China trademark lawyers
China Trademarks: Not yet billions, but getting there.

I wrote last year about the massive number of trademark applications filed in China in 2016 – 3.6 million, far more than any other country in the world, and increasing at a tremendous rate.

The statistics from 2017 are now available and they are staggering, both in gross numerical terms and in the year-on-year increase. More than 5.7 million trademark applications were filed with the Chinese Trademark Office (CTMO) in 2017, an increase of more than 55% from the previous year, which had already set a record. By comparison, just under 600,000 applications were filed with the United States Patent and Trademark Office (USPTO), which is the world’s second-busiest trademark office. At the end of 2017, China had 14.9 million active registrations overall; the US had only 2.2 million.

What are we to make of these numbers? Why are so many trademark applications being filed in China, and what does it mean for current and future applicants? Keeping in mind that correlation is not the same thing as causation, I nevertheless offer the following hypotheses and predictions:

  1. More CTMO rejection notices. It will become increasingly difficult to register a trademark in China due to simple mathematics: the greater the number of trademark registrations, the greater the chances of a conflict. And it’s still the case that many CTMO examiners are relatively untrained, with a huge backlog of trademarks and a hard 9-month examination deadline. I feel for the CTMO examiners. In all likelihood, their daily workload is governed by the thousands of applications filed 9 months earlier, which must be either approved or rejected by the end of that day. And multiple sources in China have confirmed my own experience: the default CTMO examination standard is “When in doubt, reject.”
  2. Increased value for registered trademarks. As it becomes more difficult to secure a trademark registration, existing registrations will become more valuable. China already has a robust secondary market for trademarks, and this market will only become more relevant.
  3. Greater incentives for trademark squatters. As trademarks become more valuable, the incentives for squatters to file applications will also go up. Yes, such applications will be more likely to be rejected, but trademark squatters are by definition taking a calculated risk. They’re not collecting their favorite trademarks; it’s purely a business proposition for them and some file for hundreds of trademarks at a time.
  4. More non-use cancellations. China’s trademark system allows (and implicitly encourages) trademark owners to file applications covering goods they do not actually use. See China Trademarks: Register in More Classes, Take Down More Counterfeit Goods. Accordingly, when we conduct a trademark search and find a conflict with an existing mark, one of the first things we consider is whether the mark is vulnerable to cancellation (i.e., if it has been registered for at least 3 years) and if so, if the mark is actually in use on the goods that created the conflict. At least half the time we discover that the mark is not and has never been in use on the goods in question, and we are able to cancel the mark and thereby clear a path for our client’s application to be approved.
  5. More proactive filings to forestall non-use cancellations. Some companies opportunistically file applications that specify more goods than they actually sell, as a way to stake out more ground without any added cost. Others do so as an explicit strategy to prevent trademark squatters in any class and on any goods and services. Starbucks and Disney are two companies that follow this strategy, but even their marks are vulnerable to non-use cancellation after three years. That said, nothing’s stopping Starbucks from filing a new application every three years for the same goods. It’s not cheap, but it’s a lot cheaper than dealing with trademark squatters because it means a non-use cancellation would have no effect – they’ve got another trademark right behind the canceled one as if the trademark is just a shark’s tooth.
  6. The tipping point for non-traditional trademarks. Currently, the vast majority of trademarks are either word marks or devices (i.e., graphic images, with or without words). But as it becomes increasingly difficult to register a traditional trademark, companies are starting to look more closely at filing non-traditional trademarks like sounds, colors, and even three-dimensional representations. In part this would be driven by necessity, and in part by technological innovation.
  7. Registered IP matters. It’s hard to see the vast number of trademark applications as anything but a resounding vote in favor of registering IP in China. To paraphrase Colonel Tom Parker, 5.7 million China trademark fans can’t be wrong. If owning a trademark registration in China was meaningless and only provided aspirational rights, people simply wouldn’t pay the money to do it.
  8. China Law Blog FTW. Occam’s razor holds that the simplest hypothesis is usually correct. Could it be that this blog’s clarion calls for companies to register their trademarks in China have finally resounded? Obviously not to the tune of 5.7 million, but still, we like to think we’ve done our part.
China NNN Agreements
China NNN Agreements. So many choices.

