As China lawyers, we are all too frequently contacted by our clients who need help dealing with IP infringement in China.  As a first step, we analyze the situation and propose a course of action.  The following is an amalgamation of memoranda, done so as to convey both what goes on out there and how to deal with it.  Most importantly, however, it is intended to provide a path towards preventing IP infringement through proactive trademark and copyright registrations.

In reading the memo, please note that Company A is our client and the company to whom the memo is written.

Introduction.

This memo outlines next steps for dealing with the ongoing infringement of Company A’s intellectual property in China.

As you are already aware, Website1 and Website2 currently have multiple listings for unauthorized “Brand Name A” products: Website1 has listings for “The Brand Name A” ______ and “The Brand Name A” ______; Website2 has listings for “The Brand Name A” ______ and “The Brand Name A” _______. I am certain that we could find numerous other instances of infringement on other websites if we looked, but these are two of China’s biggest online marketplaces. For instance, we just ran a search on another leading e-commerce site, ______, and found a listing for “The Brand Name A _______.” This _______ is identified as having been published by “________ Publishing,” which we do not recall being one of your OEM suppliers.

To generalize, you are facing — and will continue to face — two main kinds of infringement: (1) the unauthorized manufacture and sale of products that you already produce (e.g., The Brand Name A _______) and (2) the unauthorized manufacture and sale of products that you do not already produce (e.g., The Brand Name A _________ and The Brand Name A _________).

Generally speaking, the most efficient way to enforce IP rights in China is with a registered trademark. China has no common-law trademark rights, which means that unlike in the United States, Company A does not have rights to the “Brand Name A” trademark with respect to every conceivable product in China. Indeed, the only way for Company A to obtain trademark rights in China on a particular product is for Company A to register a trademark covering such product. Right now, your trademarks in China only cover certain products in Class ____ (specifically, _________) and in Class ____ (specifically, __________________, sold as a unit). Nearly every other product — whether one you actually make (like ________ or _________) or one you do not make (like _________ or ____________) — is not covered by your existing trademarks.

Our recommendations follow:

I.  File IP Complaints with Website1 and Website2.

The fastest and easiest way to have infringing links removed from a Chinese e-commerce site is to submit a request to that site. Website1 is part of the ________ group of companies, and so you should be able to use your existing _______ account to file an IPR complaint. With respect to Website2, considering the past difficulties in communication that we have had with the company that runs that site, we recommend that we contact the supervisor at Website2 (with whom we have dealt in the past) who handles IP complaints, and submit a complaint directly to him, rather than having you submit such a complaint through their online form.

The above method should work fine with The Brand Name A ________ product, assuming the postings are not for the resale of legitimately purchased goods. However, it is possible that the above method will not work (and in fact it should not work) with the ___________product on Website1 or the ___________product on Website2, because your China trademarks do not extend to such products. We should nonetheless proceed as if the trademarks do extend to such products. We note that this method worked with Website2 before, largely because Website2 has shown itself to be relatively unsophisticated in terms of its understanding of trademark law.

II. Register Additional Trademarks with the Chinese Trademark Office

Even if Websites 1 and 2 both agree to take down all of the objectionable links, relying on Company A’s two existing China trademarks is not a viable long-term solution. We strongly suggest that you file additional trademarks to cover (1) all of the goods that you already sell, (2) any goods that you might sell in the future, and (3) any goods that you want to prevent anyone else from selling as a “Brand Name A” product.

This last category is the trickiest, for two reasons. First, how do you decide which goods to protect? You probably do not need to worry about “Brand Name A” carburetors or pianos. On the other hand, you probably should worry about “Brand Name A” candles and picture frames. (Some large companies with nearly unlimited budgets, like _________, simply file trademarks to cover virtually all possible goods.) Second, China has a use requirement for all registered trademarks: if you do not use a registered trademark in commerce at least once every three years, it will be at risk of cancellation. That said, China does not have an affirmative requirement to prove use; a trademark is presumptively valid unless a third party challenges it for non-use. This means that if you file a trademark solely to prevent a third party from using that trademark, it will be valid until a third party challenges it, but will be valid for at least three years.

