China Trademark RegistrationIn the spirit of starting out 2018 on the right foot, I have compiled a list of 12 trademark-related resolutions for any company that does business in China and has at least one brand that they care about.

To the resolutions!

1. Register the trademarks you are using in China for the products/services you are using. This is as close to a no-brainer as there is in China IP. But nearly every week we hear from folks who have discovered that someone else registered their trademark in China, so here goes: China is a first-to-file jurisdiction for trademarks and does not have robust enforcement against trademark squatters. A foreign trademark registration has no relevance in China, because every country has its own trademark system. And no matter how well-known you may think your trademark is, it’s not well-known enough in China to gain protection without registration. The bottom line is that if you don’t register your own trademark, someone else will do it for you – and then you’ll be faced with the unpleasant choice of either paying them off or selecting a new brand name for China. Think of it this way: if you lived on the San Andreas Fault and earthquake insurance was really cheap, wouldn’t you buy insurance?

2. Register your trademarks in additional classes/subclasses. For better or worse, trademark protection in China is limited to the subclass(es) in which a given trademark is registered. With a few minor exceptions, if you have a trademark for a single good in a given subclass, that registration will also cover ALL other goods in that subclass, but no other goods in any other subclass. And because China does not have an affirmative use requirement, it is possible to register your trademark to cover goods and services beyond those you are actually using in China. It could be for goods/services that you hope to use in China one day, or it could be for goods/services you simply don’t want anyone else to use in China using your name. Most companies conduct a cost-benefit analysis and select a few high-priority classes in which they would like protection. If you make swimwear, you probably don’t care too much about someone selling motor oil or microscopes using your brand name. But if you’re a company with deep pockets and/or a deep-seated aversion to seeing someone else use your logo, think about the Starbucks approach: register your trademark in all 45 classes and all of the related subclasses.

3. Register more trademarks than you are currently using. The logic here is similar to the previous resolution. China doesn’t require proof of use to register (or maintain) a trademark, so you can register trademarks that you have never used in any classes (and may never use). These could be marks that you hope to use in China one day, or they could be marks that you simply don’t want anyone else to use in China. Usually the latter category includes trademarks that the China Trademark Office (CTMO) would not deem to conflict with yours, but that you would consider objectionable.

4. Monitor your trademarks. The CTMO is not the most communicative bureaucracy. Absent a challenge (e.g,, based on use or validity) to your trademark, after registration you won’t hear from them for another 10 years, and that’s assuming you renew the mark. You won’t hear from them if a third party tries to register a mark that is similar to yours and in the same subclass(es). You also won’t hear from them if a third party tries to register the exact same mark that you have registered in the U.S. In either case you may have grounds for a successful opposition, but it will depend on the identity of the third party. (Your best shot is if the applicant is a current or former business partner.) But the window of opposition is relatively short – three months from the date of publication – and it’s hard to oppose a trademark you don’t hear about until too late. You can also attempt to invalidate a mark after registration, but at that point you’re fighting a rearguard action against a mark that will be valid unless and until you succeed in invalidating it. The best solution, of course, is to file applications yourself before third parties can do so. But failing that, regularly monitor the CTMO database and the Trademark Gazette for potential conflicts.

5. File non-use cancellations against squatters. Has “your” mark has been registered by a trademark squatter in China? Some squatters have no intention of ever using their registered trademarks in commerce; their sole goal is to sell the mark to the highest bidder. The good news is that three years after registration, all trademarks are vulnerable to cancellation for non-use. If you have the patience to wait three years (or only recently found out about the existence of such a mark), this could be a great option. As an initial step, you should conduct a thorough Internet search to see if the mark is being used. It’s not foolproof, but given the preeminence of e-commerce in China, if someone is legitimately using a mark in China, the Internet will contain signs of such use. If the search comes back clean, file a non-use cancellation against the squatter and also file a new trademark application of your own. (Cancelling a trademark does not transfer ownership of the cancelled mark; it just renders the mark invalid.)

6. Come up with a Chinese name for your mark and register it. If you care about your brand in China, it’s not enough just to register the English-language version. You also need to protect your Chinese brand – even if you don’t even have one yet. The minute your English-language brand gets attention in China, it will be given a Chinese name by the local media and consumers. Without exception. And the minute that happens, someone will register the Chinese name as a trademark, and you’ll have forfeited not only the right to use your Chinese brand name, but the ability to choose it in the first place. This story has played out a number of times throughout the years, with companies from Pfizer to Hermes to Penfolds.

But knowing that you need a Chinese name is different from actually selecting one. As I wrote just a few months ago:

Picking a Chinese name is tricky, and simply being fluent in Chinese does not make someone an expert in Chinese-language branding any more than being fluent in English makes a random American an expert in English-language branding. Far too often we see companies delegate this important decision to their “guy in China,” with predictably middling results. Yes, it’s better than having a non-native speaker pick the Chinese brand name by using Google Translate, but that’s not saying much. We work with several branding companies that specialize in this work.

