Archives: copyrights

A few months ago, a couple of our China lawyers did a project for a company looking for various ways to bring its internet game to China.  Now that the project is over, I cleaned up my files and came across an initial email interaction between the client and me, that went something like the following (the point of which is that China’s internet is different from the West, and legally complicated):

Q. How can we register trademarks in China? We’ve already registered them in the United States and in Vietnam (that’s a long story), but now we are ready to register them in China. What do we do?

A.  You register trademarks in China pretty much like anywhere else, which means that you firs figure out the appropriate category/class and then you register your trademark in that category/class. The thing about China though is that if you register your trademark in video games, you have zero protection from someone using your trademark on their t-shirt or even in their book. Add in the fact that all of this has to be done in Chinese and you can see how difficult it is. Then there is the separate issue of copyrights, which may or may not protect some of what you are doing.

Q.  Is there anything special about internet games in China?  
The legal issues relating to the internet in China are just so numerous as to be impossible to discuss without my knowing more about your intentions. The really short answer is that foreign online content is illegal in China and some people make a fortune from it and others go to jail.
Dealing with the internet in China is usually quite expensive; most who go in on the cheap end up getting everything stolen.
We represent two large companies involved in businesses similar to that to which you aspire and we are constantly having to deal with China IP issues for them.

Back in April last year, I spoke at an Economist Magazine Business Without Borders event on China.  I mostly spoke about intellectual property protections in China, but my introduction dealt with China’s legal system as a whole.  Video of my introduction (but not the whole talk, near as I can tell) is online and was referred to me today.  I watched it and liked what I saw and I had it transcribed, per the below.

What I liked is how I try to put China and its legal system in their proper perspective, which is sometimes necessary.  It is sometimes necessary because we Westerners too often compare China to from whence we come, rather than to other countries closer to where China is socioeconomically.  This causes China to seem worse than it is, and also tends to exaggerate the difficulties in doing business in China.

Here’s my spoken intro, transcribed:

I’m going to start out not really focusing so much on intellectual property, but talking about China’s legal system generally. I’ve been dealing with emerging market countries for the last 20 years or so, mostly helping American companies navigate emerging markets. And my focus in the last 10 years has mostly been on China. In comparing China to other emerging market countries, my conclusion is that China’s legal system is actually more advanced and less corrupt than just about any other emerging market system.

And I’m not the only person who believes this.

As I was driving in this morning I was listening to BBC interviewing a Russian oligarch who was talking about how great Russia is for business, and he mentioned that Russia is actually better than China for business. And the interviewer called him out on that and said well you’re saying that, but no one else seems to say that. And he quoted a number — which I was going to quote today — which is that Transparency International (which is the most respected and the leading ranking of countries on corruption) ranks China 75 out of 176 countries, so it’s actually in the top half in terms of the least corrupt countries. The World Bank ranks China 91 out of 183 in terms of ease of doing business. And in my firm’s own experience, China is not that bad.

We have registered thousands of things with the Chinese government — trademarks, copyrights, licensing agreements — and not once have we ever been hit up for extra money. That’s not true in a lot of other emerging market countries where you do get hit up for a fee to expedite things. But you’re not really being hit up with a fee to expedite things; what they’re essentially telling you is if you don’t pay the fee to expedite your trademark application, your company trademark application is going to go into that “dark corner” over there.  And that generally does not happen in China.

Now, just yesterday, the new AmCham China member survey came across my desk. This is a survey of American companies that do business in China, and one of the questions asked of the members who have been involved in intellectual property litigation in China was what their impression was. And 63% of those members said that they were either satisfied or very satisfied. Now to me that’s an amazing number, because here in the United States, the word “satisfied” is usually not a word that’s associated with litigation.

So, I’m not saying China is perfect, it definitely is not and there are major issues there, major issues of corruption, major issues with its legal system, but what I am saying is for the average American company, it’s not that bad at all. And those are the sorts of things I am going to be talking about later.