Good sourcing agents are both hard to find and worth their weight in gold. And they operate in many different ways. On one extreme, a sourcing agent will find a factory, take a finder’s fee and then bow out, letting you deal with the factory directly. On the other extreme, a sourcing agent will act as your exclusive point of contact: you order from them, communicate with them, and pay them, and are expressly precluded from having contact with the factory. Most, however, fall somewhere in between.

The multitude of potential arrangements creates uncertainty about the appropriate contractual protections. That is: should you have an agreement with the sourcing agent, the factory, or both? And what type of agreement?

We are big fans of using NNN agreements in China with potential business partners (especially factories). Knowing this, our clients will sometimes come to us and say that they are having goods manufactured in China and they need an NNN agreement for use with everyone. It’s not that this is per se incorrect, but it’s often putting the cart before the horse. An NNN agreement is not the proper agreement in every situation.

If you don’t know the identity of the factory manufacturing your goods, an NNN agreement with them is out of the question. You can’t enter into a contract with an unknown company! And if you have a complicated arrangement with a sourcing agent or a factory, then an NNN agreement won’t go nearly far enough.

In short, the arrangement you have with your sourcing agent will determine the agreements you need, and with whom. We addressed these issues last year in China Manufacturing: To Broker or not to Broker, That is the Question, with particular attention to the question of whether you could (or should) have a contract solely with your sourcing agent. It will probably not surprise you to hear that the answer is: it depends.

In an ideal world, if you are dealing with factories directly, you would want NNN agreements with the factories with which you have initial talks, development agreements with the factories that develop products for you, and OEM agreements (aka contract manufacturing agreements) with the factories that actually manufacture products for you. In this situation, the agreement with the sourcing agent would be fairly simple because they aren’t doing much – it’ll basically be an NNN agreement with some additional verbiage to cover the finder’s fee. You don’t want the sourcing agreement to be the only agreement in place, because it offers so little protection.

If you are dealing exclusively with your sourcing agent, then you won’t – can’t – have any agreements with the factories. You will need to look to the sourcing agent exclusively for everything: non-competition, non-circumvention, non-disclosure, quality control, ordering, warranty, etc., because you have no contractual privity with the Chinese factories and no way to hold them responsible for anything. This can be useful if the sourcing agent is based in the United States because it is a lot easier to go after a US company. But this presupposes that the US company has assets, and that your agreement with them allows you to hold them responsible for the actions of the Chinese factories. In this situation, the sourcing agreement is all-important and must be carefully drafted, because many sourcing agents will attempt to avoid responsibility for everything from delays to quality issues to IP infringement. Working with these agents is taking a huge risk: if the sourcing agent isn’t responsible for the actions of the Chinese factories, and you don’t even know the identity of the Chinese factories, you’ve got no recourse if things go south.

For all of the sourcing agents in between, you’ll want a robust sourcing agreement and at the very least NNN agreements with the factories. Whether the development and manufacturing agreements are with the factories or the sourcing agent will depend on the particulars of how you deal with the various parties, and also your ability to hold them responsible when things go wrong. If the sourcing agent is a well-established company with multiple employees and a real office and sizable assets, it’s reasonable to look to the sourcing agent for everything. If it’s one guy with a virtual office in Los Angeles who spends most of his time overseas, not so much. Of course, the ideal situation from a legal standpoint is not always possible in the real world, so you need to adjust to the situation on the ground.

Some clients ask our China lawyers if they can just have NNN agreements “with everyone” and leave it at that? Certainly, it does not hurt to have NNN agreements with every party on the sourcing agent/manufacturer side. But it won’t cover all potential forms of liability – not even close. It will only hold counter-parties liable for misuse of your IP. For some clients, this is enough, particularly during initial phases when they are unsure whether their IP can really be commercialized.