In the conclusion of this two-part post, I’ll present six more resolutions. Happy new year, everyone!

China AttorneysBecause of this blog, our China lawyers get a fairly steady stream of China law questions from readers, mostly via emails but occasionally via blog comments as well. If we were to conduct research on all the questions we get asked and then comprehensively answer them, we would become overwhelmed. So what we usually do is provide a super fast general answer and, when it is easy to do so, a link or two to a blog post that may provide some additional guidance. We figure we might as well post some of these on here as well. On Fridays, like today.

Occasionally a client will be in such a mad rush to file a trademark that they haven’t even formed the company that will own the trademark. Usually, they have a good reason for being in a rush: they’ve antagonized or otherwise alerted a potential trademark squatter, and the longer they wait, the greater the chance that a third party will apply for “their” trademark. They then ask us: if they know what the name of their company will be, can they still file a trademark application in China?

The short answer is no. Without proof of a trademark applicant’s legal existence (e.g., a passport for an individual or a Certificate of Good Standing for a company), you cannot file a national application with the Chinese Trademark Office. This requirement is not actually that onerous; a screenshot from the Secretary of State’s website is generally sufficient evidence of a company’s existence. But it does mean that you can’t file a trademark application in China immediately after forming your company; you need to wait until the relevant website is updated, which usually takes at least a couple days.

Occasionally, during those couple days, the client learns that the supposed name of their company isn’t actually available after all. And then they’re happy that they had to wait. But mostly, they just wish they had formed their company earlier.

China Movie QuotasLast week, the Chinese film bureau announced a new domestic film incentive program. The exact details of the program have yet to be spelled out, but the gist is that starting January 1, 2018, Chinese movie theaters will receive financial rewards for showing more Chinese films. The rewards are based on a theater’s total box office receipts for the year and kick in if at least 55% of those receipts are for domestic films. Even bigger rewards kick in if the percentages exceed 60% and 66%, respectively. Theaters must submit box office information through the government’s internal system and cannot engage in box office fraud (duh).

The 55% mark may be difficult to attain. As of a few weeks ago, Chinese films had a market share of 52.4% for 2017, and that’s largely because of the enormous revenues from Wolf Warrior 2, the highest-grossing film in China’s history. During the first 6 months of the year (Wolf Warrior 2 opened on July 27), Chinese films had a market share of only 39%.

Many jurisdictions have film incentives, but most are geared toward film production, based on the theory that film productions inject money into the local economy, provide local employment, and develop local expertise (thereby making the jurisdiction even more attractive for future productions). British Columbia is the canonical success story for production incentives, but many US states have also pursued this strategy, as have numerous countries in Europe and beyond. Similarly, almost every country, from the US to Europe to China, offers grants, tax breaks, and other incentives to local filmmakers.

Tying an incentive program to consumption sends a very different message. Measuring the percentage of box office revenue is a zero-sum game; if Chinese films have a higher percentage, that means foreign films (most of which are American) have a lower percentage.

Whether this deal will cause movie theaters to book more Chinese films will largely depend on the specifics of the incentives. All things being equal, this incentive should spur movie theaters to book a Chinese film rather than a foreign film. But when are all things equal? Chinese movie theater owners act in their own economic best interests. Even if they would rather show Chinese films (and I’m sure most of them would), they are in the business of filling seats, and if showing Chinese movies results in lower attendance, the incentives will need to be both enticing and attainable.

This isn’t the first time China has announced an incentive program for increasing the market share of Chinese films. A similar program was announced last March, but the incentive only kicked in for theaters that derived at least 66% of their box office receipts from domestic films. I don’t think the Chinese government reduced the target because they were feeling generous. They wanted results, and they weren’t getting them at 66%.

The knock on Chinese movies of late (at least, until Wolf Warrior 2 single-handedly changed the narrative) was that they hadn’t been good enough to draw audiences. Quality is subjective, but it’s hard to look at the China box office success of films like Warcraft, Resident Evil: The Final Chapter, and Pirates of the Caribbean: Dead Men Tell No Tales and conclude that Chinese audiences have inordinately high standards. Perhaps that’s exactly the point. If foreign movies like these can dominate the Chinese box office, where does that leave Chinese mediocrities?

This incentive program makes the implicit assumption that Chinese movie theaters can affect what Chinese moviegoers decide to see. Otherwise, why reward them? I have my doubts this is true, but if it is, the work of Nobel-prize winning psychologist Daniel Kahneman suggests the Chinese government is going about this all wrong. They should give the incentive to all theaters, and only demand repayment if theaters show too many foreign films. It’s exactly the same economic proposition. But instituting an explicit bias against foreign films has bad optics, and the Chinese government is still negotiating with the MPAA.

