China Manufacturing Lawyers. China IP Lawyers

I wrote a four-part series on product development in China, entitled, Hardware Co-Development in China: Do it Right — Part 1 is here, Part 2 here, Part 3 here and Part 4 here. This series helped explain why developing products in China can be so complex and why it is so important to protect your intellectual property during the product development process. In response to those posts a number of people have asked our China lawyers how to structure product development relationships with Chinese companies so the foreign company actually ends up with the rights to the product that gets developed. This post addresses that issue.

The key is to focus on manufacturing rights, rather than on intellectual property rights, especially when the PRC or Taiwan factory presents the foreign product developer with an already prepared manufacturing agreement. Lawyers all over the world have become masters at writing complex and sophisticated intellectual property provisions for product development and manufacturing agreements. Because these IP provisions are written to cover every possible situation, they are usually written at such a high level of abstraction they often have little to no real meaning on the ground in Asia.

Our solution at this point is not to further refine or revise the already highly refined IP language. Instead, we recommend focusing instead on the practical issue of manufacturing rights. At the end of the development process the Chinese factory and its foreign customer (our client) will be looking at a set of prototypes and the sole issue for the foreign party at that point is usually what can I do with those prototypes? If this question is not clearly resolved in an enforceable contract at the start of the development process, the answer will usually be that the foreign party cannot do anything with the prototypes beyond what the Chinese factory allows it to do. For what is required for a contract to be enforceable, check out China Contracts that Work.

To avoid this result, at the inception of the development process the foreign party should secure a written and enforceable contract that includes the following:

  • A clear statement of what will be done, when and by whom. This should include a clear description of the product to be designed and the work to be performed.
  • A clear statement of the costs, the allocation of costs, and the payment dates for the costs. It is important that your contract be written to provide a clear understanding of what will be provided by the Chinese manufacturer in return for the payments. This provision should address molds, tooling, software, design, and a working model.
  • A clear statement that if the design project fails, all the tangible and intangible materials developed during the project will be transferred to the foreign customer with nothing retained by the Chinese factory or designer.
  • A provision stating that if the design project succeeds and prototypes are developed the foreign customer shall have the right to manufacture the product in any factory anywhere in the world. The foreign party should be free to determine what factory will manufacture the prototyped product. Normally, this will mean manufacturing it in the factory of the co-developer, but what if that factory cannot make the product for a satisfactory price, or in satisfactory quantities, or with satisfactory delivery dates or quality? What if the Chinese factory insists on raising its prices six months later? For you to be able to maintain control over your product, you must have the right to move some or all of the manufacturing of your product to the facility of your choice, for any reason at all.

This issue of the right to manufacture should be clearly understood by both sides before the parties start discussing the more abstract issues of intellectual property rights. Every factory owner and every foreign party understands the issue of manufacturing rights and if you negotiate this early on, the real situation will be revealed in a way both parties understand. When the parties reach clear agreement on manufacturing rights, the intellectual property provisions become relatively easy for our China IP lawyers to draft.

If you wait to seek agreement on manufacturing rights with your China factory until product development has concluded you will have relinquished your leverage. If you wait until your Chinese factory completes the prototype, it can deny that you have any manufacturing rights and it can raise its manufacturing prices with near impunity. You need a China appropriate contract making clear you (not your Chinese factory) own the manufacturing rights because without this your Chinese manufacturer will probably be able to stop your product from being made by any other factories in China or from leaving China if it is.

When beginning the product development process in China it will often make sense for you to skip abstract discussions of intellectual property rights and just focus on the key practical issue both parties can understand: when the prototypes are finished, what can you do with those prototypes? It pays to discuss and resolve this issue early on with your Chinese manufacturer. For what should go into a China product development contract, check out China Product Development Agreements.

China trademark registration
       Same same but different

One of the annoying quirks (or endearing features) of the Chinese trademark system is that the Chinese Trademark Office (CTMO) and the Chinese court system have different standards for what makes one trademark “confusingly similar” to another, which is the statutory basis for determining whether one trademark conflicts with another. To make things even more confusing, neither the CTMO nor the Chinese court system has a uniform, clearly articulated standard.

