China lawyers

Though we’ve written about this many times previously, I’m writing about it again today because my law firm’s China lawyers have been seeing a lot more of this lately, especially as against European companies. I am not sure why the increase. Anyone have any clues?

Anyway, we have been getting a number of emails lately from companies asking us if what their Chinese counter-parties are asking them to do is is legitimate or not and, unfortunately, a number of emails from companies telling us what happened to them and asking us to write about it on here. I note that these companies have asked us to name the Chinese companies that scammed them, but we do not do that for the simple reason that many scammers usurp the names of legitimate Chinese companies and the last thing we want to do is stigmatize those innocent companies.

The scam we are seeing is pretty much the oldest (certainly the most utilized) China scam against foreign companies. It works like this. Chinese company emails foreign company expressing interest in buying products or services from foreign company and then quickly negotiates a contract with the foreign company do exactly that. Once the contract has been agreed to, the Chinese company tells the foreign company that it must go to China to meet the Chinese company CEO and/or some government officials for a contract signing ceremony.

The below are some of the emails we have gotten in the last month or so:

We are a small company in _________Spain [we have offices in Spain and our website is in Spanish and some of our blog posts are in Spanish so we get a disproportionate number of emails from Spanish companies) and I was just victimized by a “come to China to sign the contract” scam. I read about these scams on your blog, but only after it happened to me. We are a small education company and we lost nearly $10,000 so would you please tell me whether it is possible for you to recover any of this money for us.

We spent weeks working out the terms of our contract with them and then another couple of weeks planning our visit to Chengdu to meet with them. our time.

I believed they were real because they never asked us for any money before our trip to China. Two of us from my company worked on this project and I have to admit we never suspected anything.

We researched the company thoroughly and they appeared to be a real company with a real website and a real domain name and their emails came from that domain name and our phone calls to them were to the telephone number on their website.

But after we signed the contract with them in Chengdu, we were asked to pay for a dinner to celebrate. We did not feel that we could say no because we had gone all this way and they told us that it was important that we pay because there would be government officials there. They even told us that they would make the first payment early if we did. Our dinner was absurdly expensive and when it came time to check out, the not so nice hotel they put us in was as well.

By the time we got back, their website was gone and I then was certain we had been scammed. They don’t answer my emails anymore.

We looked up the the Chinese company and it never existed. This took us less than five minutes and had this Spanish company done this before beginning its negotiations (as it should have done), it would have known this. I am writing about this scam because the other ones would have been a bit more difficult to spot because they used the names of real Chinese companies, but changed the email addresses slightly and gave different phone numbers. In one case, the city in China which the meeting took place was about 1000 kilometers from the home city of the real Chinese company.

The thing that makes these scams so insidious and so successful is the amounts that are taken. Usually they are between USD$5,000 and $10,000. Here’s the thing about amounts like this. Few people care. By this I mean the police in China don’t really care because they have more important things to do. The police in the foreign country don’t care because they have more important things to do. And the lawyers can’t take these cases because there is so little at stake and the odds of ever getting anything are incredibly slim. Our firm has taken on many multi-million dollar international fraud cases (mostly involving companies that paid millions of dollars for products they never received or invested millions of dollars in projects that were never real) and, generally, it takes at least $10,000 in attorney time (usually at least double this) for basic investigatory work to determine whether there is a real shot of recovering. So the sad bottom line with these scams is that the scammers virtually always get away with them and are free to operate and keep perpetrating them. In other words, these scammers are no doubt still out there and with each scam they hone their craft.

Here are some basic rules to follow when negotiating any sort of deal with a Chinese company, especially one where the Chinese company is claiming it will be paying you money:

  1. Do at least really basic due diligence on your Chinese counter-party before you spend any time or money. Don’t be afraid to ask them for a copy of their business license and then have someone who knows what they are doing look at it. I am just guessing here, but it seems like most of the time if you ask for this the scamming Chinese company will just move on to an easier mark.
  2. Always book your own travel to China, especially your hotel.
  3. Don’t go to China at all for a signing ceremony. Our law firm has drafted literally thousands of contracts between Western companies and Chinese companies and I don’t think there has been a single time where anyone was asked to go to China to sign the contract and I don’t think there has been a single time where any of our clients have done so. This is true of big Chinese companies (both SOEs and privately held entities) and small Chinese companies.

Most important of all, don’t get too greedy, don’t move too fast, and don’t be anything but super careful. Lastly, don’t be afraid to challenge your Chinese counter-party on what they are telling you. The legitimate Chinese companies rarely resent having to prove themselves; in fact most welcome it.

What are you seeing out there?

China trademark registrations cheap

I love when a reader sends me a link to an old blog post and asks whether “it is still true.” I got one of those today about a post we wrote way back in 2006, entitled, Protecting Your China Intellectual Property: China IP Registrations are the “Bare Minimum.