 

What do you think?

On February 20 at 2:00 p.m. Eastern, I will be co-presenting a China law webinar, along with Andrea Charters, Vice President and Associate General Counsel of Rosetta Stone Inc. LexisNexis is sponsorig this webinar and, incredibly enough, it is entirely free.

We will be gearing our presentations towards in house counsel and together we will be addressing the following issues, with a view towards protecting IP and providing some basic legal information for those doing business in China:

  • Choosing a Chinese partner
  • Identifying what you need to protect
  • Structuring your deal or contract
  • Writing an arbitration clause
  • Understanding the China International & Arbitration Trade Commission
  • Executing key elements in employee contracts
  • IP registrations: trademarks, patents, copyrights and licensing agreements

Click here for more information and to sign up.

This is the final part of a series arising from a speech I gave last month at a biotechnology conference in Washington DC.

In How To Protect Your IP From China. Part 1, I mostly looked at the risks China poses to intellectual property and very generally on how companies can determine how those risks should influence their actions.

In How To Protect Your IP From China. Part 2, I mostly focused on what I, as a lawyer, look at in trying to protect my clients’ IP from China and what you, the company, should be looking at and doing to protect your own IP.

In How To Protect Your IP From China. Part 3, I looked at the negotiating tactics Chinese companies so often employ in an effort to take advantage of your intellectual property.

In How To Protect Your IP From China. Part 4, I wrote on the basics of what goes into Chinese contracts, particularly those related to protecting your intellectual property.

In this part 5, I discuss some of the most common situations companies face where they must focus on protecting their IP.

  • Employees

Confidentiality agreements. In China, unlike in the United States, it is the norm to have a written employment contract with all employees. This is because not having a written agreement can lead to having to pay a year or more in salary to anyone you terminate.  You should use the written contract to your advantage by putting in a confidentiality provision that sets out your company information that must be kept confidential. Confidentiality agreements can protect company information that may not rise to the level of a trade secret, but they cannot be so broad as to protect everything.  China actually has very sophisticated trade secret laws — they come the US’s Uniform Trade Secrets Act — and the courts there are not bad at all in ruling favorably in favor of employers on confidentiality and trade secret cases.  But for you to be able to prevail, just as in the United States, the information you are seeking to keep confidential must have commercial value and you must make a reasonable effort to keep it away from the public.

Non Compete Agreements – These generally work in China only with very high level employees.  Very high level. And even then, they are enforceable only if they are: (1) not too long in duration and no longer than two years; (2) not too large in terms of geographic scope: and (3) do not restrain too much the employee’s opportunity to pursue his or her occupation.  Now here’s the real kicker on these:  you must pay your employee for the non-compete after his or her termination.  Limited to two years.  Typically, you must pay 20 to 50% of the employee’s salary, with the amount depending on the location in China.

Nonsolicitation agreements. Nonsolicitation agreements prevent employees from soliciting customers, former co-workers and/or agents upon separation from the company. These are usually enforced by China’s courts so long as they only prevent solicitation of the employer’s customers or accounts that existed at the time the employee left and so long as they are limited in duration and in geographic area.

It can be critical — especially for your employees doing R&D — that your employee contracts set forth who owns any intellectual property your employees help develop. You want a provision in your contract making clear that all IP developed by your employees belongs to the company and you want that because in China you run the real risk of your employees claiming ownership of what they developed. We also like to see a provision in the employee manual saying that any IP developed by company employees belongs to the company.

Contracts with your Chinese Distributers, Manufacturers, Joint Venture Partners, and Licensees should include the same sort of provisions relating to non-compete, non-solicition, and non-disclosure and they also should be clear about who owns what with respect to any IP.

 

  • Licensing Contracts

Three things you should be thinking about if you are licensing your IP to a Chinese company.