That being said, experienced practitioners know CTMO examiners are generally more strict than Chinese judges. As discussed in these pages before, the CTMO continues to hire vast numbers of inexperienced trademark examiners who are under tremendous time pressure to crank through a mind-blowing number of trademark applications. They’re following a playbook, just like an offshore customer service representative, and they aren’t rewarded for making appropriate judgment calls. I haven’t been to one of their training sessions, but I have to believe the mantra drilled into new recruits is “When in doubt, reject.”

None of the CTMO examiners are native English speakers and many don’t speak English particularly well. They are trained to look for similarities in phonetics, pronunciation, appearance, and meaning, which can lead to absurd results for English-language marks that superficially appear similar. For instance, “Big Work” and “Big Dork” might well be considered confusingly similar brand names by the CTMO even though there isn’t a single native English speaker who would ever confuse the two. In fact, the CTMO would probably consider “Work Big” and “Big Dork” to be confusingly similar. At a very high level, you can see why: the order of the words is flipped and one letter is different, but otherwise they are identical.

It’s possible to rationalize the CTMO’s unsophisticated approach to English-language trademarks by noting that many Chinese consumers have limited English-language skills and might indeed think that “Work Big” and “Big Dork” brands were produced by the same company. But this argument doesn’t hold up under further scrutiny, because the CTMO examiners take the same approach with logos (that are not in any particular language).

The Trademark Review and Adjudication Board (TRAB) hears appeals of trademark rejections, and they have a more objective and sensible approach to the “confusingly similar” standard. But they, too, are overworked and understaffed, and far more often than you might expect, they will uphold a ridiculous CTMO decision. So it is entirely possible that in real life, an existing registration for “Work Big” would block an application for “Big Dork.”

Meanwhile, the Chinese court system would almost certainly not find that the “Big Dork” brand infringed upon the “Work Big” registration. The owner of “Work Big” could not get an injunction or damages, and would be hard pressed to take any action at customs. Frankly, it probably wouldn’t even occur to them because the marks are so different.

So where does that leave the owner of the “Big Dork” brand? They are unable to secure a trademark registration in China, but they can’t be sued for infringement either. Effectively, they’re in the same position as anyone using a descriptive trademark: nobody can stop them from using it, but they can’t stop anyone else from using it either.

Whether this is acceptable to the “Big Dork” brand owner largely depends on what they want to do in China. If all they want to do in China is manufacture goods and be assured that their goods will not be seized at Customs for alleged trademark infringement, they should feel reasonably confident. It’s not ideal, though, since CTMO’s decisions are not binding and if a trademark squatter files an application a couple years down the line and gets a CTMO examiner with a more relaxed standard, that squatter might be able to secure a registration after all. The best decision would be to use a trademark that they could definitely register in China, whether by appealing the CTMO’s rejection or by picking a new trademark. Better safe than sorry.

And if they plan to sell goods in China, they absolutely need to find another trademark, because it’s guaranteed that someone else would copy the “Big Dork” brand name and they wouldn’t be able to do a thing about it. See Make China Trademarks a Priority.

China employment lawyersChina employees can terminate their employment contracts and secure severance against their employer if their employer has not provided the labor protections or abided by the work conditions set forth in the employment contract. Many employers do not realize this applies to sexual harassment as well.

China employers are obligated to prevent and stop sexual harassment against their female employees in the work place and a female employee has a legal claim against an employer that fails to take necessary actions after the employee complains of sexual harassment. What this all means in real life is that if you do not already have a China-specific sexual harassment policy in place for China, you need one. NOW.

Whatever you do, do not use your U.S. or your European sexual harassment policy in China. China’s laws on this are very different from the West’s and just translating what you have will in no way cut it. See China Employment Contracts: Why Ours Are In Chinese  and Using English-Language Contracts in China. Not only must your sexual harassment policy by tailored specifically for China, it should also be tailored specifically for the locale or locales in which your China employees are based. See China Employment Law: Local and Not So Simple. A sexual harassment policy not tailored to the relevant locale within China can be deemed unenforceable. Even more common, our China employment lawyers often see foreign companies get sued for following an employment policy that does not jibe with local laws or customs.