It was a super-short post that essentially said that if you want to have any hope at all of protecting your IP in China and from China you need to register that IP in China:

Just came across this excellent McKinsey Quarterly article, “Protecting intellectual property in China: Litigation is no substitute for strategy.” [link no longer exists] The article is on China Intellectual Property (IP) protection strategies.

I like how this article stresses that legal tactics (such as registering and enforcing your IP and contracting to secure your trade secrets) are the “bare minimum of what companies involved with China must do to protect their Intellectual Property Rights (IPR).” The article states that companies should also factor IP protection into their strategic and operational decisions and it gives good examples on how to do this. It even has a nice pyramidal graph, grouping by importance what companies should do to protect their IP in China. My firm’s China IP lawyers love the graph and they’ve been sharing it lately with clients!

I often find myself saying essentially the same thing to companies doing business in China or with China. My shortest spiel on protecting your IP from China usually goes something like this:

China is not a terribly good country when it comes to intellectual property protections, but most of those who lose their IP to China do so not because China is so terrible at protecting IP but because they themselves were so terrible at protecting their own IP. If you choose a good Chinese partner, if you have the right (China-centric) contracts in place, and if you register your IP in China, the odds are overwhelming (but definitely not 100%) you will be fine there. Choosing the right partner is key because if you are going to do business with a thief, the other two things will not protect you much. So this is the absolutely bare minimum. Beyond that, I always say that it’s critical that you register your company name/brand name/product name in China (even if you are just manufacturing there) because it will be really bad if a Chinese company rips off your product and starts selling it for half of what you charge (especially if the Chinese company that does that is your China partner) but it will be a lot worse if it can legally sell your product with “your” name on it for half. When that happens, it’s usually lights out for the business. And yet China trademarks are really quite cheap.

And now that so many of our clients are having their products made in Asia outside of China (Vietnam, Thailand, Korea, Cambodia, etc.), I should note that all of the above holds true with equal force pretty much throughout Asia.

Do you agree?

 

China lawyers

Because 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 or phone calls 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 quick general answer and, when it is easy to do so, a link or two to a blog post that provides some additional guidance. We figure we might as well post some of these on here as well. On Fridays, like today.

One of the questions both our China lawyers and our international trade lawyers have constantly been getting of late — from clients, from readers, and from the media — is when will the US-China Trade War end.

Most of us respond by saying that it is too early even to foresee an end because the terms on which it is going to end are not the least bit clear.

What will the United States require for this trade war to end? Will it require simply that China buy more American goods? If that were all it wants it would have ended months ago. Does it want China to open its economy to foreign companies? Does it want China to stop with the IP theft? We believe it is the latter two and for that reason we do not see the trade war ending soon, if ever.

We say this because we do not see China making anything resembling major concessions on either of these two things and we say this in part because China refuses even to concede these are real issues. Two things from this week enforce our position on this.

  • A number of my firm’s China lawyers attended an event earlier this week to welcome the new China Consul-General from San Francisco. Former US Ambassador Gary Locke kicked it off with a five or so minute talk about how there are many issues between China and the United States but there is the possibility of resolving them and he went into how nobody in the room wanted anything but for relations between the United States and China to improve. The Chinese Consul-General followed this up with a 45 minute speech which he read straight from his notes on how pretty much nothing of which the U.S. was accusing China was actually happening. How can there be resolution of problems when there is not even agreement on whether the problems are real or not?
  • The PRC foreign ministry and government media (in Chinese) have lately been encouraging the Chinese people not to be angry with the American people using language like the following: “The Chinese people and the American people are friends. The American people do not think China is doing anything wrong. President Trump and his team are acting against the will of the American people and the basically friendly relations between the people’s of the two countries. China is confident the will of the people will be recognized and the people of the U.S. will force President Trump to back down.” Again, no admission of any wrongdoing but add to that the idea that it is merely President Trump pushing his own agenda and you get the strong sense that China’s plan is to try to wait out the trade war until the United States has a new President.

Bottom line: Right now there has been little to no (really just no) recognition by China that it has done anything to justify the trade war. Until China admits there are real issues we do not see China making real concessions and until China makes real concessions we do not think it even possible to guess as to when the trade war will end. We see President Trump’s “very good phone call” with President Xi as President Trump trying to influence the mid-term elections with “good news.” In the meantime, companies that export Made in China products to the United States are looking for alternatives, and fast. Would the Last Company Manufacturing in China Please Turn Off the Lights.

NOTE: Whenever we write anything that it is less than sunny about US-China relations we get a ton of backlash from people saying either that we have no clue or that we are out to sabotage this or that or that we are saying things just to generate more business. To which I merely note that our blog is called the China Law Blog and well over half of my law firm’s international legal business is China. We have every incentive to say only good things about doing business with China but we also have a greater incentive to do our very best to tell the truth as we see it and that is what we will continue to do.