  1. Be careful about getting paid based on sales, unless you have some really good way of knowing what the sales really are.
  2. Get what you need to do the deal before you relinquish the technology.  Figure that the Chinese company will stop paying you after it has secured your technology.
  3. Register your licensing agreement with the proper governmental agency.  If you don’t, you run the risk of not being able to sue on it.
  • IP Registrations 

Just as in the US, you should register your IP in China to protect it.  There is no way can I go into great detail on what you can and should do to protect your IP in China through registration, but what I can tell you is that it almost always makes sense to do something.  Earlier I talked about how bad China is on IP and that is true, but if you have not done the proper registrations, you pretty much have zero chance of protecting your IP.  If you have done the proper registration, your chances are considerably better.

China’s IP registration and protection system is in many ways not all that different from that in the US.  Just as is the case here, China has patents, trademarks and copyrights.

Patents. China has invention patents, utility patents and design patents.  Invention patents are thoroughly reviewed before they are granted and so they can take quite a while.  Because of this, many companies will secure a quicker utility or design patent while waiting until their invention patent comes through.  Couple things you need to know about patents in China. First, if you do not file for your patent in China within a year of filing for it in the United States, you will be too late. China is a signatory of the Patent Cooperation Treaty and the Paris Convention, but Chinese patent lawyers tell me that it is better to file your patent in China.

China has had compulsory licensing of patents since 2001, but earlier this year the Chinese government came out with detailed criteria for the granting of compulsory licenses and that threw many into a panic, believing that the government was instituting compulsory licensing for the first time. These new rules really did not change much of anything and as far as I know, China has not in the last ten years required any company to compulsorily license its IP.

Trademarks are unique names, symbols, or logos. Can include colors. We trademarked a particular color of screws for a client. Don’t underrate trademarks in China. These work in China. China is a first to file country, not a first to use country, so generally, whoever files first for a trademark gets it. Trademarks cannot be place names. This is a bigger problem than you might initially think.  Another problem is that the people at China’s trademark office usually view acronyms as images and so if your company name is something like EVO and someone else has already registered the company name ECO, there is a very good chance your EVO name will be rejected as conflicting with ECO, because to someone who cannot read English, the two names look too much alike.  What this means is that if you have a two or three letter company or brand name, you had better try to register it now because it will only get tougher.  We used to get these approved all the time, but in the last year, we are succeeding only around 50 percent of the time.

Copyrights.  A lot cheaper and easier to obtain than patents and they last a lot longer. Very similar to the US. You do not need to file for a copyright in China to have a China copyright, as they arise automatically upon creation of a work created or first published in China, but you do need to have a registered copyright to sue on it and that’s the catch. In China, it takes so long to secure the registration of a copyright that if you are going to want to protect your copyright in China, you should file for it right away, because if you wait until you have a problem to file for the copyright, you may have a one-year lag before you can do much about it. Just like in the US, you don’t have to reveal all of your material in the copyright filing.  This is particularly important for something like computer code.

Stopping IP Theft.  If you have registered IP, and someone in China tries to use it without authorization, you can seek an administrative remedy by trying to get the Chinese government to do something about it or you can sue for damages. You also can try to get Chinese customs to stop any violating goods from leaving the country and, if you have your IP registered here, you can try to get US customs to stop it from entering into the US.

 

By: Steve Dickinson

Preserving its track record of major defeats before the WTO, China recently lost its appeal of the WTO panel decision in the minerals export case. The appeal decision was issued on January 30 and can be found here. Briefly stated, the original panel report held that Chinese export duties and export quotas for certain industrial minerals violate WTO requirements. China was ordered to reduce its duties and dismantle its export quota system. China appealed and lost on all important issues.

This decision has important implications. As most observers have noted, the real issue is export quotas and the real target is China’s export quota system for rare earths. Under the terms of this decision, China’s rare earths quota system is in clear violation of the WTO. The U.S. and others expect China to now act on its own and terminate the rare earths quota system. If this is not done voluntarily, the U.S. and the European Union have threatened to bring a follow-up action in the WTO, targeting rare earths. After this victory in the metals case, such an action against China would almost certainly succeed.