And no matter what agreements you sign with your sourcing agent and factories, you still need to register all of your IP (patents, trademarks, copyrights) in China. You could have an ironclad agreement with a great sourcing agent who only uses wonderfully compliant factories, and it won’t mean a thing if some third party registers your trademark or copies your patented goods.

China Trademark RegistrationIn part one of this two-part post, I presented six China trademark resolutions for 2018:

  1. Register the trademarks you are using in China for the products/services you are using.
  2. Register your trademarks in additional classes/subclasses.
  3. Register more trademarks than you are currently using.
  4. Monitor your trademarks.
  5. File non-use cancellations against squatters.
  6. Come up with a Chinese name for your mark and register it.

Now, in part two, I present six more resolutions.

  1. Register similar Chinese names.

As we have written, a foreign company’s Chinese brand name usually falls into one of the following categories:

  1. A direct translation of each word in the name. This is what Microsoft has done: 微软, Chinese characters for “micro” and “soft.”
  2. A transliteration, in which the Chinese characters approximate the sound of the English-language name. This is what Google has done: 谷歌, Chinese characters that make the sounds “gu” and “ge.”
  3. A new name with a positive connotation with no obvious connection to the English-language antecedent. This is what Pfizer has done: 辉瑞, Chinese characters that make the sounds “hui” and “rui” and mean “brilliant and auspicious” (more or less).
  4. A combination of the above. This is what Starbucks has done: 星巴克, the Chinese character for “star” and Chinese characters that make the sounds “ba” and “ke” (“bucks,” more or less).

No matter what method is used, because Chinese has so many homonyms (i.e., characters with the same sound) it is all too easy to come up with alternative Chinese brand names that sound exactly the same but use different characters. The possibilities are even greater when you include characters with similar (but not identical) sounds. And a soundalike mark is good enough for a counterfeiter.

The Chinese Trademark Office (CTMO) is likely to block Chinese brand names that are only one character away from your registered mark and cover the same goods/services. But it’s far from guaranteed they’ll do so. A better approach is to identify the Chinese brand names that are similar enough to yours that you wouldn’t want them to be registered by a third party, and register them yourself before someone else does.

  1. Have your Chinese business partners execute a formal agreement.

Having your Chinese business partners execute (i.e., sign and chop with the company seal) a formal agreement is a good idea for all kinds of reasons, whether that agreement is an OEM agreement, an NNN agreement, a licensing agreement, or otherwise. Such an agreement establishes the basic terms of the business relationship, clarifies the expectations on both sides, and provides a basis for a lawsuit should things go awry. And in the trademark context, a signed, chopped agreement can be the difference between winning and losing when you discover that your former Chinese business partner has filed an application for “your” trademark.

Our agreements always have a separate IP section forbidding the Chinese party from taking any actions to interfere with your IP rights (e.g., filing applications for “your” trademarks or opposing/attempting to invalidate your existing trademarks). Such language, when formally agreed to by a Chinese entity, is relatively easy to enforce, and often will prevent spurious trademark applications in the first place. And if you do need to take action against your former supplier either in court or before the CTMO, having an original signed, chopped agreement in which your Chinese business partner agrees to respect your IP is powerful evidence in your favor.

Needless to say, the time to execute these agreements is at the beginning of the relationship when everyone’s happy – not when your Chinese supplier has proven incompetent or worse and you are no longer on speaking terms.

  1. Keep copies of all documents to/from your Chinese business partner

Many companies still do business in China solely on the basis of purchase orders written in English and English-language emails sent to their Chinese business partners’ personal email account. This arrangement is ideal for the Chinese side and horrible for the foreign side because it creates great ambiguity about both the terms and the Chinese side’s identity, and thereby minimizes their liability. It’s difficult to hold a Chinese company liable when you don’t even know their real name.

In the trademark context, this issue comes up most often when a foreign company learns that their former Chinese business partner has filed an application for “their” trademark. (Typical generic scenario: Chinese manufacturer experiences quality fade; foreign buyer refuses to pay for defective merchandise; quality fade gets worse; foreign buyer stops purchasing altogether; Chinese manufacturer engages Sinosure to collect unpaid money and files trademark applications for the foreign buyer’s marks.)

