Archives: intellectual property

This definitely holds true for China copyrights takedowns.
This definitely holds true for China copyright takedowns.

 

This is the fourth in a series about online copyright takedowns. Copyright Takedowns in China was a general summary of the regulations that establish the takedown procedures. These regulations enable enforcement of the “right of communication through an information network” as it applies to sound recordings and audiovisual recordings. Copyright Takedowns in China Part II: Searching, Linking or Storing? looked at how providers of storage space encounter more liabilities than those merely providing searching or linking services. The application of the takedown regulations to cloud service providers was covered in Copyright Takedowns in China Part III: Audiovisual and Sound Recordings in the Cloud.

Our China lawyers are handling more and more takedown work these days and one thing is very clear: if you ever expect to have infringing content taken down the single most important thing you should do is register your copyright in China in advance. The reason for this is simple. If you attempt to invoke China’s notice and takedown system the internet service provider will put you to proof. If you don’t have a Chinese copyright registration certificate ready to go you will need to prove your copyright ownership. Though Chinese network service providers all have their own requirements for this, all of them will require you to provide a bunch of chain of title documents that have been translated into Chinese. These documents will be essentially the same as those required to obtain a registration anyway. Once you have proven your ownership to a network service provider, you will have nothing to show for all the work, except, we would hope, the taking down of the infringing content in one instance. You will need to repeat the exercise again and again if numerous sites are involved or if your content goes back up again on a site from which it was taken down.

So speed up the takedown process, and have something to show for your work, by registering your copyrights in China. If you have your chain of title ducks in a row it will be quick and inexpensive to get a registration. You will then be ready to strike.

Despite the increasing restrictions on using employee dispatch companies for hiring of “your” China employees, our China lawyers have seen very little by way of a slowdown in smaller companies choosing to go that route, especially if doing so will allow them to delay having to form a China WFOE that much longer.

The legal issues for foreign companies that use employee dispatch companies are not terribly complicated, with one exception.

The way the whole system works is that you as the foreign company sign a contract with the employee dispatch company for it to hire as its own employee an individual or individuals you would like doing work for your company. The better dispatch companies generally have pretty good contracts for this and so our role as attorneys for our foreign clients is mostly to point out the provisions at which our clients have some negotiating power.

The complication arises in the contract between the employee dispatch company and its/your employee and it is here where we see the most mistakes being made. The employee dispatch company drafts its employment contract with its/your employee to protect and benefit itself, without any real regard for you.  In most respects, your interests are fairly well lined up with the employee dispatch company and so for the most part it is a good thing that most of these companies draft good China employee contracts.

But when it comes to your intellectual property, you need to account for the fact that your employee dispatch company does not care at all. And when I say, “at all,” I mean at all. Your employee dispatch company does not care if its contract with its/your employee protects your IP and your employee dispatch company does not care if its contract fails to protect your IP.

For this reason, you have to care and you have to be the one to make sure that the employee contract reflects this. If you want to be sure that the employee does not end up owning your intellectual property, you need to make sure that the employee contract is clear on this. If you want to be sure that your employee signs a contract that reduces the likelihood of he or she running off with your trade secrets, you need to make sure that the employee contract has provisions for that.

Cause if you do not make sure that your China attorneys do this, nobody else will.

A few months ago, co-blogger Steve Dickinson and I went on an extended  legal/business trip to Ho Chi Minh City and Hanoi, during which we met with around a dozen Vietnamese lawyers. One of the questions we asked nearly all of these lawyers (mostly because we kept getting different answers) was “what should we be putting in our contracts with Vietnamese companies, by way of a venue provision?” In other words, which of the below options would be best for our mostly American (with a smattering of European and Australian) clients:

  1. Litigation in the courts of the home country of our client.
  2. Litigation in the courts of Vietnam.
  3. Arbitration in Vietnam.
  4. Arbitration outside Vietnam.
In typical lawyer fashion, we decided that it depends.
Which is why we are writing this post as the facts and our analysis and our conclusion hold equally true for China.
Each of the above options has its pluses and its minuses and picking the right venue truly does depend on the specific situation, both for Vietnam and for China.
We will go through each of the options, highlighting each of their major plusses and minuses.
  • Litigation in the home country (within America or Europe or Australia) has the big plus of providing to the home company its greatest chance of prevailing. Litigation in America, Europe and Australia also tends not to require a large upfront filing fee/arbitration fee. But the downsides almost always outweigh the plusses, with the biggest downside being that neither Vietnam nor China will enforce the court judgments of most foreign countries. So if you are suing a Chinese or a Vietnamese company overseas and you prevail, you likely will have no means for collecting on your judgment/enforcing your judgment in either China or Vietnam. If the Chinese or Vietnamese company has assets in a country that will enforce such a judgment, then it is a different story, but that is rare. We only rarely write contracts with Chinese or Vietnamese companies that call for litigation outside of China or Vietnam, respectively. It also bears mentioning that litigation is public and has the potential to be the most expensive option of all.
  • Litigation in the courts of Vietnam or China. The biggest plus for litigating in a China or a Vietnam court is that the courts in both countries are best equipped to enforce a judgment, be the judgment a monetary one or one requiring the Vietnamese or Chinese company to do something, such as stop violating intellectual property rights. The biggest downside of the courts of both Vietnam and China is that they tend not to be well equipped for handling complex commercial matters and they are sometimes biased against foreign companies.  These negatives are much greater in Vietnam than in China and for that reason our China contracts far more often call for litigation in China than our Vietnam contracts call for litigation in Vietnam.
  • Arbitration in Vietnam or China. The biggest plusses for arbitrating in Vietnam and China are that it is quite possible to have good arbitrators, have an arbitration in English, and have good chances of enforcement. The minuses are that it is also quite possible not to have good arbitrators and to have an arbitration in Chinese or Vietnamese. The costs can also be high and enforcement (particularly of a non-monetary award) can be slow. The other day a China lawyer proudly told me that he never lets his clients agree to arbitration within China. The reality though is that Chinese companies (especially SOEs) are increasingly mandating in-country arbitration (this is also true of Vietnam). If you are going to do an arbitration in either China or Vietnam, it is absolutely essential that your arbitration provision be written so as to avoid the numerous pitfalls possible with this.
  • Arbitration outside Vietnam and China. The biggest plus with this is that you can choose wherever you want (Hong Kong, Singapore, Geneva, New York, Toronto, Sydney, Stockholm, wherever) and you can fairly easily get great arbitrators. The biggest minus (truer of Vietnam than of China, but true of both) is that enforcement of a foreign arbitration award can be slow and, even worse, can also be spotty. Be very careful here in that both Vietnam and China prohibit foreign arbitrations of certain disputes.
My law firm has written contracts providing for all of the above, depending on the confluence of the facts. There are no hard and fast rules covering every situation when dealing with either China or Vietnam.

It is common to read articles with statements like this: “Contrary to popular belief that enforcement of arbitration awards in China is very difficult, statistics show that less than 10% of arbitration awards are set aside by Chinese courts”.

This is very misleading. Talk to those who actually work on arbitration enforcement and the picture is reversed: most awards are settled rather than enforced, and although courts hardly ever set aside awards, they do nothing at all – which of course favors the Chinese party.

It really does just depend….

 For more on litigation versus arbitration, check out the following:

Not easy issues.  What do you think?

A friend emailed me a post the other day and asked me if I agreed with him that it was the “most helpful post your blog has done for helping foreign companies doing business with China.” My response was that I wasn’t sure, but that it certainly ranked up there and that it had been so long since we did that post (more than seven years), I would run it again. Certainly though the advice in that post holds equally true (or more so) today as it did way back then.

Here is that post:

If you are doing business in or with China, you have to check out ChinaSolved. It is operated by my friend Andrew Hupert, who also operates DiligenceChina, [link no longer exists] which is one of the best China business blogs. ChinaSolved is shaping up as a terrific resource on doing business in China. It is already chock-full of useful business advice.

