If, like us, you’ve been following the China Law Blog for many years, you can’t have missed the numerous warnings it gives about the futility of obtaining judgments against Chinese companies in foreign courts since Chinese courts will not enforce them unless they were granted by a court in one of the limited number of countries with which China has a bilateral enforcement treaty. Furthermore, even where a treaty does exist, as is the case with Hong Kong, it can be extremely difficult if not outright impossible to get a foreign judgment enforced in China.

China and Israel judgment enforcement. Israel has said, yes, but what will China do?
Israel has said “yes” to enforcing China judgments, but what will China do?

So it was with great interest that we read the recently issued judgment of the Tel Aviv-Jaffa District Court (a senior court of first instance) which turned, primarily, on the question of reciprocity. Reciprocity is a threshold condition to enforcement of foreign judgments under Israeli law and therefore we were certain that the Court would find that Israeli judgments would not be enforced in China and thus the Court would refuse to enforce the Chinese judgment. We were wrong.

The Court cited an Israel Supreme Court precedent holding that respecting the judgments of foreign courts advances important values including protecting the rights of the litigants, legal efficiency and certainty and the encouragement of international cooperation. As a result, Israeli courts have adopted an enforcement friendly approach to foreign judgments.

Following Supreme Court precedent, the Court employed an enforcement friendly standard whereby the reciprocity condition is met if there’s a “reasonable potential” (not likelihood, but potential) that the foreign court would enforce an Israeli judgment. In addition, the party opposing enforcement bears the burden of showing that such reasonable potential does not exist. Based on the litigants’ expert opinions, the Court quoted Article 282 of the Chinese Civil Procedural Law which provides for recognition of foreign judgments based either upon an international treaty to which China is a party “or according to the principle of reciprocity” to reach the conclusion that, even in the absence of a treaty, Chinese courts will enforce foreign judgments so long as the applicable foreign country’s courts (in our case, Israel) will enforce Chinese judgments. The absence of examples of Chinese courts enforcing or refusing to enforce Israeli judgments was not a barrier since requiring a positive precedent ignores the reality that reciprocal enforcement needs to start somewhere.

Having found that Chinese legislation authorizes enforcement of foreign judgments even in the absence of a treaty, the Court refused to give weight to a precedent cited by the Respondent’s expert of a Chinese court’s refusal to enforce an English judgment. In doing so, the Court took note of the fact that the cited case was 10 years old and that Chinese jurisprudence has advanced significantly in that time. The Court also distinguished that precedent because the Chinese court’s ruling was based on lack of examples of English enforcement of Chinese judgments. The Court reasoned that this precedent is distinguishable because it was agreeing to enforce a Chinese judgment. In addition, in her cross-examination, the Respondent’s expert agreed that it’s possible that there are examples of Chinese courts enforcing U.S. judgments even though China does not have an enforcement treaty with the United States (apparently, she doesn’t read this blog).

So what does all this mean? At its most basic level it means that Israelis cannot afford to ignore legal proceedings commenced against them in China and we suspect the same is true for other foreigners, even those who come from jurisdictions which require reciprocity as a condition to enforcing foreign judgments. Of more interest is the question of whether Chinese courts will now be more likely to enforce foreign judgments from countries like Israel that have already enforced Chinese judgments. Though there’s good reason for pessimism, we hope that as China’s legal system advances, we may see advancement in this field as well.

* The above is a guest post by Eli Barasch and Adi Weitzhandler, attorneys at the Tel Aviv law firm Gross, Kleinhendler, Hodak, Halevy Greenberg & Co. Eli’s practice focuses primarily on China-Israel cross border transactions and Adi is an associate in the firm’s Hi-Tech Department.

The IPR Insider had an interesting post the other day, entitled,  We don’t need an IPR strategy for China…., noting how many foreign companies still have the following misconceptions about IP in China and how those misconceptions can hurt them.

The post starts out with the misconception that abecause “I do not sell in China or Asia…I only need basic protection.” Now before I go along with IPR Insider on how dangerous this misconception can be, I do have to note that there is some truth to it in that if you are not selling your product in China AND you have no intention of ever selling your product in China, your IP protection needs in China could be minimal.

