Had a great discussion with a bunch of our China lawyers the other day regarding how so many of our clients are expanding in Asia beyond China and of how so many of them have an Asia strategy, of which China is just one large part and usually initial part.

We then talked of how this has changed the work we do as their lawyers, especially in IP.

Five years ago, our typical manufacturing client would call us for legal help in starting a factory in China or for outsourcing their product manufacturing to a Chinese factory. With the former, we would help them set up a Chinese entity (either a WFOE or a Joint Venture) and with the later, we would draft an OEM Agreement. In both cases, we would discuss their intellectual property and typically help them file for a trademark or a patent in China, occasionally a copyright. Most of these companies were new to Asia, though some had operations in Europe.

Things are very different these days.

Many of our manufacturing clients have been making product in China for years and they are now calling us to add some other Asian country (usually Vietnam or Indonesia) to their manufacturing mix or because they now want to sell their China-manufactured product in China and/or somewhere else in Asia. These companies either have an Asia strategy or are seeking our help in formulating one. Whereas five years ago, a common question for us was “Shenzhen or Suzhou,” today we equally often hear “Hanoi or Jakarta?” Five years ago, we would get asked what we knew about “exotic” places like Yantai. Today it is exotic places like Da Nang.

Needless to say, it is not just manufacturing companies that need to guard their IP in China. Software companies, gaming companies, food and beverage companies, and consumer goods companies are registering their IP in Asia at what feels like a record pace. Balancing all the talk of a China manufacturing slowdown is the year by year increases in disposable income.

The “China-plus” strategies of our clients means that our IP discussions need to go well beyond China to include pretty much all of Asia. Five years ago, only around twenty percent of our clients needed to consider trademark or patent or copyright registrations in a country other than China. They were new to doing business in China and so they needed IP protection there. We would ask about their IP needs for the US and for Europe, but they had been in both places for so long that they were invariably covered.

Today, about half of our clients need IP protection in an Asian country other than China. Fortunately, most Asian countries (Japan, Korea, Vietnam included) have IP regimes quite similar to China’s. The real key for foreign companies expanding beyond China with their products is to be sure to recognize that whatever IP you registered in China probably provides you with little to no protection outside of China. In other words, in most cases, you must register your IP in whatever Asian country in which you are doing business. Also note that in your IP analysis, you must treat Macau and Taiwan and Hong Kong as countries completely separate from the PRC.

Got it?

Just came across an interesting post with a not so interesting title on the China IPR Blog: IP Developments in Beijing.  The post starts out discussing how “due to the rapid increase in IP cases in the Beijing Number 1 Intermediate Court, particularly IP cases involving patent and trademark validity, the Beijing Intermediate Court will split its Intellectual Property Tribunal in two” with the number one IP Tribunal hearing mostly trademark and unfair competition cases and the number two IP tribunal hearing mostly patent and copyright cases.

The post then notes that the Beijing court (which hears about 10% of all China IP cases) has seen its case load increase from “4,748 cases in 2008 to 11,305 in 2012, an increase of nearly 150%,” with copyright cases representing about half the total.

This is important for foreign companies doing business in China and here’s why.

  1. Rational human beings do not generally spend money on something that is not going to bring them any benefit.
  2. Bringing a lawsuit in China always costs money (China court filing fees tend to be fairly high), oftentimes a relatively large amount of money.
  3. Chinese businesses tend to be made up of rational human beings who understand the value of an RMB.
  4. Chinese businesses must believe that they can get the Beijing IP court to give them redress for alleged IP infringements or they would not pursue the lawsuits.
  5. Chinese businesses must, in increasingly large numbers, believe that they can get the Beijing IP court to give them redress for alleged IP infringements or they would not be increasing the number of IP lawsuits they are pursuing.
  6. Chinese businesses are almost certainly correct in their belief that suing before the Beijing IP court will give them redress.
  7. If Chinese businesses are correct in their belief (and they almost certainly are, see number 6 above), that means that IP enforcement, at least through China’s courts is improving.