What are you seeing out there?

China employment lawyers
China employment contracts: the questions we get

With the end of the year fast approaching, our China employment lawyers have been handling an onslaught of China Employer Audits and with those audits comes an onslaught of China employment law questions. The below are some of the most commonly asked questions we get about China employment contracts with short answers to each of them.

Question 1: I have an English version of the employee agreements our parent company uses around the world. Can I put that into Chinese and send it to our China employees to sign?

Not a good idea. When it comes to China employee agreements, localization is key and I have yet to see a single non-Chinese style employment agreement that does not contain at least one thing that is completely unenforceable under Chinese law. You need a China-centric contract because that sends a strong signal to your China employees and to China’s labor authorities and arbitrators/courts that you understand how China’s employment laws work and you have made the effort to comply with those laws. Using China-centric employment contracts will greatly decrease the odds of your having China employment law problems and greatly increase the odds of your prevailing in any China employment law dispute.

Question 2: The labor authorities in my locale provided me with an employment contract template. Is it okay for us to just use that?

Not a good idea. First off, these templates are often outdated and often fail to keep up with national (and even local) law changes. Second, they completely fail to account for your specific situation and goals or for the situation of your employees. Third, they virtually always favor the employees and fail to sufficiently protect the employer.

Question 3: Our China employment contracts are just in Chinese. That’s okay, right? 

Not really. Legally, this makes complete sense in that you really do need to have all of your China employment contracts in Chinese. But if you also are going to want all of your China employment contracts to be in English as well if anyone in your company who might be making what even looks like an employment decision cannot read Chinese. We always draft our Chinese employment contracts in both Chinese and in English because that works best.

Question 4: How easy it is to terminate an already signed China employment contract?

Not easy at all. Since China does not have employment-at-will it is generally difficult to terminate an employee during his or her contract term and, contrary to popular belief, this includes employees on probation. Under Chinese law, a probation period is part of the contract term and so probationary employees are also not at-will employees. Once you bring someone on as your employee in China it is difficult to terminate them. See Terminating a China Employee: Why YOUR Rules and Regulations are Key.

Question 5: Will an open-term employment contract mean that I will not be able to terminate the employee until his or her statutory retirement age? 

Not exactly. Open-term employees have greater protections against termination than employees on fixed-term employment contracts, but they can be terminated. For example, an open-term employee can be unilaterally terminated without severance if the employer can prove that the employee engaged in serious wrongdoing in violation of the employer’s rules and regulations. But it does often make economic sense to try to work out a mutual termination even with your most troublesome employees.

Despite the issues that arise from open-term contracts, they are sometimes all but required for business reasons. We see them most often in situations where our client is intensely competing for a particularly desirable job candidate and offering this candidate an open-term contract is necessary to get him or her to work at their company.

Question 6: Does not this offer letter constitute our employment contract?

It most certainly does not. An offer letter is not an employment contract and no offer letter I have seen even comes close to including all that is necessary for a good China employment contract. We regularly take our clients’ offer letters and incorporate the relevant terms from those letter into employment contracts, but doing so always requires we get additional information from our clients for the employment contract.

Question 7: We have been using this same employment contract template for years and no employees have complained about it. Why then do I need to have you review it?

There are many benefits in our reviewing your employment contracts, especially if they were drafted years ago. The mere fact that no employees have complained about your employment contracts does not mean they do not need to be improved. Most importantly, China’s national and local employment laws and enforcement policies are constantly changing and you want your employment contracts to reflect those changes. See China Employment Law: Local and Not So Simple. Not only that, your own situation may also have changed over the years and you want your employment contracts to reflect that as well. We often review employment contracts that made sense for a company that had 20 employees in one city doing one thing and now make no sense at all for the same company with 200 employees doing ten different things in three different cities. You do not want your company to get ahead of its employment contracts.

Next week I will write about the questions we get about Employer Rules and Regulations.

China lawyer

Our China lawyers had a team meeting yesterday and as is so often the case at such meetings, much of the meeting involved our talking about what we have been seeing lately. We mostly focused on the following trends:

  1. Six months ago, we rarely worked with our firm’s international trade lawyers. Sure, we would occasionally call one of them in to help with a sticky customs issue or a client concerned about getting hit with antidumping or countervailing duties, but these days we find ourselves working with them constantly. Companies that are getting hit or will soon be hit with having to pay 25% tariffs are looking for help in figuring out how to have their Made in China products made elsewhere so that they can legally avoid having to pay the tariffs. See China Tariffs and What to do Now, Part 1 and China Tariffs and What to do Now, Part 2.
  2. Six months ago, about 90% of the international contracts we drafted involved China or the EU. That number is now nearing 60% as our existing and new clients are diversifying outside China.
  3. International litigation is on the rise. We are reading about this we are seeing it. This is happening because of the uncertainty and the disruptions stemming from the tariffs. With disruptions and uncertainty comes disputes.
  4. China is more open to foreign businesses than it has been in years. Forming a WFOE is a bit faster, cheaper and easier than it was just a few years ago, especially if your WFOE will be operating fully legally. Check out The NEW Steps for Forming a China WFOE.
  5. Chinese factories are copying and selling their foreign customers’ products faster than ever before. Almost every week we hear of a Chinese factory that sold its foreign customer’s product before or right after shipping out the foreign customer’s first order. The tariffs are causing Chinese factories to question the viability of a long-term relationship with their foreign buyers and they are simply calculating that they can make more by selling their customers’ products online themselves. In the past, our lawyers did not push back when start-up companies wanted to test their product in the marketplace before spending for a contract to protect against their Chinese manufacturer competing with them. Now though we make very clear that this a very bad idea because by the time market strength has been determined, there may no longer be a product to sell. See China Trademark Theft. It’s Baaaaaack in a Big Way, China and the First to Market Fallacy, and Protecting Your Product From China: The 101.
  6. Following the law makes sense if you are going to be doing business in China. The number of companies coming to us with big China legal problems has gone way down but the number of companies coming to us to proactively present big and small China legal problems has gone way up. This is a good thing because it means foreign companies have come to realize China has gotten both serious and effective at enforcing its laws as against foreigners. See Doing Business in China Without a WFOE: Will the Defendant Please Rise for a good example of where China has really cracked down against foreign companies and see China Employer Audits: The FAQs for a good example of the sort of thing foreign companies are doing in China to avoid future legal problems.

What are you seeing out there?

international lawyersThe title is an exaggeration, of course. But with my law firm’s international lawyers fielding a steady stream of client requests for help with leaving China for Vietnam, Thailand, Malaysia, Cambodia, India, The Philippines, Indonesia, India and Turkey (mostly), it does sometimes feel as though within three years nobody will be making widgets in China anymore.

On top of the client and potential client calls, we have also been getting a steady stream of reporters asking us for permission to talk to our clients leaving or looking to leave China. We tell them that for various reasons, none of our clients are likely to want to discuss their leaving China and then they usually tell us that they “understand.” See How To Terminate Your China Supplier: Very Carefully and How to Leave China AND Survive.

With the extreme reluctance for anyone specific to say that they will be leaving China, whenever we write about companies leaving China (especially when we do so on our China Law Blog Facebook page) we get hit with invective against us claiming we are making this stuff up because we hate China. Well guess what everyone, there is now strong factual support for what we have been saying for the last few months. A huge chunk of American companies are looking to move their manufacturing from China.

Reuters reporter  Sue-Lin Wong did a story yesterday, entitled Many U.S. firms in China eyeing relocation as trade war bites, on how “more than 70 percent of U.S. firms operating in southern China are considering delaying further investment there and moving some or all of their manufacturing to other countries as the trade war bites into profits, a business survey showed on Monday.”

In this business survey of 219 companies by the American Chamber of Commerce in South China, “64 percent said they were considering relocating production lines to outside of China.” And just as our international lawyers are seeing and just as we have been reporting, “the trade war is shifting both supply chains and industrial clusters, mostly towards Southeast Asia” — in other words, Vietnam, Thailand, Malaysia, The Philippines, Cambodia, Indonesia and India. “U.S. companies reported facing increased competition from rivals in Vietnam, Germany and Japan, while Chinese companies said they were facing growing competition from Vietnam, India, the United States and South Korea.”

This has led to a slow-down in orders for manufacturers in China:

Customers are slowing down orders or not placing them at all, Harley Seyedin, president of AmCham South China, told Reuters.

“It could very well be that people are holding back on placing orders until times are more certain or it could very well be that they are shifting to other competitors who are willing to offer cheaper products, even sometimes at a loss, in order to get market share,” he said.

“One of the most difficult things about market share is once you lose it, it is very hard to get back.”

Companies in the wholesale and retail sectors have suffered the most from U.S. tariffs, while agriculture-related businesses have been most hit by Chinese measures, the survey found.

The survey was conducted between Sept. 21 and Oct. 10. I would bet the percentages would be even higher if the survey were conducted today and much higher still after January 1, when U.S. duties are set to rise sharply.

“Around 85 percent of U.S. companies said they have suffered from the combined tariffs, compared with around 70 percent of their Chinese counterparts. Companies from other countries also reported similar impacts as their American counterparts.” This too reinforces what our international trade lawyers have been seeing, which is that our European clients have been nearly equally impacted because so many of them sell their products into the United States.