We propose that we work together to come up with a list of classes and goods that will achieve the broadest trademark protection for Company A’s intellectual property. We suggest that you file any such additional trademarks for (1) the phrase “_____________” (2) “The Brand Name A” logo, and (3) any other logos or phrases that you would like protected.

It generally takes around 16 months to register a trademark in China, and you have no rights in a trademark until registration, so we advise moving quickly.

III. Register Copyrights with the China Copyright Protection Center

China’s copyright law is formally quite similar to that of the United States: a valid Chinese copyright exists at the moment a creative work is put into tangible form in any other country that is a signatory to the Berne Convention. However, as a practical matter Chinese agencies and courts do not take action on an unregistered copyright.

Registering your copyrights will allow you to take action against counterfeit Brand Name A products, whether or not the postings (or products) are identified as such. Armed with such copyright registrations, you could take action against (for instance) a bootleg _______ with another title on the cover, a _______ that is simply called a “_________” _______, and a ______ that contains the exact same content but with a different title.

We strongly suggest that you register copyrights for all copyrighted material created or controlled by Company A: your _______s, ________s, and _________s, and also any _________ that have a tangible form, whether as ________s, ________s, or otherwise.

It generally takes around three months to register a copyright in China. You have no enforceable rights in a copyright until registration, so we would advise moving quickly on this as well.

IV. Register Trademarks and Copyrights with China Customs

Registering your trademarks and copyrights in China establishes your rights in such intellectual property. Enforcing your rights requires additional steps. As noted above, to remove infringing postings it is virtually always necessary to contact the e-commerce site. And to stop infringing products from being exported from China requires, at minimum, that you separately register your trademarks and copyrights with China Customs.

Note, however, that China Customs only inspects large shipments. They will not inspect small shipments for infringement, primarily because they cannot determine whether such shipments represent counterfeit goods or legitimately resold goods.

Registration with China Customs is only possible after issuance of formal trademark and copyright certificates.  For this reason as well, we advise moving quickly with trademark and copyright applications.

V. Attempt to Identify Infringing Parties

Though fighting IP infringement in China can be like playing a game of whack-a-mole, sometimes it is possible to discover the identity of infringing parties. In many cases the infringing manufacturer has a connection to a manufacturer you are using to produce your goods. Sometimes they are one and the same. Needless to say, knowing the identity of the infringing party informs the potential actions that we can or will want to take.

We would be happy to discuss the possibilities for investigating the identity of infringing parties. At the very least, we should collate and analyze the information available online. To the extent such infringement becomes systematic and/or endemic, we should discuss further steps such as hiring third-party investigators in China.

VI. File a Complaint with AIC and/or File a Lawsuit

Once we have solidified Company A’s IP portfolio by registering the appropriate trademarks and copyrights and identifying serial infringing parties, we can consider taking formal action beyond requesting e-commerce sites to remove infringing postings. There are two main options for formal action:

(1) File a complaint with the Administration of Industry and Commerce (AIC), the national-level agency that handles IP disputes and enforces IP rights.

(2) File a lawsuit with a Chinese court that has jurisdiction over the defendant.

These approaches both have good and bad points. Filing a complaint with the AIC is usually cheaper and more likely to result in a quick injunction and/or a seizure of the infringing goods. However, the AIC does not have the power to award monetary damages for infringement or to require indemnification; for that, you would need to file a lawsuit.

Note that for both of the above approaches for dealing with China IP infringement, the identity and location of the infringing party makes a big difference. If the infringing party is a large state-owned enterprise, or is the major employer in a smaller city, the chances of either the AIC or the local courts taking meaningful action go down

We are not at this stage yet, so it would be premature to outline a formal strategy for pursuing infringers. But generally speaking, we would work with our partner law firms in China to formulate the best strategy for you.

Conclusion

“The Brand Name A” has become a famous brand in America and beyond, and because of that you will inevitably be facing increasing intellectual property infringement in China. To fight against this we recommend that we move forward with (1) filing IP complaints with Websites 1 and 2; (2) registering additional trademarks in China; (3) registering copyrights in China; and (4) registering your existing trademarks with China Customs.