Independently of the above, you would have a tough time finding a China lawyer who does not also believe that IP enforcement in China is improving, particularly with respect to trademarks.

IP enforcement/IP protection is improving in China for two main reasons.  First, Chinese companies and foreign companies alike are now realizing that it makes sense for them to register their trademarks, copyrights and patents in China so that they have an opportunity at being able to protect them (in the courts, among other places).  And two, China’s courts are increasingly realizing the importance of protecting IP in China, largely because Chinese companies increasingly want them to grant IP protections.

What this all means for those of you doing business in China is that you too should be jumping on the IP registration bandwagon.  For more on protecting your IP in China, check out the following:

  • How To Protect Your IP From China. Part 2. What we, as China lawyers, look at in trying to protect our clients’ IP from China and what you, the company, should be looking at and doing to protect your own IP.

What are you seeing out there?

Probably 99% of the Non Disclosure Agreements we see that have been used “quickly” by American companies with their potential Chinese counter-parties are defective, usually terminally so.  One of the things that most frequently makes them defective is that they call for disputes to be resolved in the United States. The problem with that is that Chinese courts do not enforce US court judgments and so even if the American company were to prevail in the United States, they typically have no recourse against the Chinese company unless the Chinese company has assets in the United States. Knowing this, the Chinese company feels free to violate the NDA with impunity.

A China NDA should not be simply pulled “off the shelf” because an “off the shelf” U.S. style NDA is just not going to work.  I am not going to tell you that NDAs with China need be super complicated, because they don’t.  But I am going to tell you that they need to be done right and that means not just pulling something off the shelf. In fact, when we do these sorts of agreements with Chinese companies, we nearly always do them as an NNN (Non Disclosure, Non Use/Non Compete, Non Circumvention) Agreement, not just an NDA.  We also ask a fairly long list of questions to our NNN client so as to tailor the NNN to its specific situation and to thereby maximize the likelihood that it will not be breached by the Chinese counter-party and to provide the best chance of recourse if it is.  To a certain extent, these two goals are the same in that providing the best chance of recourse against a Chinese company is what is going to have the most impact on preventing that company from violating the agreement.

We ask the following questions before we begin work on NNN Agreements for our clients (along with follow-up questions based on the answers):

  1. Please provide us with a one or two paragraph description of what you will be doing in China that you want to be covered by the NNN agreement. Note that what what we mean by an NNN agreement is: 1) Non-disclosure, 2) non-use/non-compete and 3) non-circumvention. For China, 2) and 3) are far more important than 1). The danger with Chinese manufacturers is that they will use the idea you provide them for their own production and that they will then attempt to sell that product to your own customers. These actions are what we seek to prevent through the NNN agreement.
  2. Provide the full legal name of your company, including state/province/country of formation.
  3. Provide the address and related contact information that you will want for the agreement.
  4. Provide the name and title of the person from your side who will execute the agreement.
  5. Does your company have a Chinese name? If so, what is it?
  6. Will you use this agreement for a single product or for multiple products?
  7. What is the best way to identify the products for which the agreement will be used? Please provide us with a clear, descriptive name that does not require attaching specifications or other proprietary information. Sometimes, even the name is proprietary. So we want to develop a designation that is clear but that does not reveal more than you want to reveal.
  8. Will you use this agreement with a single potential manufacturer or with multiple manufacturers?
  9. What types of information will you be providing to the Chinese side that would be protected by the NNN agreement. Our clients range from providing a general concept all the way to providing the full production specifications as the preliminary to a hard price quote.
  10. Will you expect the Chinese side to do any design work during the initial discussion period?
  11. Is your product protected by trademark, copyright or patent anywhere in the world? Where? What about China?
  12. After you disclose this product in China, are you interested in preventing the Chinese side from contacting any of your existing customers concerning your product or related products? If so, do you want a general prohibition or do you wish to attach a specific list of persons/companies that the Chinese side should not contact (a “No Contact List”).
  13. We normally require the Chinese manufacturer NOT contact any potential sub-contractors who would work in the production process. Please advise if you believe that this would be a concern in your situation. Note that some Chinese “manufacturers” are not actually manufacturers. They serve only as a “middle man” for the actual manufacturers. If you use that kind of company, they will need to be able to discuss your product with their subcontractors and we will need to allow for this.
  14. Please advise on any specific technology items that you wish to have protected in a heightened manner.
  15. Note that this Agreement will apply only to PRC China manufacturers. It does not cover Taiwan or Hong Kong or Macau companies that may handle manufacturing for you as intermediaries. If you will be dealing with companies from Taiwan or Hong Kong or Macau (or from any country other than the PRC), please let us know so we can make allowances for that.
  16. Note that the NNN agreement applies only to the preliminary negotiation stage for your product. If you move on to production, you will need a formal OEM agreement. If you will engage the Chinese side to do design, you will need a formal design agreement. The NNN agreement is NOT a replacement for these other agreements.

