Spain trademark lawyer

A few days ago, in Coronavirus Legal Issues Around the World, Part 7: COVID-19 Related Trademarks, we discussed how the ongoing pandemic is spurring trademark registrations in the United States and China. Other countries are no exception to this trend, as evidenced by activity at the Spanish Patent and Trademark Office (OEPM).

So far, there have been 10 applications including either the term COVID-19 or CORONAVIRUS, with applications made for a broad range of products and services included in the Nice Classification. The fastest claimant applied on February 25 for a figurative trademark including the term COVID-19 for different products in Nice classes 5 and 10 , including pharmaceuticals and healthcare or sanitary products, as well as different kinds of sanitary and medical masks. The mark I SURVIVED COVID-19 and its Spanish equivalent, YO SOBREVIVÍ AL COVID-19, have been applied for use on Class 25 products, including clothing, footwear and headgear. A public entity in the Basque Country has applied for two figurative trademarks including the term COVID-19.EUS (.eus is the domain for the Basque Country, whose name in Basque is Euskadi) for different products and services in classes 9 and 41, including a variety of IT applications and services. The figurative trademark including the term ASOCIACIÓN DIGITAL COVID 19 has been applied for services under classes 35, 38 and 45, including advertising, telecommunication services and legal services, among others. Meanwhile, a figurative trademark including the term COVIDWARRIORS has been applied for services under classes 42 and 44, including scientific and technological services, as well as medical services, among others.

There has even been an application for the mark CORONAVIRUS in class 3, for use in alcoholic beverages! Besides these applications, there are also other ones related, including images of a virus or the awareness ribbon related to the virus.

At the moment, all applications are pending, and hence we lack an indication of how OEPM will respond to this kind of request. However, it is reasonable to expect that at least some applications might be denied on the basis of absolute prohibitions. In particular, some of the above mentioned trademark applications could run afoul of  Article 5(1)(f) of the Spanish Trademark Law (Law No. 17/2001 of December 7, 2001), which prohibits the registration of marks “which are contrary to the Law, public policy or morality.” A clear argument can be made that it is immoral to seek commercial benefit on the back of so much death and suffering.

We will keep you posted.

Buying PPE masks from China
China’s message to the world on coronavirus.      Photo by abbilder.

In Buying Face Masks and Other PPE from China: Not For the Faint of Heart, we talked about the following as some of the key issues our international product sourcing lawyers were facing on behalf of our clients seeking to buy PPE from China:

Verification of the legitimacy of your seller is a necessary first step, but there are many other issues as well. To protect companies buying medical supplies from China, our international manufacturing lawyers typically go through the following questions:

    • Is it legal for the company overseas to sell you this product, and will it get government approval to do so? Again, China wants its PPE products (things like surgical masks, N95 masks, and ventilators) going to countries it perceives as China-friendly and it does not want its products going to countries (like the United States) it perceives as unfriendly.
    • Does the company from which you are buying this product actually exist? Is it properly registered and licensed to make the product you plan to buy from it? In other words, is it legitimate? How can you be sure you will get the product you order and pay for? In China Company Research: The 101 we talked about the sort of  basic research our lawyers do to determine whether a Chinese company is real or not, and we do the same sort of research to determine this in every country. In well over 90 percent of the cases our lawyers see where someone sent money and got unusable product or no product at all, the debacle could have been prevented with basic company research that would have revealed the company selling the product was itself a fake.
    • Is it legal for you to import this product? Does it meet your own country’s standards? Just this week, a company called us after having bought products that did not meet its own country’s standards and were therefore essentially worthless. It had received vague email confirmations from its Chinese supplier that the product met “international standards,” but because it had nothing in its contract making clear that the product met its own country’s standards, it had a very weak legal case against its suppliers.
    • How can you be sure your supplier will send you the quality of product you will be ordering and paying for? Quality control inspections and properly drafted and relevant contracts are the keys here. See THE Rules When Manufacturing Overseas.
    • How can you prevent your supplier from copying your product and selling it all over the world? See How to Prevent China Factory Problems and Trademark Theft That is Happening Like Never Before.

We wrote that on March 28 and just since then two very important things have happened that greatly disrupt the buying and selling of PPE. The first was on March 28 when the FDA issued new rules on respirators/masks that can be used “in healthcare settings by HCP when used in accordance with CDC recommendations to prevent wearer exposure. . . .”

Then, a few days later, China issued draconian new rules on who can export PPE and medical testing products from China. The below discusses these new rules and their impact. If you take nothing else from this blog post, take the fact that if you do not know every aspect of what it takes to secure and import and bring in usable PPE from whatever country you are buying your PPE, you either need professional assistance or you should immediately exit this work. This is true for every country selling PPE, including Taiwan (which recently stopped most such sales for a spell), South Korea, Thailand, and Mexico, among others.

As the world looks to China to provide medical supplies for dealing with the coronavirus pandemic, a series of problems has resulted. In Europe, huge quantities of Chinese coronavirus test kits and medical use masks have been rejected as defective. See Europe turned to China for coronavirus testing help. Why some are now regretting it and Netherlands recalls defective masks imported from China. Throughout the world, buyers have been deluged with offers for sale of various counterfeit products. Roughly as many have bought and paid for PPE and never received a thing. All of this has been big news and has further damaged the reputation of China and legitimate Chinese manufacturers.

In response to this situation, the Chinese authorities issued an Order that tightly regulates the export of coronavirus medical devices and supplies from China. Under this Order, any Chinese exporter of listed medical devices must meet two requirements. First, the device must be registered in China through a Medical Device Product Registration Certificate. Second, the exporter must prove that the device complies with the regulations of the importing country as they apply to that device. Compliance with these requirements will be difficult or impossible for many otherwise legitimate Chinese manufacturers. This will constrict supply just when demand is exploding.

This is obviously not a good situation and many believe China has done this not so much to protect buyers, but to keep PPE products in China at the ready if and when the coronavirus flares up again in China (which is already happening). By spinning its Order restricting PPE as having been motivated by a desire to protect foreign buyers, rather than to choke off exports, China figures it will look better internationally. No matter what its motive though, the impact will be the same. Just when countries around the world desperately need more PPE, China has to a large extent cut them off.

Details of the Order are as follows:

The title is Order Concerning the Orderly Export of Medical Supplies 关于有序开展医疗物资出口的公告.

The Order was issued effective April 1, 2020 jointly by the Ministry of Commerce, the Customs Bureau and the National Medical Products Administration. The Order is temporary and can be expanded or revoked at any time. The text of the Order and its supplementary exhibits can be found here (in Chinese only).

The Order applies to the export of the following medical supplies:

1. Novel Coronavirus Test Kits 新型冠状病毒检测试剂.

2. Medical Use Face Masks 医用口罩.

3. Medical Use Protective Clothing 医用防护服.

4. Ventilators 呼吸机.

5. Infrared External Thermometers 红外体温计.

For the listed products, the exporter must meet two requirements. First, the product or device must be registered in China having obtained a PRC Medical Device Product Registration Certificate. The exporter must provide the registration number for the product/device as a requirement for export. As an exhibit to the Order, a spreadsheet is provided that lists all entities that have obtained this required certification. For many products, the number of certified companies is very small. Second, the product or device must comply with the quality standards of the importing country. How this proof is to be provided is not stated.

The Chinese exporter is required to submit a signed form to China customs stating the required information and affirming its accuracy. A copy of this form is included as an exhibit to the Order. Exporting under an inaccurate or falsified statement subjects the exporter to liability under Chinese law.

This Order raises three important issues. First, most Chinese manufacturers that manufacture medical devices for export do not bother to obtain a domestic Chinese registration. Since they manufacture exclusively for export, no such certification was ever required for their business and so they do not have one. This then means that most Chinese exporters of PPE and medical devices cannot comply with this Order. For example, The South China Morning Post writes that only 21 of 102 Chinese medical device companies with EU medical device certifications are licensed to sell their devices within China. In other words, 81 of these companies will now no longer be able to sell their medical devices to the EU.

Huge numbers of Chinese companies that are now barred from exporting their products have already entered into agreements and been paid to supply those products. China’s new medical products Order will stop these already placed product orders, leading to a cascade of defaults down the supply chain for these products.

Second, Chinese manufacturers that have obtained certification for exporting their medical products are companies focused on the Chinese market. This makes sense because these are the companies that deemed it worthwhile to incur the time and money necessary to acquire domestic Chinese certifications. Many of these companies are neither interested in exporting their products not do they even really know how to do so. They simply are not experienced with international sales that are conducted very differently than sales of medical supplies within China.

Third, the scope of this medical products Order is not clear. For example, what is a “medical use mask”? Does this apply to the simple cloth masks often referred to as “surgical masks”? What is “medical use protective clothing”? Does this apply to simple gowns often referred to as “medical gowns”. Countless U.S. hospitals and other companies have pending orders or are working now to make major purchases of “surgical masks” and “surgical gowns” from China. Will these products fall under this new Order? Will confusion concerning the Order delay the export of these “medical” supplies to the U.S. and other countries?