Its article, “Ten Commandments for Westerners In China,” [link no longer exists] is typical of the site’s excellent and straightforward advice for foreign companies doing business in China. And I found myself agreeing with nine out of ten. Here goes:

  1. “Know what you don’t know” (for many westerners, this is by far the most difficult challenge.). Any similarities between China and “back home” are purely accidental. This is a completely different culture. Do not be fooled by surface similarities or by local people who “seem to get it.” Sources of reliable information are your #1 asset.
  2. China is still a communist country – and there is absolutely zero chance of that changing any time soon.
  3. You have to show up to win. You must be physically present and put in the “face time.” There is no “autopilot” in China business. If you feel that you are too busy to learn about China, then you are certainly too busy to be successful here.
  4. If things worked well here in China, then there would be significantly fewer opportunities for competent westerners. Try not to get too frustrated by the challenges you face.
  5. Time does not mean money here. Chinese business people do not believe in “opportunity cost.” Even simple negotiations can drag on for a long time. Avoid getting sucked into an endless cycle of meetings that don’t accomplish anything.
  6. Truth, honesty, good-will and long-term benefit are all culturally-specific concepts. Don’t expect your western standards to carry over here. Win-Win is not standard operating procedure here. Do not fool yourself that your long-term relationship with a local partner means anything.
  7. Don’t check your brains in at the border. You wouldn’t hand over your company’s money, intellectual property or trademarks to a virtual stranger in Sydney, London or San Francisco and expect to make a windfall. Don’t do it in China. The people that are offering to open doors for you are the same ones that can lock you out. Beware of people who peddle their “powerful friends and great connections.” They can use them to hurt you as well as help you.
  8. Due Diligence becomes more important when the language and systems are unclear, not less important. Don’t settle for the “least worst” deal or partner. Partners don’t get more honest and relationships don’t improve as the amount of money involved increases.
  9. China will still be here next year, and in 5 years. Don’t be pressured into signing a contract or making a deal because you are afraid of “missing the boat.” The boat has been here for 4,000+ years.
  10. Having a sense of humor helps. Having a Plan B helps even more.

I agree with all but number 6.  I understand why ChinaSolved felt it necessary to put it in here, but I think it is wrong.

Truth, honesty, good-will and long term benefit are not culturally specific concepts and long term relationships with local partners mean a lot. I think ChinaSolved felt the need to put this in here to make up for the common mistake of Westerners equating a week of good businesses meetings and friendly dinners in China with being set for life. All of us (China consultants, China accountants, and China lawyers alike) who represent Western companies that are doing business with China could fill a book with stories of China deals gone bad. So let us just take it as a given that Western companies constantly make the mistake of trusting too much, too soon.

But, I personally have also have seen enough to fill a book about excellent, mutually beneficial relationships between Chinese companies and Western companies.  And, at least as far as I know, every one of those successful long term relationships was based on trust and mutual long term benefit.

So I say we downsize to just nine commandments.

What do you think?

Spoke the other day with a consumer goods client who goes to a couple of trade fairs every year in the PRC.  He told me of some funny (and not so funny) trade fair stories, some of which revolved around intellectual property, intellectual property protection, and intellectual property theft.

Well it all got me to thinking….

Trade fairs can be both bad and good for your intellectual property.  Trade fairs (as my client noted) are a great place to steal someone’s IP.  It therefore is not a place to let your guard down with respect to protecting your intellectual property.  I have gotten far too many calls from people who provided product information to potential manufacturers they met at trade fairs, only to realize too late that they had revealed too much, too soon.

It should go without saying that you should not reveal anything more at a trade fair than you would otherwise, and you should have an agreement in place (an NDA or an NNN) before revealing any trade secret.  For more information on NDA Agreements and NNN Agreements for China, check out the following:

If you think you may be revealing confidential information at a trade fair, get your NNN Agreement drafted before you go.

Trade fairs are also great places to monitor your own IP to see whether it is being copied in China.  There are far too many stories of US companies going to a trade fair, to see their own product (oftentimes with their own brochures, only slightly revised if at all) sitting on a Chinese manufacturer’s table.  If this should happen to you, do not get mad and do not make a scene.  Rather, use this as an opportunity to try to end the infringement both on the spot and in the future; use it as an opportunity for protecting your IP from China.

The best way to do that is to gather up as much information as you can about the infringer.  If at all possible, try to secure the following:

  • The name and address of the company making the product.  Get a business card.  And if you can, get a copy of their business license.  If possible, get the names of those working at the stand.  Get as much of this information in Chinese as you can.
  • Take down the stand number.
  • Take photographs.  Liberally.  Make sure some of the photographs make clear where they were taken and, if at all possible, when.

