese manufacturer announces a substantial increase in the price of the product. This is often a surprise to the foreign buyer, who had expected the per unit price of the product to go down as production increased.
  • The Chinese manufacturer is not able to keep up with increased production requirements. This is often a surprise to the foreign buyer, who had been assured by the manufacturer that it has ample capacity for any scale of orders.
  • The stress of increased production demand causes the quality level from the Chinese manufacturer to progressively decline, reaching unacceptable levels. This is often a surprise to the foreign buyer, who had expected quality to improve over time.

In response to these issues, the foreign buyer gives notice to its Chinese manufacturer that it intends to move production to a different manufacturer, often a direct competitor of the current manufacturer. In the past, the issues that arose at this stage mostly focused on ownership of the physical molds. This issue can be resolved by a relatively simple mold ownership agreement. To the extent that a mold ownership agreement resolves the issues, this is old news. See Product Molds And Tooling In China: Three Things You Must Do to Hang on to Yours.

However, in the past year we have seen Chinese factories make arguments (like those below) that render the situation far more complex:

  • The Chinese factory says: “It is true you paid the fabrication fee for the molds. But that fee only covered the material costs and the time involved. However, in addition to that, we at the factory spent a lot of time and money doing the CAD drawings and related specifications required to fabricate the molds and we also spent additional engineering time in integrating the molds into our production process. Before you can take the molds, you have to compensate us for those costs. We won’t even charge you a markup. Just pay us for our out of pocket costs.” Then the factory provides an unreasonably high invoice for those costs and if you do not pay the invoice, the factory will continue to hold your molds hostage. This has become almost standard practice in outsource manufacturing, particularly in southern China. It is therefore essential for foreign designers to make clear in a written contract that all amounts paid for molds include both design and fabrication costs and that no additional payments will be required when the foreign buyer seeks to take possession of the molds.
  • The Chinese factory says: “It is true that you own the molds and you can take them whenever you want. However, we did all the design work on those molds so we own the design embodied by the molds. We will give you a license to use the molds in production in another factory. However, that license is limited. You have no right to copy the molds. We, on the other hand, have the right to copy the molds and we have the right to use the mold design for our own production or to provide copies of the molds to third party factories for their own production. The only thing you own is the physical object. You do not own anything else.”
  • In the more extreme case, the Chinese factory says: “We did all the design work for the molds so we own that design and we already registered a design patent in the molds. Since we did all the work, we are the inventor for patent purposes. It does not matter that you paid us for the molds. We still remain the inventor and our design patent protects us. You can have the physical molds, but if you want to use those molds for production at a different factory, you must pay us a royalty fee.” This royalty is then quoted at a price so hight that you cannot economically have your product produced at a third party facility.\
  • Lately, the more honest Chinese factories make the situation clear. The foreign buyer pays for fabricating the mold, but that payment does not convey any ownership interest in the molds to the foreign buyer. The Chinese factory does the design work and the Chinese factory owns the molds. The Chinese factory will agree to use the molds only for the purpose of producing the product for the foreign buyer, however, the foreign buyer has no right to move the molds to any other factory. In this setting, some Chinese factories will say that you are free to make new molds at your new factory, but some will assert ownership to the mold design and not allow you to have copies made at the new factory. Often Chinese factories will make this contention even when they do not have a registered design patent. To them the situation is obvious. They both designed the mold and arranged for its fabrication and so they own all rights in the mold without any need to register a design patent. Whether this position would be supported by a court is unclear. But since it is unclear, most Chinese factories will refuse to work with the new factory. What is so interesting about this approach is that the Chinese factory is clear about its intent from the beginning. The Chinese factory intends to hold the foreign buyer hostage by guaranteeing that the foreign buyer cannot go to any other factory in China as an alternative manufacturer of the product. By holding the foreign buyer hostage, when the Chinese factory raises its price or delivers the products late or produces defective products, the foreign party is pretty much trapped. It has no place else to go and no real leverage for dealing with the issues. We are getting a call a week from foreign companies in these situations, with little that can be done beyond essentially starting over.

