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?

Just came across an interesting post with a not so interesting title on the China IPR Blog: IP Developments in Beijing.  The post starts out discussing how “due to the rapid increase in IP cases in the Beijing Number 1 Intermediate Court, particularly IP cases involving patent and trademark validity, the Beijing Intermediate Court will split its Intellectual Property Tribunal in two” with the number one IP Tribunal hearing mostly trademark and unfair competition cases and the number two IP tribunal hearing mostly patent and copyright cases.

The post then notes that the Beijing court (which hears about 10% of all China IP cases) has seen its case load increase from “4,748 cases in 2008 to 11,305 in 2012, an increase of nearly 150%,” with copyright cases representing about half the total.

This is important for foreign companies doing business in China and here’s why.

  1. Rational human beings do not generally spend money on something that is not going to bring them any benefit.
  2. Bringing a lawsuit in China always costs money (China court filing fees tend to be fairly high), oftentimes a relatively large amount of money.
  3. Chinese businesses tend to be made up of rational human beings who understand the value of an RMB.
  4. Chinese businesses must believe that they can get the Beijing IP court to give them redress for alleged IP infringements or they would not pursue the lawsuits.
  5. Chinese businesses must, in increasingly large numbers, believe that they can get the Beijing IP court to give them redress for alleged IP infringements or they would not be increasing the number of IP lawsuits they are pursuing.
  6. Chinese businesses are almost certainly correct in their belief that suing before the Beijing IP court will give them redress.
  7. If Chinese businesses are correct in their belief (and they almost certainly are, see number 6 above), that means that IP enforcement, at least through China’s courts is improving.

Independently of the above, you would have a tough time finding a China lawyer who does not also believe that IP enforcement in China is improving, particularly with respect to trademarks.

IP enforcement/IP protection is improving in China for two main reasons.  First, Chinese companies and foreign companies alike are now realizing that it makes sense for them to register their trademarks, copyrights and patents in China so that they have an opportunity at being able to protect them (in the courts, among other places).  And two, China’s courts are increasingly realizing the importance of protecting IP in China, largely because Chinese companies increasingly want them to grant IP protections.

What this all means for those of you doing business in China is that you too should be jumping on the IP registration bandwagon.  For more on protecting your IP in China, check out the following:

  • How To Protect Your IP From China. Part 2. What we, as China lawyers, look at in trying to protect our clients’ IP from China and what you, the company, should be looking at and doing to protect your own IP.

What are you seeing out there?

Many years ago, a company that manufactured outdoor products that it sold in hardware stores across America came to us with the following problem:

Its Chinese manufacturer had (through a straw person) registered in China about a dozen trademarks that our new client used on its outdoor products.  More importantly, the Chinese manufacturer had just informed our new client that it would no longer be manufacturing these outdoor products for our client because it was now going to be selling them directly to the same hardware stores to which our client had been selling the products.


The Chinese company never sold even one single product to anyone in the United States and in the end it lost tens of millions of dollars a year in revenue by having so unceremoniously cut-off our client.  The Chinese company failed to sell any products to US hardware stores because it had zero clue what it takes to sell its products in the United States.  The Chinese company went to the various hardware stores in the United States that had been selling “its” products and told them that it would now be able to sell them the exact same products for around 50% less.  But when the US hardware store chains asked the Chinese company about the systems it had in place to make sure that each and every one of its stores would always have the right number of outdoor products in stock (i.e., what inventorying system it would be using) the Chinese company had no real reply.  And when the US hardware store chains asked the Chinese manufacturer how it would handle product repairs and returns it had no answer for that either.

We worked with our client and figured out how to get around the Chinese trademarks the Chinese manufacturer had filed. To make a long story short, it had failed to trademark all of any one product and we were able to secure China trademark registrations for parts of the whole and it was on those parts that our client prominently put its trade name, after registering those trade names in China.