More important, China has an extensive export quota system covering over 600 products. These are all basic materials considered by China to be vital to its internal security: energy, raw materials and food. Under the terms of the panel decision and appeal, it is now clear that China’s entire export quota system is in violation of the WTO. This recent decision on minerals therefore goes far beyond rare earths. It is a challenge to a vast and complicated system that the Chinese see as essential to national survival.

Ron Kirk, the U.S. Trade Representative, described the success of the appeal as as a “tremendous victory” for the United States.  In reality, the decision is bad for both the United States and China and for the members of the WTO as a whole.

This case is a very hot issue in China. After the decision, assessments have appeared from the Chinese government, the Xinhua News Service (the Chinese government’s propaganda arm) and from general business commentators. The universal conclusion of the Chinese is that China has no intent whatsoever to comply with the terms of this decision or any other decision relating to its export quota program or to any other regulatory regime China deems in its national interest (such as China’s restrictions on importing print and audio-visual materials).

The basic position set forth in the Chinese press has been as follows:

  • Control of domestically produced raw materials, energy and food are vital to China’s national interest. China will not allow a trade law like the WTO to impact its pursuit of policies such as export quotas that are vital to its national interests. The attempt by the developed countries to use the WTO as a way to attack China’s national interest is unfair and shows bad intent. Such attempts will be rejected.
  • China still intends to remain within the WTO so as to be able to obtain certain trade benefits. Rather than openly disregard the minerals decision, China will resort to “procedural games” (游戏规则) to render any response against China ineffective as a practical matter. China is proud of how it has  used “procedural games” to avoid its responsibilities to respond to adverse WTO decisions and it openly states that it will continue to use this approach in these “national interest” cases. In fact, the term “procedural games” has become a standard feature of China’s trade policy vocabulary.

This result is bad for supporters of the WTO trade system and it is bad for China. It is bad for the supporters because it exposes the weakness of the WTO dispute resolution process for resolving serious trade conflicts. China’s recent series of losses in the WTO justifies the US and other countries imposing major tariff and related trade sanctions against China, but no such sanctions have been imposed and China has concluded that no such sanctions will ever be imposed. China correctly believes that it can afford to ignore adverse WTO decisions because the complaining countries have no interest in actually imposing sanctions. We can thus expect China to continue ignoring most (all?) adverse WTO decisions against it. This will serve to progressively weaken the WTO trade system.

The odd thing about the export quota case, however, is that China itself is likely to be the biggest loser. China is the major importer in the world of raw materials, energy and food products. China therefore absolutely requires an open and fair export system for such products. By acting to support mercantilist export quotas and other restrictions on the export of critical raw materials, China is acting directly against its own economic and national security interest. China’s control of the rare earths export market has convinced it that it can become a rare earths version of OPEC, giving them power to finally dictate terms to the developed world. This dream has blinded China to the real risks of its plan.

Both China and the U.S. are acting recklessly in a way that serves to undermine the WTO trade system. The damage has been done. The WTO minerals ruling is just another nail in the coffin. The WTO has been murdered. China pulled the trigger and the U.S. and Europe supplied the gun.

What do you think?

For more on China and the WTO, check out the following:

For more on China’s rare earths, check out the following:

We have been handling way more than the usual number of disputes between our clients and Chinese companies. In a number of these cases, our clients paid money to Chinese factories with whom they had been doing business for years and the Chinese factories simply refused to send over any product. These Chinese companies claimed that our clients owed money for previous deliveries (in which the costs supposedly went up) or for Chinese taxes/duties for which our client is supposedly responsible. These cases (and others like it) are no doubt due to the increasing number of Chinese factories facing economic difficulties. In none of these cases did our client have a good OEM Agreement in place, which gave the Chinese companies at least some basis for their claims. 

