In both the United States and in China, one need not actually register one’s copyright to have one. This oftentimes leads companies not to bother registering their copyrights.

The problem with not registering your copyright in China is that it is nearly impossible to prevail in a copyright lawsuit unless and until your copyright has been registered. American companies too often think this is no big deal, figuring that if anyone infringes on their copyright, they will simply register it and then sue. However, the problem with this thinking is that securing the actual copyright registration in China typically takes from 12-18 months.

If a Chinese company is violating your copyright and you cannot sue for another year, it becomes very difficult to stop the Chinese company from infringing. You can write a cease and desist letter, of course, but it will not be all that powerful because you will not be able to cite to any registered copyright and the infringing company will figure it has at least another year or so before it really need worry much. This delay is particularly problematic for gaming companies because by the time they can sue for a copyright violation of their game, that game may no longer even exist in its previous incarnation.

Registering copyrights for video games in China is very much like doing so in the United States. Because of this, when we do such registrations, we usually just track what has already been done in the U.S. Registering video games in China consists of the following:

  • Registering the source code using China’s special software registration rules.
  • Registering the artwork as a work of art. The normal strategy for video games is to treat each character as a work of art. If there are special locations, these are also treated as a work of art. All the artwork is then collected into a bundle and is registered in one filing. The exact physical item that is sent to the registration authority depends on the nature of the work. Registration is not expensive and it is better to register too much rather than too little.

I was fortunate enough to have been invited to attend a recent session in Beijing convened by Nancy E. Kremers, the Senior IP Attaché to the US Embassy here.

The purpose of the session was for intellectual property lawyers from US firms, together with representatives of IP-dependent US companies, to brief the Attaché on current IP issues in China. It was also a chance for the attendees to get up to speed on the many US Government initiatives in this area.

One of the biggest concerns voiced at the session was the ongoing problem of “bad faith” in Chinese trademark law. I am not going to get into that too much here because others have already covered it adequately. Suffice it to say that there is a big problem in China with “pirates” or “squatters” who register in China a brand they have simply ripped off from the West. Restrictions against this sort of thing are tougher in most other countries, but in China it is extremely difficult, if not impossible, to get rid of someone who registers first, even if they do it in bad faith. This is what we were referring to in our earlier post on Chinese trademark law, entitled, Do you Feel Lucky? Do You?

One of the challenges faced by the U.S. and by other Western countries that try to plug the “bad faith” loophole or simply push to improve IP protection in China generally, is that many Chinese perceive this is being done for essentially selfish reasons, with little or no benefit for China. The fact that the Chinese are, at least during their current stage of economic development, net importers, or even copiers, of Western IP tends to underlie this perception. This state of affairs provides little incentive for improving protection on the part of the Chinese.

Anyway, the point I tried to make at the Attaché’s session was not about trademarks. What I conveyed was that the argument for improved copyright protection in China might be easier to get across in the context of the film industry. I brought this up because China’s domestic film industry suffers from piracy just as much as, if not more than, Hollywood.  Couple that with the abundance of Chinese producers, cast and crew wanting to work more with foreigners and you have a pretty good argument for lifting the barriers to foreign films as well.

In other words, not only would the local Chinese film industry benefit from better protection against piracy in China, it would also benefit from the general increase in local production that is likely to occur if the market opened up to foreigners.  Sure, strictly speaking that is also a trade issue, but it certainly is an IP-related trade issue nonetheless.

It is not the local Chinese film industry that wants to stop foreign films. Far from it. Barriers to entry such as China’s twenty foreign film quota, and the requirement that foreigners shoot their films in China as Chinese co-productions, are there to stem the invasion of Hollywood’s “corrupting” influences, which the  Chinese government sees as US propaganda or soft power. These barriers really have more to do with the government’s desire to preserve what it deems important than in protecting the local Chinese film industry.

All of this means that the foreign and the Chinese film industry should be able to work together to advance the film industry in China by expanding those who can make the films and by blocking those who seek to copy them.

For more on the legal issues foreign filmmakers confront in China, check out the following:

What do you think?

According to Xinhua, the Beijing Second Intermediate People’s Court just issued a favorable ruling on behalf of Twentieth Century Fox, Walt Disney, Paramount Pictures, Universal City Studios and Columbia Pictures in a copyright infringement action. The court ordered the Beijing Shiji Haihong Commerce and Trade Company to pay damages of 164,000 yuan (20,500 US dollars) to these five Hollywood movie companies for having sold knock-off DVDs of 16 movies, including “The 40 Year-Old Virgin,” “Mr and Mrs Smith” and “The Incredibles.” The court ruled that the film studios hold the copyrights to the 16 movies and such copyrights are protected by Chinese law.

I actually would have been surprised if the court had ruled any other way and I applaud these movie companies for having the tenacity and foresight to pursue such an action. Though it is doubtful that the court award will come close to reimbursing the studios for the time and money they expended on the case, this victory, coupled with future victories, may serve to drive up the price of illegal DVDs and thereby increase sales of the legal ones.