This is where outsource manufacturing is going in China. Foreign product designers need to deal with it. At a first level, the foreign designer can enter into written contracts that provide protection. However, at a second level, if the Chinese factory intends the “hostage” result, it will reject signing a contract that will prevent that. When that happens the foreign designer is forced to face reality and decide whether manufacturing its new and innovative product in a setting where it is hostage to a Chinese factory makes economic sense or not. Or whether it can or should try to find another manufacturer. Our clients often argue that it does make sense. We are not so sure.

International litigation versus international arbitration
International litigation versus international arbitration?

If you have any interest in international litigation or arbitration and all that entails (things like service of process, enforcement of foreign judgments or awards, gathering up evidence from a foreign country), you should be reading the Hague Law Blog, written by my good friend Aaron Lukken.

The Hague Law Blog recently did a post extolling the virtues of arbitration for international disputes. The post is entitled, Arbitration– a bright idea for international dispute resolution and it very nicely sets out a whole host of reasons to consider arbitration for your international disputes, including the following that I view as the big three:

  • It’s far cheaper than litigating a dispute.
  • Decisions are made by specialized neutrals selected by the parties.
  • Arbitral awards are more acceptable to foreign courts if the losing party doesn’t pay up. Awards won in U.S. litigation… much harder to enforce.

The post makes clear that arbitration is not always the best way to go for your international disputes and it even calls out an article I wrote on why it usually (but not always!) does not make sense to arbitrate against Chinese companies:

Now, to be sure, it isn’t always the way to go. Dan Harris argues, quite lucidly and from much experience, that arbitration clauses are a waste of time in Chinese contracts. Despite China’s accession to the New York Arbitration Convention , they don’t follow through on their obligations to enforce awards. Accordingly, Dan continues, the best thing you can do in China is choose (1) Chinese courts as the venue, (2) Chinese law as the controlling doctrine, and (3) Chinese as the operative language of the contract.

The post then rightly notes that China is just one country and then makes the point that our [the United States] biggest trading partners—China excepted—believe in arbitration, and their courts are far more likely to compel a losing party to pay on an arbitral award than on a verdict.

Yes, but.

My firm’s international lawyers always tell our clients that we need all sorts of information before we can decide on the best method of dispute resolution. At minimum, we need to know the countries involved, the nature of the contract, our client’s goals (both with respect to the contract and enforcement) and information regarding the counter-party. And then we decide on the best method for resolving potential disputes.

Arbitration is usually not the best way to go when dealing with Chinese companies, but sometimes it is. And though I agree with the Hague Law Blog that arbitration is usually the best way to go when dealing with most companies from most other countries, oftentimes it isn’t, and here are two common reasons why:

  1. Arbitration is not always less expensive than litigating. Sometimes it is way, way, way more expensive. It would be far cheaper to litigate a case in Vietnam or in Thailand than to arbitrate it before three arbitrators in London or in Geneva. Like maybe 50 times cheaper. Sometimes it makes sense for our clients to have dispute resolution be incredibly expensive (like if they believe they are more likely to get sued than the reverse) but sometimes the exact opposite will make sense. It really must be reviewed on a case by case basis.
  2. There are countries where getting a US court judgment enforced is super easy. Canada, England and South Korea immediately spring to mind. Enforcing a US judgment in those three countries is barely more difficult than enforcing a California judgment in New York. So again, these issues must be examined on a case by case basis.

Arbitration or litigation? It’s case by case.

 

China Lawyers

Happy New Year, everyone!

 

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

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

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

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

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

Cuba investment laws

Of course it’s not, but having just returned from ten days there, I figured I needed to write about it and since this is the China Law Blog (and not the Cuba Law Blog, which url my firm owns!), I figured I would need to get “China” somewhere in the title.