China actually does a decent job policing bad faith trademark applications from foreign companies’ Chinese business partners. But in order for the CTMO to rule against the Chinese manufacturer who coopted “your” mark, you first need to prove the existence of a business relationship. As described in the previous resolution, the easiest way to do this is with a signed, chopped agreement. Failing that, you need to prove the relationship by circumstantial evidence, and the more original documents you have the better. The best evidence is documents issued by your business partner and bearing their company chop (like an invitation from them for purposes of a business visa), or documents issued by a third party clearly identifying both the foreign buyer and the Chinese party (like shipping or customs documents). Most of the time, foreign buyers don’t pay much attention to the documents from the Chinese side (perhaps because the Chinese side is so cavalier), and so the more documents that you keep on hand, the more likely you’ll have a document that could actually help.

  1. Keep evidence of trademark use in China.

Unlike the US, China does not require affirmative proof of use in commerce to register or maintain a trademark. But you still need to collect and maintain evidence that you are using your trademark in China. Every trademark in China is vulnerable to a non-use cancellation starting three years after the registration date. And with the vast number of trademark applications being filed, more and more existing registrations are being cited as obstacles to new applications, which only increases the chance of a cancellation being filed against your mark.

The CTMO does not pursue non-use cancellations sua sponte; only a third party would file a non-use cancellation against your registration. But it happens all the time, and when it does you need to provide evidence that your trademark has been used in China during the past three years on the covered goods/services, or else your trademark registration will be cancelled.

Evidence can take many forms. If you are actively selling products in China, then proof should be easy: advertisements, packaging, website screenshots, and other publicly available marketing and sales ephemera. If all you do is manufacture in China, then you’ll need to reply on third-party documents that clearly demonstrate your use of the mark in China on the covered products: invoices, shipping documents, quality inspections, customs export declarations, and the like. Photographs (say, from your factory) are helpful to provide context but, standing alone, are usually insufficient to demonstrate use. This is another area where a business relationship evidenced solely by English-language purchase orders and emails to a personal email account are going to come back to haunt you, because neither one is likely to be sufficient evidence of trademark use.

  1. Secure copyright registration for your trademark logo.

Copyright law protects creative works, and many trademarks that are mere standard character marks (aka word marks) do not qualify as creative works because they are too short. However, almost all trademarks expressed as a logo could also be protected by copyright in China. Some practitioners refer to a China trademark registration and a copyright registration together as a “super trademark.” The theory is that because copyright is not governed by the Nice Classification system, a copyright registration applies to all goods and services, and therefore means that no one besides you can ever use your logo for anything.

It doesn’t always work out that easily – and the remedies for copyright infringement aren’t nearly as robust as those for trademark infringement – but a copyright registration can definitely be useful when trying to take down Alibaba listings for fake branded products.

  1. Record your trademarks with customs.

Every year, Chinese customs gets a little better about sussing out counterfeit goods. It’s a massive job, considering how much of the world’s goods (authentic or not) originate in China. Most countries, the US included, only check imported goods for counterfeits. China checks both, and they deserve credit for that.

But they don’t check everything; actually, they hardly check anything at all on their own. And unless your brand is as well known as Nike, your average Chinese customs inspector isn’t going to have any idea whether goods are authentic or not.

Really, the only way to get Chinese customs to pay attention at all is to have a valid trademark registration in China and then record that trademark registration with customs.

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.

Companies frequently reach out to our Chinese lawyers regarding their desire to do a China joint venture and we often find ourselves suggesting they first do more to make sure there is a sufficient meeting of the minds with the Chinese company before paying lawyers to start drafting the necessary joint venture documents. Our clients then usually ask what they need to know to gain greater certainty. We also get similar questions based on our blog posts.