As a China employer, you should be protective and encouraging toward a harassed employee. Consider the not uncommon situation where company policy mandates harassed employees must come forward to report any harassment and stops there. What happens if a harassed employee fails to report the harassment? Will the employee be disciplined in some way? If you do not intend to punish the employee, this sort of provision makes no sense and could very well prove harmful to you since it is not usually appropriate to penalize a harassed employee for failing to report harassment. Instead of saying “must” or “shall” you probably should say “is encouraged to.”

One-sentence in your rules and regulations stating that your company does not allow sexual harassment is not nearly enough. You need to be specific about the discipline you will impose. If all your employment documents state is that you may take appropriate disciplinary actions against an employee who engages in sexual harassment you might as well not even bother with having a policy. Your policy should set out specific measures you will impose and those specific measures need to fit the general approach of your rules and regulations and fit what is appropriate to the nature of the harassment and even the locale in which the harassment occurs. Your sexual harassment rules should not only be specific; they should be concise as well. A lengthy policy with too-complicated mechanisms or multiple-layers will not serve as good guidance to your management or to your employees and therefore is virtually never a good idea for China. You should also set out various reporting mechanisms and the measures you will take to assist sexual harassment victims.

Now can you see why a U.S. or Europe sexual harassment policy simply does not work for China?

By clearly setting out the specific discipline you will impose for sexual harassment you will establish a written basis for disciplinary actions or terminations you impose against an employee who commits sexual harassment. Since China is not an employment-at-will country you as employer generally need a specific contractual/legal basis to discipline or terminate an employee. See Six Common Myths About China Employment Laws. The legal basis for a China employer being able to discipline or terminate an employee who engages in sexual harassment would be serious breach of employer rules and regulations. This means that if you do not clearly enumerate your sexual harassment rules and policies in your written employment documents, you will lack a written basis for disciplining or terminating an employee who harasses and you will have a hard time justifying any punishment you impose on such an offender.

There have been a few cases in China where employers terminated an employee for sexual harassment and then succeeded in defending themselves in unlawful termination lawsuits despite any specific sexual harassment provisions in their employer rules and regulations. These employers succeeded by arguing that the employee has violated his general duty to follow mandatory laws prohibiting sexual harassment and/or by highlighting a catch-all provision in their employer rules and regulations that provided for termination for any serious offense. But these employers could have saved a lot of time and money had they merely implemented a specific sexual harassment policy. Also, in many pro-employee jurisdictions, if you do not have a set of enforceable employer rules and regulations, you have no recourse against an employee no matter how terrible the employee’s conduct. Seven Myths About China Employer Rules and Regulations (aka Employee Handbook).

Bottom line: Check your China sexual harassment rules and policies for legal compliance under Chinese law and for your locality. Now. See Why NOW is the Time to Comply with China’s Employment Laws, Part 2.

2. My recent webinar, Employment Laws for Female Workers in China, now available on demand.

 

China sourcing contractsOne of the first things our China lawyers do when working with a company having products made in China is figure out the contracts and IP registrations that will ensure our client’s intellectual property and other rights will be protected as against its Chinese manufacturer and the rest of the world. In doing so, our China attorneys typically choose from the following manufacturing related agreements and IP registrations:

1. NNN Agreement. NNN Agreements are basic agreements that protect the confidentiality of your products and prevent your Chinese manufacturer from competing with you or circumventing you by going directly to your customers (non-disclosure, non-compete and non-circumvent. Their highest and best use is usually before you chose your specific Chinese manufacturer. Oftentimes an NNN Agreement is not needed because it makes better sense to put the substantive provisions from the NNN Agreement into a Product Manufacturing Agreement, described below. NNN Agreements normally are relatively simple agreements but for one to work with China it must be done correctly and using an off-the-shelf American or European NDA Agreements will not work for China. See Why Your NDA is WORSE Than Nothing for China