No matter what comes out of those negotiations, the bottom line is clear: the Chinese government wants fewer foreign films in its marketplace, not more. Hollywood studios’ involvement in domestic productions may soon shift from a backup plan to the main event.

China Movie IndustryChinese film director Zhang Yimou has made some of my favorite Chinese-language films: Raise the Red Lantern, The Story of Qiu Ju, House of Flying Daggers, Hero, and more. He also produced the spectacular Opening Ceremony of the 2008 Olympics in Beijing, for which he is justly revered in China. Despite some recent missteps (The Flowers of War, The Great Wall) his credibility as an artist and Chinese cultural icon is nigh-unassailable.

Last week Zhang published an opinion piece in The New York Times titled “What Hollywood Looks Like From China” I’m not sure what to make of it. The piece contains some lovely metaphors and a call at the end for mutual cultural understanding. But the middle section, ostensibly a summary of the relationship between the Chinese and American film industries, reads like the opening statement in a trade negotiation: “But at the moment, a large discrepancy exists in that very few Chinese movies are able to enter the American market and attract a significant audience. Chinese audiences provide Hollywood with huge profits, but what does China’s film industry gain in return?”

The language is slightly ambiguous (by intention, I assume), but a fair inference is that the playing field isn’t fair, and it’s specifically unfair to Chinese films because American movies dominate the Chinese market and rake in the cash, but Chinese movies are prevented from gaining a foothold in the U.S. market.

Reading this sort of thing, I’m sure, makes Hollywood’s blood boil. For years, China has systematically and formally constrained the ability of foreign movies to enter the Chinese film market through a quota system and periodic blackouts on non-Chinese films. The films allowed in under the quota system receive only 25% of the net profits, and even those numbers are aspirational, as the box-office numbers are woefully underreported and payments are sometimes months or years late. An additional number of foreign films are allowed in as buyouts, which except in limited situations (e.g., Resident Evil) do not involve any revenue sharing. The number of buyout films has been increasing and is expected to hit an all-time high of 70 films this year. Long story short, even when US films do well in China (and they often do) most of the revenue stays in China with the Chinese distributors and exhibitors.

Meanwhile, Chinese films have essentially unfettered access to the US market. All it takes is a willing distributor, which could be a Chinese-owned distributor like China Lion. When you add streaming to the mix, it is theoretically possible for every single Chinese movie to be released in America and the Chinese filmmakers can receive whatever sort of profit-sharing arrangement they can negotiate.

And we haven’t even talked about content restrictions: China regularly censors content, whether it be lopping off several minutes (Logan), agreeing to show a movie then pulling it in the middle of its first showing (Django Unchained), or declining to show a movie altogether (Ghostbusters). By contrast, Chinese films are generally shown uncut in the US absent a specific agreement between the filmmaker and the distributor.

Zhang is absolutely correct about the box office disparity, though. Despite the restrictions in China, American movies still do huge business there – although Chinese movies continue to gain strength and popularity. And notwithstanding the openness of the US market, Chinese films continually fail to gain any traction in the U.S. market.

But so what? People watch what they want to watch. It’s not as if films from other countries do any better in the US. The list of top-grossing foreign-language films in the US since 1980 is dismal reading if you’re a foreign filmmaker: Crouching Tiger, Hidden Dragon is in the lead with $128M, but the next film after that (Life is Beautiful) only made $57M, and by the time you get to #11 the grosses are down to $20M. The market for foreign films in the US remains small and largely limited to two demographics: diaspora-driven audiences and arthouse audiences. Otherwise, Americans don’t want to watch movies with subtitles and won’t accept dubbed films. And although Crouching Tiger’s phenomenal success cannot be ignored, it is extremely hard to see it as anything but a once-in-a-lifetime event. Zhang Yimou should know this better than anyone; his films Hero (#3 all-time foreign film with $53.7M) and House of Flying Daggers (#26 all-time with $11M) benefited from the post-Crouching Tiger box office swell for Chinese films that ended nearly as quickly as it started.

It’s perfectly understandable for a country to support and protect its own filmmakers and retain its own cultural identity. If I had grown up in another country, I’m sure I would have mixed feelings about America’s cultural dominance. But justifying China’s protectionist measures by comparing relative box office percentages is an argument of false equivalents. Let’s not forget that foreign companies are prohibited from distributing films in China, and can only produce movies in China if they have a Chinese partner. Meanwhile, China’s Dalian Wanda Group, through its ownership of AMC Theatres, is the largest film exhibitor in the United States.

It’s reasonable to ask what the Chinese film industry gets from Hollywood. But it’s also reasonable to ask what the Chinese film industry should get. Many would argue that China is already getting more than its fair share. But as Zhang’s piece makes clear, that’s not how China sees it. Backup plans, anyone?

China Trademark Squatting

We are on record (and then some) about the importance of registering your trademark in China. In spite of our efforts — or perhaps because of them — nearly every week someone contacts us after discovering someone else has registered “their” trademarks in China.