One of the most frustrating things about doing business in China is the paper work.

The seemingly endless paper work….

I was cc’ed on an email the other day from one of our China lawyers to one of our clients.  The client had signed the documents required for a WFOE using the wrong ink.  The ink the client used looked like the required ink, but it wasn’t.  We told the client that the local Administration for Industry and Commerce (the “AIC” is where the WFOE filings go) would likely reject the application due to the wrong ink, but the client chose to go ahead anyway so as to potentially avoid having to go through the signing process again.  This email (with all identifiers, including city) hidden, is to let our client know that the AIC did in fact refuse their application and setting out all that our client now needs to do to ensure acceptance the next time around.

To form a WFOE in China, you typically need around 25 documents, 33 originals, 594 signatures (18 times the 33 originals) and 297 seals (9 times the 33 originals).  Fun stuff, let me tell you.   I was quoted the other day in a New York Newsday article on China, in which a China consultant talked about how forming a China WFOE takes 6-12 months.  The Wall Street Journal’s China Real Time Report, in a piece entitled, American Firms Find China Hard Work, noted the following from the recently released AmCham survey:

Investment approvals are particularly vexatious, with complaints ranging from apparently arbitrary decisions to excessive paperwork. The proportion of U.S. firms who think foreign and local companies compete on a level playing field with regard to approvals has fallen to 14% from 29% in 2011, according to the chamber’s survey.

The below email should give you a bit of flavor as to why forming a company in China can be so “vexatious.”
In line with our expectations, the _______ AIC  rejected your WFOE application documents for having been signed with the wrong type of pen. Accordingly, please have the attached documents re-executed.

The instructions for signing follow:

1.    AOA-Chinese: We need 5 Originals, all signed by ____________ and bearing the seal of ___________.

2.    AOA-English: For reference only. No need to sign or return to me.

3.    Application form-Chinese: We need 2 Originals, both signed by both _________ and _________ and bearing the seal of ___________.

4.    Application form-English: For reference only. No need to sign or return to me.

5.    Application Letter for Economic promotion bureau-Chinese: We need 2 Originals, both signed by __________ and bearing the seal of ___________.

6.    Application letter for Economic promotion bureau-English: For reference only. No need to sign or return to me.

7.    Application letter for stamp carving-Chinese: We need 1 Original, signed by ____________.

8.    Application letter for stamp carving-English: For reference only. No need to sign or return to me.

9.    Appointment letter (executive director and supervisor)-Chinese: We need 3 Originals, all signed by __________ and bearing the seal of ____________.

10. Appointment letter (executive director and supervisor)-English: For reference only. No need to sign or return to me.

11. Appointment letter (General manager)-Chinese: We need 3 Originals, signed by all of the board members (i.e., _________, _______________, and ______________).

12. Appointment letter (General manager)-English: For reference only. No need to sign or return to me.

13. Foreign exchange registration application form-Chinese: We need 1 Original, signed by ____________.

14. Foreign exchange registration application form-English: For reference only. No need to sign or return to me.

15. FSR-Chinese: We need 3 Originals, all signed by _____________ and bearing the seal of __________.

16. FSR-English: For reference only. No need to sign or return to me.

17. Letter of authorization by legal person-Chinese: We need 2 Originals, both signed by ___________.

18. Letter of authorization by legal person-English: For reference only. No need to sign or return to me.

19. Letter of authorization for delivery of legal documents-Chinese: We need 3 Originals, all signed by ___________ and __________ and bearing the seal of ____________.

20. Letter of authorization for delivery of legal documents-English: For reference only. No need to sign or return to me.

21. Letter of undertaking to work safety-Chinese: We need 2 Originals, both signed by ___________ and bearing the seal of __________.