Just as in the United States, one can secure copyright protection in China without having to register the copyright, but certain benefits do accrue from registration. However, with only very limited exceptions, trademarks and patents must be registered in China for there to be any protection on the ground. And even with copyrights, in most cases it makes sense to register your copyright in China, rather than just relying on it being created automatically.

This case just highlights what we are constantly saying here: protection of intellectual property is possible in China, but it does require effort.

China’s recently stepped up effort to root out foreign companies doing business in China without being registered to do so has caused a rash of China consultants to retain the China lawyers in my firm.

From our work in forming China WFOEs for these consultants, we have learned that many China consultants are falling dangerously short in various other legal aspects of their business as well. Indeed, if we were to single out the foreign businesses in China most often guilty of underestimating their legal risks, it would be China consultants. China consultants seem to have been in China so long that they have lost sight of the fact that when push comes to shove (or as we lawyers like to say, when a deep and easy pocket needs to be found) they are the American/European/Australian company that is going to need to answer for what happened. These China hands also fail to recognize how much China has changed in the last decade and that doing business in China today is just not the same as it was five years ago. Not even close. If you are a Western consultant hired by a Western company to assist in China, you must realize that if something goes wrong for your client you will be your client’s first choice for legal redress.

What can go wrong? And what can you as a China Consultant do to prevent or ameliorate it? Overall corporate planning to protect your personal assets is an absolutely necessary first step. Beyond that however, and more specifically to China, you can do a lot to protect your client and thereby protect yourself.

We have seen the biggest problems with sourcing consultants that assist in finding Chinese manufacturers. A typical sourcing project, might go like this:

  1. Western company retains a product sourcing consultant to find the best Chinese widget manufacturer in terms of cost/quality/dependability.
  2. Consultant requests and secures sample widget from manufacturer.
  3. Consultant meets with countless Chinese manufacturers in search of the best one.
  4. Consultant recommends company Z in China to manufacture 100 million widgets.
  5. Consultant is to be paid a percentage of the manufacturing costs.
  6. Company Z starts manufacturing the widgets.

By this point, I am guessing the sourcing consultants reading this are saying, “yes,” while the China attorneys out there are already apoplectic. Let’s deconstruct this hypothetical project and note where the consultant has potentially harmed the client and needlessly taken on huge liabilities for itself.

  • The sourcing consultant agreed to find “the best” widget manufacturer. Is that best in China or best in the world? What if the widget manufacturer charges one hundred dollars a widget for the 100 million widgets, but your client’s competitor finds another widget manufacturer who will do it for ninety dollars. Are you liable for the difference? Even worse, what if your client’s competitor gets the same Chinese widget manufacturer to do 100 million widgets for ten dollars less? Do you really think a US jury is going to believe you were doing your best when your fee was a percentage of the final costs? Are you responsible for the Chinese manufacturer’s late deliveries? For the Chinese manufacturer’s bad product?  Is it clear exactly what your percentage is going to be based and have you set things up so that your client cannot just go around you? The Solution: Use a well-crafted written contract to make clear exactly what you will and will not do. Put in a non-circumvention provision to make sure you get paid.
  • If you take a sample to China and start showing it to potential manufacturers without FIRST putting in place various safeguards, you are courting disaster. The sample could be used for counterfeiting. We had a consultant call one of our China lawyers in a panic after returning from China to learn that one of the manufacturers to which he had shown a sample had already started manufacturing the product for someone else using the consultant client’s trademark which it had gleaned from the Internet. The Solution: Never show a sample or product plan or reveal your trade name(s) without first making the Chinese manufacturer sign a China-centric NNN Agreement (essentially a hopped up NDA that protects against competition, circumvention and disclosure). Chinese manufacturers tend to be quite familiar with NNN agreements and if you give them a simple and reasonable one, in Chinese, they will sign it.
  • You the consultant must do more than simply negotiate the price and delivery dates or you should at least make clear in writing that these are your only tasks. Typically, product sourcing consultants oversee the OEM contract with the manufacturer and by doing so, they face major liability issues if that contract is not up to snuff. You are the “China guy” and your client is counting on you to guide it through China’s business minefields. You are the one who is supposed to know anything and everything about what it takes to do business in China. Equally importantly, with the manufacturing of its product, your client is probably turning over to the manufacturer all sorts of critical intellectual property. Your client probably thinks that its existing patents, trademarks and copyrights will protect it in China, but a court will expect you as the China expert to know better. The Solution: Put in writing with your client that you will not be providing it with legal advice and that it will need to retain its own lawyer to draft the OEM agreement with the Chinese manufacturer. Put in writing that it is your client’s responsibility to protect its intellectual property in China and that to do so, it must register its IP in China, either through a lawyer with whom you connect them or independently).

Just remember that your client sees you as the expert at doing business in China and it is looking to you for help in all areas and if you fall short in any way, you are at risk for a lawsuit.

China consultant, protect thyself.