Will Chinese customs officials revert to form and essentially freeze up when they see these sorts of products set to leave China, figuring their job is to prevent further embarrassment for China of the type already seen with Spain, the Netherlands, Slovakia, Turkey, and the Czech Republic, among others. China realizes that selling coronavirus selling test kits with accuracy rates less than flipping a coin is not so good for Made in China branding and its customs officials have likely gotten this message. Has China customs also been given the message to err on keeping these key medical products within China to the extent possible so as to save them for China? Has — as has constantly been rumored — China customs been instructed to be particularly tough regarding exports to countries with which China has poor relations, such as the United States, Canada, and many in the EU?

Now consider how all this can play out in the currently confused market for Chinese manufactured medical supplies. Now that the U.S. FDA has approved the sale of NIOSH certified masks to healthcare providers, interest in importing NIOSH certified masks from China is intense. The basic facts regarding NIOSH certified masks are as follows:

1. Chinese-made NIOSH masks are not certified in China because they are not a “medical device”.

2. Chinese-made masks can be imported into the U.S. as NIOSH masks.

3. Chinese-made NIOSH mask can be sold for use by HCP (Health Care Personnel) in the U.S. under the TEMPORARY FDA letter rule.

So in principle, China’s new Order should not restrict exporting the following from China:

a. NIOSH certified “industrial safety masks”. It is important to keep clear that NIOSH is a work place safety certification; it is not a medical device certification. This is why the FDA has been reluctant to treat NIOSH and related foreign certifications as the equivalent of a medical certification. As we have seen, the FDA letter is a source of substantial confusion on the certification issue.

b. “Surgical masks”, since most of these are nothing more than clothing not requiring medical registration in many countries, especially if not for hospital use.

c. “Surgical gowns”, since most of these are nothing more than clothing not requiring medical registration in many countries, especially if not for hospital use.

d. “Surgical gloves”, since most of these are nothing more than clothing  not requiring medical registration in many countries, especially if not for hospital use.

e. Gauze and bandages and other “medical supplies” that have a medical use but that are not a “device” requiring registration in many countries, especially if not for hospital use.

But is this how PRC customs officials will interpret this new Order? Or will they look at the export documentation and see the term “surgical” or “medical” and decide on their own that certification is required? They should not do this, since China in general wants to export. But the answer is unclear and China’s desire to keep these products in China for its own citizens and/or to wield them for geopolitical purposes only adds to the potential confusion.

Making things even more complicated for buyers of coronavirus related medical products is that PRC customs officials at one Chinese port may make one decision and PRC customs officials at a different Chinese port may make the exact opposite decision. At the least, this risk suggests you should exercise care in how your products from China are identified and labeled.  For example, there is no reason to use the term “surgical” or “protective” if that is not required. But at the same time, you need to be cognizant of the import labeling and identification requirements of the country to which your medical products from China will be going.

To add even more confusion, there are bandages registered with the U.S. FDA when they move beyond simple gauze.  But these bandages are not for sale in China and they are not registered in China. In the coronavirus sector, consider this example: take a proprietary U.S. designed ventilator that is made in China. It is not registered in China because it is not sold in China. The ONLY buyer of this ventilator is the U.S. importer. Will that ventilator now be blocked from leaving China? Per China’s new Order the answer is yes, but this makes no sense at all. But those of us who have been dealing with Chinese government officials for decades know that what is written pretty much always takes precedence over what makes sense. Chinese government officials are given almost no discretion so as to be sure to follow all orders from Beijing and so as to reduce corruption. A Chinese customs official that allows this hypothetical ventilator to leave China will incur far more personal risk than a Chinese customs official that blocks it from leaving.  How about a U.S. designed thermometer? Same for other U.S. proprietary devices that might fall within this Order or a future, expanded Order. China as factory to the world then becomes a big problem.

So much that arises from this new order is unclear. The above are just a few of the more central issues. Our lawyers are furiously working to try to get clarity on the new Order from Chinese government officials who, for the most part are saying they too do not know the answers. Most likely answers to what this Order really means will come the way answers to China’s new laws usually come: via what actually happens in real life. But this will probably take weeks and in the meantime more will become infected and more will die.

China’s message with this Order is clear. It cares more about its reputation than about human lives outside China. Our message should also be clear. Anyone looking to buy medical products from China, be it PPE or testing kits or thermometers or whatever must do their research and plan and contract carefully. Importing from China will not be easy or simple and it is not for the faint of heart.

On March 31, 2020, a group of U.S. mattress producers, Brooklyn Bedding, Corsican Mattress Company, Elite Comfort Solutions, FXI, Inc., Innocor, Inc., Kolcraft Enterprises, Inc., Leggett & Platt, Inc., and union workers (Petitioners) filed antidumping (AD) and countervailing duty (CVD) petitions against Mattresses from Cambodia, China, Indonesia, Malaysia, Serbia, Thailand, and Vietnam.

Under U.S. trade laws, a domestic industry can petition the U.S. Department of Commerce (“DOC”) and U.S. International Trade Commission (“ITC”) to investigate whether the named subject imports are being sold to the United States at less than fair value (“dumping”) or benefit from unfair government subsidies.  For AD/CVD duties to be imposed, the U.S. government must determine not only that dumping or subsidization is occurring, but also that the subject imports are causing “material injury” or “threat of material injury” to the domestic industry.

The U.S. mattress producers recently petitioned and successfully argued for imposing an antidumping order on mattresses from China. This order went into effect in December 2019. Many of the Chinese imported mattresses were coming in through on-line bed-in-a-box suppliers offering ridiculously low prices.  Based on the Petitioners’ petition information on such low price quotes from Chinese suppliers, the DOC calculated AD margins as high as 1,731.75%.  Though it seems commercially impossible for anyone to be selling at a price well over a thousand times below the “fair” value, that AD rate was accepted by DOC as a valid AD margin  using their standard non-market economy calculation methodology for products from China.

Although imports from China decreased after the filing of the first mattresses AD petition, a significant volume of mattresses are still being exported from China. So now Petitioners are seeking additional CVD duties to be imposed to counter the Chinese government subsidies that benefit the exported Chinese mattresses.

Also, after the first AD petition was filed, many of the Chinese producers moved quickly to set up new factories in neighboring countries.  Petitioners therefore have filed these new petitions to try to stop the transplanted Chinese mattress operations that continue to crank out mattresses to the United States.  Most of these other countries (except Vietnam) will be considered market economy countries, which means DOC’s dumping margin calculation theoretically should be lower than the margins calculated for China in the prior case.  Because China is considered a non-market economy (NME), DOC does not accept the Chinese companies’ actual costs, and instead uses surrogate values from some other comparable market economy country.  This NME methodology often leads to very high AD margins for Chinese products.  Because these cases are filed on mattresses mostly from market economy countries, DOC will use the company’s actual costs and prices. So, the dumping margin calculations for this round should (at least theoretically) result in lower margins than those calculated for China. But the producers from these new subject countries will still have to report a ton of sales and cost data and comply with DOC’s detailed and exhaustive information requests. If they cannot satisfy all of DOC’s questionnaire requirements, they will likely be hit with the highest rates alleged in the petitions.

Scope

The petition identifies the merchandise to be covered by this AD/CVD investigation as all types of adult and youth mattresses.  A “mattress” denotes an assembly of materials that at a minimum includes a “core” which provides the main support of the mattress, and may consist of innersprings,  foam, other resilient filling, or a combination of these materials.  Mattresses may also contain “upholstery,” the material between the core and the top/bottom panel of the ticking, and/or “ticking,” the outermost layer of fabric or other material  (e.g., vinyl) that encloses the core and any upholstery, also know as a cover.

See here for the complete proposed scope definition from the petition.

Named Exporters/ Producers

Petitioner included a list of companies that it believes are producers and exporters of the subject merchandise.  See attached mattress exporter/producer list.

Named U.S. Importers

Petitioner included a list of companies it believes are U.S. importers of the subject merchandise.  See attached US Mattress Importer list.

Estimated Schedule of Investigations.

March 31, 2020 – Petitions filed

April 20, 2020 – DOC initiates investigation

April 21, 2020 – ITC Staff Conference

May 15, 2020 – ITC preliminary determination

August 28, 2020 – DOC CVD preliminary determination (assuming extended deadline) (6/24/20 – unextended)

October 27, 2020 – DOC AD preliminary determination (assuming extended deadline) (9/7/20 – unextended)

March 11, 2021 – DOC final determination (extended and AD/CVD aligned)

April 25, 2021 – ITC final determination (extended)

May 2, 2021 – DOC AD/CVD orders issued (extended)

US-China Trade War COVID-19

For the last three months, our China lawyers have been confronted with a host of legal issues related to the coronavirus. This should not be surprising because China was the seminal coronavirus epicenter. For the past two months or so, our Seattle lawyers have been working on a host of legal issues related to the coronavirus. This too should not be surprising because Seattle was the initial U.S. coronavirus epicenter. For the past month or so, all this has become true for our Spain lawyers as well, as Spain too became an epicenter and a few weeks ago went into a full lockdown as well. Our Los Angeles, San Francisco and Portland lawyers have also in the past few months been hit with a slew of coronavirus related legal matters.

The coronavirus has and will continue to impact all societies and economies and this has meant our law firm has been seeing and dealing with the same sort of legal issues in all the countries in which we work. This sameness of legal issues around the world has led us to create a cross-border multi-disciplinary legal team to assist companies with their legal issues arising from or related to the coronavirus, using the knowledge and experience our lawyers have gained in one jurisdiction to determine best practices in the other jurisdictions.