Then consider going to the company that is putting on the trade fair and requesting that they immediately shut down the offending stand.  If you are going to succeed at this, it would be best if you bring along someone whom you trust who speaks Chinese.  It is also critical that you have proof that infringing/counterfeiting is taking place.  This means that ideally you should provide proof of your own IP filings in China.  Then consider whether you should report the offending party to the Chinese authorities or pursue litigation.

I am going to be speaking at USC this weekend and in poring over old PowerPoints (to create a new PowerPoint for my talk), I came across one with a fairly extensive China law bibliography of some of our most helpful posts.  This bibliography is definitely slanted towards the legal issues that confront foreign companies doing business in China.

Here it is:

CHINA CONTRACTS

CHINA LICENSING AGREEMENTS/CHINA DISTRIBUTOR AGREEMENTS/CUSTOMS

CHINA COMPANY FORMATION/CHINA WFOE FORMATION/CHINA JOINT VENTURES

NEGOTIATING WITH CHINA

CHINA —INTELLECTUAL PROPERTY

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?

Last year, while back at my law school on a speaking engagement, a Chinese law student made the comment that I am always negative on China.  I felt really bad about that and insisted that I am neutral and just calls ’em as I see ’em.  Since then, however, whenever I am quoted defending China’s legal system, I think of that student.

I thought of that student today when I read a China Daily article that has me defending China’s intellectual property protections:

Dan Harris, founding member of Asia-focused commercial law firm, Harris & Moure, based in Seattle, says Chinese courts are starting to get tougher on IPR violations and while that is a good thing, particularly with respect to trademarks, the courts also need to be tougher in enforcing them.

“China’s laws are fine. It’s not just a question of the laws. It’s really a question of implementation. A lot of times it’s a question of implementation not just by the Chinese government but by companies that are doing business in China.”

“A lot of times foreign companies complain about IPR in China, when in reality it was the foreign company that made the mistake of not sufficiently protecting it intellectual property rights when it went to China.”

Harris says China is a lot better now compared to a decade ago, because the country is getting wealthier, and because Chinese companies are starting to become more conscious about IPR.

“I am of the view that countries start doing well with IPR when their own powerful companies really start caring about it. And I’ve seen this progression elsewhere, such as in Japan and South Korea.

“The reality is nobody is going to be able to force China to improve its IP from the outside, but big companies within China, like Haier, Huawei, and Lenovo can do so,” he says.

In fact, Chinese companies, though largely defendants, have a good record of winning IPR cases overseas. Huawei, which has been involved in many disputes with strong rivals such asMotorola and ZTE, provides a good example.

“Interestingly enough, in my experience, Chinese companies that come to the United States take IPR protection more seriously than American companies that go to China,” Harris says.

“I think a lot of the reason for that is because in the United States certain IPR protections are automatic without any need to file for them. So when Chinese companies come over here, in most cases they are prepared to file, whereas when the Americans go over to China, oftentimes they neglect to IPR do the necessary filings.”

Not saying China IP protections are great overall (because they certainly are not), but I am saying that if you are a foreign company and you fail to take the necessary steps to protect your intellectual property in China, it’s your bad, not China’s.

What do you think?

We here at China Law Blog constantly emphasize the need to secure trademark registrations in China, as evidenced by the China trademark posts below:

But it just occurred to me this morning (upon seeing an email from one of our China attorneys to a client) that we have never written anything about what a company should do with its China trademark once secured.  So here goes, in the form of the fairly standard email we write to our clients once we have received notification from the China trademark office that the trademark application we filed for our client has been accepted and that the trademark has now been registered in China.

I am pleased to report that the following China trademarks have been registered for Class 25 goods (i.e., clothing):

(1)    [Brand name]
(2)    [Brand name] logo

Attached please find a scan of the Certificate of Trademark Registration (along with an English translation) for each of the above-referenced trademarks. Please also note the following:

1.    If ______[client] LLC (i) changes its name or address; (ii) licenses any third party to use either trademark; or (iii) assigns either trademark, it must file an application with China’s Trademark Office to that effect.