Be that as it may, the Chinese companies (pretty much without exception) threatened to sue our clients and one of them threatened to freeze our client’s China trademarks, copyrights and/or patents and then take that IP once they prevail. In the case with the IP threat, our client’s only China asset was its registered intellectual property so the risk was very real.

A recent Chinese case allowed a Chinese plaintiff to “freeze” a Chinese trademark belonging to a foreign company, Castel. The Re:Marks on Copyright and Trademark Blog wrote of this case in a post entitled, “French CASTEL (卡斯代尔) Company Frozen out of China?” and noted the following risk stemming from this case:

[T]he decision is of particular note for foreign entities who do not have significant assets in China.  Typically, such entities may have considered themselves insulated from the risk of litigation in China due to a lack of assets in China.  However, even foreign entities without significant assets in China very often have trademarks in China.  Those trademarks are now in the firing line if the foreign entity ever gets sued, whether for trademark infringement or for other causes of action, particularly where the foreign entity has limited assets in China.  Of course, this equally applies to foreign plaintiffs who seek to recover damages against Chinese defendants.

How can you prevent your Chinese IP from being taken from you? Probably the best way is not to put your China IP in the name of a company that does business in or with China. Instead, you should think about creating a new company (it can be based in the United States or anywhere else) to own “your” IP in China. In turn, that new special purpose company can then license its China IP to your company that does business in or with China. That way, one of your companies will still own the IP in China, but if your company that does business in or with China encounters legal problems with a Chinese company, the Chinese company will not be able to just seize that company’s China-based IP.

If your IP is already in the name of a company that does business in or with China, you should consider assigning that IP to another company and then licensing it back. Doing this is not going to be without its complications and costs, but it beats losing your China IP.

What do you think?

Though i keep saying this, I will say it again: there are now a number of really good practice-oriented English language books on Chinese law. I can remember not so long ago when people would ask me to recommend books to help them better understand what they needed to know regarding China Law and my answer was always the same: James Zimmerman’s China Law Deskbook. Zimmerman’s book has since been updated and it is still considered to be the best, all-encompasing English language reference book on Chinese law, but now there are all sorts of excellent and more specialized books to supplement it. 

Patent Litigation in China, by Douglas Clark, through the Oxford Press, is yet another such book. This is an excellent book. I actually was not planning to read the whole thing, but (and I know this makes me sound like a nerd), I ended up enjoying it so much that I did.

Neither I nor my firm do any patent work, believing that only lawyers who do it 100% of the time should do it at all. However, as counselors to mostly small and medium sized businesses that do business in and with China and internationally, we find ourselves serving as the nternational law gatekeepers for our clients. By this I mean that they look to us not just for our advice on the areas of law in which we actually practice, but for our assistance in spotting relevant legal issues and referring them to top-tier people even in those areas outside our ken.

Patents is probably the prime example of this.

Virtually every time we get a new client who is doing business in or with China we ask them about their intellectual property. Do you have any trademarks, patents or copyrights, we ask? What about trade secrets? What IP is it important that we protect from theft in China? If they have any patents or if what they are doing sounds as though a patent might make sense, we refer them out to the specialists. But for us even to know when and to whom a referral is warranted, we have to stay at least somewhat current on what goes on in the patent law world.

Patent Litigation in China is good for knowing what is going on in the China patent world and it is great for knowing what to do in that world if you believe someone is infringing on your patent or if someone believes you are infringing on theirs. It is also an excellent book to read just for getting a sense of how China’s courts operate (which as I am always saying, is likely to be quite a bit better than most believe it is, particularly in the context of business litigation involving foreign companies).

This book is very much aimed at the legal practicioner, not the businessperson, but if you are a businessperson imbroiled in a China patent dispute, I recommend this book for you as well. 