There is a Chinese saying that is often applied to joint ventures is “same bed, different dreams.” This Chinese saying (同床异梦) actually far predates joint ventures — it applies to any sort of partnership without a meeting of the minds. But it most certainly makes sense for joint ventures as we far too often see Western companies and Chinese companies rush into joint ventures without ever discussing their respective dreams.

Many years ago, a client about to fly to China to meet with a potential Chinese joint venture partner asked for our help in formulating questions to ask of the Chinese company to help determine whether to enter into the joint venture deal. We provided a list of issues to raise at that meeting, and have provided a similar list (honed a bit more each time) to subsequent clients facing the same situation. The goal of raising these issues is to determine whether the two companies share the same dreams, and whether the Chinese company is JV worthy. This list includes the following questions and it is what I send clients who ask me either what they should be discussing with their putative joint venture partner or even when they ask what makes a joint venture work or fail. The below are questions to which the answers will give you a good idea regarding whether your joint venture will work.

  • Why are you seeking to form a joint venture with us and what will be the goals of the joint venture?
  • What will you do for, and with, the joint venture?
  • What exactly do you plan for your company to be doing to advance the business of the joint venture and what exactly do you expect our company will be doing to advance the business of the joint venture?
  • Who will make business decisions for the joint venture, and what will mechanisms will we use for reaching a decision?
  • What will each of us be contributing to the joint venture? For instance: property, technology, intellectual property, money, know-how, and employees. If the joint venture loses money, who will be responsible for putting more money in?
  • How will we resolve disputes? China lawyers like to include provisions saying that we will work out any issues among ourselves and if that fails, we will arbitrate. The tougher question is: how will we deal with day to day disputes in a way so that the joint venture does not collapse?
  • Can either of us use confidential JV information for our own business? Can our own businesses compete with the JV? Can our own businesses do business with the JV?
  • How and when will the joint venture end? What if one of us wants to buy the other out?

Posing these questions puts China  joint venture dreams to the test.

For more on China joint ventures, check out Joint Venture Jeopardy and Avoiding Mistakes in China Joint Ventures

China lawyersSmart Chinese manufacturers know that with their costs rising, they need to be able to distinguish themselves from their peers. One of the ways they are choosing to do this (even more frequently than in the past) is by copying and selling products they are making for their foreign customers. See Your China Factory as your Toughest Competitor. 

Why is this so dangerous? Because bad things nearly always happen when Chinese manufacturers discover their American/European/Australian product buyers will soon be ceasing to buy from them. For this reason, we instruct our clients to line up their new suppliers and have them ready to go, before even hinting that they might be having a problem with their Chinese manufacturer that may lead them to seek out another supplier. We are giving this same advice to companies that come to us wanting to switch suppliers after having learned that their existing supplier is copying and selling their products.

We give this advice because over the years our China lawyers have repeatedly seen the following:

  • Western company tells its China manufacturer it will be ceasing to use China manufacturer for its production. China manufacturer then keeps all of the Western company’s tooling and molds, claiming to own them. The way to prevent this is to get an agreement from your Chinese manufacturer that you own the tooling and molds before your Chinese manufacturer has any inkling that you will be moving on. For more on the importance of mold agreements, check out How Not To Lose Your Molds In China and Want Your China-Based Molds? You’re Probably Too Late For That.
  • Western company tells its China manufacturer that it will be ceasing to use China manufacturer for its production. Western company then learns that someone in China has registered the Western company’s brand names as trademarks in China. Western company is convinced that its China manufacturer is the one that did these registrations, but has no solid evidence to prove this. Western company is now facing not being able to have its product — at least with its own brand name — manufactured in China. See 8 Reasons to Register Your Trademark in China.
  • Western company tells its China manufacturer it will be ceasing to use China manufacturer for its production. A few weeks later, Western company has its products seized at the China border for violating someone’s trademark. The Western company is (rightly) convinced that its China manufacturer is the one behind the product seizure, believing the Chinese manufacturer registered the Western company’s brand names as trademarks in China long ago and is just now using that trademark to seize product as revenge. China has laws forbidding its manufacturers from registering the trademarks of those for whom it manufactures, but because it is usually not possible to prove that your manufacturer in Shenzhen had a cousin in Xi’an do the registering, this sort of thing goes on unchecked. This sort of thing is increasingly happening with design patents as well. For how to prevent this from happening to you, check out the following:
  • Western company tells its China manufacturer it will be ceasing to use China manufacturer for its production. China manufacturer then says it will not be shipping any more product because Western company is late on payments and owes X hundreds of thousands of dollars. China manufacturer then reports Western manufacturer to Sinosure and Sinosure then ceases to insure product sales to this Western company, which can have the effect of convincing Chinese manufacturers not to sell to the Western company without getting 100% payment upfront. For more on Sinosure’s role regarding China exports, check out China Sinosure: What You Need to Know.