I thought of that Chinese outdoor products manufacturer today when I read a ZDNet article entitled, Big CES push from Chinese phonemakers, but tough sell in US. The gist of the article is that China is making excellent cellphones and smart phones these days but it has yet to sell anything but a handful of its phones in the United States and the big reason for much the same reasons why the Chinese outdoor products manufacturer failed to sell its own branded products:

“It’s one thing to have the product. It’s another thing to have all the relationships, build the distribution channels and do the marketing,” Frank Gillett, an analyst with Forrester Research, told the newswire. A partnership is particularly important in the U.S. where the majority of users buy heavily subsidized devices through carriers.

I have seen this same sort of thing in other industries in the United States where my law firm has represented Chinese companies unwilling to do what it takes to sell their China branded products in the United States.  These companies have been unwilling to spend the kind of money required to market or distribute their products in the United States and, perhaps most importantly, they have been unwilling to hire top-tier people in the United States who know how to market to US consumers.  I have heard countless similar stories from other service companies that work with Chinese companies trying to mark into the US market.

Succeeding at selling consumer products (really most products) in the United States virtually always requires more than just having the lowest price.  Unless and until Chinese companies truly understand this (rather than paying it mere lip service), the threat of Chinese companies taking over the US consumer market is minimal at best.

Just saying….

What do you think?


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?

When I saw that Law Student Daniel Reiter (a third-year at Suffolk University Law School in Boston) had written a law school paper on sourcing product from China, I asked him to send it to me.  When I saw how good Daniel’s law school paper is, I asked him if I could run it on the blog.  When I asked Daniel to run his law school paper on here, he said, “yes.”  And so that will be the subject of today’s post.

But first a bit more about Daniel Reiter. Before law school, Daniel was a reporter covering politics.  During law school, Daniel interned at Ella Cheong, an intellectual property agency with offices in Beijing and Hong Kong. He also worked as a Judicial Intern at the Surrogate’s Court of Richmond County in New York City. Daniel has a BA in Political Science and an MA in International Relations from New England College. His undergraduate thesis examined the US-Chinese trade relationship and his graduate thesis focused on the economic implications of environmental regulations in Mainland China. Following graduation, Daniel will be moving to New York City to pursue a career in corporate law.

Daniel’s paper is in the form of a memo relating to the legal issues that a fictional company, Mango Electronics, will face in trying to source its products from China.  It is a fairly long paper so I am going to break it down and post on it over the next few days. Please note that my comments on Daniel’s papers will be in italics. Here goes.


Mango Electronics (“Mango”) is a public company registered as a New York corporation with its headquarters in New York City. Mango sells Wireless Energy Adapters (“WEA”), a small box that acts as an alternative to a power outlet. Instead of plugging a device into a power outlet (such as a wall or extension cord), users can plug their electronic device directly into the WEA, which will power their device perpetually. The device itself never has to be charged; it powers itself via advanced scientific methods. Mango holds a utility patent for the device in the United States (“US”). It only sells the device within the US. Overseas distribution has been discussed, but has been determined as too risky at this stage of the company’s life.

Mango markets its WEAs as the “Orange Box” due to its distinctly orange color. The top end of the box has the company logo, a mango. The logo and name “Orange Box” are both registered trademarks in the United States. Mango does not hold any design patents.

Mango has been manufacturing its devices in the Catskills, an area in upstate New York, for the past three years. Although the device has been a huge hit and has been generating lots of revenue, the cost of manufacturing is quite high. About a year ago, Mango’s CEO, James Powersmith, formed a committee to determine methods in which Mango could increase its profit margin. The committee determined it was necessary to cut costs in the manufacturing process, and the best way to do so would be to begin producing some, if not all, of its Orange Boxes overseas.

Mango’s CFO, Eric Han, recommends Powersmith get in touch with his old boss, Ted Li, CEO of Silverwolf Manufacturing (“Silverwolf”) in Shenzhen, China. Powersmith, Han, Li and others arrange a conference call. The two parties chat for almost four hours. At the end of the call, Li asks for two weeks to determine a price. Li ultimately determines that Mango’s production costs can be decreased by up to 40% by offshoring just 25% of its production to the Silverwolf facilities, which means 500 of Mango’s employees will need to be let go.