In this series of posts, we’ve been discussing the legal issues our lawyers in China, the United States, and Spain have been confronting, with the goal of making this blog a repository of information on coronavirus law and especially on how to handle legal matters that have arisen due to the coronavirus.

In Part 1, we focused on employment law issues because those were the first issues we saw and those are the issues that continue to arise most often. In Part 2, we looked at force majeure “in real life.” In Part 3, a couple of our international trade lawyers analyzed how coronavirus is impacting tariffs and duties in the short term and how we see it impacting tariffs, duties and global trade in the future. In Part 4, one of our insurance coverage lawyers discussed key insurance coverage matters  stemming from COVID-19 because a massive number of companies have or will have coronavirus insurance claims and insurance coverage lawsuits. In Part 5, we discussed how the coronavirus is giving nearly free license to foreign manufacturers to provide bad product, counterfeit product, or no product at all and this is especially true of the products most needed to fight against the virus: surgical masks, N95 masks, ventilators (really anything PPE), and cleaning products and how overseas product procurement and IP have never been at greater risk. In Part 6, we discussed how the United States Trade Representative (USTR)  is seeking comments on how it could adjust or eliminate tariffs to help the United States in fighting the coronavirus. In Part 7, we discussed registering  trademarks related to the coronavirus. In Part 8, we discussed the growing incidence of fraud being committed by companies and con artists looking to take advantage of turmoil caused by the coronavirus.

In this Part 9, I will discuss arguments for getting U.S. tariffs removed from products related to the coronavirus. Getting these tariffs removed is very important for companies because the removal of the tariffs can not only mean no tariffs going forward, but also a refund of tariffs already paid. In other words, there can be a ton of money at stake here.

In Part 3 of this ongoing series, Coronavirus Legal Issues Around the World, Part 3: Global Trade Has Already Changed and You Ain’t Seen Nothin’ Yet, we wrote about how the COVID-19 emergency is impacting global trade, and in particular the U.S’s Section 301 tariffs against Chinese products which took aim at China for its technology transfer and IP practices. One of the more interesting developments in this regard is the apparent impact of the ongoing emergency on the tariff exclusion request process managed by the United States Trade Representative (USTR). As we described,

Many of these recently excluded products include a variety of medical products imported from China, including face masks, hand sanitizing wipes and examination gloves. It appears that USTR has expedited the review and granting of these exclusion requests in just over a month after they were submitted because they could directly and immediately help first responders fight the spreading coronavirus outbreak. In this respect the coronavirus is leading to the USTR becoming more liberal in granting exclusion requests.

Obviously, these exclusions are significant in and of themselves, but they’re also significant from an international trade law perspective, as it’s one of the few clear manifestations of a cogent policy on the part of USTR when it comes to evaluating tariff requests. By and large, the process has been characterized by an “utter lack of transparency”.  In fact, so far there has so far been no confirmation from the U.S. government of any connection between coronavirus and the granted exclusions.

A March 20 announcement by USTR on its coronavirus response did not settle the issue. Though it  highlighted that USTR has “granted exclusions for a large number of health-related products”, USTR nonetheless stressed that it has done so “throughout the process of administering its Section 301 action”. This seems like an almost deliberate effort to delink exclusion decisions from COVID-19, claiming instead a broader concern with “health considerations”.

One possibility is that the U.S. government is trying to preempt calls for wider tariff relief, which could extend to products with no direct relationship to the coronavirus fight. As POLITICO reported,

Company CEOs are trying to persuade the Trump administration to lift or at least temporarily suspend tariffs imposed on China and other countries, framing such a move as an economic stimulus during the economic turmoil caused by the coronavirus, according to people familiar with the effort. But so far, there seems to be no budging on the issue.

“They’re keeping the China tariff issue 100 percent completely insulated from what they call the humanitarian crisis of coronavirus,” said a business source who was recently in touch with senior administration officials.

If the financial markets keep tanking, there is hope that Trump might take a different view. Despite White House trade adviser Peter Navarro vociferously denying there were discussions about suspending tariffs, even temporarily, “there are definitely some voices interested” in possible tariff relief among Trump’s advisers, the source said. Apparel and footwear companies are pressing the White House to consider dropping the 7.5 percent tariff down to zero for the roughly $120 billion worth of goods on the latest list of products (list 4A) hit by import taxes.

Even if looking strictly at health considerations, broader tariff suspensions make sense. Though face masks, surgical gowns and hand sanitizer have obvious direct connections to health, so does… steel:

The escalating trade wars are weighing on healthcare construction.

New or growing U.S. tariffs on goods produced outside the country were a major driver of an “exponential” increase in material costs over the past year, particularly metals, construction and design executives said in conversations and responses to the 2019 Modern Healthcare Construction and Design Survey.

In some cases, they have had to delay projects, companies relayed through the survey of 110 construction management, architecture, development, design and general contracting firms.

Cognizant that there needs to be at least some additional tariff relief, USTR is inviting “members of the public, businesses, and government agencies to submit comments if they believe further modifications to the 301 tariffs may be necessary”.  These comments must pertain to products “relevant to the medical response to the coronavirus”.

USTR did not go into more detail as to what it means by “further modifications”. However, it is reasonable to assume this includes, first, granting requests that were originally denied. This would in effect give companies with tariffed products a proverbial second bite of the apple. Second, this COVID-19 process should add flexibility to another ongoing process for seeking extensions to granted exclusions. This second process is following a somewhat rigid calendar, with the period to request extensions lasting for one month, with an end date about a month prior to the exclusion’s expiration date. For example, the period to comment on exclusions that expire on May 14, 2020 opened on March 12 and will remain open until April 12, 2020. The new process should open the door to extension requests before and after these narrow windows. But you need to be sure to get these exclusion requests in soon! My firm’s international trade lawyers will — in most instances — be willing to take on clients seeking these exclusion requests up to April 9.

If any of your products subject to the tariffs or benefiting from a granted extension has a plausible connection to the national response to coronavirus, you should consider submitting comments. USTR has not yet set a deadline, but anticipating the large number of comments that will probably be made, the sooner the better.

China international bank and factory fraud lawyersFor the last three months, our China lawyers have been confronted with a host of legal issues related to the coronavirus. This should not be surprising because China was the seminal coronavirus epicenter. For the past two months or so, our Seattle lawyers have been working on a host of legal issues related to the coronavirus. This too should not be surprising because Seattle was the initial U.S. coronavirus epicenter. For the past month or so, all this has become true for our Spain lawyers as well, as Spain too became an epicenter and a few weeks ago went into a full lockdown as well. Our Los Angeles, San Francisco and Portland lawyers have also in the past few months been hit with a slew of coronavirus related legal matters.

The coronavirus has and will continue to impact all societies and economies and this has meant our law firm has been seeing and dealing with the same sort of legal issues in all the countries in which we work. This sameness of legal issues around the world has led us to create a cross-border multi-disciplinary legal team to assist companies with their legal issues arising from or related to the coronavirus, using the knowledge and experience our lawyers have gained in one jurisdiction to determine best practices in the other jurisdictions.

In this series of posts, we’ve been discussing the legal issues our lawyers in China, the United States, and Spain have been confronting, with the goal of making this blog a repository of information on coronavirus law and especially on how to handle legal matters that have arisen due to the coronavirus.

In Part 1, we focused on employment law issues because those were the first issues we saw and those are the issues that continue to arise most often. In Part 2, we looked at force majeure “in real life.” In Part 3, a couple of our international trade lawyers analyzed how coronavirus is impacting tariffs and duties in the short term and how we see it impacting tariffs, duties and global trade in the future. In Part 4, one of our insurance coverage lawyers discussed key insurance coverage matters  stemming from COVID-19 because a massive number of companies have or will have coronavirus insurance claims and insurance coverage lawsuits. In Part 5, we discussed how the coronavirus is giving nearly free license to foreign manufacturers to provide bad product, counterfeit product, or no product at all and this is especially true of the products most needed to fight against the virus: surgical masks, N95 masks, ventilators (really anything PPE), and cleaning products and how overseas product procurement and IP have never been at greater risk. In Part 6, we discussed how the United States Trade Representative (USTR)  is seeking comments on how it could adjust or eliminate tariffs to help the United States in fighting the coronavirus. In Part 7, we discussed registering  trademarks related to the coronavirus.

In this part 8, I discuss the growing incidence of fraud being committed by companies and con artists looking to take advantage of turmoil caused by the coronavirus.

 

In addition to its impact on people, the coronavirus pandemic is impacting the health of the world’s supply chain. The resulting disorder has led to a sharp rise in commercial fraud. In some cases, the fraud is being committed by opportunists seeking to take advantage of the stress to prey on the unfortunate. In other cases, troubled factories are looking to extract final payments to try to soften the blow of their eventual demise. In either case the risk to businesses from fraud is on the rise and extreme care is required.

Below are the five major types of fraud our international lawyers are seeing in our own practices. Each fraud is based on a fake. Just as with counterfeit goods, these are counterfeit transactions. The first step is to carefully verify the transaction to spot fraud. The second step is to use what we can call the three steps for good business hygiene. First, don’t pay large advance deposits. Second, don’t pay for goods until you see the product. Inspections are difficult in this environment, but companies have to hold the line: no payments until after someone you trust has verified the product. Third, make sure you are paying the right person: no payments to bank accounts in locations not related to the parties involved in the transaction. All of these business hygiene measures are important at all times in international business. But in times like these where fraud is increasing and the ability to remedy a fraud is lessening, this basic business hygiene is essential for survival.