For more on China NNN Agreements, check out the following:

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Interesting article in today’s Daily Telegraph, written by the Telegraph’s Beijing correspondent, Malcolm Moore.  The article is entitled, “Asda in China? That’ll be Mr Liu in Shenzhen: The Chinese love for Western consumer brands is well known,” and it is on UK companies that have had trouble with “trademark squatters” in China.  The article focuses on British companies that have had “their” trademarks registered in China by Chinese individuals or companies.  I am quoted fairly extensively in it.

Before I talk about the article itself, I want to first set out the basic trademark laws/rules for China:

  • China is a first to register country.  What this means is that, generally, the first to register a trademark in a particular class gets it. England (and the United States), by contrast, is a first to use country. This means that, generally, the first to use a trademark gets it.
  • If someone in China registers “your” trademark in bad faith or if someone in China registers “your” trademark and your trademark is a well-known brand, you can go to the Trademark Review and Administrative Board (TRAB) or to a court to get the trademark revoked.
  • It is very difficult and expensive to prevail on a bad faith trademark claim.
  • It is very difficult and expensive to prevail on a well-known brand claim. If you do actually have a well-known brand, nobody else can use that brand in China in any class. What this means is that if you are Starbucks, nobody can legally use the Starbucks name on anything, be it coffee or be it t-shirts.
  • If you do not have a well-known brand and you register your brand as a trademark in the trademark class that includes coffee, everyone is pretty much free to use your brand as their own brand on t-shirts or computers, etc.

The article begins by discussing how a bunch of “High Street names are being registered by Chinese individuals in their droves.”

Stalwarts of the retail industry such as Sainsbury’s and John Lewis have had their names registered in China, potentially posing problems should they ever choose to take their brands to the Asian powerhouse.

The Hangzhou Buluna Garment & Accessories company owns the “Sainsbury’s” name. When contacted the Hangzhou company declined to comment.

Sainsbury’s also kept quiet when asked about third parties registering its trademark, but did say that it began registering its trademarkets in China several years ago to support growth plans.

In the southern city of Shenzhen, a man named Liu Mingxi has the right to produce garments, shoes and belts under the “Asda” label until 2018.

John Lewis and Waitrose are registered to the Li Can International Investment company while Dixons, together with its Chinese name Di Ke Xun, is owned by the Shenzhen Basicom Electronics company, which makes 10m mobile phones a year. Dixons declined to comment, while John Lewis said the business constantly keeps its trademark and brand protection strategies under review.

Neither is fashion retailer TopShop immune. In July 2009, a man named Zhuo Hongxiang, who lives in a village in Fujian province, registered the Topshop trademark for selling stereo equipment, cameras, lenses and glassware. He owns the name until 2019.

TopShop insisted the registration of its trademark for cameras was not an issue and that it owns its name in China for fashion purposes. Arcadia, the group that owns TopShop, works with its local attorneys internationally to ensure it has appropriate protection.