Most people lump all such third party registrants together under the common rubric of “trademark squatters,” but in fact, the registrants can be separated into five distinct categories, and the appropriate response (and the likelihood of success) depends on the category in which category they fall.

 

Category One – The Extortionist

China’s laissez-faire attitude towards bad-faith trademark registrations has created a cottage industry for numerous “entrepreneurs”: individuals who register brand names belonging to foreign companies and then hold those brand names for ransom. Anyone who deals with China trademarks has run into this sort of trademark squatter. They have filed hundreds of applications, for a wide variety of brand names and in a wide range of Nice classes. The registrations may be for different sorts of goods or services than what the brand is known for. The trademark squatter has no connection to any of the brands, and no intention of ever using them in commerce. They are a classic non-practicing entity, and their sole intent is to monetize the trademark registration by selling it to the highest bidder. They will sometimes approach the trademark owner, or they may sell the trademark to another third party on one of China’s trademark clearinghouse websites. The prices can vary but US$10,000/registration is a common starting bid.

Such registrations are the very definition of bad-faith, and you would think they would be easy to invalidate. Not so. China is slowly getting better at dealing with these situations, but even in egregious cases, it’s far from a slam dunk. The typical route involves an invalidation proceeding and an appeal and then maybe another appeal. All of this can take years and cost thousands of dollars, and there’s no guarantee of success. It’s easy to see why many foreign brand owners just pay the money and move on, as with a nuisance lawsuit. Alternately, some brand owners will wait three years and file a non-use cancellation. See China Trademarks: When (and How) to Prove Use of a Mark in Commerce.

Category Two – The Counterfeiter

Companies find the first category of trademark squatter exasperating, but they find the second category infuriating. These squatters have registered foreign companies’ trademarks not to hold them for ransom, but to use them in commerce. Indeed, these squatters’ business model is to produce counterfeit goods they can sell in China (and in any other country where the foreign company has not registered its trademark) without fear of reprisal from the true brand owner – because the squatter legally owns the trademark in China! Sometimes they will sell the same kinds of goods as the true brand owner, sometimes not – it all depends on how well-known the brand is, and what the squatter thinks will generate more money for them. Oftentimes you’ll see these squatters register several foreign brand names in China, all in the same classes of goods. If one foreign brand is good, four are better.

It is usually more expensive for the true brand owners to purchase these registrations because the registrations are worth more to the trademark squatter. Moreover, a non-use cancellation will not succeed, because the marks are actually being used in commerce. It is sometimes possible to succeed with a bad-faith invalidation, but this will largely turn on whether the mark was well-known in China, which is a difficult thing to prove. For many years the de facto Chinese position has been that if foreign brand owners cared about their marks in China, they should have registered them there. Here, the alleged trademark squatter is using the mark in commerce and probably also employing people and paying taxes on its income. That looks a lot better to Chinese authorities than a sole-proprietor non-practicing entity who lives with his parents in Kunming or Kansas.

 

Category Three – The Competitor

The third category of squatter looks a lot like the second category – they file trademarks covering a certain, fairly narrow set of goods. But this type of squatter isn’t a counterfeiter and has no plans to use the marks in commerce. Rather, this squatter is your competitor, and their goal is to prevent you from entering the Chinese market (at least under your preferred brand name). The more specialized the market, the more likely this is to occur because everyone knows all of the other players. More than once I’ve seen a Chinese manufacturer in a specialized industry register the trademarks of all its European and American competitors. They then offer the competitors a Hobson’s choice: buy the trademark at a grossly inflated price (upwards of $250,000K) AND designate the competitor their exclusive distributor in China, or say goodbye to their brands in China.

The competitor will also often threaten to block products manufactured with its trademark by anyone else from leaving China. In other words, they may threaten to effectively shut down your entire business worldwide by choking off your sole production point.

Brands that are actually well-known in China may have some success in wresting trademark registrations from such registrants, but as noted above that rarely happens. Most foreign brand owners in this position are out of luck. The argument that these trademark squatters gamed the system is not going to get much traction.

 

Category Four – The “Helpful” Supplier

Sometimes companies will find that their brand names have been registered by a familiar entity – their own supplier or distributor in China. If the supplier or distributor is still producing or distributing goods for the company, the proffered explanation is usually benign: the supplier or distributor registered the mark to prevent any rapscallion squatters from doing so first. This may be true, but the brand owner should wonder why the supplier/distributor didn’t inform them first and/or ask if the brand owner wanted to register the mark itself. Nonetheless, if the relationship is still positive, it is a relatively straightforward process for the supplier/distributor to assign the mark to the brand owner. Some suppliers/distributors will attempt to retain ownership of the trademark but this should be resisted.