Here are the Five Fakes you should be most on guard against now:

1. Fake Factory. The supply chain for critical components is breaking down. Even when traditional suppliers get up and running, deliveries are delayed. So buyers are looking for alternative sources of supply. An email arrives from a new factory offering to deliver you a key product in a short period of time at an attractive price. An Internet search shows an attractive website with photos of the factory. Emails from the factory show the product in the warehouse ready to ship. To put you the buyer at the top of the queue, the factory requires immediate payment. Payment is made, and no product is delivered. When a full investigation is made (usually by the law firm you hire to try to get you your money back), the website is down, the email account is closed, the bank account of the factory is empty and the players have all disappeared. This is the classic fake factory scam and our international dispute resolution lawyers have been dealing with it for more than a decade, but never in the numbers of today.

There are several ways to spot this scam:

— Check the address. Though the website may look good, most fake factory schemes will provide for address that is a dead give away. Often, the address simply does not exist. In other cases, the address is in an improbable location. In a recent case my law firm handled worked on, the scammer had claimed to be operating a major industrial operation at an address in the downtown CBD of a major city. One look at Google Maps showed that no such factory complex existed at that location. Another time, the so-called London financial company to which one of our client was requested to send millions was a Blimpie.

— Check the bank account. Most fake factory scams will request payment be made into a bank account that has no relation to the location of the supposed factory. For example, the factory for metal castings is located in Slovenia, but the factory requires payment be made to a Cyprus bank account. Or a seafood product will be delivered from Russia, but payment is to be made to a Cayman Islands bank account. Where the location of the factory and the location of the bank are split this way, it is a very strong indicia of fraud.

— Check the history of the factory. Most fake factories don’t bother to create a business history. Usually, they will tell a story about how they have been created through the cooperation of local governments or some mysterious wealthy person as a public service. The rule here is: don’t believe the story. If the factory does not have a history that you can verify, walk away.

— Check everything else you can. If everyone else is selling the product you want for $40 but your factory is selling essentially the same thing for $20, it is probably a fraud. Many years ago we took on a case for a company that had paid $7 million for a massive amount of a particular product to be shipped via a Cambodian tanker vessel. It took us all of ten minutes to determine that there was no way the designated vessel could ship the product because it would exceed its capacity by at least double. Another case we handled involved a company supposedly based in the Marshall Islands, yet its own letterhead misspelled Marshall Islands as Marshalls Island and its phone number was in South Korea, not the Marshall Islands.

2. Fake broker. The fake factory scam has been around for a long time. A newer scam we have been seeing is the fake product broker scam. One factor holding up production of many electronic products these days is the shortage of key components. These are often lower technology “commodity” components like memory chips or circuit boards. Even when available, the lead time for these components is being substantially delayed.

In this setting, manufacturers are being contacted by component brokers claiming to have stockpiled a supply of the components. These brokers offer to deliver in two weeks rather than twelve weeks. Some of these brokers are legitimate. Some are not. For those that are not, the scheme works the same as for the fake factory. The broker requires complete payment upfront. Payment is made to an unrelated bank account. No product gets shipped and the broker disappears.

The method for avoiding this scam is similar to the method for avoiding fake factory scam: verify all the information. If it looks too good to be true, assume it is not true. Don’t pay until you have seen the goods. These rules can be hard to follow in times of desperation. But it is in times of desperation that the rules must be followed.

3. Fake company bank account/The bank switch scam. The buyer has been working with a foreign manufacturer for years. An email arrives from the factory account manager says that due to the chaos caused by the coronavirus, we are restructuring our banking relationship. From this day forward, please make all payments to our new bank account. This new bank account is located in a city with no relation to the factory: a completely different city or a different country. For example, an Osaka factory requests payments be made to a bank account in Hong Kong or Korea. The account manager for the buyer notes the request and makes payment to the new bank. But the product is not shipped. The buyer contacts the factory and the response is: “of course we have not shipped. We have not yet been paid.”

So what happened? Someone hacked the email of the factory account manager and gave instructions for payment into a bank account controlled by the hacker. Often the hacker is an employee or group of employees of the factory. An employee realizes its employer is in economic trouble and so he or she makes arrangements for payments to go into their own personal account. These payments are a bonus to be collected after the factory fails.

To avoid this type of fraud, do the following:

— Never act on an email or fax. Insist on speaking by phone with the head of accounting or the owner of the company. Don’t speak to staff: speak to someone with authority and with something to lose from a misdirected payment.

— Check the name on the bank account. If it is not EXACTLY the same as the official name of the factory, you are dealing with fraud.

— Refuse to make payments to a bank account not located in the same city as the city where the factory is located. If the factory is in Bangkok, insist on making your payments to a Bangkok bank. If the factory is in Bilbao, insist on payments to a Bilbao bank.

In our experience, the phone call method is sufficient when dealing with a privately owned factory where the owner is in direct control. These other two measures are used to deal with situations where even the owner or account manager is looking to divert funds (embezzlement) away from the factory. This type of embezzlement can occur in SOEs or public companies where the manager does not have a direct stake in the company.

4. Fake order. The factory contacts the buyer with the following story. We have been impacted by the virus forcing our factory to shut down. Now that we are up and running we are behind in deliveries and we are working three shifts to catch up. To do this, we will need to substantially increase our deliveries to you in the next quarter and so we need you to submit purchase orders in double or triple your normal quantity. But to allow us to purchase supplies and hire workers, we need you to make a substantial initial deposit of 50% of the purchase price and to secure your place in this difficult production situation, we also will need you to pay the remaining 50% prior to shipment. Since borders are closed, you will not be able to inspect at our factory. But we will send you photos confirming the status.

The buyer is desperate for the product and agrees. Payments are made, but no product is ever shipped. When no product is shipped, the buyer contacts the factory. The factory regrets its unfortunate delay and promises the shipment will go out within days. After a series of delays, the buyer eventually learns that the factory has closed its doors and the owners have disappeared.

The fake order scheme is used in situations where there is a sharp economic downturn, like RIGHT NOW. The scheme is dangerous because it is used by factory owners with which the buyer has worked for years and has grown to trust. But desperation makes even previously honest owners take desperate measures. The owner of the factory knows its factory cannot survive, so it works to collect as much money as possible to pay its workers and suppliers in-country and to provide for its own needs after the factory closes down.

So the owner contacts as many buyers as possible, pushing for inflated orders from each. The factory does not worry about its capacity to fill the orders since it has no intention of making the product. The owners feel safe from legal liability because the buyers are foreign and because it has paid everyone in its own country. They know the local government will protect them, seeing this kind of scam as self-help in a difficult situation. This is particularly true when the owner uses the funds to pay workers and suppliers.

In order for the fake order scam to succeed big, all the elements discussed above are required: inflated orders, substantial deposit, payment on shipment, no opportunity to inspect. The way to avoid the scam is then is to refuse to do business when these factors appear. Do not pay an advance deposit and don not pay for product until you have confirmed shipment through someone you trust. If you are forced to pay an advance deposit, keep that amount below 30% and assume there is a good chance you will lose it.

5. Fake product. In economic downturns, where desperate factories are unable to pull off the fake order scheme, they often resort to the fake product scheme. There are two variations on this scheme. In the first, the factory ships a worthless item instead of shipping the real product. We have seen many variations of this scheme: a container of bricks instead of electronic components, barrels of sand instead of industrial chemicals, freezer containers of what turn out to be rotten fish when thawed. In the second variation on this scheme, the product looks fine on the surface, but components have been swapped out that make the product worthless. This is particularly common for electronic products. The case for a router is beautiful, but inside the case is empty or filled with clearly substandard components that work at first but that quickly fail.

The first variation is for a factory planning to liquidate. The last set of orders is a bonus to management and key employees. If the second variation is done in a clever way, it can be difficult to discover. This variation is often used by factories that are hoping to survive by cutting costs in the short term. They assume they will lose some customers, but that other customers will take their place in a world of short supply and supply chain disruption.

For protection from the fake product scheme, use good business hygiene. Use a country-specific manufacturing contract that actually sets out exactly what it is you are to receive. Do not pay advance deposits. Do not pay for any product until after you inspect. Do not rely on in-country inspections. In the face of a major economic shock like the coronavirus, local customs officers and local inspectors cannot be relied on to verify the contents of shipments or the quality of products. Do the inspection through someone you can trust and do not make payment until after you inspect and confirm. The pressure to violate these rules will be enormous. Legitimate factories are under extreme financial pressure, meaning that in the absence of government bailouts, they need money in advance to keep their factories running. Closed borders makes inspection at the factory or the port difficult or impossible.

Conclusion

As you can see from the above, there are ways to monitor for the five major forms of fake transaction fraud. There are two steps. The first is to verify. The second is to take concrete steps to prevent the fraud from occurring.

If you fail to do the business hygiene rules I’ve set out for you above, you expose yourself to fraud. If you strictly follow these rules and refuse to pay until after you confirm, your risk goes down to nearly zero. However, in the real world of business, a company may decide that that it must break the payment rule to achieve a business objective. This is the kind of tough decision many businesses must make in the current supply chain disruption. But even in that situation, the verification and protection measures should not be skipped. Transactions must be approached with an awareness of their risks and with a plan in place to monitor those risks and to mitigate their impacts.