The article then talks about how Hermes and Chivas failed to prove that they were well-known brands when someone else registered their names in China.  Both Hermes and Chivas lost because they were not able to prove that their marks were famous in China when the Chinese companies/individuals secured them.
If you take away nothing else from this post, please take away that it is very difficult to show that your brand is a well-known mark in China and if you can just register your trademark in China, that is going to be by far the safer approach.  About all I can tell you is that I have never once been so confident of a client’s having a well-known brand as to rely on that sufficiently to warrant not registering that brand in China.
The article then quotes me on how it is that these British companies might have gotten themselves into trademark trouble in China:

“Too many companies were told not to bother registering their trademarks because China does not enforce its laws,” said Dan Harris, a lawyer at Harris Bricken, an American firm specialising in China. “Many others were told nothing at all.”

I then am quoted about how difficult it is to get “your” brand back for China once it has been “taken”:

In fact, China strictly enforces trademarks, in favour of whomever has registered them first. And Chinese courts look dimly on Western companies who complain their brand has been registered by another party in “bad faith”.  Mr Harris said: “The cheapest and easiest thing to do [if your brand has been hijacked] is to set up in China under a new brand.

“When you call up the Chinese party, they think they have won the lottery. They ask for a million dollars. We never call up, because if it comes from an American law firm the price is two million”.

The article concludes with a few somewhat humorous examples of Chinese trademark squatting:

Nor are companies the only victims. The Chinese and English names of ITV’s The X Factor and BBC’s Strictly Come Dancing are owned by Chinese individuals, as is the generic name “Savile Row”. In Guangzhou, someone owns the rights to “Justin Bieber” while a Shanghai company owns the rights to “Angry Birds”. A spokesman for the BBC said it was not aware of the Strictly registration.

Bottom Line:  Way back in 2007, in China Trademarks — Do You Feel Lucky? Do You? we made clear our position regarding the need to file your trademark in China at your earliest opportunity:

Our advice to all our clients is to register their trademarks in China before they go there. China is a first to register country and this means that whoever registers the trademark first gets it. Yes, there is an exception for famous trademarks, but unless you are Coca-Cola, it is lunacy to bank on a Chinese court holding your trademark is famous when just going ahead and registering it costs so little. Most firms charge less than $5,000 for this. So even if the Chinese Court rules your trademark is famous, you will almost certainly have spent well over $5,000 in making your case.

Nothing has changed…

Just read a Bloomberg News article, “Proview Using ‘IPad’ Name is Harmful: Apple,” that quotes me on the Apple-Proview dispute, as follows:

“It’s not really trademark law, it’s about whether the trademark was legally transferred or not,” Dan Harris, a Seattle-based lawyer with Harris Bricken who handles cases on intellectual property in China, said before the hearing. “Proview Taiwan agreed to sign over the trademark, but Proview Taiwan didn’t own the trademark.”

I see the case as being about authority. Authority to sell the iPad trademark. Who had the authority to sell the iPad trademark to Apple back when Apple (acting through a third party intermediary) thought it purchased the trademark for iPad in China back in 2009?  Let me explain.

If you bought the Brooklyn Bridge from me, you would not own it. Why not? Because I cannot transfer title in the Brooklyn Bridge to anyone because I do not own it in the first place. This analysis should be the starting point for analyzing the Apple-Proview case. I say this because it appears that Apple bought the iPad China trademark from a company that did not own it. Apple (again, acting through a third party intermediary) bought the iPad China trademark from a Taiwanese company called Proview Electronics Company, Ltd. (“Proview-Taiwan”) at a time when a Shenzhen company called Proview Technology Shenzhen Co, Ltd. (“Proview-Shenzhen”) actually owned it.

So the big legal issue in China is not really a trademark issue, it is an ownership and authority issue. The ownership of the trademark when it was allegedly sold is not really in doubt; it was owned by Proview-Shenzhen. The real question is whether Proview-Shenzhen authorized Proview-Taiwan to sell the iPad trademark to Apple and that is mostly what is being argued in the Chinese courts.