The Mango team decides to do just this. Its plan is to manufacture 25% of its Orange Boxes in the People’s Republic of China (“PRC” or “China”) and ship them back to the US for sale.

Issues Presented

Mango will face numerous legal issues when making this change in business strategy. First, Mango has a patent on WEAs and trademarks on its logo and “Orange Box” name. This IP is crucial to Mango’s business and it will need to ensure adequate protection of its IP in China. Second, Mango will be offshoring 25% of its production overseas, which means there will be a cut in workforce of 500 employees. This will raise issues regarding labor and employment rights for Mango and it will be required to comply with New York State’s WARN Act. Third, the fact that Mango will be outsourcing services and importing goods means it will need to comply with the pertinent tax and tariff laws of both the US and China. Fourth, Mango needs to ensure it is complying with the pertinent export and import regulations regarding US national security. Finally, Mango will also need to arrange a method of payment and ensure its shipping arrangements are made appropriately.[1]


Labor and Employment Rights

Mango will be laying off 500 employees at its manufacturing facilities in upstate New York and will need to comply with the New York State Worker Adjustment and Retraining Notification (WARN) Act. Under the New York WARN Act, “no employer may order a mass layoff, plant closing, relocation, or a covered reduction in work hours unless, at least 90 calendar days prior to any planned employment loss, the employer provides notice in compliance with the requirements [of the Act].”[2]

In Mango’s case, there will be a “massive layoff” and “relocation” as defined under the Act. The Act defines a mass layoff, inter alia, as the reduction of at least 250 employees at a single site. In Mango’s case, there will be a layoff of 500 employees at a single site. Therefore, this provision of the Act will be triggered.[3] There is also a question as to whether a “relocation” is occurring. Relocation is defined by the Act as “the removal of all or substantially all of the industrial or commercial operations of an employer to a different location fifty miles or more away from the original site of operation.”[4] The Act does not make clear what is meant by “all or substantially all,” but this really does not matter in Mango’s case because the notice requirement has already been triggered by the mass layoff.[5]

Mango will need to ensure it complies with the numerous and particular requirements of “notice,” which must be provided at least 90 days prior to the separation between Mango and the 500 workers it is laying off.[6] In addition to the affected employees, several other parties are to be provided notice, including the representatives of the employees, the Commissioner of Labor, and the local Workforce Investment Boards where the site of employment is located.[7] Moreover, the contents of the written notice will need to comply with the statute.[8]


Mango markets its WEAs as the “Orange Box” due to their distinctly orange color. The top end of the box has the company logo, a mango. The logo and name “Orange Box” are both registered trademarks in the United States. Mango will be able to file both of its trademarks with the Chinese Trademark Office under Article 8 of the Trademark Law of the People’s Republic of China.[9] We advise Mango to register any of its domain names, and furthermore, register a corresponding Chinese name with Chinese characters.[10]

China has a first to file system regarding the registration of trademarks.[11] This system differs from the US in that exclusive rights to use the trademark are given to the first applicant to register the trademark, not the first to create or use it.[12] Mango can be alerted to any opposition seeking to file the logo and name using the Trademark Gazette.[13] Moreover, because Mango is a foreign company, it will be required to use an approved Chinese agent when submitting the trademark (however, either foreign attorneys or Chinese agents may prepare the application).[14]  I believe (but am not certain) that Chinese domestic companies also need an approved Chinese agent to submit their trademark filings.  

Even though Mango will be exporting its product back to the US for sale and will not be selling the product in China, it is essential Mango register its trademarks in China. Registration will prevent another legal person, or so-called “trademark squatter,” from registering the trademarks first and requiring Mango to pay a licensing fee to export the goods.[15] Mango is best advised to register its trademarks before it begins using them in China. It is also important to note that it can take several years before the trademark is actually issued. With this in mind, Mango cannot be prevented by a trademark squatter from using the trademark once it is registered, although Mango cannot prevent another from using the trademark either.[16]  China has actually sped up its trademark approval process and we are finding it taking between 16-18 months.