So yes, switching your China manufacturer can be risky, at least when done without sufficient planning.

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!

Sinosure, Leviton Law Firm, Brown & Joseph
Sinosure wants you

Sinosure and its US collection companies and law firms (mostly through Brown & Joseph and the Leviton Law Firm) seem to be stepping up their collection efforts against American companies that allegedly owe money to their Chinese suppliers.

First a bit of background on the Sinosure players that my firm’s international litigators see showing up again and again. I am providing this to give you background on how Sinosure typically handles its U.S. collection claims and on the people with whom you will likely need to deal.

The first to appear on behalf of Sinosure is usually an Illinois based company, Brown & Joseph. Brown & Joseph calls itself “a commercial and credit collection firm” and our clients pursued by Sinosure usually get an email from Brown & Joseph stating something like the following (I changed the company name and the amount to remove any identifiers:

Please allow this correspondence to serve as notice that this firm has been retained by China Export & Credit Insurance Corporation (Sinosure) on behalf of their policy holder Dongguan ________Sewing Machine, Ltd.

All further communications regarding this matter should be directed to my office.

The claimed amount of default is $345,862.23 in which the policy holder has now filed for credit insurance due to nonpayment.

Your immediate cooperation is needed to resolve this issue out of litigation. Pursuant to the attached Trust Deeds all rights have been assigned to Sinosure to collect this on their behalf.

Your failure to cooperate may result in future import and credit implications of goods from the People [sic] Republic of China.

With that being said, please review the attachments and acknowledge the invoices and amount owed of $345,862.23 for verification purposes.

In addition, I will anticipate your payment in full via wire directly to our firms [sic] escrow account. The wiring instructions are listed below. Please email me with the wire confirmation number and upon receipt I will confirm closure of this case.

Domestic Wire Transfer:

Routing Bank: First Bank & Trust, Evanston IL

ABA: 071925538

Account #: 4084168

Beneficiary: Brown and Joseph, LTD

If you are unable to remit payment in full, you will be required to contact me directly before the end of business tomorrow to discuss a reasonable payment plan for our client to review.

I look forward to your immediate response as I only have a limited time to resolve this file in my office prior to litigation.

This letter threatens both litigation against the U.S. company that allegedly owes money to a Chinese company and it also threatens to impact the U.S. company’s “future import and credit implications of goods from the People [sic] Republic of China.” I am not sure whether the threat to future imports and credit from China is deliberately unclear, but what Brown & Joseph seems to be saying here is that if you do not pay, Sinosure will cease providing insurance on your credit purchases from your Chinese suppliers. U.S. companies that buy products from China on credit need to take this threat very seriously.

Don Leviton seems to be the head attorney on Sinosure’s U.S. matters. Mr. Leviton’s Linkedin profile lists him as “counsel” to Brown & Joseph and also as a Principal at Atlas & Leviton. Here is Don Leviton’s profile on Brown & Joseph. Donald Leviton’s Avvo page lists him as a lawyer at the Leviton Law Firm in Hoffman Estates, Illinois. Here is what appears to be the Leviton Law Firm Website, but because it does not list any contact information nor any attorney names, it is possible this is not Donald Leviton’s law firm or that it was and no longer is. The Leviton Law Firm has this to say about commercial collections:

While not always possible, it was our philosophy and goal to negotiate amicable settlements and workouts between our clients and debtors in order that the parties may attempt to continue their business relationships in this very challenging economic environment.