The problems extend beyond just tariff costs as “nearly half the companies surveyed also said there had been an increase in non-tariff barriers, including increased bureaucratic oversight and slower customs clearance.”  It is not clear whether these customs problems are being felt in China or the United States or both, but from what we hear from our own clients, it’s both.

What are you seeing out there?

 

China trademarkA couple weeks ago, the online Chinese magazine Sixth Tone ran a story titled “China Founds Trademark Office to Protect Domestic Brands.” The gist of the story is that on Oct. 17, 2018, a new trademark office was established in Shanghai for the sole purpose of helping Chinese companies protect their intellectual property overseas:

The Shanghai Trademark Overseas Protection Office will support Chinese companies in international copyright disputes by providing guidance, training, and legal services. It will also create a think tank of experts to share their professional suggestions with businesses.

Though China is rife with bootleg DVDs, shoes with backward Nike swoosh logos, and countless imitations of other foreign products, its own time-honored brands fall victim to copycats too, according to the State Administration for Industry and Commerce.

The piece goes on to note that “on more than 80 occasions since 2004, well-known domestic [Chinese] brands have filed trademark infringement cases against foreign companies.”

Really? China is forming a new trademark office because of 80 instances of infringement in 14 years? Upon reading this story, I checked the calendar to see if it was April Fool’s Day. Not even close. I then checked with some trademark lawyers in China and they were unaware of this story, skeptical that the office actually existed, and unclear what would be achieved even if it did.

It goes on. The story received scant coverage in the Chinese press, and didn’t even rate a mention on the Chinese Trademark Office’s website – which is not surprising, because this purported office seems to have no connection with the Chinese Trademark Office. It appears to be a project solely of some subset of the Shanghai Administration of Industry and Commerce, ostensibly to demonstrate Shanghai’s prominence as a defender of Chinese intellectual property. It’s also a useful bit of propaganda, countering the prevailing narrative of China as a country that lets its companies steal foreign IP with impunity and without consequences. The old “let he who is without sin cast the first stone” strategy!

I have no doubt that some Chinese brands have had to deal with infringement overseas. I also have no doubt that the relative scale and dollar value of such infringement is miniscule as compared to the infringement of foreign brands in China. Moreover, when Chinese brands are ripped off overseas, they can pursue meaningful, robust remedies – at least in large markets like the U.S., Canada, Australia, and the EU.

And who, exactly, is infringing Chinese trademarks overseas? My sense is that few Chinese brands have cachet overseas, except among the overseas Chinese community, which suggests that foreign IP infringement is mostly (if not wholly) driven by Chinese entities. I don’t know if this is actually true, but would love to see a study. If only there was a think tank that could address these issues…

I hope I’m wrong about the Shanghai Trademark Overseas Protection Office and that it’s more than just a propaganda talking point. Because the truth is that Chinese companies do need help protecting their IP overseas, and it makes complete sense to have a China-based resource (like the EU’s uniformly fantastic IPR helpdesks). I can’t tell you how many times we see Chinese companies enter the U.S. market and do just about everything wrong, whether it be corporate formation or employee management or IP protection. And then it takes twice as long and costs five times as much to clean things up instead of just doing it right the first time.

China e-commerce lawyer

 

In the midst of our international lawyers handling a massive influx of foreign companies that manufacture in China looking to get out of China (See How to Leave China and Survive), we are also handling a much smaller (but increasing) influx of companies looking to sell their products online to China. Somewhat paradoxically, we even have some clients simultaneously looking to move their manufacturing out of China while looking to move sales into China.

Many of these companies have attended seminars where someone has told them how easy it is to sell your products online to China. Many have attended Alibaba conferences where Alibaba puts 3-4 foreign companies on stage to have them explain how quickly and easily it was for them to make millions from selling their product on TMall or Taobao or wherever. These companies are almost certainly telling the truth and I know this because I have represented many American and European companies that make millions of dollars a month by selling their products into China. And it is in fact relatively easy to sell your product on one of the leading Chinese e-commerce platforms, particularly if you use one of the many companies that handles all of the logistics for you

The tough part though is actually making the sales and I have personally represented a number of American and European companies whose products barely sell or sell not at all to China. As lawyers, our best advice for determining whether your product will sell well into China and for making sure that it does is to get help from companies and people with actual track records in marketing and selling products to China.

Our job as lawyers when we represent foreign companies that want to sell their consumer products into China is relatively uncomplicated and usually consists of our doing the following:

1. Making sure the product is legal in China and can be legally sold to China by a foreign company without need for any special license or testing or certification. See this Forbes Magazine Article, Do This One Thing Before Doing Business in China.

2. Making sure the contract our client signs with the China e-commerce platform company actually works for and makes sense for our client.