[1] Rebecca Eisner Et Al., Offshoring Information Technology: Sourcing and Outsourcing to a Global Workforce 112-129 (2005).

[2] N.Y. Comp. Codes R. & Regs. § 921-2.1 (a),

[3] N.Y. Comp. Codes R. & Regs. § 921-1.1 (g).

[4] N.Y. Comp. Codes R. & Regs. § 921-1.1 (k).

[5] Allan S. Bloom Et Al., The New York WARN Act, StayCurrent: A Client Alert from Paul Hastings, Aug. 2008 at 2.

[6] N.Y. Comp. Codes R. & Regs. § 921-2.2 (a).

[7] N.Y. Comp. Codes R. & Regs. § 921-2.2 (c).

[8] N.Y. Comp. Codes R. & Regs. § 921-2.3.

[9] Protecting and Enforcing Your Intellectual Property in China, Office of External Affairs

United States Patent and Trademark Office, www.uspto.gov/web/offices/dcom/olia/ip…/07china_nashville.ppt.

See art. 8 of the Trademark Law of the People’s Republic of China: “Any visible sign that can serve to distinguish the goods of a natural person, legal person, or other organization from those of another, including any work, design, letter of the alphabet, numeral, three-dimensional symbol and color combination, or any combination of the above, may be made a trademark for application for registration.”

[10] Dan Harris, How And Why To Trademark In China, China Law Blog (July 27, 2011) http://www.chinalawblog.com/2011/07/trademark.html. See Also Embassy of the United States Beijing, China, Trademark, http://beijing.usembassy-china.org.cn/iprtrade.html.

[11] Dan Harris, How And Why To Trademark In China, China Law Blog (July 27, 2011) http://www.chinalawblog.com/2011/07/trademark.html.

[12] Daniel C.K. Chow, The Legal System of the People’s Republic of China in a Nut Shell 426 (Jesse H. Choper et al. eds., 2nd ed. 2009).

[13] Interview with Jeff Chen, Patent Agent and Attorney-at-Law, Ella Cheong, in Beijing, China (July 2012).

[14] Embassy of the United States Beijing, China, Trademark, http://beijing.usembassy-china.org.cn/iprtrade.html.

[15] Letter from Stephen Y. Chow, Adjunct Professor of Law at Suffolk University Law School  (Dec. 26, 2012) (on file with author). See also Dan Harris, How And Why To Trademark In China, China Law Blog (July 27, 2011) http://www.chinalawblog.com/2011/07/trademark.html.

[16] Dan Harris, How And Why To Trademark In China, China Law Blog (July 27, 2011) http://www.chinalawblog.com/2011/07/trademark.html.


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.


Stan Abrams has a thought pondering post up on his China Hearsay blog, entitled, “DMAX: This is What Happens to Foreign Technology Companies in China.” The post is on a Chinese rival to IMAX, called DMAX and Stan concludes his post by saying he expects “to see this written up as a case study for some business or law school out there. Looks textbook.”

I agree and I disagree. I agree that it looks textbook and that’s because what is going on here happens pretty much every day in China. But because this sort of thing happens pretty much every day in China, I’m less certain that this particular example will make the textbooks. That being the case, I will do the case analysis right here and now.

Factual Background (as taken from this China Daily article): 

DMAX, a large film screen made with Chinese independent technology, on Monday was put into commercial use in a cinema in the eastern province of Anhui, as developers hope to break the IMAX monopoly in China’s booming film market.

According to Yang Xuepei, head of the institute, while embodying the country’s independent core technology of big screen motion pictures production and image optimization, DMAX is also compatible with the most advanced technology overseas. Its 2D and 3D screening quality are as good as large screens of foreign brands.