Note how it says “it was” their philosophy. It’s not clear whether putting this in past tense is a typo, bad grammar, or if indeed its philosophy has changed. But I can tell you that from my firm’s dealings with Sinosure (when represented by Don Leviton or Leviton Law Firm or Brown & Joseph), I would use words like “relentless” or “unyielding” or even “tone deaf” to describe the philosophy of those who are tasked to collect a debt on behalf of Sinosure. I mention resolute and unyielding because it is difficult to impossible to get any monetary compromise and “tone deaf” because it is not uncommon for Sinosure to seek from foreign companies more than they appear to actually owe and then still not back down at all on the amount.

Elizabeth Dawson, who appears to be a Senior Account Executive, International Claims and Litigation, for Brown & Joseph seems often to be the first point of contact on a Sinosure collection matter. It is not clear whether Ms. Dawson is an attorney but I could not find an Elizabeth Dawson on Illinois’s roll of attorneys. Our clients pursued by Sinosure have also dealt with Michael Jones from Brown & Joseph, who also may or may not be an attorney. I cannot find information about Michael Jones online and so it is possible Michael Jones no longer works for Brown & Joseph and no longer represents Sinosure.

Brown & Joseph also seems to describe itself as a law firm and boasts of its international debt collection prowess and of its China expertise:

U.S.-Based Collection Law Firm.

Brown & Joseph, Ltd. is the leader in North American debt recovery for Chinese manufacturers who export goods all over the world. After 15 years of international recovery experience successfully handling cases for the groups that oversee credit insurance on exports, Brown & Joseph can offer significant resources that help to locate shipments, resolve disputes and gain immediate settlements, overcome language and cultural barriers, and recover money owed.

Our U.S. based firm has worked with many leading global trade credit insurers to reduce write-offs, protect their interests by legally securing debt in the local domicile, all while keeping your out of pocket costs minimal by working on a contingency basis. If there is no money recovered that is owed to you, there is no fee. Our contingency based fees for our recovery services (no success-no charge) apply the same to accounts whether the debtor company is foreign or domestic.

The #1 International Debt Recovery Agency in China

Over the past 11 years Brown & Joseph has come to be recognized as the #1 most effective collection firm recovering from U.S. businesses that owe international credit grantors….

Between China and the U.S., much like between any two countries, if you are not able to efficiently bridge [sic] gap between language and cultural barriers you will not succeed.  Brown & Joseph has succeeded. We currently have lawyers in both the U.S. and China and unlike most law firms, we perform all of our services on a results oriented contingency basis. We are only paid when we collect.

Am I the only one who finds it ironic that in the very sentence in which Brown & Joseph brags about being a bridge between language and cultural barriers it makes an obvious linguistic error?

So though should you do if Sinosure, Brown & Joseph, the Leviton Law Firm, Don Leviton, Michael Jones, Elizabeth Dawson — or, more likely some combination of these companies and people — are knocking at your door? There are many strategies you can employ but we are reluctant to reveal them online because we do not want to tip off the “enemy” to how we combat them.

I can though tell you that the first thing you should do is to make sure your intellectual property is in order in China, especially your trademarks. If Sinosure/Brown & Joseph/Leviton Law Firm/Donald Leviton/Michael Jones/Elizabeth Dawson are on your tail it is because a Chinese company is contending you owe it money. That Chinese factory is unhappy about not getting paid and one of the things it can (and often does) do to gain leverage against you is to register your brand name as its own trademark in China. If it does this, it will own “your” brand name as a trademark in China and this will allow it to stop your products from being made in China with your name on them and to stop products with your name on them from leaving China. See 8 Reasons to Register your Trademark in China. This sort of trademark usurping became so common in China it is now technically forbidden. Your factory company cannot register or hold your brand name as its own trademark. However, because pretty much every company in China is now aware of this prohibition, they also know exactly how to get around it. If you owe $345,000 to a factory in Dongguan, it will not register your brand name as its own Chinese trademark; instead, the owner of the Dongguan factory will get his cousin in Shenzhen to register your brand name as his company’s trademark, making it difficult to impossible for you to challenge it.