But Cuba does have a lot of similarities to China, at least China two decades ago. I went to Cuba in large part because my firm has an office in Barcelona, Spain, and to our Spanish clients, going into Cuba just is not all that exotic. One quick side note. I went to Barcelona immediately before heading to Cuba to meet with our Spain lawyers there and to give a speech on protecting your IP from China. I probably told a dozen people of how I would be heading to Cuba right from Spain and probably a half dozen of them said something along the lines of how they were worried about how “the Americans are going to spoil it.” After getting back, I share their concerns.

But without further ado, here are my random thoughts on Cuba.

  1. I spent 90 percent of my time in Havana, at an AirBnb in Nuevo Vedado, with a host who spoke maybe ten words of English, but who actually seemed to enjoy speaking with me despite my less than perfect Spanish. This host let me know that though most people in Cuba rely on either God or the government, he — being an engineer — had learned to rely on his own intellect. I also went to Viñales and to Miramar (which is really just a Havana suburb).
  2. I was surprised at how often I was approached on the street by people who simply wanted to use their English and who wanted me to know that “the United States is the best country in the world.”
  3. Pretty much everybody also wanted me to know that they thought Trump was either “crazy” or “interested in just the money.” I heard both of these things so many times that I began to wonder whether the press was saying this.
  4. Speaking of the press, every single person I asked (of all skin colors) insisted that racism had been “eradicated” in Cuba. I wish that were true, but know that it is not, but based on my observations alone (and the huge number of interracial couples and friendships), the situation appears impressive.
  5. Cuba is an incredibly safe city. Every person (including those I trusted) said violent crime is virtually non-existent. Many warned me of pick-pockets as though they were everywhere, but I saw no evidence of that. Nobody seems to hesitate to walk alone at night, anywhere.
  6. The food was much better than I expected. I would describe it as very good, but not amazing. The two best restaurants were Atelier (where President Obama went) and La Guarida (where every celebrity goes. As evidence of their standing, these were the only two restaurants that had Diet Coke.
  7. You cannot use your American credit cards anywhere, and I suspect this is because no American bank will run them through. Yet.
  8. The Internet is terrible in Cuba. Terrible. It literally went out for a day, pretty much everywhere in Havana, including the airport. The only fast Internet I found was in the business center at the Hotel Nacional. Second best was at the Melia Hotels.
  9. The grocery stores are not well stacked. At all.
  10. Many small businesses are springing up.
  11. Some of the people with whom I spoke had nothing but good things to say about Cuba. Some told me that 75-80 percent of the people eat pretty much nothing but rice and beans and eggs and bread, all of which are really really cheap, but most every other sort of food is not.
  12. Most of the foreign investment in Cuba is from Spanish companies, but Canadian, Mexican and other Latin American companies are there as well, with China seeming to be accelerating its investments too, especially in building new hotels.
  13. Things do not happen on American time. We wanted to go to Trinidad one day and the taxi driver with whom I had made the arrangements and confirmed multiple times showed up 45 minutes late and with a different car, one that was way way way too small. So we had to adapt. There is a lot of that in Cuba. I can remember only one meal where the restaurant had everything we ordered off the menu.
  14. Jose Marti Airport has five terminals, spread throughout the city. At least two are international terminals, so know before you go.
  15. Cuba’s foreign investment regime makes China’s seem like a can of corn (figured I had to get in a baseball reference somewhere).

The question everyone asks me is whether they should go to Cuba and, if so, when. My answer is as follows:

Most emphatically yes. The people are great. The scenery is great. The buildings are great. The cars are great. The food is good. The place is safe and great for walking. But do not go there expecting Paris because you will be disappointed. And I cannot stress enough how you have to be prepared for no internet and no credit cards. Bring a lot of money and bring a guidebook. Multiple times people would see us with our guidebook and plaintively ask us where we got it, and then when we told them the U.S. they would ask to take pictures of certain pages. Oh, and go now before the Americans spoil it.

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

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

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

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

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

But you still need original documentary evidence!

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

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