To modify the Brooklyn Bridge analogy, let’s say that you bought a house from Mr. Jones and it turned out that Mr. Jones did not own the house, but rather, his wife, Mrs. Jones, owned the house. If Mr. Jones and Mrs. Jones were in the midst of a divorce and she had told him not to sell the house and had told you that she owned the house and so Mr. Jones could not sell it to you, your claim to own the house through the purchase would probably be pretty weak. But let us suppose that Mr. and Mrs. Jones were happily married and Mrs. Jones was right there during the negotiations for the sale of the house and never said a word about how she was the one who actually owned it. Well your claim to own the house would be a lot stronger.

The Apple-Proview case is dealing with similar factual issues, as can be seen in the Bloomberg article. In other words, it looks like a factual mess.

And that is not the only factual mess. Remember how I keep saying Apple used a third party intermediary to try to buy the China iPad trademark. Well, Proview-Taiwan is suing Apple in the United States about that, claiming that the way Apple sought to buy the iPad name constituted fraud and unfair competition. My initial reaction upon hearing of this lawsuit was to assume it had little validity. I assumed this because it is quite common for big companies (small ones too) to try to buy something through a third party intermediary so as to avoid revealing to the seller how much the desired item may really be worth and I had never heard of a lawsuit being brought over that.  But in reading, “How Apple snookered Proview to get the iPad trademark,” I am not prepared to just laugh off that lawsuit.

So what should your takeaway be from the Apple-Proview case? Nothing more than that you need to be sure that the company with whom you sign a contract is the right company. I know this sounds basic, but this sort of thing happens more than you can imagine in international deals.  I personally have worked on at least two joint venture deals gone bad where the American company had signed an agreement involving the wrong party. In both cases, the American company thought it had a deal to be the distributer of the Joint Venture’s products outside China, but in fact, the agreement actually said that the American company would be the distributer for its Chinese joint venture partners’ products. And since the Chinese partner did make products that the American wanted to distribute….

For more on the Apple-Proview case, check out “Apple v. Proview. China Trademarks And So Much To Learn” and if you want still more, go over to China Hearsay, where Stan Abrams has written nearly a dozen posts on this case. And for you law-geeks out there, click here for a copy of the just-filed Amended Complaint (along with some interesting exhibits) in Proview’s U.S. litigation against Apple.

 

A reporter called me the other day on the Apple-Proview trademark kerfuffle. She kept wanting me to give her a quote on what foreign companies should take away from this dispute and I kept parrying with her, unable to give her just one. I kept finding myself saying “it’s probably more complicated than that.”

Let me back up a bit. As many of you no doubt know, Apple is in a massive trademark fight with a Shenzhen-based company called Proview. Near as I can tell, the facts are as follows:

  • Proview-Shenzhen registered the iPad trade-name before Apple had ever manufactured an iPad.
  • Proview-Taiwan (a Taiwanese company that is not the same company as Proview-Shenzhen) entered into an agreement with Apple (or, more accurately, a company acting on Apple’s behalf) to sell its Asian iPad trademarks to Apple.
  • Apple claims that agreement with Proview-Taiwan included the PRC iPad trademark, but Proview is claiming otherwise.
  • Apple sued Proview (I think Proview-Taiwan, but I am not sure) in Hong Kong and the Hong Kong court ruled that Apple is entitled to use the iPad trademark on the Mainland.

Here is where it gets so complicated and here is how I see it:

  • Proview-Shenzhen still shows up as the owner of the iPad trademark in China.
  • It is not clear if Proview-Shenzhen ever contracted with Apple to give Apple the China iPad trademark or any sort of license to use that trademark.
  • It appears that Proview-Taiwan did enter into some sort of trademark sale or licensing agreement with Apple (again, actually the company acting on Apple’s behalf), but since Proview-Taiwan did not own the PRC trademark for iPad, there are some real issues as to the validity of such a sale or license.
  • Did Proview-Taiwan have any interest in the PRC iPad trademark such that it could transfer or sell that interest to Apple?
  • Did Proview-Shenzhen ever agree to sell or license its iPad trademark to Apple?