A few examples bear this out.

If you are selling a food product in just Oregon state and you may sell it in Washington State or in California some day but you will never sell it anywhere else, you really do not need to worry about China IP protection. You just don’t.

If you are having a clock radio manufactured in China under the brand name Clockey and you are manufacturing that clock radio in China but selling them in just the United States with no plans of ever selling it outside the United States, you would probably be fine just registering the Clockey name for either clocks or radios, but there is little need for you to register the name for both clocks and for radios. This is because your goal in registering the Clockey name at all is a defensive one. In other words, your reason for registering the name Clockey is to prevent someone else from registering the Clockey name and then stopping your Clockey clock radios from leaving China because your clock radios violate their China trademark. But if you are selling your Clockey clock radios in China you will want to register the Clockey name under both clocks and radios because you will want to be able to stop anyone else from selling either Clockey radios or Clockey clocks or Clockey clock radios in China and to be certain of being able to do that, you need to register the Clockey name for both clocks and radios. This would be what is known as an offensive radio.

Now that we have that out of the way, I agree with IPR Insider, when it says that “this misguided notion applies to both those who manufacture in, but sell their products outside of China, and those who have no operations within the country but produce something that has potential for the Chinese market.”

The IP Insider post also does a great job explaining why “automatic” copyrights in China are less valuable than they initially might seem:

Copyright protection is commonly seen as the most basic protection one can have, and in the majority of countries (including Europe) it’s automatic and does not require registration – only the clear assignment of the creator or rights holder. It is free and easy, and will protect creative works and designs.

For China, however, it should be noted that a copyright registration facility are available in addition to automatic protection. And there is good reason to make use of this.

IPR Insider goes on to note that “automatic” copyright protection will “in theory” protect your copyrights, but in practice it does not usually provide “the same level of protection” as if you had actually registered it.

IPR Insider then talks of how companies wrongly think that because their trademark is not well-known, that the risk of it being infringed upon or simply taken outright is minimal. IPR Insider rightly notes that IP infringement and usurpation is rampant in China and all unprotected brand names are vulnerable to usurpation. I would add that if this were not the case, my law firm’s China IP lawyers would have a lot less China IP work to do because they spend a lot of their time dealing with counterfeiting and IP infringements and IP usurpations involving trade names of which few people are aware.

For more on China IP protection and infringement, check out the following:

AmCham Beijing is putting on what looks to be a wildly helpful seminar entitled, Best Practices in Running a Low-cost IPR [Intellectual Property Rights] Protection Program. It will be from 7:30-10 a.m. at the Beijing American Club located at the China Resources Building, 8 Jianguomen Beidajie in Beijing.

AmCham describes this event as follows:

Protecting intellectual property rights (IPR) is not just a job for companies that patented inventions or make DVDs – any company with a brand name is vulnerable to Chinese competitors who can take advantage of your company’s IPR by selling knock-off goods or by providing services under your company’s name. Even if you think your brand is safe, how do you ensure that your suppliers or distributors are not substituting fake products for your legitimates?

Operators of small- and medium-sized enterprises (SMEs) know that, due to smaller budgets, SMEs are hard pressed to withstand the crippling effects on profit margins that unchecked IPR abuse can have.

However, neither do they have the budget or personnel to employ teams of lawyers and investigators to curtail these IPR abuses. So what to do?

Whether you are currently an SME operator or you have ever considered starting your own company, this AmCham event will provide answers to many of your questions about low-cost strategies to safeguard your intellectual property.

Our all-star panel of IP experts, including Mark Cohen, the Senior IPR Attache at the US Embassy, Jack Chang, the Chairman of the Quality Brands Protection Committee, and Eugene Yu, the Chief China Representative for the Motion Picture Association, will share their tips and best practices on how to employ both clever preventative strategies as well as how to enforce your IP rights on a tight budget.

Registration will be from 7:30-8 a.m., with breakfast, presentations and Q&A from 8-10 a.m.