2.    Each trademark will be valid for a period of 10 years, starting on the official registration date of June 21, 2013, and ending on June 20, 2023. If you wish to renew the trademarks, you may do so any time within six months before the expiration date.

3.    Each trademark will be presumptively valid throughout its term, but if a trademark is not used in commerce in China at least once every three years with respect to the covered goods, then it is at risk of cancellation for non-use.

We are still waiting to receive the original trademark certificates. Upon receipt, we will send them to you.

As I noted in my previous email, we should discuss some other ways to protect your intellectual property in China. Registering your trademarks is the first and most important step, but there are two additional steps that we recommend to our clients, especially those who manufacture goods at risk of counterfeiting, like branded clothing. First, monitor China for possible infringement of your marks (including but not limited to monitoring third party applications for similar trademarks). Second, register your trademark with Chinese Customs. The latter is an essential step if you believe counterfeit product may be coming from China, because Chinese Customs will not seize any allegedly counterfeit products unless you have a registered trademark in China AND you have separately registered that trademark with Chinese Customs.

This is a guest post by Jonathan Poston. Jonathan is currently a business professor at Warren Wilson College, Director of Strategic Partnerships at Drymos Group LLC and an adjunct professor at Galen University in Belize.
Before China became the world’s second largest economy (as it is today), or even the third, fourth or fifth, US high schools and colleges focused heavily on encouraging students to learn Spanish. Now, with incentive dollars (often speculated to be a soft power move by the PRC) coming from the Chinese government for colleges and high schools to teach Mandarin Chinese, Spanish has a little more competition. However, with the exception of a few MBA programs few US schools emphasize understanding China’s (business) culture.

A while back I visited Dr. Dirk Brown, who heads the Faber Entrepreneurship Center at the University of South Carolina and was really impressed to learn that the international MBA students there immerse themselves in foreign language and culture training, with many students choosing to study Chinese language and culture.

Fast forward to this summer, after I had been reading international news, like this 2012 NYTimes piece, China Buys Inroads in the Caribbean, on China’s development ambitions in Central America, when I decided to propose teaching a China business & development course for Galen University in Belize.

According to that NYTimes article, China has made significant gifts (investments?) to various Caribbean countries:  A $35 million stadium given to the Bahamas. A sports stadium, grammar school, and renovated hospital to Dominica. A new cricket stadium and power plant to Barbuda and Antigua. An offer to lend $6.3 billion to Caribbean governments.

And then there is China’s talking about building a $40 billion canal through Nicaragua.

China’s growing worldwide influence and investments/gifts is sure to impact Central America, and what China’s recent activity in the region means precisely for Belize is unknown, but nonetheless Galen University has accepted my proposal to teach a course this fall titled, “Chinese Business Partnerships & Economic Development.”

I am hoping to incorporate a bit of the following components into my China business course:

  • Chinese history basics
  • Chinese business culture and etiquette
  • China best practices
  • International economic development trends and tactics
  • Strategic geographic review of Chinese economic centers (ports,manufacturing, capitals, trade zones, etc.),
  • Basic conversations in Mandarin (building rapport & getting around)
  • Overview of Chinese geopolitics
  • Strategic trade relationships
  • The Chinese government’s role in business
  • Intellectual property protection and security considerations
  • Negotiating contracts
  • Developing working relationships w/decision makers,
  • Structuring and closing deals

I am considering having my students read Selling to China: A Guide to Doing Business in China for Small- and Medium-Sized Companies, by Stanley Chao.

With that said, I am certain the above topics would be sufficient for an entire degree on China business, but naturally in one course, these will be discussed more superficially, and no one will leave the class fluent in Mandarin Chinese, or even close. But, I am hoping this course will serve as a framework for better preparing Belize’s future leaders to sit at the negotiating table with Chinese investors and to walk away with a win-win deal in hand.

My hope in sharing this course outline with China Law Blog readers is to generate some discussion around what China’s involvement in countries so close to the United States is going to mean, both for those countries and for China and the United States and to solicit feedback on what people think I (and others) should be teaching in university-level China business
courses, along with any suggestions on what materials, etc., could be added to a course like this.

What do you think?