What I find really difficult to believe is that Apple and/or Apple’s attorneys would have done a deal to acquire rights to the iPad trademark in China without having done real due diligence on that trademark. Basic due diligence would have revealed that the PRC iPad trademark was registered to Proview-Shenzhen and at that point, Apple would have required Proview-Shenzhen (not Proview-Taiwan) sign on to the contract to assign or license the PRC mark. So the first thing to be learned from this (maybe) is to do your due diligence and make sure that when you are buying something or securing a license to something that you are in fact doing so with the company that is actually authorized to sell or license that item.

This all came to the fore when Proview-Shenzhen started asking trademark officials in various Chinese cities to start pulling iPads from store shelves because those iPads infringe on Proview-Shenzhen’s trademark.  Some cities are pulling iPads from store shelves and this is obviously not good for Apple. [Full Disclosure: I have a disproportionate percentage of my retirement savings wrapped up in Apple stock]. Some cities seem to be refusing to do so, in what appear to be political, not legal, reasons.

Now Proview-Shenzhen is saying that is going to ask China customs to block exports of Apple’s iPads from China because they infringe on Proview-Shenzhen’s trademark. The media (and even Proview-Shenzhen itself) seem to believe this will not happen because it would look so bad for China politically. This is where the real lesson lies. If you are not Apple, I can pretty much assure you that all of your iPads would be off the shelves in China by now and they would also not still be leaving China via export. The real lesson then is on how to prevent this from happening to “your” trademark and that lesson is really quite simple. If you want to avoid your product getting pulled off shelves in China and/or prevented from leaving China, make sure that the trade-names and trademarks you put on your product (or on its packaging) are actually registered (or licensed) to you in China. And just to be clear, “in China,” for purposes of China’s trademark law, does not mean in Hong Kong or in Taiwan or in Macau or in the United States or in Australia or in any other country. If you want China trademark protection, you must register the trademark in China.

For more on China trademark law, check out the following:

Here are some articles for those who want to read more about the Apple-Proview fight:

Just don’t say we didn’t warn you.

UPDATE: Stan Abrams over at China Hearsay has two great (recent) posts on this dispute. The first post, “Apple vs. Proview: The Assignment Agreement!” contains Stan’s analysis of the Trademark Assignment Agreement between Apple (actually it’s stand-in entity) and Proview. Stan does a great job of analysing the Assignment Agreement, which really is by far the key issue involved in the case. I completely agree with all that Stan says about the Agreement and I add one thing to it. If you think you can properly assign a Chinese trademark without using an experienced attorney to draft the contracts and oversee the agreements you are wrong. And if you think that after reading Stan’s post, you are flat out crazy.

The second post, “What Have We Learned About China’s IP System? Answer: nothing,” posits that the issues in this matter involve a commercial dispute, not IP. I generally agree with this. The heart of the issue is how you secure ownership or rights to someone else’s trademark.

Just got back from a family vacation in Puerto Rico. While there, I saw a rental car company called “Target.” This company had the same logo as the Target stores so common on the U.S. mainland. Well of course that got me to thinking. Is this rental car company infringing on Target (the store’s) trade-name and trademark (the logo)?  Or is it the case that even though Puerto Rico is a U.S. territory, its trademark regime is separate from the United States?

My research quickly determined that Puerto Rico’s trademark regime is actually separate from that of the United States. In other words, if you want your name or mark trademarked in both the United States and Puerto Rico, you should register it in both places. Presumably, Target rental car beat Target stores to the name and logo in Puerto Rico and is now able to use both legally there. 

Hong Kong and China are the same way. And Taiwan and Macau too. I am constantly having to explain this to our clients, at least half of whom just assume that a trademark registration in the PRC operates as a trademark registration in Hong Kong and vice-versa. And who can blame them, since Hong Kong is one with the mainland, right? Same with Macau, right? Many have this same view regarding China and Taiwan as well. None of this is true.

If you want your brand or mark registered and thus protected in China, Hong Kong, Macau and Taiwan, you must register them in China, Hong Kong, Macau and Taiwan. If you thought you were protected in more than one of these places simply because you had registered in one, you had better get moving and start registering in one, two, or three more. 

What do you think?