2. Mold/Tooling Protection Agreement. This agreement makes clear that the molds/tooling you are having made for you will actually belong to you and cannot be used to make products for anyone but you. Without such an agreement, when you seek to move your production to a new manufacturer, your old manufacturer will very likely keep your molds/tooling. Without this agreement there is also a good chance your old (or even your present) manufacturer will use “your” molds/tooling to make “your” products and compete with you. Just as is true with China NNN Agreements, it often makes sense to skip this agreement and put its substantive provisions into the Product Manufacturing Agreement. For more on these agreements, check out Manufacturing in China: Control Your Molds (Part 1), Manufacturing in China: Control Your Molds (Part 2) and Manufacturing in China: Control Your Molds (Part 3).

3. Product Ownership Agreement. This agreement makes clear the product you are co-developing with your Chinese manufacturer or having made by your Chinese manufacturer belongs to you. This makes sure you have something in writing and enforceable in both China and in any other country in which your product is going to be sold. Without this agreement, your Chinese manufacturer may be able to claim ownership to the IP rights in “your” product and register a patent in “your” product in China and in other countries. See China and The Internet of Things and How to Destroy Your Own Company. This agreement is rarely needed because a Product Development Agreement or a Product Manufacturing Agreement usually can cover the product ownership issues.

4. Product Development Agreement. This complicated agreement should set out the terms of your product development relationship with your Chinese manufacturer, In particular, it should specify who will own what of the finished product and who will pay for what to develop the finished product. These agreement should make clear what you will be paying in product development costs and it should set out the various milestones your Chinese product manufacturer must meet to get paid. At minimum it should address (1) the product to be developed, (2) the technology the foreign company and the Chinese manufacturer will contribute to develop the product, (3) who will provide the product specifications and in what form, and (4) who will own the IP rights to the final product.

5. China Manufacturing Agreement. This agreement is often called a Product Sourcing Agreement or OEM Agreement. These complicated agreements should clarify pretty much everything between you and your Chinese manufacturer and unless you are spending small amounts on your product purchases, you need a China Manufacturing Agreement. Among other things, this agreement usually should — at minimum — address the following:

Quality

Timeliness

IP ownership

Mold and/or Tooling ownership

Non-compete, non-circumvention, non disclosure See NNN Agreements above

Sub-supplier/sub-contractors

Liquidated damages for breaches

6. China Trademarks. If you are having your product made in China you should secure a trademark for whatever brand name (and probably whatever logo) you are putting on your product or its packaging. If you don’t do this, someone else probably will and then they will use their trademark to stop your product from leaving China. You also should secure trademarks in the countries in which you will be selling your product because trademarks do NOT cross borders. Getting a China trademark is nearly always essential.  See China: Do Just ONE Thing: Register Your Trademarks.

7. China Patents. If your product is innovative or distinctive in its function or its design you should consider securing a China invention or design patent. These patents can be valuable/necessary to protect your product against copying and to prevent someone else from registering a patent on your product in China and then using that patent to stop you from manufacturing your product in China or from leaving China’s ports. See China: Do Just ONE Thing: Register Your Trademarks AND Your Design Patents.

The thing we as lawyers always need to focus on is maximizing value/protection for our clients will minimizing costs. This involves choosing the right agreement(s) and the right registration(s) at the right time(s) and doing everything correctly. See China Contracts: Make Them Enforceable Or Don’t Bother and China OEM Agreements. Why Ours Are In Chinese. Flat Out.

Easy-peasy, right?

China IP lawyersChina (Shenzhen mostly) is the primary destination for manufacturing of small electronic consumer products. And since Internet of Things (IoT) products are red hot, this means our China lawyers get a steady stream of China IoT legal matters.

The big issue we most often see is this: the IoT product has now reached the mass production stage and is being produced in large quantities. Now that it has a commercial product, the U.S. or European (usually) buyer now seeks financing for its start-up company. The financier (be it angel, VC, private equity, or even someone’s father-in-law) then asks who owns the intellectual property in the product? With the rise of the Internet of Things (IoT), this question is often difficult to answer definitively.