Factual Issues:  Does IMAX have any patents in China? They have a whole slew of them in the United States.  Is DMAX violating any IMAX patents? Did IMAX register its name as a trademark in China? I am guessing that it did. If IMAX registered its name in China, does the name “DMAX” violate IMAX’s China trademark?  I am thinking that it does. Did DMAX improperly receive any IMAX trade secrets? What are DMAX’s plans?  Just China or the rest of the world too?  What is the pricing difference between the two technologies?  What about quality and service?

Legal Issues: If DMAX is using any IMAX patents or trade secrets, we should expect IMAX to sue DMAX in China. I would expect IMAX will be suing DMAX in China for trademark infringement.

I wish I could claim the above as original scholarship, but my analysis pretty much tracks Stan’s:

A lot of questions here, but we’ve got a booming domestic market and a foreign company that is pretty much in a monopoly position because of its superior technology. Sound familiar?

Yes, this sort of situation has occurred over and over in China. What usually happens is that a domestic competitor emerges that (at first) competes on price. I’m wondering whether IMAX has patent protection over its tech and whether DMAX will be looking at any infringement suits in the future. If not, were there trade secrets involved? I’m speculating, of course. It’s possible that there are no IP issues here at all and that DMAX is a solid citizen. And if there are IP problems, I wouldn’t want to be IMAX — the owners of DMAX seem to be heavy hitters (e.g. “China Film Co.” — part of China Film Group?).

At the very least, though, there’s got to be a trademark issue here, yeah? After all, “IMAX” and “DMAX” are 75% identical. I might do a quick trademark search tomorrow and see what I can find on these guys.

If IMAX did not protect its IP by registering it in China, the lesson is that it should have, if it could have. The problem with patents in China is that one must register one’s patent in China within one year of having registered it elsewhere. So if some IMAX’s US patents are, let’s say, ten years old, and it never even really considered China until a few years ago, it would not have been able to register at least some of its patents in China at all. That is not the case with trademarks and if IMAX did register its name in China, it probably does have some recourse against DMAX.  I say “probably” though because DMAX will probably argue that the max portion of the name is fairly generic and so it is not infringing at all.  IMAX will argue that it is no coincidence that DMAX’s name is only one letter of its own and they are selling the same product. At minimum, a company should — if it can — register its patents in China and its trademarks as well. Chinese law is actually pretty good at protecting trade secrets and so if IMAX can show that DMAX secured its technology from IMAX improperly, it may make sense for IMAX to sue for trade secret theft.

But maybe DMAX did not violate any laws or infringe on any registrations. If that is the case, IMAX’s only recourse would be to outshine DMAX on quality and/or service because it is not likely going to be able to beat DMAX on price.

Is there a lesson to be learned here?  There has to be, but it is not quite clear yet exactly what it is. In the meantime, about all we can tell you is that if you have patents or trademarks that you want protected in China, register them right away. And if you have trade secrets you want to keep secret, make sure you have systems in place to maximize the likelihood of that happening. Chinese companies are constantly on the lookout for the next big thing and they are a lot more likely to find it at your company than by their own innovation. You should assume copying of your product is going to occur in China and you should prepare accordingly.

Fascinating article up on the Wall Street Journal, written by Geoff Nairn and entitled, “Patents are a Virtue,” and subtitled, “China is a land of opportunity for business, but it is also a land of counterfeiting and intellectual property theft.” The article is on counterfeiting in China and the various innovative ways companies act to prevent it.

The article has a sidebar, entitled, “An ABC to Losing Your IP,” that lists out three things companies often do to cause them to lose their intellectual property in China. The Journal attributes this list to our blog, but because it has been so modified for the article, I am not even sure from what post(s) they came. In any event, I love the list, so here goes:

A: Failing to use employee invention agreements. These specify that any invention made using the company’s time, material or facilities belongs to the company, not to the employee.

B: Thinking that patents are the only IP that matters. Western companies underestimate the importance and value of trademarks and trade-secret agreements in China.

C. Neglecting the three Ns. Non-disclosure agreements stop suppliers disclosing IP to third parties. Non-use agreements stop Chinese contract manufacturers setting up as your competitors. Non-circumvention accords stop contractors selling direct to your customers.

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.