What are you seeing out there?

coronavirus trademark lawyers
Screen shot by Bri

For the last three or so months, our China lawyers have been confronted with a host of legal issues related to the coronavirus. This should not be surprising because China was the seminal coronavirus epicenter. For the past two months or so, our Seattle lawyers have been working on a host of legal issues related to the coronavirus. This too should not be surprising because Seattle was the initial U.S. coronavirus epicenter. For the past month or so, all this has become true for our Spain lawyers as well, as Spain too became an epicenter and a few weeks ago went into a full lockdown as well. Our Los Angeles, San Francisco and Portland lawyers have also in the past few months been hit with a slew of coronavirus related legal matters.

The coronavirus has and will continue to impact all societies and economies and this has meant our law firm has been seeing and dealing with the same sort of legal issues in all the countries in which we work. This sameness of legal issues around the world has led us to create a cross-border multi-disciplinary legal team to assist companies with their legal issues arising from or related to the coronavirus, using the knowledge and experience our lawyers have gained in one jurisdiction to determine best practices in the other jurisdictions.

In this series of posts, we’ve been discussing the legal issues our lawyers in China, the United States, and Spain have been confronting, with the goal of making this blog a repository of information on coronavirus law and especially on how to handle legal matters that have arisen due to the coronavirus.

In Part 1, we focused on employment law issues because those were the first issues we saw and those are the issues that continue to arise most often. In Part 2, we looked at force majeure “in real life.” In Part 3, a couple of our international trade lawyers analyzed how coronavirus is impacting tariffs and duties in the short term and how we see it impacting tariffs, duties and global trade in the future. In Part 4, one of our insurance coverage lawyers discussed key insurance coverage matters  stemming from COVID-19 because a massive number of companies have or will have coronavirus insurance claims and insurance coverage lawsuits. In Part 5, we discussed how the coronavirus is giving nearly free license to foreign manufacturers to provide bad product, counterfeit product, or no product at all and this is especially true of the products most needed to fight against the virus: surgical masks, N95 masks, ventilators (really anything PPE), and cleaning products and how overseas product procurement and IP have never been at greater risk. In Part 6, we discussed how the United States Trade Representative (USTR)  is seeking comments on how it could adjust or eliminate tariffs to help the United States in fighting the coronavirus. In this Part 7, we discuss the registering of trademarks related to the coronavirus and the Chinese hero-doctors who sought to expose the Chinese government’s initial (and far too long) silence about it.

Creative—if not always classy—minds are not taking a break during the COVID-19 emergency, as evidenced by the flurry of coronavirus-related trademark applications filed in the last few weeks at the United States Patent and Trademark Office (USPTO). At the onset, we must note that some of these applications involve serious commercial activity. For instance, GeneSystems, Inc. has applied to register the trademark CORONACHECK (Serial No. 88839404), for “diagnostic testing kits for the rapid detection of coronavirus antibodies”.

Unfortunately, most of the marks in question do not involve medicines or charitable activities. These include CORONAVIRUS SURVIVOR (Serial Nos. 88836091 and 88830548), CORONAVIRUS INFECTED (Serial No. 88836107), FXCK CORONAVIRUS (Serial No. 88835992), and WARNING MY RIDE IS SICKER THAN THE CORONAVIRUS (Serial No. 88838161). (That bumper sticker will look real nice next to your Coexist one or Seahawks helmet decal.)

These attempts to capitalize on a tragedy of global proportions raise obvious ethical questions. Leaving that aside for the moment, in at least some cases these applications will face some legal obstacles that may result in their denial.

First, there is the question of actual use. In the United States, trademark applicants must show that the mark “is in use in commerce” (15 U.S.C. § 1051(a)(3)(C)) or “a bona fide intention… to use a trademark in commerce” (15 U.S.C. § 1051(b)(1)). This means that coming up with a great idea while waiting for Netflix to boot up during confinement isn’t enough to secure trademark rights. To register a trademark, an applicant must demonstrate that they have good faith plans to use said mark. While some applicants may in fact be able to show that, it’s safe to assume some of the budding entrepreneurs being “inspired” by COVID-19 do not having anything remotely resembling a business plan.

Another problem for at least some applicants concerns the distinctiveness of their marks. At this moment, “coronavirus” and “COVID-19” are being used at a higher frequency than perhaps any other terms in history. Moreover—and to the extent worldwide production capacity permits—we may soon see a slew of coronavirus-themed products. Under these conditions, can these trademarks truly serve to distinguish one applicant’s “I Survived Coronavirus” T-shirts from those of others? In fact, there are competing applications for some of the marks.

At least the applicants won’t have to worry about Section 2(a) of the Lanham Act (15 U.S.C. § 1052), which prevented registering  “immoral or scandalous” trademarks.  Less than a year ago, in Iancu v. Brunetti (No. 18–302, 588 U.S. ___), the United States Supreme Court found that this prohibition violates the First Amendment. Writing for the majority, Justice Kagan took issue with how the Lanham Act “allows registration of marks when their messages accord with, but not when their messages defy, society’s sense of decency or propriety”.

The U.S. is not the only country dealing with coronavirus trademarking issues. In China, the National Intellectual Property Administration (CNIPA) has been rejecting applications to register the trademarks 火神山 (Huoshenshan) and 雷神山 (Leishenshan) — the names of two hospitals in Wuhan purpose-built to combat COVID-19. CNIPA has also been striking down applications for trademarks referring to Dr. Li Wenliang, “China’s hero doctor” “credited with being the first medical professional to sound the alarm on the Wuhan coronavirus weeks before he contracted the illness himself and died.” These denials have been made under Article 10(8) of the Trademark Law, which prohibits trademarks of that which may be “detrimental to socialist morals or customs, or having other unhealthy influences.”

On the one hand, it makes sense to keep a close check on applications for marks such as 文亮医生 (Dr. Wenliang). No one wants an unscrupulous person to set up a fraudulent charitable foundation bearing Dr. Wen’s name, or for that matter to start profiting by hawking T-shirts bearing his likeliness. However, there is probably a parallel concern with how the use of imagery relating to someone viewed by many as martyr who spoke up against the Chinese government’s attempt to cover-up the COVID-19 outbreak. In fact, one of the rejected applications was for the trademark 文亮知先 (Wenliang Knew First).

In addition to this treatment of politically sensitive terms, it will be interesting to see how CNIPA handles applications that are made along the lines of the ones we are starting to see in the United States. It’s reasonable to assume that CNIPA will not hesitate to deploy Article 10(8) if anyone tries to register something like 新冠幸存者 (Coronavirus Survivor). No Justice Kagan there to express concerns about messages that defy a society’s sense of decency or propriety.

It also bears mentioning that some countries, including China, are allowing applicants to request fast-tracked examinations of their trademark applications for goods and services related to coronavirus prevention and treatment. This fast-tracking has shockingly reduced timelines for getting from filing to securing the trademark, and is definitely something that should be explored in whatever country you are seeking to secure your mark.

Buying Facemasks and PPE from China

In the last couple of weeks I have started to only half-jokingly refer to myself as a face mask lawyer. I’ve been saying this because I’ve been spending many hours every day working with companies that want to buy face masks and other personal protective equipment (PPE) from China and with companies that think they want to buy PPE from China.

Our China lawyers are getting a steady stream of calls and emails regarding face shields, gloves, goggles, glasses, gowns, head covers, masks, respirators, and shoe covers. We are also working with companies trying to source ventilators. At the same time we are also being regularly contacted by phone, email, and (mostly) WeChat by individuals and companies in China looking to sell PPE to the US.

There are essentially two buckets of buyers:

  1. The person or company that “knows someone in China who has a large quantity of PPE they want to sell” and wants to quickly profit from buying that equipment and reselling it.
  2. Medical providers (mostly hospital groups) who desperately want PPEs to protect their medical personnel.

These are two very different sorts of buyers, and I will generalize about them below.

The For-Profit Buyers.

This sort of buyer usually calls or emails seeking legal help with one question, often one that is not even relevant. This buyer emphasizes that they “need” to buy a huge quantity of PPE from China “fast” and they “need” us to get back to them right away because their deal will be closing soon. Then they often ask how they can determine whether their Chinese supplier of surgical masks has FDA approval or whether our law firm can set up an escrow account for them.

Our response to these inquiries is to tell them that FDA approval is generally not required for surgical masks and that they should ask their Chinese supplier whether it would even agree to an escrow arrangement because we are not aware of any that have done so. We usually start our emails to these sorts of buyers with something like the following.

understand that you called our office today looking for legal help to buy and import masks from China, and I am guessing you are seeking to do so as soon as possible. Did you read our very recent China Law Blog post on the difficulties in buying product from China these days, especially PPE? If not, I urge you to do so.

We are representing many companies looking to buy masks from China right now. We have completed one large medical supply deal so far and we are in various stages in working with large hospital groups on hundreds of millions of dollars in purchases. Sadly, very few of the potential PPE sellers we investigate check out and so in the end very few deals go through. We see our job as lawyers to be to protect our clients from the ton of bad and incompetent actors out there right now. Do you want this sort of help?