If the relationship has turned ugly, which is usually the case when the trademark owner is a former supplier/distributor, a simple assignment may be difficult to procure. But this situation is the easiest one in which to prove a bad-faith registration. So long as you can prove the existence of a business relationship with the supplier or distributor (e.g., through purchase orders, contracts, and other documentation), it is quite likely the squatter will be forced to give up the registrations. Needless to say, the process is a lot easier if you have a signed, chopped manufacturing agreement or distributor in which the supplier specifically agrees not to register your IP. See China Trademarks and Your Chinese Distributor.

 

Category Five – The Coincidental Copycat

The last category isn’t really a traditional trademark squatter and arguably shouldn’t even be part of this list. Occasionally, someone in China registers “your” trademark because they came up with it on their own independently. This only happens with word marks – it is highly improbable two applicants would come up with the same logo by blind chance. In these cases, the trademark owner may be willing to sell the trademark, but if they’re not, there’s little you can do about it. The registrant simply followed the dictates of China’s Trademark Law: they were the first to file (not you), and so they get to keep the mark.

In sum: if you find that your brand has been taken by a trademark squatter in China, first determine the category they fit in, and then plot your strategy accordingly. Better yet, register your trademark right away and prevent having to strategize at all.

 

 

China Design Patents
China Design Patents

Design patents are increasingly becoming an essential component of our clients’ China IP portfolios. They’re reasonably priced, don’t take that long to acquire, and provide pretty good protection.

That said, it’s important to understand the limitations of a design patent. A design patent does not provide protection for a product’s functionality or inner workings. It does not protect a product’s manufacturing process. It does not even protect the materials or components used in a product. The only thing a design patent protects is the external appearance of a product. For this reason, the application for a design patent is short and sweet, with the substantive parts limited to orthographic drawings of the design and a brief description.

The main reason design patents can be acquired with relative ease in China is that they are not substantively examined. China’s State Intellectual Property Office (SIPO) only examines design patent applications to confirm that the drawings and description meet formal requirements, i.e., adequately describe the design. SIPO does not search to see if the design is the same as or similar to prior art. That sort of examination only takes place if the design patent is challenged.

Like other patents, design patents in China have a requirement of absolute novelty. If you have already disclosed or commercialized a product anywhere in the world, it is not eligible for design patent protection in China. This is a marked difference from trademarks, which can be registered at any time regardless of when use actually began. To be sure, it’s almost always a good idea to file a trademark as soon as possible, even before use. – it’s just not legally required. Design patents are also different from copyrights, which are protected at the time of creation even if they’re never registered. This disjunction can be confusing, especially when aspects of a design could (theoretically) be covered by multiple forms of IP. For certain products, the appearance of the product itself may be protectable under trademark, copyright, and patent regimes. That is rare, but it can happen and it lulls some of our clients into forgetting that though they are legally allowed to wait on filing a trademark or copyright (no matter how often we tell them not to wait) if they wait too long to file a patent they may be legally barred.

Once our clients are ready to move forward with a design patent application, we send a list of questions pretty much as follows:

  1. Please provide the name and passport number (if not a PRC citizen) or national ID number (if a PRC citizen) of the person who designed the product. If you commissioned a design firm, then the name should be that of the person at the design firm.
  2. Please provide the priority date, if relevant. You would only have a priority date if you had filed a patent application in the US (or some other jurisdiction) for this design in the past 6 months.
  3. If you have filed a previous application in another jurisdiction, we will need a copy of the filing documents.
  4. Please provide a set of formal drawings for the design. Assuming that you want the design patent to cover all sides of the product, then we’d need an orthographic projection of all sides (usually 6 sides: top, bottom, left, right, front, back). The drawings cannot contain dotted or dashed lines, or shading to indicate perspective.
  5. Please provide a brief (one-paragraph) description of the name and use of the product incorporating the design and the essential features of the design.

Like I said, short and sweet.

China trademark registration lawyersLabbrand, a leading Chinese brand consultancy, recently published an article discussing the naming work they’d done on behalf of Haribo, the German confectionery. (For those who don’t know, Haribo is the first and best manufacturer of gummi candies: all gummi candies in the world are derived from Haribo Gold-Bears, the ur-gummi.) I have been a huge fan of Haribo since I was a kid, and was interested to read how Labbrand had adapted Haribo’s brand names for China. I’m excerpting their descriptions below, interspersed with my own commentary.

Since 2012, Labbrand has been working closely with HARIBO to validate and create over 20 Chinese names for its brand and products, as well as for the tagline and Jingle of the Haribo brand. Chinese names 萌桃仔 [méng táo zǎi] for Peaches, 趣缤纷 [qù bīn fēn] for Supa Mix and 甜莓狂想 [tián méi kuáng xiǎng] for Berry Dream were amongst the first new releases from the brand.