I like the conference’s emphasis on IP protection for SMEs because, in so many ways, budget constraints force SMEs to achieve that protection differently from large companies. Where the large company typically can do whatever it takes to protect its IP, the small company must wisely pick and choose from a long list of options. Though it is impossible to achieve complete protection, I have seen companies achieve excellent protection for very little money and I have seen companies spend more and completely miss the boat. I would expect this conference would help SMEs lean more to the former.

The United States Commerce Department, Office of China Economic Area, will be putting on two webinars this month on intellectual property in China. I have listened in on a few of these webinars and they tend to be very good.

The first will be on May 10, from 2:00 p.m. through 3:30 p.m. EST and will be the United States Trade Representative (USTR) “Reports on Local Enforcement of Intellectual Property in China: Special Provincial Review and Special 301 Report.”  This report examines the “adequacy and effectiveness of IPR protection and enforcement at the provincial level in China.”  These reports are based on “numerous teams of U.S. government officials [having gone] to many provinces across China meeting with local Chinese government officials, conducting site visits to hot spots of pirating and counterfeiting activity and solicited two rounds of public comments.” USTR Chief Negotiator for IP Enforcement Stanford McCoy, and Senior Director for China Amy Celico will be leading this webinar, which will provide “an in-depth discussion of this year-long fact finding mission and the results of this year’s Special 301 Report on China.” A copy of the Special 301 report can be found here [pdf].

The second webinar will be on May 17, also from 2:00 p.m. through 3:30 p.m. This one will be on China’s 2007 IPR Action Plan and will be led by China’s Counselor for IP Dr. Yang Guohua. Dr. Guohua will discuss China’s “2007 IPR Action plan which documents initiatives planned in 2007 by a number of China’s IP related agencies. This year’s plan has over 276 measures.” Dr. Guohua’s talk “will focus on “the major projects to be completed in this plan and points out areas of interest to foreign right-holders.” An English language version of China’s IPR plan can be found here.

Both events are free. To register, you must send your contact information to ChinaIPR@mail.doc.gov and registration confirmation and dial-in/log-in instructions will follow. Only a phone line and a computer with internet are required to participate.

If you are a China lawyer or you are doing business in China we urge you to attend.

With the recent U.S. filing in the WTO accusing China of failing to provide adequate protection of foreign Intellectual Property Rights, we are headed for another China/U.S. disinformation campaign on an important issue. Many foreign companies doing business in China get caught up in the confusion of the political rhetoric and conclude there is no hope for protection of their IP rights in China.

This is a mistake because China actually provides effective intellectual property protection in the patent, trademark and trade secrecy areas. These are the areas that are relevant to the vast majority of foreign businesses in China. The problem addressed by the U.S. WTO filing concerns pirated DVDs and media downloads. This is still a major problem in China, but it is not relevant to the IP issues that confront most foreign businesses in the country.

Many foreign businesses mistakenly conclude IP protection is hopeless in China. As a result, many do not come to China, and others who do fail to take any measures to protect themselves because they feel the process is futile and a waste of time and money.

I have been arguing for years that the IPR protection situation in China has substantially improved. However, when I make these statements, I am often challenged. In addition to the negative press and government reports, my clients often point to the situation on the ground. Take Shanghai for example. Within five minutes of the door to my apartment there are five pushcarts doing a brisk business in pirated DVDs and software. When I get off the subway on Nan Jing Road to walk to my office, I am immediately accosted by vendors selling pirated watches, bags and pens. My clients say: Isn’t this proof that China is ‘flooded with pirated products’ as the U.S. reports state? If giant foreign companies cannot protect their product from such pirating, what hope is there for a small or medium size foreign firm? Isn’t despair at a solution the only reasonable conclusion?

These surface impressions are completely irrelevant and misleading to the vast majority of foreign businesses operating in China. China has done an excellent job in establishing laws and creating an enforcement system for IPR protection. Largely for reasons of market structure and the technology of distribution, in the areas of patent, trademark and trade secret protection, the protection system has made substantial progress. Though there is substantial infringement in these areas in China, much progress is being made in combating such infringement and the registration, court and enforcement system has been reasonably effective.