How did we get to this point where the IP rights of a product are so often vague? The process has worked its way through three general stages:

Stage One. In the good old days (roughly 1981 to 1995), the situation was simple. There were two possibilities. In the first, the Chinese manufacturer made a standard consumer product. The foreign buyer purchased that existing product and perhaps required the Chinese manufacturer take the extra step of placing the buyer’s own trademark/logo on the product. In that setting, ownership of the intellectual property was clear: the Chinese manufacturer owned the product design and the foreign buyer owned its trademark/logo. In the second, the product was a long standing, well developed product of the foreign buyer. The foreign buyer brought the completed product to the Chinese manufacturer and contracted with the Chinese manufacturer to make a copy. In that setting, ownership of the intellectual property was clear: the foreign buyer owned all the intellectual property and the Chinese manufacturer owned nothing.

The simplicity of this sort of relationship encouraged the somewhat lazy practice of documenting the entire manufacturing relationship with purchase orders. NNN agreements, product development agreements and OEM agreements were seldom used, since IP ownership was clear and the price and delivery terms were resolved via the purchase orders. This approach would often lead to product defects, but that is for another post.

Stage Two. In stage two (roughly 1995 to 2015), a new form of manufacturer-buyer relationship developed. Foreign buyers began coming to China with no completed project in mind; they instead would come with a product idea or proposal. The foreign buyer would then work with the manufacturer to co-develop a product. In some cases the Chinese manufacturer would simply take a completed prototype and commercialize that prototype for mass production. In these cases, the foreign buyer arrived with little more than a basic idea and the two sides worked to co-develop the product. See China Product Development Agreements, for pretty much everything you need to know about China product development agreements.

The Chinese manufacturer usually would perform the product development work at its own expense, with the implied agreement being that it would be the exclusive manufacturer of the product. This co-development process typically used the same lazy “purchase order only” approach from stage one. This approach then led to the many issues we see today that make answering the “who owns what IP” question so difficult. To do the co-development process properly, the parties must define their relationship with three agreements: 1) an NNN Agreement, 2) a Product Development Agreement and 3) an OEM Agreement.

When these agreements do not exist, a standard set of issues arises: Who owns the product design? Who owns the molds and other tooling? Who owns the manufacturing know-how and similar trade secrets? If the buyer decides has the product made by a different Chinese factory, what compensation is owed to the Chinese manufacturer that co-developed the product? What are the  Chinese manufacturer’s obligations to comply with the foreign buyer’s price and quantity requirements? If the Chinese manufacturer terminates its relationship with the foreign buyer and manufacturers the product under its own trademark/logo, is this a violation of any agreement between the parties? Absent clear written agreements, none of these questions have clear answers. In these unclear situations, the Chinese factory will nearly always be in a much stronger position than the foreign buyer and the Chinese factory will typically prevail in any IP dispute.

Stage Three. In stage three (2015 to today), we arrive at the IoT era. In designing, developing and manufacturing consumer products for the IoT market, the already unclear and problem-filled relationships of the stage two era are now magnified. In the IoT era a whole new set of issues has arisen. In the stage two era, there was at least the simplicity of two entities designing and/or manufacturing a single product. In the IoT era, the situation is considerably more complex. In most of the IoT projects we have done, the development process has expanded to include the following:

1. Product “concept” from the foreign (usually United States or European) buyer.

2. Product external design, from an international design firm.

3. Internal design and function, owned by:

a. The foreign buyer;

b. The Chinese manufacturer;

c. The provider of sensors and other components required to connect the IoT product to an outside network.

4. Design of the IoT product “app” (usually for smart phones). This involves two completely separate sets of software: the communication sending software residing on the IoT product and the communication receiving software residing in the application. In the same manner as the internal design, these software components may be written/designed by multiple parties: the foreign buyer, the Chinese manufacturer and (quite often) third party software design firms.

What happens then when the product is complete, and manufacturing is ready to start and the foreign buyer starts to seek funding: The funding source almost invariably will ask who owns the IoT product? Who owns its underlying IP? What our China lawyers have far too often found when we ask the foreign buyers these questions is that they usually don’t really know.