3. Making sure our client’s intellectual property is protected such that a Chinese company cannot immediately start selling the exact same thing with the exact same brand name. In doing this, our China IP lawyers typically start out by explaining how our clients trademarks and patents in other countries will not protect them in China because China is a “first to file” country. By way of an example, this means that (with very few exceptions) whoever files for a particular trademark in a particular category gets it. So if your company’s name is Bill’s Clothing and you sell shirts and you have been doing so for the last five years and some other company (Chinese or foreign) registers the “Bill’s Clothing” trademark in China for shirts, that other company gets the trademark. If you allow some other company to register “your” trademark in China, that other company can stop you from selling your products in China using “your” trademark. This happens all the time and your starting to sell your products online in China is like a bell whistle for trademark trolls. If you want to protect your IP in Mainland China you must register the IP in Mainland China.

But before you just go off and registering a trademark in China you should think long and hard about what you should be registering.  Do you register your English-language name? The answer to this is nearly always yes. Do you create a Chinese name and register that as well? The answer to this is that you usually should. Should your Chinese name be a translation of your English name, a transliteration, or something unrelated? This really just depends, and if oftentimes figuring this out requires both a China trademark lawyer and a China marketer. In Hermès’ China Trademark Case. Do You Know What Trademarks You Really Need? I talked about how my firm’s clients often handle these trademark issues:

In situations where our clients are making product in China for export only and their product has the trademark on it only in English, securing just an English language trademark is usually enough. In situations where a company intends to manufacture its product in China and eventually sell in China, the company must weigh the costs and benefits of securing a Mandarin (or other language) trademark now, or just wait. In situations where the company knows it will be selling its product in China right away, it needs to analyze the options set forth above. In almost all instances where our client’s trademark has actual meaning, they have chosen to trademark both the English and the Mandarin of the word. Rarely do our clients seek a China trademark in a language other than either English or Mandarin. Only around 25% of the time do our clients seek to secure the trademark for a transliterated or phonetic version of their English language trademark. Most of the time, they choose to wait and see how their product does in China and then, if it proves successful, they usually come back and register more on it. Waiting also allows them to see exactly what the Chinese will call their product. The downside to waiting is that someone else may register the name in the meantime.

Companies that are looking to sell their products into China should take a long term approach to their China trademark filings. Sure you are only making shirts now, but what about your plans to eventually expand to pants and jackets and shoes. Should you register your trademark in the trademark classes/categories that encompass all of these ? Do you care if someone makes socks with your name on it? These are just some of the trademark type issues you should consider before you sign your contract with Alibaba to sell your consumer products to China.

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International litigation lawyer

Hardly a day goes by without one of the international lawyers at my firm getting an email from someone who very briefly describes their situation and then asks whether they have a good case or not. 99+ percent of the time the only answer we can give them is that we do not have nearly enough facts to know one way or the other.

There are so many things that go into determining whether someone has a good lawsuit or not, and many of those things go well beyond the facts that make up the elements of the potential claims. In other words, just because you could sue someone and win does not mean you have a “good case.”

I thought of all this today after reading Think of the Long Game, Part 1 — Making Sure You’re In the Right Forum over at the Hague Law Blog. This post notes how often it is that plaintiff’s lawyers bring international lawsuits without first figuring out two very basic things:

But two critical questions often get missed, only to be asked after filing and after hiring somebody like me to deal with the initial due process concerns (or worse, wading into the fray alone).  One focused on the beginning, and the other focused on the end:

1. How do you establish jurisdiction?  (The one we’re discussing here.)

2. How do you get paid? (The one we’ll discuss later.)

I agree.

Just by way of example, the most common question I get relating to someone wanting to know the quality of their lawsuit is something like the following:

I just got 14,000 widgets from my factory and they are so bad as to be unusable. Do I have a good lawsuit?

Now like I said above, my usual response is a quick “I don’t know” because I don’t have nearly enough facts, but I usually do add one or two specific questions to that and for demonstrative purposes, I set forth below just a subsection of some of the things we would need to know to discern the quality of the lawsuit, and why.