On the other hand, in the area of protection of media distributed on DVDs and downloadable on the internet, progress in China has not been good at all. Again, largely for reasons of market structure and the technology of distribution, there has been little measurable impact on reducing infringement in this area.

Now, let’s go back to our scene on the streets of Shanghai. Why do I say that this obvious IPR piracy is not an issue for the vast majority of foreign businesses? What about all those folks who are selling pirated foreign brands (other than DVDs) on the street. First of all, these pirates have been driven from the retail outlets and are forced to sell their products on the street. They are not even permitted to operate pushcarts. Second, look carefully at to whom they are selling. They never approach a Chinese citizen. They only approach foreigners. This is because only foreigners are willing to purchase their inferior products. Chinese consumers are not that gullible. If you travel to Qingdao or Guangzhou or other cities with a low number of Western expats and tourists, you will find that street vendors selling pirated goods do not exist. This is because there are not enough foreign customers who want the product. It simply is not true that China is “awash in pirated goods.” In fact, this is a problem unique to cities with large foreign and expat populations. It therefore is simply irrelevant to foreign businesses operating in China.

Pirated DVDs, however, are available all over China and are purchased regularly by Chinese consumers who would never knowingly purchase a pirated luxury product like a coat or bag. The same stigma concerning prestige and quality simply does not apply to entertainment and software DVDs. Very little progress has been made in preventing the sales of such items over the past several years, in spite of major campaigns by the Chinese government. In this respect, the U.S. presentation of the situation on the ground is actually quite accurate. However, the vast majority of foreign companies are not selling a product in China that can be reduced to a DVD or internet download. Therefore, even though this issue is a major problem, it is simply not relevant to most companies doing business in China. It is a mistake to assume that China’s poor record in preventing infringement of media and software DVDs extends to the more common IPR areas of patent, trademark and trade secrecy.

For most foreign businesses, their important intellectual property rights (IPR) fall in the areas of patent, trademark and trade secrets. These IP rights can be quite effectively protected in China. However, the Chinese system, like the U.S. system, is a self-help program. Do not expect either the Chinese government or a foreign embassy to do the job for you.  You must do it yourself. This means making the proper filings and entering into the required agreements. It also means investing the time and money to locate infringers and then prosecute them aggressively. This process is a tough one. Unlike many other developing countries, however, aggressive protection of IP rights can succeed in China.

The greatest mistake is to do nothing.

Click here to watch China Law Blog’s own China lawyer, Steve Dickinson, pontificate on China IP on China’s leading international news talk show, Dialogue. Steve’s portion comes on about 4 minutes into the show, but there is (at least near as I can tell), no way to fast forward.

I thought Steve’s most interesting point was how American companies base their decisions too much on what they read in the media regarding counterfeiting of DVDs and software in China, even though counterfeiting of those items has almost nothing to do with the ability to protect other sorts of intellectual property in China.

We will post a full transcript of the show early next week.

Little noticed, but in some ways an amazing story out of China regarding Beijing’s decision to delay closing unsafe coal mines.  Stay with me on this one, because the story is of far greater significance than initially appears, and for far more than just mining.

The China Daily story on this is headlined, “Government forced to delay unsafe coal mine closures.”  The government is Beijing and the forces delaying the closures are local officials.  Beijing wanted to shut down the mines but local officials balked.  China Daily does not hide any of this [emphasis added]:

China has delayed its plan to close all unsafe small coal mines within two years.

The target was originally set for the end of 2008 but after meeting opposition from local governments, the central government has been forced to postpone the plan until 2010.

China currently has 17,000 small coal mines, which produce one-third of the nation’s coal output, and aims to reduce the number to around 10,000 by the end of 2010. The remaining is all expected to meet national safety standards.

An Yuanjie, an official with the State’s Administration of Work Safety confirmed to Xinhua News Agency that problems emerged when the policy was implemented at local levels.

The article minces no words in describing local officials’ opposition as arising from their desire to maintain their own financial gains:

Small coal mines, some of which are notoriously dangerous, are considered the major capital sources for local governments leading to many local authorities protecting unsafe mines for financial gain.