The verbs in the first sentence are essential: Haribo’s Chinese brand names were not just created but also validated. Brand creation without brand protection is meaningless. As I wrote back in 2015, “If you care about your brand in China, it’s not enough just to register your English-language brand. You also need to select a Chinese name and register that as a trademark in China. Otherwise, you will forfeit not only the right to use your Chinese brand name, but the ability to choose it in the first place.” See Don’t Be Like Mike: Register Trademarks In CHINESE.

I did a quick check of the Chinese Trademark Office (CTMO) database and am happy to report that the three brand names cited above are all registered already or will be soon. (Had the results been otherwise, this would have been a short blog post!)

The three new products launched are:

Peaches, a peach flavor two-toned, sugar-dusted gummi. The Chinese name 萌桃仔 [méng táo zǎi] (cute/ peach/ young) personalizes the sweets as a cute little person by putting 仔 [zǎi] at the end. Originated from cyber language, 萌 [méng] conveys a cute and lovely feeling.

Supa Mix, a mixed collection of fruity gummies. The name 趣缤纷 [qù bīn fēn] (interesting/ colorful) brings fun and joy at the same time translating the ‘mix’ concept.

Berry Dream, a collection of berry-flavored sweets. The unique, eye-catching Chinese name 甜莓狂想 [tián méi kuáng xiǎng] (sweet/ berry/ fantasy) triggers curiosity and imagination with a good fit with product and brand attributes.

I won’t comment on the above names, except to note that they are thoughtful combinations of literal translations and characters with positive and appropriate connotations. This is the value of hiring branding professionals. Sometimes clients will come to us with a Chinese name derived from Google Translate and ask us to opine, which always brings out my inner DeForest Kelley: I’m a lawyer, not a branding specialist. Still, you don’t need to be a brand specialist to know when a machine translation goes wrong, which is often enough.

Besides the product names, Labbrand also created the Chinese tagline of HARIBO’s signature jingles – “Kids and grown-ups love it so, the happy world of HARIBO” – to help the brand better communicate with its Chinese audience. The Chinese brand tagline 大人小孩都说好, 快乐品尝哈瑞宝 [dà rén xiǎo hái dōu shuō hǎo, kuài lè pǐn cháng hā ruì bǎo]” can be translated as “grownups and kids all say it’s good, and happily enjoy HARIBO”, which is straight-forward, rhythmic, as well as easy to read and remember. The two-part structure, each ending with the same rhyming syllable [ǎo], makes the tagline melodic, attractive and unforgettable. The simple and memorable Chinese tagline stays true to the original English jingles.

I find it funny that Labbrand worked so hard to capture the rhythms and meaning of the original English tagline: “Kids and grown-ups love it so, the happy world of HARIBO.” I had always found the latter a bit stilted, and assumed it was the result of a decades-old translation from German that had over time become memorable, even cute. That’s what a phenomenally popular product can do – make the uncool cool.

Sometimes the best brands are the ones that happen by chance. Haribo was founded by Hans Riegel in Bonn, Germany in 1920, and the name Haribo is simply a portmanteau of the first two letters of HAns, RIegel, and BOnn. Now Haribo is an internationally known trademark, with registrations in multiple classes all over the world.

One final note: the official Chinese name for “Haribo” is the sound-alike “哈瑞宝” (hā ruì bǎo). Haribo has duly registered this name as a trademark in China, but they have also applied for a number of similar-sounding Chinese-language trademarks, including 嗨乐宝, 哈莱宝, and 好乐纷. Not because Haribo intends to use these marks, but because they want to prevent third party trademark squatters from doing so. Sometimes the best offense is a good defense. See “Chinese Brand Names, Copycats, and Soundalikes.”

China Manufacturing AgreementWith rare exceptions, American and European companies have goods made in China for one reason: because it’s cheaper. Why is it cheaper? Because labor is so much cheaper in China than in the US and Europe, and labor is a significant portion of the production cost. But over the past several years, wages have been steadily rising in China, making Chinese factories progressively less competitive on labor costs. Meanwhile, numerous pundits have made predictions about manufacturing work fleeing China for countries with lower labor costs, and especially Southeast Asian countries like Vietnam or Myanmar. A corollary prediction calls for more reshoring – bringing back manufacturing to the United States.

But the mass exodus from China hasn’t occurred. Thus far most of the manufacturing moving to Southeast Asia has been either redundant manufacturing (i.e., to have an alternate source of production in case something goes awry in China) or manufacturing for goods lower on the value chain. And the reshoring movement is still finding its feet.

China has maintained its competitive advantage in a number of ways. For one thing, it has made enormous investments in infrastructure: raw materials, components, and finished goods travel rapidly and consistently to, from, and within China via a vast web of ports, railways, and highways. None of its competitors come close. Additionally, China’s status as the factory of the world means its factories (and many of its cities) have developed tremendous expertise and specialization. They may have been the cheapest before, but now they’re the most experienced – and sometimes even the most efficient.