  1. How much did you pay for the widgets? Legally, this does not matter in that the quality of the claims are going to be the same whether the answer is $363 or $3,630,000, but let’s get real here. No law firm is going to take on an international litigation matter where only $363 is at stake.
  2. What do you mean by unusable? We have handled international disputes where a client bought millions of dollars of fish that were quarantined upon arrival as a safety hazard and we have also handled international disputes where one letter was misspelled on the widget. Very different cases. Which gets me to my next point, which is super critical.
  3. Do you have a contract? What does it say? If they do not have a written contract that works for the relevant country (more on what the relevant country is in a second), the quality of the lawsuit just went down. Sometimes way down. If they do have a contract and the contract is silent on the key issues, the quality of the lawsuit just went down. If they do have a contract and the contract works against them the quality of the lawsuit just went way down.
  4. What does the contract say about where the lawsuit must be brought? If the contract is silent on this, where can the lawsuit be brought? Many years ago, my law firm was hired by a large group of creditors to try to collect on a large amount of clearly owed debt. The big problem with the lawsuit was that North Korea (yes, that Korea) was the only viable jurisdiction. The clients decided not to pursue the case. Where the lawsuit must be brought is critical not only to winning the case, but also to being able to collect on any judgment should you actually prevail. Will the country in which your defendant has its assets and on which you can collect on your judgment actually enforce whatever judgment you get from some other country? Oftentimes the answer is no. See China Enforces United States Judgment: This Changes Pretty Much Nothing.
  5. What will the lawsuit cost and what are the chances of prevailing and of collecting from the defendant if you do prevail? Some lawsuits are relatively cheap. For instance, if someone says they will give you 100,000 pounds of fruit and all the records show they send you only 7,000 pounds of fruit, you likely have a relatively cheap and easy case. But if you are suing to claim that a 7.8 kilogram widget is worth $1300 less per widget than a 7.9 kilogram widget, you are likely going to need to pay for experts to back this up and you may not prevail. And if you are going to claim that your business’s reputation was damaged by not being able to deliver the widgets to all of your downstream customers, you will need another expert for that. Does your defendant even have the money to pay you if you prevail?
  6. What will the lawsuit do to you outside the lawsuit? It is amazing how seldom people consider this. Every single week without exception one of our China employment lawyers will get an email from someone looking to sue their China employer over one thing or another. Even if you win, is that a good idea? Might you get fired as soon as you soon? Might others in your small industry learn about your lawsuit and never hire you? Many years ago I worked on a matter involving four professional athletes who had complained to their professional league about an unofficial pay cap on foreigners in that league. These were four of the best players in their league but they were soon cut by all four of their respective teams and, as far as I know, never picked up by any professional team anywhere in the world. They had essentially been blackballed. Had they come to me sooner you can be sure I would have discussed this possibility with them. I often have this sort of discussion with clients being chased by Sinosure.

So yeah, all of this (and a lot more) is why experienced international lawyers are so reluctant to comment on the quality of a lawsuit without first knowing a heckuva lot more.

China lawyer Vietnam
We miss the good old days

A China lawyer friend of mine and one of our most loyal readers, pretty much since day one, (January 4, 2006, but who’s counting) emailed me the other day reminiscing about the good old days of China blogging. In his email he linked back to our first post, INTRODUCTION TO OUR BLOG, in which we introduced ourselves to the world with the following (stay with me here because this post does indeed have a point).

Why are we doing this?

What exactly will we be doing?

There are more than 4 million blogs. Many of these are about China, including some very good ones. Some of our favorites include Talk Talk China and Simon World for general China information, The China Stock Blog for Chinese stock market information, China Tech Stories for information regarding China’s technology sector, and Journey Around China for travel information.  [3-6-2012 Update: None of these blogs still exist so we removed the links]

There is even a superb Chinese law blog, The Chinese Law Prof Blog, but it has a distinctly academic bent and we will not.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you about what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy. We want to start a conversation with, for and about the person who wants to know “what is what” in China and the practical aspects of starting and growing a business in or involved with China.

We are not writing for those who want to know more about Section (A)viii of a particular piece of Chinese legislation or the history of that act or the policy reasons behind it. Our site is not focused on the legal scholar or the China lawyer.

We want to initiate a discussion regarding the changing laws in China. We will constantly be challenging the various misconceptions the West has about law in China, including that the law in China does not really matter or that guanxi can supplant it.

We will provide information to those who conduct business with or in China as to how they can use the law as both a shield and as a sword. We will give you our insights to achieve practical solutions, while doing our best to entertain.

We know lawyers are not popular, and though we are ourselves really quite likable, we recognize the need to avoid those things that incite lawyer hatred. In other words, we will strive to avoid legal jargon and namby-pamby language that attempts to camouflage our views or to avoid controversy.

We want this blog to be a place for conversation and even controversy. We expect many of you will disagree with us much of the time and we do not care. We will always strive to avoid boring you or being unwilling to take a stand. We are not going to be afraid of being wrong — in fact, we want you to tell us when and how we are wrong. If you want “lawyer language” or long strings of caveats, you are going to have to pay exorbitant legal fees to get that elsewhere.