This “we don’t know” response does not sit well with potential sources of serious financing. Even worse, when the foreign buyer is pushed to answer the question, it becomes clear that it is not clear who owns the new product. Far too often the only ownership issue that is clear is that the one entity that the foreign buyer is the one entity that does NOT own the rights to the product. Even worse, it is usually not possible to fix the situation by this point.

Bottom Line: As manufacturing in China and the IP issues attendant with that become more complex, it becomes even more important that you have clear written agreements that answer the obvious IP questions in advance. It does not make sense for you to devote your time and your energy and your money developing an IoT product for someone else to own.

For more on the issues involving China and the Internet of Things, check out the following:

China IP protectionsOn the evening of April 25, I will be speaking live in Barcelona at a Red Points event on international and China IP protection. The event will be on the eve of World International IP Day and it will be to celebrate Red Points’ launching its online brand and trademark platform offering free lessons on detecting, validating and enforcing intellectual property rights across the internet.

This event will be live-streamed on April 25th as well, at 9:00 AM PST, 12:00 PM EST, 6:00 PM CEST. For more information, go here and to register (it’s all FREE), go here to register.

 

China employment lawyerOn April 18, Grace Yang, our lead China employment lawyer, will be putting on a webinar on “Employment Laws for Female Workers in China.” To call this webinar timely would be an understatement, as the issues involving female employees in China could not be more relevant/topical/important.

The live webcast will be this Wednesday, April 18, 1:00-3:15pm PST / 2:00-4:15pm MST / 3:00-5:15pm CST / 4:00-6:15pm EST.

LawProCLE, who is putting on this webinar, describes it as follows:

Foreign companies doing business in China face complex China labor and employment issues every day and issues related to female workers require additional attention. The Chinese government has high expectations regarding how employers must treat female employees, especially those who are pregnant, nursing or on maternity leave. Employers need to know and follow the national, provincial and municipal laws and regulations regarding protection of female employees. Female employee disputes are increasingly common in China and both the government and the courts are getting increasingly tougher against employers that fail to treat their female employees appropriately.

This webinar will give you the information you need to spot employment law issues relating to your female employees and arm you with ways to avoid and mitigate problems.

Grace’s talk will focus on the following:

  1. The key China employment laws on protection of female workers
  2. The employer rules, regulations and policies you need for your China employees
  3. What you need in your employment toolkit to reduce your risk of sexual harassment claims
  4. Female employee special leaves
  5. Female employee terminations
  6. China employer audits

LawProCLE describes Grace as follows:

Grace focuses on international business and China law. She is Harris Bricken’s lead attorney on China labor and employment law and recently authored a book entitled the China Employment Law Guide. Grace is admitted to practice law in the States of New York and Washington. Grace received her bachelor’s degree from Peking University School of Law (“Beida”) and her J.D. from the University of Washington School of Law. During law school, Grace won “Best Written Contract” in the University of Washington Contract Drafting & Negotiation Competition and the Pro Bono Student of the Year Award for her involvement in several community-based volunteer legal service projects.

Grace has spoken at a ton of seminars and webinars on various different aspects of China employment law and always to rave reviews and you do not want to miss this one.  For more information and to sign up, click here.

 

China distribution contracts
China distribution contracts

Last week, in China Distribution Contracts: The Questions We Ask, we wrote about some of the initial questions we ask our clients for whom we are drafting China distribution contracts. That post started out discussing how forming and then operating a China WFOE is difficult and expensive — see Forming a China WFOE: Ten Things To Consider and Doing Business in China with Deportation or Worse Hanging Over Your Head on why having a WFOE is a must if you will be doing business within China. We then discussed how our China lawyers have been seeing many more foreign companies choosing to sell their products to China via distribution relationships rather than via a WFOE. For the basics on what it takes to establish and document distribution relationships with Chinese companies, check out the following:

Today’s post focuses on some of the additional questions we often ask our clients that have retained us to draft their distribution agreement with a Chinese company or companies. As with last week’s post, it consists mostly of an amalgamation of emails from our China attorneys seeking more client information and providing additional client assistance before drafting a China distribution agreement.