A couple weeks ago, Sheelah Kolhatkar wrote an article in The New Yorker about advances in robotics which logically will put a number of factory workers out of a job – no matter where the factories are located. The Chinese factory owners interviewed in the story were almost stereotypically dismissive of concerns about workers rights, and perhaps necessarily so. To them, and arguably as a matter of national economic policy, vast automation is the only way China will remain competitive as a manufacturing base for the rest of the world.

My colleague Grace Yang writes frequently about the challenges companies face when navigating China’s labor laws. Regardless of Chinese factory owners’ attitudes, you’d think they would have a tough time replacing workers with robots. But one of the factory executives quoted in Kolhatkar’s article made a keen insight: up to 80% of factory workers simply don’t come back to work after going home for Chinese New Year. You couldn’t draw it up any better for making a massive and sudden reduction in force.

Of course, US companies that reshore manufacturing with largely automated factories won’t have to contend with disgruntled factory workers, because those workers were laid off years ago. And the better robots get at doing assembly line work, the more it will make sense for goods consumed in the United States to be manufactured in the United States. As Kolhatkar notes, “China was never a particularly convenient place for Western companies to have their sneakers and T-shirts and widgets made.”

But for now, China remains the factory of the world. And the increased shift to automation means there will be an ever-widening divide in China between manufacturers with an eye to the future and manufacturers stuck in the past who can only compete on price but not quality – and won’t be able to compete on price for long. This means that selecting the right manufacturer is more important than ever, and it’s going to be hard to do that without visiting the factory. It also means that a well-written OEM agreement with your Chinese factory is more important than ever. At least, until Skynet becomes self-aware.

China and Hollywood and Big DataThis past Saturday I attended the USC Entertainment Institute on Entertainment Law and Business. In past years the Institute has had entire panels on China, but this year things were pretty low-key, with just one panelist having a China connection (Chia-Chi Li, Director of Tencent’s Content and Technology Transactions Groups).

Why the shift? Undoubtedly one reason is the high-profile collapse of several deals involving Chinese money and Hollywood. Who wants to see a discussion about all the money that’s not being invested? Another possible reason is that the giddiness of the past few years – during which many people in Hollywood viewed Chinese investors as the new “dumb money” – is over and the Chinese entertainment industry is maturing, with most of the remaining players being relatively well-run, competent outfits. Or perhaps it’s that the annual US-China Film Summit is taking place in two weeks, and there are only so many times you can have a “What’s The Deal With China?” panel.

But China nonetheless kept creeping into the discussions. The morning panel on music (“Where the Money is in Music These Days”) broke down the ways in which artists and record labels actually generate revenue today, with particular attention to YouTube and streaming services. The panelists all complained about the revenue stream from YouTube (currently the biggest single medium by which consumers listen to music), but almost as an aside noted that the revenue model for music in China was even worse. Meanwhile, multiple panels referenced the social media/DIY music video phenomenon that is Musical.ly, albeit without a word about the app being Chinese. As I wrote a few months ago, this is exactly the kind of soft power the Chinese government has been hoping for.

Professor Jeffrey Cole, Director of USC’s Center for the Digital Future, started off the institute, as he has done for the past few years, with a fascinating speech about the future of the entertainment industry (“The Industry: Trends, Fads and Transformation”). Although most of his talk centered on domestic concerns, he closed with an intimation that there was a failure of comprehension (and imagination) about the size, wealth, and power of the BAT companies (Baidu, Alibaba, and Tencent), and what it meant for Hollywood.

In determining the future of the US entertainment industry, Prof. Cole noted that two of the most basic concerns are how people spend their time and how they spend their money. In the US, numerous companies are competing for either or both. In China, the competition exists in name only; Alibaba controls the majority of consumer purchases, and Tencent’s WeChat is so dominant and so comprehensive in terms of user base and “stickiness” that – and this is a direct quote from Prof. Cole – it is in many ways like the commercials from the 80s for the Roach Motel: “Roaches check in, but they don’t check out.” Despite the negative connotations, Cole meant it as a compliment of the highest order: a recognition that a substantial majority of the Chinese population uses WeChat all day, every day and for almost everything. We have written about this before – if you are doing business of any kind in China, you need a WeChat strategy. Indeed, we have been approached multiple times by companies interested in forming a WFOE for the sole purpose of opening up an official WeChat account.

Meanwhile, Tencent’s representative, Mr. Li, was one of the best panelists of the institute and with by far the highest degree of difficulty, because whether he wanted to or not, he had to represent the views of himself, his employer, the Chinese entertainment industry, and China as a whole. That’s a lot of water to carry.

