Back in April last year, I spoke at an Economist Magazine Business Without Borders event on China.  I mostly spoke about intellectual property protections in China, but my introduction dealt with China’s legal system as a whole.  Video of my introduction (but not the whole talk, near as I can tell) is online and was referred to me today.  I watched it and liked what I saw and I had it transcribed, per the below.

What I liked is how I try to put China and its legal system in their proper perspective, which is sometimes necessary.  It is sometimes necessary because we Westerners too often compare China to from whence we come, rather than to other countries closer to where China is socioeconomically.  This causes China to seem worse than it is, and also tends to exaggerate the difficulties in doing business in China.

Here’s my spoken intro, transcribed:

I’m going to start out not really focusing so much on intellectual property, but talking about China’s legal system generally. I’ve been dealing with emerging market countries for the last 20 years or so, mostly helping American companies navigate emerging markets. And my focus in the last 10 years has mostly been on China. In comparing China to other emerging market countries, my conclusion is that China’s legal system is actually more advanced and less corrupt than just about any other emerging market system.

And I’m not the only person who believes this.

As I was driving in this morning I was listening to BBC interviewing a Russian oligarch who was talking about how great Russia is for business, and he mentioned that Russia is actually better than China for business. And the interviewer called him out on that and said well you’re saying that, but no one else seems to say that. And he quoted a number — which I was going to quote today — which is that Transparency International (which is the most respected and the leading ranking of countries on corruption) ranks China 75 out of 176 countries, so it’s actually in the top half in terms of the least corrupt countries. The World Bank ranks China 91 out of 183 in terms of ease of doing business. And in my firm’s own experience, China is not that bad.

We have registered thousands of things with the Chinese government — trademarks, copyrights, licensing agreements — and not once have we ever been hit up for extra money. That’s not true in a lot of other emerging market countries where you do get hit up for a fee to expedite things. But you’re not really being hit up with a fee to expedite things; what they’re essentially telling you is if you don’t pay the fee to expedite your trademark application, your company trademark application is going to go into that “dark corner” over there.  And that generally does not happen in China.

Now, just yesterday, the new AmCham China member survey came across my desk. This is a survey of American companies that do business in China, and one of the questions asked of the members who have been involved in intellectual property litigation in China was what their impression was. And 63% of those members said that they were either satisfied or very satisfied. Now to me that’s an amazing number, because here in the United States, the word “satisfied” is usually not a word that’s associated with litigation.

So, I’m not saying China is perfect, it definitely is not and there are major issues there, major issues of corruption, major issues with its legal system, but what I am saying is for the average American company, it’s not that bad at all. And those are the sorts of things I am going to be talking about later.


What do you think?

We here at China Law Blog constantly emphasize the need to secure trademark registrations in China, as evidenced by the China trademark posts below:

But it just occurred to me this morning (upon seeing an email from one of our China attorneys to a client) that we have never written anything about what a company should do with its China trademark once secured.  So here goes, in the form of the fairly standard email we write to our clients once we have received notification from the China trademark office that the trademark application we filed for our client has been accepted and that the trademark has now been registered in China.

I am pleased to report that the following China trademarks have been registered for Class 25 goods (i.e., clothing):

(1)    [Brand name]
(2)    [Brand name] logo

Attached please find a scan of the Certificate of Trademark Registration (along with an English translation) for each of the above-referenced trademarks. Please also note the following:

1.    If ______[client] LLC (i) changes its name or address; (ii) licenses any third party to use either trademark; or (iii) assigns either trademark, it must file an application with China’s Trademark Office to that effect.

2.    Each trademark will be valid for a period of 10 years, starting on the official registration date of June 21, 2013, and ending on June 20, 2023. If you wish to renew the trademarks, you may do so any time within six months before the expiration date.

3.    Each trademark will be presumptively valid throughout its term, but if a trademark is not used in commerce in China at least once every three years with respect to the covered goods, then it is at risk of cancellation for non-use.

We are still waiting to receive the original trademark certificates. Upon receipt, we will send them to you.

As I noted in my previous email, we should discuss some other ways to protect your intellectual property in China. Registering your trademarks is the first and most important step, but there are two additional steps that we recommend to our clients, especially those who manufacture goods at risk of counterfeiting, like branded clothing. First, monitor China for possible infringement of your marks (including but not limited to monitoring third party applications for similar trademarks). Second, register your trademark with Chinese Customs. The latter is an essential step if you believe counterfeit product may be coming from China, because Chinese Customs will not seize any allegedly counterfeit products unless you have a registered trademark in China AND you have separately registered that trademark with Chinese Customs.

As we have written many times over the years, if you are selling goods into China, sourcing goods from China, or even just doing business in China or with China, you probably should be registering a trademark in China for your logos and brand names. China is a first-to-file country and it requires no evidence of prior use, which means that whomever files for “your” trademark first, almost certainly gets it. For more on the need to register your trademarks in China, check out the following:

But for what exactly should you register your trademark n China?