22. Letter of undertaking to work safety-English: For reference only. No need to sign or return to me.

23. The list of board members-Chinese: We need 3 Originals, all signed by _________ and bearing the seal of ___________.

24. The list of board members-English: For reference only. No need to sign or return to me.

25. Power of attorney: We need 3 Originals, all signed by _________ and bearing the seal of __________

 

IMPORTANT NOTES REGARDING SIGNATURES: 

(1) The execution documents listed above have yellow “stickies” in the document indicating where to sign, and whose signature is required. When you print out these documents, make sure you do not print out these notes as well.

(2) Make sure to use A4 paper to print the documents and that your printer is set to A4. Note the number of pages and formatting of the documents to ensure that the formatting is consistent. If you have problems printing the documents, we can mail them to you. If you do not use A4 paper and the proper formatting, the documents will be rejected.

(3) All signatures must be made with a fine point rollerball pen using water-based ink, such as a Uniball, or a fountain pen. Do not use a thick ballpoint pen or a pen with oil-based ink. Sign in BLACK INK ONLY. All signatures must match the signature in the respective person’s passport.

(4) On those documents where the company seal (of __________) is requested, the seal should be affixed over the signature.

Once all of the above documents have been signed, please scan and email a copy to me, and send the physical documents directly to our China company formation agent.

Got all that everyone?

Many months ago, a friend of mine at Samsara Biopharma Consulting told me of a matter his company had taken on to try to help a company that appeared to have been scammed by a Chinese chemical seller. I frequently hear of such scams in the chemical industry so I asked my friend if he would write a post for us on this matter once it was concluded. The below is the first part of that post, written by Jennie Shi, Felix Zhang, Wendy Zheng and Robert Walsh of Samsara:

About 2 years ago we were asked by a friend of a friend to source some specialty chemicals for his US-based inks company.  As a courtesy, and because we were in the middle of a similar exercise for another client, we went ahead and added the request to the list of what we were already working on.

After a few weeks we found sources of what the inks company was looking for, and went a few steps further to vet the suppliers and get lowest reference prices.  When we passed these to the inks company, they pointed out that the prices were not that much lower than the suppliers they were currently using, and decided to pass on the offers.

A year passes, and we get a call from this same company, this time asking for help in untangling a mess they’ve waded into with a new set of Chinese suppliers.

It seems that the inks company had responded to an unsolicited offer from a pair of Hebei chemical companies, who’d contacted them through Alibaba.  The prices offered for the same subset of chemicals we’d previously sourced for them were significantly lower, say, by 30% or more.  The inks company requested and received samples from the Hebei companies. Needless to say, these samples were right on spec.

Subsequently, the US inks company places a sizable order with the two Hebei companies, and the terms demanded are payment by 100% irrevocable LC at sight, which the US company agrees to.

A few months later, a number of containers are delivered to the US inks company’s facility, and upon opening are found to contain 44 tons of some mysterious white powder (not what they ordered) and blue plastic barrels of water.  The US company initially contacts the Hebei companies to demand an explanation and repayment, but after a few email exchanges, the Hebei companies stop responding.

At about this time, the US inks company remembers our company, and calls us for help.  We don’t do this sort of thing, but then we are regularly asked to do stuff nobody else has any idea how to do.  We agree to help the US inks company track down the Hebei companies and attempt to get some resolution.

The inks company sent us all related documents, as well as email correspondence dating back to their first contact with the two Hebei companies.  A number of things stood out right away:

  • The seals/chops used by both companies were quite similar, and also in no way conformed to the legal convention for such instruments in China, so it was unlikely that either company was actually  registered.
  • The personalities at the Hebei companies seemed to change frequently, with everybody using weird foreign first names.
  • The companies’ websites were registered to a person who had also registered a number of other chemical company websites.
  • As for the shipping documents, we could see no indication that what was shipped had left China having gone through commodities inspection.  The classes of materials shipped should have gone through this procedure.
  • The inks company’s set of pictures taken after opening up the shipping containers revealed that none of the barrels or bags had been properly marked with product descriptions, which is another curious thing pointing to a lack of outbound customs inspection.

We initially tried contacting both Hebei companies, and at first had some success, but after a few days, all signs were that thei mobile and fax lines had been disconnected.  Elvis had left the building.