When we get retained for these projects, the first thing we usually do is to research the seller(s) to determine whether they are real or not. We have even tasked a special team of our lawyers and paralegals (all bilingual Chinese and English) to investigate the factories in China and any brokers.

Many times we are finding that the company that claims to be the Chinese factory making the PPE in China is really just a broker hoping to be able to secure product if and when it gets an order or maybe it is just a con artist planning to keep the money no matter what (see below).

Some time ago the FDA loosened its restrictions on some PPE, but to import certain types of masks both the masks and the Chinese company must meet NIOSHA requirements. About 9 out of 10 of the certifications we have seen so far have been faked.

One of the problems we keep seeing is Chinese companies that make socks or toys are now out in the marketplace purportedly selling masks. This can and has been problematic on many levels. China has its own general manufacturing requirements and its own requirements regarding PPEs. On the one hand, China does not want crooks out there selling bad products and in doing so hurting China’s reputation, which has been occurring in Europe recently.

On the other hand, China would prefer to see its good quality PPE go to countries it likes and not  to countries it doesn’t like. Like its Belt and Road Initiative, China has been using PPE as a geopolitical tool, and I do not see that strategy ending any time soon, if ever.

In our experience, even the best of these Chinese companies are not fully aware of how much the Chinese government does NOT want them selling these things to the United States or Canada – as opposed to selling these things to countries like Italy or Spain that China badly wants to influence. Speaking of Spain (where we actually have an office doing some of this same work), the country itself recently spent a small fortune buying coronavirus test kits that simply do not work. See this article for some background on this.

Then there is the issue of what will be accepted into the United States or the EU and what you can legitimately sell in these places. With the current mix of so-called China factories (that turn out to be merely brokers or con artists) and actual China factories that have no clue how to make the product ordered (because they are are sock factories) and other China factories that don’t know how to make the products to meet US requirements, it is a complete mess out there.

To top it all off, selling PPE and delivering nothing to the person or company that paid for them is THE perfect scam right now in this seller’s market where demand far outstrips supply and probably will for the rest of 2020.

In the last two weeks I have spoken with three companies that each lost more than a million dollars buying masks. Two of these companies were buying from their regular supplier that did not specialize in manufacturing PPE. These two companies had been doing business with their Chinese suppliers for at least five years and then they ordered and paid for more than a million dollars in masks. One got literally nothing and the other got dusty moldy Halloween masks. The company that got Halloween masks did not have a China-appropriate contract making clear exactly what it was buying. See China Contract Specificity and North Carolina Blue. See also The Five Keys to A China Contract That Works.

I urge you to read this and then take note that just about every manufacturing company in China is hurting badly right now, and selling a huge amount of face masks (that they neither make nor have) has become the perfect swan song. For a good article on just how badly China’s manufacturing economy is doing, check out The Second Virus Shockwave Is Hitting China’s Factories Already.

Our China manufacturing team has for nearly two decades been dealing with Chinese factories, so we have lived through many China economic slowdowns. We know what happens during these dives, and this one is different only in its depth and its breadth. I urge you read this article I wrote for the Wall Street Journal during a previous China economic slowdown.

As one of our China lawyers said here in reference to buying medical products from China: “We are finding ourselves more than ever these days telling companies that if they are not going to spend the time and money to do whatever they can to ensure their product purchases end up with their getting the actual products, they should not make the purchase at all.”

Verification of the legitimacy of your seller is a necessary first step, but there are many other issues as well. To protect companies buying medical supplies from China, our international manufacturing lawyers typically go through the following questions:

    1. Is it legal for the company overseas to sell you this product, and will it get government approval to do so? Again, China wants its PPE products (things like surgical masks, N95 masks, and ventilators) going to countries it perceives as China-friendly and it does not want its products going to countries (like the United States) it perceives as unfriendly.
    2. Does the company from which you are buying this product actually exist? Is it properly registered and licensed to make the product you plan to buy from it? In other words, is it legitimate? How can you be sure you will get the product you order and pay for? In China Company Research: The 101 we talked about the sort of  basic research our lawyers do to determine whether a Chinese company is real or not, and we do the same sort of research to determine this in every country. In well over 90 percent of the cases our lawyers see where someone sent money and got unusable product or no product at all, the debacle could have been prevented with basic company research that would have revealed the company selling the product was itself a fake.
    3. Is it legal for you to import this product? Does it meet your own country’s standards? Just this week, a company called us after having bought products that did not meet its own country’s standards and were therefore essentially worthless. It had received vague email confirmations from its Chinese supplier that the product met “international standards,” but because it had nothing in its contract making clear that the product met its own country’s standards, it had a very weak legal case against its suppliers.
    4. How can you be sure your supplier will send you the quality of product you will be ordering and paying for? Quality control inspections and properly drafted and relevant contracts are the keys here. See THE Rules When Manufacturing Overseas.
    5. How can you prevent your supplier from copying your product and selling it all over the world? See How to Prevent China Factory Problems and Trademark Theft That is Happening Like Never Before.

And if all the above checks out, then comes the supplier agreement. Our China legal team has been doing 5-10 China manufacturing contracts every month for about 15 years, and that means we know not only what will work to protect our clients, we also know what is reasonable for China and what Chinese companies will and will not accept.

I understand that many companies are hoping to use an escrow account to buy PPE products from China. That is great if it works, but we are just not seeing those right now from legitimate Chinese PPE manufacturers. Why should the manufacturer accept an escrow payment arrangement when they have a long line of buyers willing to pay massively inflated prices for their wares? Even our big hospital chain buyers are at best getting terms of 50% upfront/50% upon arrival (one small deal was 25%-75%, but that was with a long-time supplier). For a general idea of what these supplier/manufacturer agreements look like, check out Overseas Manufacturing Contracts (OEM, CM and ODM).

The Medical Provider Buyers.

This sort of buyer usually calls or emails us because they are at wits’ end, usually in a COVID-19 hotspot and staring down the face of an impending and dangerous shortage in PPE. This buyer is getting massive pressure from its own medical personnel and executives to “do something.”

This buyer is also being told by many of its own medical personnel and executives of someone they know “who knows someone in China who can send a large quantity of PPEs.” This buyer is an experienced procurer of medical supplies and it knows it will not be that easy.

It is for this sort of buyer that we have set up what is essentially a PPE buying and due diligence team. This team is tasked with gathering key information about each proposed PPE seller and then making an initial “yes” or “no” determination as to its legitimacy. If the decision is “no”, the team stops there. If the decision is “yes” we then talk with our client about making a cost-benefit analysis regarding next steps.

If the client is buying only a small amount of product (this is rarely the case) that it desperately needs fast, we might advise they have our lawyers quickly put together a basic Chinese language contract and the purchase goes forward quickly. If the purchase is considerably larger, we might advice doing additional due diligence on the Chinese supplier (again, as quickly as possible), which might involve sending someone to the factory, or talking with the supplier’s bank or a trusted government official to find out more. The contract for this transaction likely will be more involved, as well.

With all of these deals we have to be mindful of the end goal. These are not deals where our clients and those in their care (their medical personnel and their patients) can be as deliberate and careful as we would normally like. This is a classic situation where we cannot let perfect be the enemy of the good. We tell these clients there is no way we can reduce their risk to zero and that we see our job to be to reduce their risks as much as possible, while being ever mindful of the larger goal: saving lives.

Regarding your IP during this hectic period, it is worth repeating what we said recently in Coronavirus Legal Issues Around the World, Part 5: Getting Products from Overseas has Never Been Riskier:

in this hectic period, you will need to rely even less on local authorities than in pre-COVID-19 times. IP raids are way down on the list of pretty much all governments’ current priorities right now. Governments are trying to kickstart their economies, and as we noted in Don’t Despair. China Isn’t Going Away Anytime Soon, “China has to rebound because the CCP needs China to rebound to stay in power, and keeping the people’s bellies full and their minds busy with labor (and some ‘wholesome’ entertainment) are the foundation of any good communist playbook.”

Nonetheless, there are still certain things you pretty much MUST do to even have a fighting chance. For example, if you have not already done so, this is a good time to record your IP with China Customs so it can watch out for counterfeits of your products coming and going from China’s ports of entry. See The Four Best Ways to Protect Your IP from China.

This is also a good time to make sure your contracts with your existing overseas factories are in good order and to guard against the impulse to paper over legal discussions with possible new suppliers. Go read THE Rules When Manufacturing Overseas.

In Advice for Buying Face Masks in China without Losing your Shirt, Renaud Anjoran, who heads up a top-tier international sourcing and quality control company, paints a dystopian yet accurate picture of the realities of buying face masks from China that applies to buying just about anything from China these days. Renaud is also seeing “a lot of people sending money, receiving substandard products, or not receiving anything at all.” His article then nicely sets out the specifics of buying face masks from China and how best to protect yourself from the bad actors that purport to sell such products.

Buying products from overseas has always been risky, but COVID-19 puts us at an 11 out of 10.

This is incredibly stressful and time-consuming work, but it makes us feel good to be helping — to be doing something to move the ball forward on something so critically important. We are so passionate about helping companies with coronavirus related work that we heavily discount our rates on these deals to try to give back to our communities and our countries and, most especially, to the medical people who put their own lives on the line and work absolutely unbelievable hours in an effort to save lives and relive suffering. Though we know full well that what we as lawyers are doing is nothing compared to what these medical care providers are doing, we are happy to be able to help, if only just a little.