The best tactic is to register your brand names in China as a trademark NOW. See China: Do Just ONE Thing: Register Your Trademarks. And by now, I mean before Brown & Joseph or Leviton Law Firm demanding you pay Sinosure money you allegedly owe. But if you are too late for that and already in trouble with a Chinese company, if you act really quickly you may be able to preserve your name in China, but you need to be really careful. If your company is alleged to owe a factory company in Dongguan $345,000 and you have a trademark (or even a copyright or a patent) in China, those assets are sitting right there in China for seizure by whomever you owe the money. If a Chinese court enters a judgment against your company whatever China IP you have registered in your company’s name will be sitting right there in China available for seizure as payment of the judgment. What can you do to avoid this problem?

We have seen companies set up multiple companies with one of its companies buying products from China and another company owning its China trademarks. This can provide protection before you have a Sinosure debt collection, but if you are in the midst of such a problem the solutions get considerably more complicated.

The best protections against Sinosure are best enacted before you have a Sinosure problem. There are protections and defenses against Sinosure after it seeks to collect from you, but we cannot reveal those here because we do not want Sinosure and its minions to know what those are.

For more on dealing with Sinosure and China manufacturing disputes, check out China Sinosure: What You NEED to Know.

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 employer auditNow is the time of year when we usually go full one with our employer-employee audits. The below is what we usually recommend to our employer clients for our audits. Due to China’s recent rash of employment law changes, the importance of these audits have increased in importance. Though not an exhaustive list, the below can serve as a good starting point. Going through the below will help you see where you are in terms of employment law compliance and, most importantly, what you should do to avoid future problems. Now is the time to do this because certain requirements must be satisfied by the end of the year.

  1. Employment contracts. Do have a written contract with every single one of your employees, including part-time employees? Are all of your employment contracts current? Are all your open-term employees on open-term contracts? Do all your contracts contain non-compete provisions while it is not necessary to include them?
  2. Employer rules and regulations. Do you actually have a set of employer rules and regulations? More importantly, does this document work for China? Have you given it to all of your employees? Have your employees signed an acknowledgment of receipt proving they actually received it? Is that form in Chinese?
  3. Female employees, especially those who are pregnant or nursing or are maternity leave. Are you providing the labor protections and conditions required by the relevant laws? Are you providing the required maternity leave? Are your employees on maternity leave being paid what they should be paid during the entire period of their leave? Are you extending the contracts of female employees who are in the specially protected class as required by law?
  4. Working time, rest and vacation days. Are your employees using up their vacation days each year? If not, can you still make arrangements so they can take their unused vacation days without incurring payment obligations on your part? Are you making sure your employees who are designated to work under the standard working hours system do not exceed their standard working time? Are you staying on top of your employees’ overtime? Are you current on the alternate working hours system renewal? Are you giving your employees on these systems enough rest and due consideration to their health?
  5. Employee remuneration. Are you meeting the minimum wage requirements? Do you timely pay your employees in full? When you withhold payment from an employee, do you explain the reasons to the employee and document the situation so you will be able to show your action was reasonable and lawful?
  6. Social insurance contributions. Are you making all mandatory social insurance contributions? How do you treat your part-time employees? Are you treating your expats according to the local law?
  7. Expats. Are you current on all paperwork for your expats? Are you providing the employee benefits as mandated by law?
  8. Last but not least, employee terminations. Are you handling all of your employee terminations according to the law? Do you document your employee terminations including so-called voluntary resignations in writing? Do you timely transfer your terminated employees’ files and social insurance accounts? Do you perform all your obligations upon employee departure, such as providing a Proof of Termination of Employment Relationship document?

Get started on this, NOW. Do not wait.

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.”