Mr. Li made several points worth repeating, but I’d like to focus on two. First, he acknowledged that though some Chinese companies had payment problems because the RMB is not freely convertible, Tencent (and other successful Chinese companies) had access to funds outside China and if they want to make an overseas investment they can. This is true enough, but it somewhat sidesteps the issue: the Chinese government may not be able to control what Tencent does with money in its US bank accounts, but it can certainly control what Tencent does in China, and thereby exert indirect control. Still, the point remains that for large Chinese companies already in the media and entertainment business, not having to secure government approval for every wire transfer is a big advantage.

Second, according to Mr. Li, any foreign film that hopes to do well at the Chinese box office needs a Chinese partner. His specific examples: Warcraft ($47M domestic box office, $386M foreign box office with $213M of that in China) and A Dog’s Purpose ($64M domestic, $136M foreign with $88M of that in China) had major Chinese partners (Tencent and Alibaba, respectively). The LEGO Batman Movie ($175M domestic, $136M foreign with $6M of that in China) did not.

On a certain level, this argument sounds familiar.China is too big to understand without local help, so don’t even try. But Mr. Li was actually making a more subtle point. In his telling, the reason Warcraft was successful in China (and nowhere else) is because Tencent had so much data about its users that it could identify nearly every single Warcraft player in China and could push targeted ads and marketing material to them. Similarly, the reason A Dog’s Purpose did so well in China is because Alibaba had so much data about its users that they already knew the identity of every dog-owning household in China.

It’s a compelling argument if you can get past the Big Brother-ness. I’m not sure it entirely holds up under scrutiny; why wouldn’t this strategy work for every movie released in China? Still, it’s hard to explain the success of Warcraft in China in any other way, because the movie was a critical and popular bomb everywhere else in the world. Maybe it only works for movies with a clearly defined affinity group.

Either way, China will only become more sophisticated in its collection and use of big data and companies going into China will need to keep pace — which probably means partnering with one of the BAT companies — or else they’ll just be rolling the dice. At least in the film business, the stakes are too high to accept those odds.

China IP lawyers

I am not a big fan of filing Madrid Protocol applications for China. In certain situations, they can work well, but when they don’t work (which is fairly often, especially when applications are filed without forethought) the trademark registration process takes longer and costs more than just filing a national application. See China Trademarks. Register Them In China Not Madrid.

Filing a priority application in China is another matter. As part of the IP modernization begun under Deng Xiaoping’s leadership, China acceded to the Paris Convention in 1984. Under the Convention, if you file a trademark application in one Paris Convention country, and then file an application on a priority basis in another Paris Convention country within 6 months of the date of the original application, you can claim the first filing date as the date for your subsequent applications as well. For example, if you filed a trademark application in the United States on May 1, 2017, you would have until November 1, 2017 to file a trademark application for the same goods/services in China and still be able to claim the May 1, 2017 filing date for your China trademark application.

The vast majority of countries in the world are signatories to the Paris Convention, so the convention has wide-ranging effect. Priority filing is particularly important in first-to-file countries – most notably China – where there often truly is a race to the trademark office between legitimate IP owners and unsavory trademark squatters. See Register Your China Trademark or Go Home.

Priority filing can be an extremely useful tool for China trademark protection, but there are a couple common misconceptions about it. First, priority filing will not improve your odds of registration. The only thing priority filing does in China is establish an earlier filing date. An application filed on a priority basis is considered a national application, and once it is submitted it goes through the same examination process as any other national application. In other words, if you have priority filing for a brand name or a logo that has already been registered as a trademark in China, you will not succeed in getting your brand name or your logo registered in China.

Second, priority filing is not the only option for filing in China. Sometimes clients will contact our China IP lawyers in a frantic rush because they have received notice that they have only a few days before the priority filing window closes on their trademark, and they believe that once that window closes they will not be able to file a trademark application in China at all. Not so! The only effect of the priority window closing is that you cannot claim an earlier filing date. Going back to the earlier example, if you filed a trademark application in the United States on May 1, 2017, and then filed an application in China for the same goods/services after November 1, 2017, the deemed filing date in China would be the actual filing date for China. Priority filing changes the deemed filing date, nothing else.

Another important point regarding priority filing is that priority filings are limited to the same goods/services as in the original application. In this way, priority filing is similar to Madrid Protocol filing, and often not well suited to filing in China. But if the application only covers a narrow range of clearly stated goods/services, and those are the only goods/services that you care about protecting in China, it will work just fine. Priority filing cannot be used for the “Starbucks strategy” of covering all goods/services. But if you use it to establish a beachhead and cover the most important goods/services, it will usually dissuade the first wave of squatters.

Because the description of goods and services for trademarks in the United States (and for many other countries as well) is often quite different than the description of goods and services for China trademarks, for clients interested in filing in both countries I generally recommend filing concurrent applications without regard to priority. But for clients who first file in the United States (or some other Western country) and then realize belatedly that they ought to protect their IP in China as well, a priority filing can be ideal. More than once, a priority application has meant the difference between securing a China trademark registration and having to deal with a trademark squatter with superior rights.