So keep calling and emailing us with your PPE deals. We desperately want to help you do this the right way. 

China entertainment lawyer

The advent of spring has brought an increasing sense of confidence to the streets of Beijing. People are shopping or strolling in areas like Sanlitun’s entertainment quarter in greater numbers. And compared to a couple of months ago, there are more people in bars and far more traffic on the roads. While things are not quite back to normal, there is a feeling that the tide has turned in the battle against the pandemic. China, it seems, has become the safest place to be.

It may even have become the best place to shoot. Commercial content production, too, has started to return to normal here in China over the past few weeks.  As conditions steadily improve in China — and as they worsen in the rest of the world — brands are increasingly looking to China as they scramble to find suitable places to produce commercial content.

After a near total ban on production in China after the outbreak, shooting is possible again in certain places (including Beijing) if there are less than 50 cast and crew on set. Of course, producers still need a shooting permit from the local government and clearance from the local police, who will always need a list of cast and crew, the script, and a run-down for each production day.  Extraordinary, virus-related restrictions mean that many shoots are occurring in studios, where controls are easier to implement and personnel limits vary according to management policies.  I’m hearing that Shanghai is currently more production-friendly than Beijing, with some locations re-opening to production. To enter a studio in Shanghai, cast and crew need a “green” QR code, supplied by WeChat or Alipay, that shows they are in good health and have not been in any of the virus hotspots. In Beijing, they need a “blue” pass, supplied by their mobile carrier, that shows they have been in town for at least the past 14 days. These passes and codes are also required for many other daily activities.

So things are looking up for Chinese and China-based creative talent right now. There is presently less competition from abroad because travel bans and quarantine procedures have made it impossible for foreign-based talent to work in China even as production comes back to life.

Trump Tariffs and Coronavirus
By Marco Verch

For the last three or so months, our China lawyers have been confronted with a host of legal issues related to the coronavirus. This should not be surprising because China was the seminal coronavirus epicenter. For the past two months or so, our Seattle lawyers have been working on a host of legal issues related to the coronavirus. This too should not be surprising because Seattle was the initial U.S. coronavirus epicenter. For the past month or so, all this has become true for our Spain lawyers as well, as Spain too became an epicenter and a few weeks ago went into a full lockdown as well. Our Los Angeles, San Francisco and Portland lawyers have also in the past few months been hit with a slew of coronavirus related legal matters.

The coronavirus has and will continue to impact all societies and economies and this has meant our law firm has been seeing and dealing with the same sort of legal issues in all the countries in which we work. This sameness of legal issues around the world has led us to create a cross-border multi-disciplinary legal team to assist companies with their legal issues arising from or related to the coronavirus, using the knowledge and experience our lawyers have gained in one jurisdiction to determine best practices in the other jurisdictions.

In this series of posts, we’ve been discussing the legal issues our lawyers in China, the United States, and Spain have been confronting, with the goal of making this blog a repository of information on coronavirus law and especially on how to handle legal matters that have arisen due to the coronavirus.

In Part 1, we focused on employment law issues because those were the first issues we saw and those are the issues that continue to arise most often. In Part 2, we looked at force majeure “in real life.” In Part 3, a couple of our international trade lawyers analyzed how coronavirus is impacting tariffs and duties in the short term and how we see it impacting tariffs, duties and global trade in the future. In Part 4, one of our insurance coverage lawyers discussed key insurance coverage matters  stemming from COVID-19 because a massive number of companies have or will have coronavirus insurance claims and insurance coverage lawsuits. In Part 5, we discussed how the coronavirus is giving nearly free license to foreign manufacturers to provide bad product, counterfeit product, or no product at all and this is especially true of the products most needed to fight against the virus: surgical masks, N95 masks, ventilators (really anything PPE), and cleaning products and how overseas product procurement and IP have never been at greater risk. In this Part 6, we discuss how the USTR is seeking comments how it could adjust or eliminate tariffs to help the United States in fighting the coronavirus and how company comments should call on it to eliminate all tariffs so as to stimulate the economy.

 

On Friday, March 20, 2020, USTR issued a press release  “USTR: Response to Coronavirus” in which the United States Trade Representative (“USTR”) invited anyone to submit comments to identify additional products that would be helpful to the U.S. in fighting the coronavirus. The press release did not set a deadline for these comments, but only provided a link to submit comments here.

USTR’s press release asserted that, in administering the Section 301 tariffs against Chinese imports, it had always “prioritized health considerations.” USTR noted it had not imposed tariffs on many health related products, such as ventilators, oxygen masks, and nubilators, and it also had recently granted exclusions for other health related products.

However, a recently released report from Peterson Institute for International Economics (PIIE) disagreed, noting that President Trump’s tariffs had in fact hampered the current fight against the coronavirus. The China tariffs had been imposed on a broad range of health related products, including medical protective gear such as sterile gloves, goggles; disposable medical equipment such as hospital gowns, surgical drapes; and high-tech medical equipment such as CT systems, oxygen concentrators, x-ray equipment, patient monitors, and pulse oximeters. The tariffs increased the cost for these products and this had caused the volume of imports for many of these products to drop significantly.  In other words the tariffs had directly contributed to the current shortage of medical supplies currently hampering medical personnel from testing, diagnosing, and treating coronavirus patients.

USTR was specifically warned about this worst case scenario by several healthcare officials in public hearings in August 2018 that addressed the potential impact of the proposed Section 301 tariffs. “Placing tariffs on these products [like gloves, isolation gowns, specimen bags, wet wipes] would lead to product shortages and further public health challenges during times of crisis. It would significantly limit the ability of all levels of government, as well as the commercial healthcare supply chain to adequately support response efforts during emergency events. ” said Matt Rowan, president of the Health Industry Distributors Association. “With infection prevention as a key initiative throughout healthcare, usage of these products should be encouraged, not inhibited by tariff associated cost increases or disruptions.”

Lara Simmons, President of Medline Industries, explained in her June 2019 USTR presentation that it would not be possible to find alternative suppliers for many of the healthcare products then being sourced from China. “Starting production in the U.S. or any third country would be a time consuming and expensive process due to the FDA [Food and Drug Administration] regulatory procedure that is required for these products,” As a result, the tariffs will increase the costs for these products, and thus hospitals and healthcare facilities with fixed budgets will buy less.

Though few would question the benefits of the United States reducing its dependency on imports for medical and healthcare products, that policy debate needs to be tabled until after the current worldwide pandemic is brought under control, not just here in the United States, but around the world. An emergency response needs more free trade, not less. We can’t wait for American companies to start up or ramp up production to meet the immediate need for those products. Critically needed supplies need to be acquired from anywhere they are available. Now.

So, what should people say in response to USTR’s invitation to comment on whether Section 301 tariffs should be modified in light of the coronavirus crisis?

First, the immediately obvious response is that any and all products remotely related to fighting the coronavirus should be exempted from the Section 301 tariffs. Though USTR may have recently granted certain exclusions or partial exclusions for some medical protective gear, there are still Section 301 tariffs on other types of medical protective gear, hand sanitizer and other health related products. Lifting the tariffs on these products would at least relieve U.S. healthcare providers from the financial burden of paying a tax for scarce medical supplies.

Second, beyond the no-brainer that all medical and health safety products should cease being hit with tariffs, USTR should consider lifting the Section 301 tariffs for ALL products — at least temporarily. The worldwide economy is reeling from the coronavirus outbreak, with major cities locked down, travel restricted, restaurants, bars, shops and movie theaters closed, and all sports and concert events suspended or canceled. The just-signed coronavirus bailout bill will provide much needed economic stimulus, including funding to help businesses pay workers wages while sheltering in place, expanding unemployment and other social safety net plans, and even providing direct cash payments to every American, but nobody disputes that more will be needed.

Another economic stimulus would be to grant immediate full exclusions and full or partial refunds for all tariffs (Section 301 tariffs on China and Section 232 tariffs on steel and aluminum). The global supply chain is buckling under the pressures caused by the coronavirus; nearly everyone in the supply chain is hurting. Providing retroactive refunds of all tariffs already paid by US importers would provide a wide swath of American companies with a much needed jolt of cash. Suspending the tariffs would also relieve much of the pressure on international supply chains by eliminating one key financial burden and source of uncertainty.

For all the small to medium-sized US companies that have been struggling with the tariffs and now the coronavirus, here’s your chance to tell USTR what needs to be done with the Section 301 tariffs.  President Trump still insists China paid the tariffs, but we all know that is not entirely true. See Who Pays the Tariffs on China Imports? President Trump vs. CNN and What YOU Can do NOW to Reduce Your China Prices

Here is your chance to let the US government know that American companies – importers, distributors, retailers, and consumers too – are paying a price for these import taxes. Not just China. Sure, China’s IP and market blocking practices are bad and need to be addressed, but not with tariffs that hurt American companies and consumers who cannot afford them now in this coronavirus crisis.  Lifting and refunding at least some portion of the tariffs would provide much needed assistance when most needed.

Now.