In addition to being unsafe, these mines are a “huge drain on natural resources,” and a “grave harm to the environment,” making their “closures more urgent.” The article concludes by saying “the Chinese Government has also launched a series of campaigns aimed at rooting out the business stakes that local officials have in small mines, a major contributing factor to the high number of accidents. ”

I find this article amazing because Beijing is conceding it lost a battle with local officials.  Since Beijing faces similar battles with local officials in trying to enforce its environmental and intellectual property laws, one can view this loss here as not boding well in those other areas.

To use a bad pun, is Beijing’s failure to enforce its will on the provinces here a canary in the coal mine?   As one who is constantly writing on how Beijing does not maintain an iron hand over all of China, I say no.  It is not a predictor of a lack of control because it has lacked control for years.  Rather, I view this article [which should be viewed as coming straight from Beijing] as Beijing seeking to rally public support to crack down on local officials.  This article should be analyzed in tandem with Beijing’s recent crackdown on corruption, both of which should be viewed as Beijing asserting itself. And this could be good for China Intellectual Property (IPR)….

The International Law Students Association (ILSA) at the University of Idaho School of Law is putting on a seminar on international intellectual property issues (including piracy and counterfeiting), with a China focus.  The seminar will take place in Moscow, Idaho, on October 19, from 3:45 pm to 9:00 pm.  (h/t to IP Dragon).

The seminar includes a United States Patent Office (USPTO) Roadshow on “How your Government works to protect your intellectual property rights abroad” and then a panel discussion among the following:

  • John Koeppen — USPTO Attorney – Office of International Relations
  • Mark Costello — Xerox Corporation Attorney
  • Russell Slifer — Micron Corporation Attorney
  • Keith Jones — Washington State University Research Foundation, Office of Patents, Trademarks and Copyrights

For more information, contact Keith Jones — Washington State University Research Foundation, Office of Patents”  The seminar brochure notes that 69% of Idaho’s total exports last year were high-tech, the third highest percentage in the U.S.

The producers of China’s Super Girl television show (basically China’s American Idol) are being sued for having used a song at a concert without first securing permission from the songwriter, Xu Wenya. [link no longer exists]

The defendant, EE Media, claims it was entitled to use the song because it was written by Xu while she was an EE Media employee  “It was a task the company assigned to Xu when we were planning the 2005 Super Girl contest and the song was promoted to the public by our company,” said Jin Tao, EE’s lawyer.

Xu argues she didn’t write the song as part of her job, but penned it in her free time, so she should have all rights to the lyrics.

Among other things, this case shows that Chinese companies have enough faith in their courts to pursue copyright infringement actions.

The American Chamber of Commerce in China just released its yearly survey of U.S. companies in China and the bottom line on China intellectual property (IP) protection is flat out bad (h/t to China Challenges Blog).  According to the survey, 41% of U.S. companies in China believe counterfeiting of their products increased in 2005 and 55% were hurt by violations of intellectual property rights.

 The hardest hit companies are those involved in movies, software, automotive parts and pharmaceuticals.  No surprise there. 

According to Matt Roberts, co-chairman of AmCham’s public policy development committee, “IPR [intellectual property rights] is still a huge and growing problem. While the legal environment is improving, and we believe the Chinese government is more aware of its poor performance in IPR issues, there is nowhere near the required enforcement.”

According to AmCham-China president Charlie Martin, “the problem [of IP theft] is growing faster than the enforcement efforts… and this problem of growing exports is really one to watch because that is going to reverberate against China on the international stage.”

Just today, in counseling a client on whether to file for patent protection in China, we (my firm, one of the Chinese firms with which we work on such matters and the client) all decided that the risks/costs of filing for patent protection outweighed the possible gains.  Our decision was based in large part on the inability and/or unwillingness of Chinese courts to enforce patent rights.  On the other hand, we virtually always recommend (and did in this case as well) that our clients file for trademark protection in China.

 What is so frustrating about this survey is that it appears to say the Chinese government in Beijing is trying, but is outgunned by the counterfeiters. The full survey, which is quite comprehensive, can be found here [link no longer exists].

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