China breaks out its trademark registrations into 45 different classes, not to mention sub-classes.  And unlike many other countries, China is a “single class application” country, which means that you must file (and pay for) a separate trademark application for each class for which you are seeking trademark protection.  Very roughly speaking, what this means is that if you register your “ABC Trademark” in the class for clothing, you will be protected from trademark infringement just from those who use your ABC Trademark on clothing items.  If someone wants to use your ABC trademark on clocks, cars, kitchen appliances, or any other product or service within any of the other 44 classes, they will be free to do so.

So then what can you do?  Well obviously you can register your “ABC Trademark” in all 45 classes, but that is really no solution at all. It is no solution both because doing that would be prohibitively expensive for all but the largest and wealthiest companies.  It is also no solution because if you fail to use your registered trademark for three years, you risk losing it.

So then what should you do when filing for China trademarks?  We suggest that you register your mark in classes of products you may make or sell in the future, or where there is room for consumer confusion.  Let’s take your ABC Trademark on clothing.  It probably does not make sense for you to register that for kitchen appliances but it might make sense for you to register it for beauty products because so many clothing companies also make beauty products.

Unfortunately, there are no general rules here, beyond that you fully familiarize yourself with China’s various trademark classes and that you figure out as early as possible what classes your products/services best fit into now or may fit into in the future and also what registrations by others are most likely to be confused for yours.

UPDATE:  I just received an email from a Hong Kong lawyer friend that raises a very good point.  This lawyer, who has a very substantial China IP practice, thinks every company should think long and hard about registering their trademark in the clothing class:

It was interesting to read the last portion about registering CN TMs.  I’ve been advising people for years that irregardless of what their product category is, they should also register their TM for clothing on the basis that almost any TM in China will eventually appear on someone’s (unauthorized) T-shirt, socks, or something in one way or another.

Furthermore, most companies will at some point or another want to put their trademark on a piece of clothing, whether it be a T-shirt for a promotional item, or for a marketing blitz somewhere, or whatever.  Or, the company will eventually want to expand their brand by moving into clothing…Look at what happened to Ferrari when they started selling clothing in China – or Harley Davidson.
Very good point.

The North Bay Business Journal published an article last week on American wine producers’ and exporters’ burgeoning wine sales to Chinese distributors, entitled, “For wineries, China presents obstacles along with opportunity.” [link no longer exists] The article highlights some of the same issues we addressed in two earlier posts, China: Get Thee to a Winery and China: Get Thee to a Winery, Part II, such as the difficulty of finding paying buyers and having to fight off fakes (read this article on China’s own illegally watered down Two Yuan Chuck). Beyond this though, the article provides very good general business information for those doing business in China, mostly by extensively quoting Jonathan Lemberg, “an expert in doing wine business in China.”

Mr. Lemberg correctly notes how Americans and Chinese tend to view contracts differently:

In the United States, a contract is viewed as binding and it’s expected that you do what the document says. Many vintners find that Chinese counter-parties will take a contract as a starting point for future negotiations as opposed to an obligation.

He then recommends talking for trying to get around this difference:

The point is, if your Chinese counter-party doesn’t understand a particular provision, even if it’s an important, boilerplate provision, they might say, “We never really talked about that.” But if you come to an oral agreement on an issue, they’re much more likely to see a moral and legal obligation to perform on it.

Good idea.

Mr. Lemberg goes on to rightly emphasize the importance of registering your trademark in China:

Trademarks and labels are another potential danger zone, he said. China has a “first to file” type of jurisdiction, where it’s easy for locals to apply for, and be awarded, the trademarks and names of foreign companies, with the exception of extremely recognizable global brands like Nike or Coca-Cola.

“You need to make certain, for instance, that you have a clear contractual arrangement with distributors, making sure it prohibits them from filing under your trademarked name,” Mr. Lemberg said. “The best protection is to go to China and get a trademark application filed in your own name.”

We strongly agree with Mr. Lemberg’s advice to register your trademarks in China. For more on this, check out our previous posts, China Trademarking, Chinese Watermelons, And Rumors Of HIV Tainting and China’s Trademark Laws — Simple And Effective. However, I disagree with his suggesting a contract with a distributor is a suitable substitute for a trademark, as it is not. The cost to draft a contract with a distributor will likely be close to that of filing for an actual trademark, yet its protections will be far less. The contract will protect you only against the distributor; trademark registration will protect you against everyone in China. Get the trademark EVERY time.

Larry Holman of Cline Cellars in Sonoma, which sells between 400 and 500 cases to China annually, is bullish on China’s wine business:

“It’s a limited wine culture there right now,” he said. “But the economy is booming just like everybody says. It’s phenomenal growth, and I wanted to go over for myself and learn more about the market.”

More good business advice: go there and see for yourself.