I really liked how Clark provides both a solid foundation of China’s relevant patent and patent litigation laws (including a large Appendix section that provides English language English translations of the “Patent Law, the Implementing Regulations of the Patent Law, Interpretations by the Supreme People’s Court on Several Issues regarding Legal Application in the Adjudication of Patent Infringement Cases; Several Provisions of the Supreme People’s Court for the Application of Law to Pre-Trial Cessation of Infringement of Patent Right; [and] Several Provisions of the Supreme People’s Court on Issues Relating to Application of Law to Adjudication of Cases of Patent Disputes”), along with his own analysis based on real-life experiences. 

The book’s own blurb accurately describes it as follows:

Patent Litigation in China, by Douglas Clark, provides U.S. and other non-Chinese practitioners with an overview of the patent litigation system in China. Strategic commentary is provided to enable those contemplating or involved in patent litigation in China to better comprehend the risks and challenges they face, as well as to ensure better decision-making by those responsible for bringing or defending patent actions. The book covers the tests for patentability grounds for invalidating patents before focusing on evidence gathering, litigation strategy and procedure, as well as considering defenses and remedies. The key differences between the Chinese, U.S. and other more mature patent systems are highlighted throughout the book.
If you are looking for a book that delivers on the above, I highly recommend Patent Litigation in China.

This post is part I of what is going to be a multi-part, somewhat irregular series on protecting your IP in China. This part I and tomorrow’s part II, were written by Steve Dickinson, and are based in large part on a talk Steve gave last week in Qingdao. Over the last couple of years, “creative services” have been probably the greatest growth area for our firm and so our intellectual property and licensing work has only continued to grow in importance.

For pretty much all of our creative services clients (these are companies mostly in the software, gaming, entertainment, media, art and film industries) intellectual property makes up the overwhelming bulk of the value of their business. Therefore, it is always a surprise to us how many of them seem to treat their intellectual property in China is an optional or secondary matter when it really should be the first issue they consider when approaching the China market. Though IP is usually of somewhat less importance for our clients not in creative services, they too tend to undervalue its importance. 

This series is intended to emphasize the importance of protecting IP in China and to set out a program for for creating, protecting and monetizing intellectual property. Without a clear program on this issue, disaster is certain to follow in China.

The first step is to get clear what we are talking about when we use the term “intellectual property.” IP is not patents, trademarks, copyright etc. These are simply tools for protecting intangible assets. It is the same for real property: a deed is not land, it is a tool used to establish and protect an ownership interest in land.

So what is intellectual property?

  • A better term is intangible property or intangible assets. This includes everything about your business that has value that cannot be reduced to a physical asset or to a monetary cash flow.
  • For creative industries, IP can include virtually all of the assets of the business:
    • Music
    • Film
    • Books and magazines
    • Research and analysis
    • Design of any kind: interior design, clothing design, product design
    • Architecture and engineering
    • Software of all kinds: industrial, retail, video games, phone “apps”
  • For traditional industrial firms, it includes
    • Inventions
    • Formulas
    • Industrial processes and know how
  • For all businesses, it includes:
    • Brand and image
    • Business planning and corporate strategy
    • Pricing plans

For most modern businesses, intangible property forms a major portion of their value. For many businesses, such as those in creative services, it forms the core of the value of the company. Consider the stars of the modern business world: Apple, Microsoft, IBM, Boeing, Siemens, Nestle, General Electric, Dow Chemical, Starbucks, Amazon, SAP. Is their value in their real estate holdings? In their factories and office buildings? No, the value of these companies is almost entirely in their intangible assets.

However, even for hard asset, resource based companies, IP is still a major component in their company value. Take the mining companies that have dealt with China for the past ten years. A major portion of their value lies in their pricing plans, their internal data on their resources, their techniques of extraction and transport, their future exploitation plans and the like. This explains why the primary battle between these companies and the Chinese over the past several years has centered on the attempts of both sides to acquire data to aid in the struggle over control of the market.

The message is obvious: active and careful cultivation of your intangible assets is mandatory to survive in the modern business world. This means taking the steps necessary to secure the rights, to protect the rights, and then to secure the rights for your own use or to package those rights for monetization.