1. How are you planning to deal with warranties? A standard approach is for you to draft the warranty and then have your distributer pass on this warranty to consumers without any changes. Under this approach you will need to work with your distributor to design an appropriate warranty that a) works for your products, b) works for your company and your distributer, c) meets market demands, and d) complies with Chinese law.

The alternative is to allow your distributor to provide whatever warranty it wants to consumers. Your warranty is with the distributor and you will not cover any warranty beyond that which you have specifically agreed with your distributor. Under this sort of arrangement you have no contractual relationship with the consumers and the consumers have no legal basis to assert warranty claims against you. They are limited to making claims only against your distributor. This option is consistent with the legal status of a distributor that buys and then resells your products. However, under this approach you no longer control the nature of the warranty and many of our clients do not want to give up this control.

Much can depend on the nature of your product, your consumers and your trust in your distributer. We should discuss all of these things by telephone.

2.. Determining the sales price to consumers. Normally, the distributor is free to set the prices it wants for the products, since it has purchased the product and therefore owns them. However, many of our clients wish to exercise at least some pricing. Absolute resale price maintenance is not legal in China so you cannot dictate the sales price. You can, however, require your distributor to work with you on pricing and even set a pricing product range, both maximum and minimum. Please advise on how you want to proceed on the pricing issue.

3. What form training will you provide to your distributor? Where will your provided this (in China or in your home country)? How will training costs be determined and who will pay those costs?

4. Do you want to require all communications from your distributor be in English?

5. Will your technical documents be translated into Chinese? If yes, who will do this? You or your distributor and who will cover these costs? 

Please advise on the above. We will begin drafting your distribution agree  responses are complete.

China employment lawyersAs I have previously written, during its new hire on-boarding process, China employers should confirm there are no encumbrances or restrictions on any new hires coming to work for your company. In particular, employers should make sure there are no in-force non-compete agreements. Let me explain why this is so important.

Though non-compete agreements are generally disliked by China’s administrative and judicial authorities, many employers like to have a non-compete agreement in place with every employee they hire, even part-time workers. Moreover, many employers prefer to have an elective agreement where the employer has the right to decide whether or not to enforce the non-compete agreement upon termination of the employment contract. In other words, the employer gets to decide whether it will pay the employee for not competing for a certain period of time after the employee’s departure, or whether the employee can “go free” without any restraints. The legality of such an elective arrangement depends on where you are located in China, but for purposes of this discussion let’s assume such terms are in fact legal and enforceable.

It makes complete sense for the employer to want to wait until the end of the employment term to see if the employee possesses any proprietary information worth protecting, since things may change during the course of employment. This especially makes sense because in China the employer must pay its departing employee not to compete.

What though happens if the employer does nothing when the employment relationship ends. Usually,“no action” on the part of the employer means the non-compete agreement does not come into force. If this is the employer’s intention it’s probably okay. But if the employee is both expecting and wanting a non-compete payment from you as his or her employer and you have not clarified the non-compete issue at time of termination, the employee may send you a demand for payment or even bring a lawsuit against you to enforce the non-compete. To avoid this battle and headache, if you decide you are not going to enforce the non-compete provision or contract, your best course of action is to make this clear to your departing employee before the employee’s departure. Doing this virtually always stops a terminated employee from suing for non-payment on a non-compete.

But what if you as the employer want to enforce your non-compete provision or agreement? In this case, you will need to inform the employee that you are electing to enforce the non-compete and you should also be sure to comply with all of the terms of the non-compete, including paying all non-compete compensation due to your departing employee. You should put your employee(s) on notice of your intent to enforce the non-compete via a clear writing to the employee. And by this I mean a hard copy document with clear language (in Chinese if your employee is Chinese) setting out your intention to enforce the non-compete. In most China jurisdictions, an employer who does not affirmatively confirm its desire to enforce a non-compete will be deemed to have waived its right to enforce the non-compete after three or so months. The exact number of months an employer can go without being deemed to have relinquished its rights to enforce a non-compete depends on the locale — as is true for just about everything else relating to China’s employment laws. See China Employment Law: Local and Not So Simple.