Though our focus will be on the interaction of law and business in China, we most certainly will be personalizing this page with our own experiences. We will tell you more than just that the law is this and this is what needs to be done to comply. We will discuss how the laws as written may say one thing, but our experience dictates something else. We will tell you when you need to do more than just follow the law to succeed and we will set out exactly what that something else is. We will estimate the chances for success if one does one thing as opposed to another. You will hear what we have done to succeed for ourselves and for our clients in China and you will hear about where we failed. We will regale you with stories about the Chinese lawyers with whom we work, the foreign and Chinese businesspeople with whom we deal, and even the places we go. There will be times where our lawyer ethical rules will make us unable to name names, but we will always work to tell the full story.

In addition to our discussions regarding what we are seeing on the ground in China, we will post articles and postings from elsewhere, to which we will, when appropriate, add our own comments. We will also post events, like seminars, conferences and trade shows, that we believe will advance our readers’ grasp of China law and business.

It has become a blog cliché to implore readers for their input, but it is so important we must join the crowd on this. We do not purport to know everything about Chinese law. That is impossible.  China is anything but monolithic and the differences in the legal situations between the various regions are no less pronounced than the cultural differences.

The strengths of our China attorneys who will be writing for this blog are in forming companies in China (WFOEs and Joint Ventures and Representative Offices, mostly), in drafting international contracts with Chinese companies (in English and in Chinese), in intellectual property protection, in technology licensing agreements, in media and entertainment, and in litigation. We welcome your comments, suggestions, and ideas on any area of law relating to doing business in China.

In plain language, we ask that you write us early and often. We will review your comments before we post them, but that does NOT mean you should not criticize us or disagree with us. Our review will be to filter out “comment spam” and comments that are without substance and/or are personally abusive. We want to encourage a high level of discussion but we will not ban or delete your comments just because you come after us — at least not the first few times.

So why are we doing this? The short answer to this initial question is that we are doing this to — in our own small way — advance the dialogue regarding Chinese law and business.

And now for the point.

We were so excited back then. So optimistic. Speaking just for myself now, I can say that I saw the opportunities for China business as nearly unlimited. By this point my law firm was already representing many companies outside the United States (I was already contemplating where we would eventually set up our Europe office — even back then Spain was my first choice) and I believed (correctly as it turned out) that our global reach would expand as China’s expanded.

And comment you did. We would sometimes get literally hundreds of comments on one post and there were so many great discussions within them. Blogging has changed since then and though there has yet to be a year when our readership has not grown, few of you are seeing this on our own blog page and commenting on here (and for every other blog) has plummeted.

Far worse though is that the way so many view China has plummeted as well.

Way back when we wrote the above introduction we not only believed the opportunities for China business were unlimited, I (naively as it turned out) believed the opportunities for China and for China-US and China-Western friendship would grow along a steep and nearly straight line. Sad to say I was wrong on this and that has been borne out by the typical conversations I have with clients and potential clients these days, which so often go along one of the following three lines:

1. You want to have your product manufactured in China? Why? Will you be sending them to the United States? If so, have you considered the cost of the tariffs as they exist right now and as they will likely exist in 1-6 months (we see 25% tariffs coming nearly across the board). We can help you figure out where to have your products manufactured and for your sort of product it makes sense to weigh the costs and the benefits of having them made in Vietnam, Malaysia, Thailand, Indonesia, India, or Pakistan or maybe even Eastern Europe. Last month — for the first time ever — we did as many deals and drafted as many contracts with Asian countries outside China as we did for China. And literally not a day goes by without at least one of our international lawyers or (even more likely) one of our international trade lawyers getting a call from an existing client seeking our help in leaving China. See the following for more on these things:

2. You want to go into China? Are you sure? You want to do a China Joint Venture? Are you sure? These are usually very difficult and expensive and you should at least consider other options, such as licensing your technology and/or your brand name to China or using a distributer or a reseller there. See China Licensing Agreements – Look Before You Leap and China Distribution Contracts: The Questions We Ask.

3. Speaking of licensing technology, are you aware that the US government (and some other governments as well) have become extremely wary of Chinese investment and is cracking down on it and has instituted new requirements for it and will be instituting more soon? See this article on that. It will make sense for us to figure out which of these apply to what you are doing before we move forward with much else.

The champagne days regarding China are over and proof of that is whenever we say something that even hints at this either on this blog or on our China Law Blog Facebook Page, we get all sorts of desperate hate mail or hate comments. The expectations we (and so many others) had for China are not going to happen for a long time if ever and we have adjusted accordingly. And contrary to those who have written to chastise us for our glee over this, this does not make us happy at all. In fact we and I find all of this quite sad. Yet this is the New Normal and we are not going to act otherwise to make anyone — especially not our harshest critics — feel better.

Oh, and one more thing. Because we are not stupid, we fully recognize that much of the above has not been a one-way street. In other words, many of the changes discussed above were influenced by other countries, particularly the United States. But, our purview is to help our clients navigate China and to navigate its substitutes, not to opine on the United States or its politics or on international politics in general.

What are you seeing out there?