Most businesses are constrained by the traditional categories for intellectual property and do not effectively consider the tools that available to protect intangible assets. There is much more to IP protection than the traditional IP tools.

The traditional intellectual property tools are:

  1. Patents
  2. Trademarks
  3. Copyrights
  4. Trade Secrets

Though these tools are essential in the IP world, there is a far wider set of techniques that can be used, including the following:

  1. Secrecy and refusal to disclose
  2. Licensing and trade secrecy agreements: limited and controlled disclosure
  3. Trade secrecy and related agreements with employees and joint venture partners
  4. Physical techniques such as encryption and related data protection techniques

Many companies believe that since they have done what is necessary to secure their rights in North America and Europe, there is nothing special they need to do in China. This is a mistake.

The key concept is that all IP protection is local. You cannot rely on what you have done elsewhere. You must deal with your IP by making use of the Chinese system. You must act within China for both creation of rights, enforcement of rights and monetary exploitation of rights. You must deal with China the way it is, rather than hoping to rely on a perhaps more perfect system that simply does not exist in China.

Since all IP protection is based on local law and practice, you must adopt an effective and realistic protection program for the country in which you are operating. If you are in China, you must consider the situation in China. The fact is that China is currently the most dangerous country in the world with respect to protection of intangible assets does not mean you can afford to throw up your hands and do nothing. China’s IP risks can be managed, if 1) you assess the risks in a realistic way and 2) you take practical steps for protection.

Tomorrow, we discuss specifics.

A client recently directed me to a U.S. government web site on IP protection in China and asked me if it is accurate.  Not only is it accurate, but it does as good a job as I have seen in distilling the basics of China IP law into a readable form.

Entitled, The Best Protection is Prevention, the article starts out by describing China’s overall IP protection regime, and then briefly discusses how China handles, patents, trademarks, copyrights and trade secrets:

Though China is a party to international agreements to protect intellectual property (including WIPO, Bern Convention, Paris Convention, among others), a company must register its patents and trademarks with the appropriate Chinese agencies and authorities for those rights to be enforceable in China. Copyrights do not need to be registered but registration may be helpful in enforcement actions. A brief summary of China’s patent, trademark, and copyright laws are described below.

Patent: China’s first patent law was enacted in 1984 and has been amended twice (1992 and 2000) to extend the scope of protection. To comply with TRIPs, the latest amendment extended the duration of patent protection to 20 years from the date of filing a patent application. Chemical and pharmaceutical products, as well as food, beverages, and flavorings are all now patentable. China follows a first to file system for patents, which means patents are granted to those that file first even if the filers are not the original inventors. This system is unlike the United States, which recognizes the “first to invent” rule, but is consistent with the practice in other parts of the world, including the European Union. As a signatory to the Patent Cooperation Treaty in 1994, China will perform international patent searches and preliminary examinations of patent applications. Under China’s patent law, a foreign patent application files by a person or firm without a business office in China must apply through an authorized patent agent, while initial preparation may be done by anyone. Patents are filed with China’s State Intellectual Property Office (SIPO) in Beijing, while SIPO offices at the provincial and municipal level are responsible for administrative enforcement.

Trademark. China’s trademark law was first adopted in 1982 and subsequently revised in 1993 and 2001. The new trademark law went into effect in October 2001, with implementing regulations taking effect on September 15, 2002. The new trademark law extended registration to collective marks, certification marks and three-dimensional symbols, as required by TRIPs. China joined the Madrid Protocol in 1989, which requires reciprocal trademark registration for member countries, which now include the United States. China has a “first-to register” system that requires no evidence of prior use or ownership, leaving registration of popular foreign marks open to third party. However, the Chinese Trademark Office has cancelled Chinese trademarks that were unfairly registered by local Chinese agents or customers of foreign companies. Foreign companies seeking to distribute their products in China are advised to register their marks and/or logos with the Trademark Office. Further, any Chinese language translations and appropriate Internet domains should also be registered. As with patent registration, foreign parties must use the services of approved Chinese agents when submitting the trademark application, however foreign attorneys or the Chinese agents may prepare the application.