In the old days, when China non-competes were less complicated, our China employment lawyers pretty much always suggested to our clients that they put non-compete provisions in their China employment contracts. Nowadays though, we suggest they balance their need for a non-compete against the risks that such a provision or contract could eventually cause them problems. For example, what happens if you use a non-compete that automatically takes effect upon the employee’s termination and you have no intention of enforcing it when the employee leaves but you forget to terminate the non-compete when processing the employee’s departure? Though this too depends on your locale, in many of China’s cities, this will mean you will either need to reach agreement to pay your employee for a mutual termination of the non-compete or you do not pay any non-compete compensation and you run the risk of a Chinese arbitrator or judge determining that you are “stuck” with the non-compete because you knowingly signed a binding agreement that included one..

The bottom line is that you should be careful with your non-competes and that means not just inserting one without thinking through the repercussions of doing so and being very careful to act on any non-competes before any impending employee termination.

China gaming lawyersChina presents a wealth of opportunities for foreign gaming companies, but (and this is true of pretty much every IP-laden industry), it also presents substantial risks. See Gaming the System? Foreign Access to China’s Online Gaming Industry.

This post sets out the basics on how online gaming companies can protect their IP in China via China IP registrations. Though our law firm represents a host (sort-of-pun intended) of online gaming companies, we have been hesitant to write specifically about largely because it is not all that legally different from other industries. But because we have lately been getting emails requesting we do so, we will. Starting now.

The big thing to know about China IP laws as they relate to online gaming is that there really are no IP laws specific to online gaming. China’s IP laws relevant to online gaming are the same trademark and copyright and patent and IP licensing and trade secret and unfair competition laws we constantly write about on here. But though the laws are the same, how best to apply them to the particular product/industry — online gaming — differs. Our China IP lawyers generally view the IP work we do for our gaming company clients as similar to what we do for our movie and music and software and publishing (especially comic books) and toy company (especially dolls and character figures) clients.

China Online Gaming Copyright Protections. Copyright laws usually come into play when you are talking about “content” and when you are talking about online gaming, you are essentially talking about content. Online games are typically rife with copyrightable content, including the characters in the game, the music, the speaking, the story-line, and the animation. Oh, and of course the code

Registering copyrights for online games in China is very much like doing so in the United States and in Europe. Because of this, when we do such registrations, we usually just track what has already been done in the U.S. or in Europe. Registering video game source code in China typically consists of registering the source code using China’s special software registration rules. When it comes to registering the artwork in games, our normal strategy is to treat each character as a work of art. If there are special locations, these are also treated as a work of art. All the artwork is usually then collected into a bundle and is registered in one filing. The exact physical item that is sent to the registration authority depends on the nature of the work. Registration is not expensive and it is better to register too much rather than too little.

China Online Gaming Trademark Protections. As regular readers of this blog well know, we are huge fans of registering China trademarks. It is bad enough if someone copies your game but if they can legally give it and its characters the same names you gave them, it becomes nearly impossible for you to distinguish your game from the copy. Enforcing trademark rights in China is generally easier than enforcing a copyright rights and that’s why trademarks should always be considered for the name of the game and the names of the characters. The key thing you should know about China trademarks is that they usually take around a year to secure. This means you should file for your China trademarks as soon as you have an idea of what you will be calling your game and/or its characters.

China Online Gaming Patent Protections. Patents are still pretty uncommon in China for online games, but there will be instances where securing one will make sense. It really just depends.

Protecting your gaming IP requires you think ahead and act ahead. And as is true for pretty much all industries in China, the biggest benefit in your securing China trademarks and copyrights and patents will likely not so much to give you the ability to prevail in a lawsuit against an infringer, but to make potential infringers think twice before copying you. If given the choice (and to a certain extent infringers are given this choice) between copying your game that is loaded with registered China IP protections or copying a game with few or no China IP protections, the infringer more likely to pass your game by, which is exactly what you want.