Eventually we decided to send people to Hebei to look into things.

We Visit AIC

Our first stop was the local office of the Administration for Industry & Commerce (AIC), to check on the validity and standing of the two companies’ registrations. The report from our AIC visit noted the following:

From Company #1’s registration information, we concluded the following:

  1. Company #1  is a small company established in year 2009.
  2. Company #1’s’s scope of business is limited to trade. They don’t have any manufacturing facilities, contrary to what is shown on their website.
  3. Company #1’s’s registration address is a small apartment in a residential community. The address on their website eliminates the room number and building number so as to make them appear to be a big company.
  4. If you look carefully at the picture of Company #1’s’s entrance on its website, you will see that they added the company name to the picture by Photoshop. “

From Company 2’s registration information, we concluded the following:

  1. Company #2 is a small company established in 2010 not 1994 as stated on its website
  2. Company #2’s scope of business is limited to trade. Company #2 doesn’t have any manufacturing facilities, contrary to what they show on their website.
  3. Company #2’s registration address is a small apartment in a residential community. Their website eliminates the room number and building number so as to look like a big company. fact easily.

So both Company #1 and Company #2 are real companies and their business statuses in Administration for Industry & Commerce’s records are normal. But their behavior is well-planned scammer’s behavior….”

We Visit Company Premises

We noted that the addresses on the websites and in the correspondence for both companies were different from their registered addresses.  We went to all four places to make sure we weren’t missing something.

In the case of Company #1, the address listed on the website turned out to be the staff activities center for a well-known power company, replete with all sorts of sports facilities.  The registered address was in a middle-class apartment complex. The actual apartment had no company sign and it did not appear to be occupied during business hours.

As for Company #2, the address listed on the website was in a decidedly down-market set of apartments Again, no sign on the door, but there was a lattice window through which we saw nothing but a table, some chairs, and a whiteboard.  No activity during normal business hours was noted.

We Visit the Commodities Inspection Bureau

We next visited the Chemical and Mineral Department of the local Commodities Inspection Bureau (CIB) where we were met with a genuinely warm and interested reception by the officers of this bureau.  What we found from this visit was the following:

  • Neither company submitted required samples for CIB inspection.
  • Neither company was even registered with the CIB as an exporter of the materials in question.
  • The CIB officers told us that the companies probably deliberately mislabeled the material to duck proper inspection.
  • The officers flatly rejected the idea that any Chinese company could manufacture or sell such material at the quoted price since the only qualified manufacturer of the material in China of which the officers were aware sold the same product at more than 30 percent more.

We Visit the Bank of China, Hebei Branch

The bank would not give us any information regarding either companys’ accounts without being under the orders of the police or the court to do so.

We Visit the Police

We next met with the Municipal PSB, who while sympathetic, referred us to the individual district-level PSB stations with jurisdiction over the two Chinese companies. With respect to Company #1, we met with an informative and helpful officer who immediately recognized the case for the commercial fraud that it is.  Interestingly enough, he had handled a number of similar cases, some for the very same chemicals involved in this one.  He provided us with a list of materials he’d need to initiate a case against Company #1 and to take action. He said we would need the following:

  • An authorization letter and copy of an ID card or passport of the authorized person
  • Purchase contract. In this case, that would be the Proforma Invoice
  • Documentary evidence proving that Company #1 recieved payment for the goods
  • The Bill of lading
  • The inspection report
  • Documentary evidence proving that the Inspection report is for the production sample of Company #1
  • Pictures of received material

We must translate all of the above documents into Chinese stamp them with the inks company’s company seal on every page. Notarization is not required.

The officer representing the PSB station in Company #2’s district gave us similar guidance.  As luck would have it, he had just cracked a similar case in which an Indian company was defrauded.  In this instance, the Indian CEO and an interpreter came personally to present facts and evidence.

In Part II of this series, Anatomy Of A China Scam. Part II. Conclusion And Advice, Samsara will discuss what ended up happening on this particular case, analyze how the inks company could have better handled this particular case, and give recommendations on how to prevent this sort of thing from happening to you.