Copyright. China’s copyright law was established in 1990 and amended in October 2001. The new implementing rules came into force on September 15, 2002. Unlike the patent and trademark protection, copyrighted works do not require registration for protection. Protection is granted to individuals from countries belonging to the copyright international conventions or bilateral agreements of which China is a member. However, copyright owners may wish to voluntarily register with China’s National Copyright Administration (NCA) to establish evidence of ownership, should enforcement actions become necessary.

Unfair Competition. China’s Unfair Competition Law provides some protection for unregistered trademarks, packaging, trade dress and trade secrets. The Fair Trade Bureau, under the State Administration for Industry and Commerce (SAIC) has responsibilities over the interpretation and implementation of the Unfair Competition Law. Protection of company names is also provided by SAIC. According to the TRIPs Agreement, China is required to protect undisclosed information submitted to Chinese agencies in obtaining regulatory approval for pharmaceutical and chemical entities from disclosure or unfair commercial use. China’s State Drug Administration and Ministry of Agriculture oversee the marketing approval of pharmaceuticals and agricultural chemicals, respectively.

There you go. And all of great importance for any foreign company doing business in China.

Lawyers love checklist and China lawyers are, of course, no exception.

Me, I love clients, not only because they are the lifeblood of my law firm and thus my livelihood, but also because they so often are the ones who stimulate the ideas for this blog. I just spoke with a client who asked me to outline the legal issues he needs to consider as his company looks at doing business in China.

Amazingly enough, this is the first time I have been asked so explicitly for such a checklist.

This post “issue spots” the most common legal issues companies face when going to China. Though far from exhaustive (and not intended to be so), this list highlights the key legal issues foreign companies must consider when doing business in China.

  • Are You Legal? China has all sorts of requirements for doing business in China. If you are going to be doing business there anything more than occasionally, you probably will need to form a legal entity to do so. This entity can be a WFOE, a JV, or a Representative Office. Some businesses that are perfectly legal in the United States or in Europe are illegal in China.
  • Contract.  In almost every instance, it is wise to have a written contract and it is almost always best to have this contract be in Chinese. Chinese contract law is far less willing to imply things than western law.
  • Intellectual Property/Trade Secret Protection. Your intellectual property (IP) rights in your own country do not generally extend to China. To secure protection of your trademarks and patents (and to a lesser extent copyrights) in China you must register your rights there. Do it or do not complain when they are “stolen.” You should also be using your contracts (and not just your NDAs) to protect your IP in China.
  • U.S. Foreign Corrupt Practices Act. The United States vigorously enforces the FCPA, which penalizes improper payments to foreign officials by U.S. companies. In certain situations, U.S. companies can be liable under the FCPA for payments made by their Chinese partners. The most common situation is when the U.S. company uses the Chinese company as a distributor of the U.S. company’s products. Know these laws and know how to avoid running afoul of them. And make sure that your employees are trained in these laws. Canada and Europe have similar corrupt practices acts.
  • Compliance with Export Control Laws. Late last year a company asked one of our China attorneys to draft sales contracts for their technology product. Our first question to them was whether the U.S. would even allow them to export their product to China. This question had never even occurred to them, but it turned out that exporting their product to China would be illegal under U.S. law. Years ago, I was approached by a client ready to ship product to North Korea that would have violated U.S. prohibitions on doing business with that country. The client was simply unaware of the law. Some products (certain types of software are a good example of this) can be sent to China only with a validated license.
  • Product Liability Laws. Not sure this would have made it to this list a month ago, but in light of the recent issues surrounding toxic pet food, it deserves to now.
  • Antitrust/Labor/Tax/Termination Issues. If you are going to be doing business with China or, even more so, within China, these issues are often relevant, particularly since Chinese laws on these can be so different from those to which you are accustomed.

I think this covers the basics.