International lawyers

For the last three or so months, our China lawyers have been confronted with a host of legal issues related to the coronavirus. This should not be surprising because China was the seminal coronavirus epicenter. For the past two months or so, our Seattle lawyers have been working on a host of legal issues related to the coronavirus. This too should not be surprising because Seattle was the initial U.S. coronavirus epicenter. For the past month or so, all this has become true for our Spain lawyers as well, as Spain too became an epicenter and a few weeks ago went into a full lockdown as well. Our Los Angeles, San Francisco and Portland lawyers have also in the past few months been hit with a slew of coronavirus related legal matters.

The coronavirus has and will continue to impact all societies and economies and this has meant our law firm has been seeing and dealing with the same sort of legal issues in all the countries in which we work. This sameness of legal issues around the world has led us to create a cross-border multi-disciplinary legal team to assist companies with their legal issues arising from or related to the coronavirus, using the knowledge and experience our lawyers have gained in one jurisdiction to determine best practices in the other jurisdictions.

In this series of posts, we’ve been discussing the legal issues our lawyers in China, the United States, and Spain have been confronting, with the goal of making this blog a repository of information on coronavirus law and especially on how to handle legal matters that have arisen due to the coronavirus.

In Part 1, we focused on employment law issues because those were the first issues we saw and those are the issues that continue to arise most often. In Part 2, we looked at force majeure “in real life.” In Part 3, a couple of our international trade lawyers analyzed how coronavirus is impacting tariffs and duties in the short term and how we see it impacting tariffs, duties and global trade in the future. In Part 4, one of our insurance coverage lawyers discussed key insurance coverage matters  stemming from COVID-19 because a massive number of companies have or will have coronavirus insurance claims and insurance coverage lawsuits. In this Part 5, we discuss how the coronavirus is giving nearly free license to foreign manufacturers to provide bad product, counterfeit product, or no product at all and this is especially true of the products most needed to fight against the virus: surgical masks, N95 masks, ventilators (really anything PPE), and cleaning products. Your overseas product procurement and your IP have never been at greater risk.

Times of crisis help separate the proverbial wheat from the chaff, and the COVID-19 emergency is no exception. On the one hand you have tons of companies acting wonderfully, like the following:

These are just some of the literally millions of things being done in countries around the world to help care for people during the coronavirus. These are the sorts of things we focus on outside our jobs as lawyers. But as lawyers, our role is to try to protect our clients, so we invariably find ourselves having to focus on the less salutary things we see.

The manufacturing sector has its share of both wheat and chaff. Los Angeles Apparel, which manufactures its products in South Central L.A., “has offered up its workforce and management team . . . to manufacture masks or other medical products” for the government and they are certainly not alone in this. Though many manufacturers are doing their part to help, as Interpol bluntly put it, “Criminals are cashing in on COVID-19.”

U.S. Customs and Border Protection (CBP) recently seized counterfeit test kits sent to the United States. On February 26, the Chinese authorities reported seizing “over 31 million fake or inferior face masks” (presumably, that number has grown since then). An Interpol operation against the illicit online sale of medicines and medical products “resulted in 121 arrests worldwide and the seizure of potentially dangerous pharmaceuticals worth more than USD 14 million.”

The risks to product buyers are further aggravated by increasing reliance on e-commerce, and in particular third-party sellers via platforms such as eBay, Alibaba, and Amazon. Buying from vendors overseas exposes customers to massive counterfeiting risks. Adding to the hazards, impromptu middlemen are leveraging contacts overseas (usually in China) to find suppliers for face masks and other coronavirus-related products. Right now it is very tough to know which sellers are legitimate. This is true even for buyers with the technical knowledge to be able to discern the real from the fake because travel restrictions are making most factory visits difficult or impossible.

These are stressful times for manufacturers, especially in China, where nearly all factories were closed for months due to the national coronavirus outbreak and are now facing plunging demand due to the spread of the virus in the rest of the world. Most Chinese factories are under intense financial pressure to get orders and many have started making in-demand medical and other products with which they have no previous experience. On top of the COVID-19 stresses, Chinese factories are also having to deal with U.S. tariffs and so foreign companies moving away from Chinese factories. Desperate factories cut corners.

In addition to the increase in counterfeit and defective products, our lawyers are also seeing a massive increase in cases of companies paying a Chinese factory to get products  made, only to later learn that the Chinese factory shut down weeks before it requested payment or days after payment was received. Truth is that buying products — especially high demand products — from overseas has never been riskier. To sort of quote from this classic scene from the movie Spinal Tap, we are at an 11 out of 10 right now.

And once you have been ripped off by a shipment of fake products or by products that are never delivered, recouping your money is tougher than ever as well. The courts in China and the United States are not functioning well right now and cases involving ripoffs from overseas are not a high priority at the moment.

IP theft has also massively increased. We’ve consistently stressed the link between difficult economic times and IP theft. In China Trademark Theft. It’s Baaaaaack in a Big Way, we noted that “many (most) Chinese factories are hurting and they desperately want to improve their profit margins. What better way to do so than to sell a product under a prestigious or well-known American brand name — or even just any American brand name?”

A few months ago, in Tariffs Against China Increase China IP Problems, we wrote how the trade war too was increasing IP theft:

Many Chinese companies are hurting and that explains the increase in IP theft, but of course many are hurting because of the trade war. But even beyond that, Chinese companies view foreign companies — especially US and Canadian companies — as looking to leave China, and that is because so many US and Canadian (and many European companies too) are indeed looking to leave China, or at least reduce their footprint there.

In response to so many foreign companies having one foot out the China door, many Chinese companies no longer consider their relationships with foreign companies as long-term. When a Chinese company does not believe its relationship with its foreign company counterpart will be a long term one, its incentives for stealing the foreign company’s IP greatly increase. It does not make economic sense to steal IP worth a million dollars from a company from which you can make $500,000 in yearly profits for the next ten years, but it does make economic sense to steal IP worth a million dollars from a company you believe will be jettisoning you within the next year.

In pretty much every speech I give on how to protect your IP from China, I include this PowerPoint slide, that says “Structure your deal and write your contract so that your Chinese partner believes it will make more money with you than without you.” Way more Chinese companies today than two years ago rightfully believe they can make more money without their foreign company counterpart than with them, and the way for them to make more money without the foreign company is by taking the foreign company’s IP.

There are ways to protect your company and your IP even, though, even in the time of coronavirus.

To protect our clients buying medical supplies from China (of which we have had many over the last month), our international manufacturing lawyers typically go through the following questions, nearly all of which are relevant for all products these days:

  1. Is it legal for the company overseas to sell you this product? As an example, China wants its PPE products (things like surgical masks, N95 masks, and ventilators) going to countries it perceives as China-friendly and it does not want its products going to countries (like the United States) it perceives as unfriendly to China.
  2. Does the company from which you are buying this product actually exist? Is it licensed to make the product you plan to buy from it? In other words, is it legitimate? How can you be sure you will get the product you order and pay for? In China Company Research: The 101 we talked about the sort of  basic research our lawyers do to determine whether a Chinese company is real or not, and we do the same sort of research to determine this in every country. Well over 90 percent of the cases our lawyers see where someone sent money and got unusable product or no product at all could have been prevented with basic company research that would have revealed the company selling the product was itself a fake.
  3. Is it legal for you to import this product? Does it meet your own country’s standards? Just this week, a company called us after having bought products that did not meet its own country’s standards and were therefore essentially worthless. It had received vague email confirmations from its Chinese supplier that the product met “international standards,” but because it had nothing in its contract making clear that the product met its own country’s standards, it had a very weak legal case against its suppliers.
  4. How can you be sure your supplier will send you the quality of product you will be ordering and paying for? Quality control inspections and properly drafted and relevant contracts are the keys here. See THE Rules When Manufacturing Overseas.
  5. How can you prevent your supplier from copying your product and selling it all over the world? See How to Prevent China Factory Problems and Trademark Theft That is Happening Like Never Before.

You will need to rely even less on local authorities than in pre-COVID-19 times. IP raids are way down on the list of pretty much all governments’ current priorities right now. Governments are trying to kickstart their economies, and as we noted in Don’t Despair. China Isn’t Going Away Anytime Soon, “China has to rebound because the CCP needs China to rebound to stay in power, and keeping the people’s bellies full and their minds busy with labor (and some ‘wholesome’ entertainment) are the foundation of any good communist playbook.” Nonetheless, there are still certain things you pretty much MUST do to even have a fighting chance. For example, if you have not already done so already, this is a good time to record your IP with China Customs, so it can watch out for counterfeits of your products coming and going from China’s ports of entry. See The Four Best Ways to Protect Your IP from China.

This is also a good time to make sure your contracts with your existing overseas factories are in good order and to guard against the impulse to paper over legal discussions with possible new suppliers. Go read THE Rules When Manufacturing Overseas. We are finding ourselves more than ever these days telling companies that if they are not going to spend the time and money to do whatever they can to ensure their product purchases end up with their getting the actual products, they should not make the purchase at all.

In Advice for Buying Face Masks in China without Losing your Shirt, Renaud Anjoran, who heads up a top-tier international sourcing and quality control company, paints a dystopian yet accurate picture of the realities of buying face masks from China that applies to buying just about anything from China these days. Renaud too is seeing “a lot of people sending money, receiving substandard products, or not receiving anything at all.” His article then nicely sets out the specifics of buying face masks from China and how best to protect yourself from the bad actors that purport to sell such products.

Buying products from overseas has always been risky, but COVID-19 puts us at an 11 out of 10.