Excellent New York Times article (is it just me or has the NYTimes really picked up its China coverage both in terms of quality and quantity in the last six months or so?), entitled, Picking Brand Names in China Is a Business Itself. The article reaffirms what we are always telling our clients: get help from China branding specialists in choosing your brand name for China.

The article talks of how “China is a place where names are imbued with deep significance” and of how “an off-key name can have serious financial consequences.” And, just as is true in the United States, choosing a “brand name that resonates” “has become a sort of science, with consultants, computer programs and linguistic analyses to ensure that what tickles a Mandarin ear does not grate on a Cantonese one.”

The article goes on to discuss the following good branding of Western companies/products in China:

  • Coca-Cola. Called Kekoukele in China, “which not only sounds like Coke’s English name, but conveys its essence of taste and fun in a way that the original name could not hope to match.”
  • Tide detergent. Called Taizi, “whose Chinese characters literally mean ‘gets rid of dirt.’”
  • Reebok. Called Rui bu, which means “quick steps.”
  • Colgate. Called Gao lu jie, which means “revealing superior cleanliness.”
  • Lay’s snack foods. Called, Le shi, which means “happy things.”

The article goes on to note that some brands use foreign-sounding names in China that have no meaning, but lend “a cachet that a true Chinese name would lack, such as Cadillac (Ka di la ke) and Hilton (Xi er dun), which “employ phonetic translations that mean nothing in Chinese.”

In its funniest part, it also discusses the harm that can result from choosing the wrong name for China:

Peugeot (Biao zhi) sounds enough like the Chinese slang for “prostitute” (biaozi) that in southern China, where the pronunciations are especially close, the brand has inspired dirty jokes. And in China, the popular Mr. Muscle line of cleaners has been renamed Mr. Powerful, (Weimeng Xiansheng). The product’s maker said in an e-mail that it had forgotten why.

But it could be that when it is spoken, the name Mr. Muscle has a second, less appealing meaning: Mr. Chicken Meat.

So what are the two things you must know when choosing a brand name for China? One, enlist specialised help. Two, once you have chosen your Chinese brand name (and spent time and money in doing so), you are going to need to protect it. For that, you must trademark it in China.

What do you think?

The other day I received an email from a college student looking to form a business that would buy product from China and sell it in the United States. The email asked about the steps to take to get such a business going. Here is that email (modified slightly to maintain the anonymity of its sender):

I am an American college student studying International Business and Chinese at ______ University. This past semester while studying abroad at in China a friend of mine, _______ (who met you in Chengdu), turned me on to the China Law Blog.

A few friends and I have decided to start a company soon after graduating next May. The company will produce and sell product X, starting in the U.S. and then moving to China and elsewhere abroad. Right now my friend’s father is developing the prototype product X, which is coming along with great success. In the meantime, we our trying to structure the company and figure out the logistics of the start-up.

I’m seeking your advice because we want to manufacture product X in China but don’t know how to get started. I have often read your articles describing the risks/dangers of manufacturing there, and I want our company to approach the production of our product in a smart, cautious way. Once the prototype is complete, how do we go about finding reliable manufacturers in China for our product? I know about the importance of protecting IP rights and (some of) the differences between contracting in China vs. America, but I want to know: what is the next step after the our prototype is complete and we have buyers? Where should we go from here??

Thanks a lot for your time and consideration! I hope to hear from you soon.

I responded as follows:

Thanks for writing and thanks for the loyal reading.

1.  Form a US company (probably an LLC) and have a good member agreement drawn up among the owners.  Hire a local lawyer for this.

2.  Make sure your IP is protected in your primary selling market (the United States?).  I doubt you will have anything that can be patented, but that should be a consideration.  Patents are very expensive, however.  If you are going to call your product, product X (that sounds good to me), you should trademark that in the United States.

3.  Now find the manufacturer. There are many ways you can go about this. The best and usually the cheapest is to do tons of internet research and then narrow it down to 4-5 and then fly to China and meet with those factories. If you are going to be doing something really different than other people making this product, you should require the factories sign a Non Disclosure (NDA) Agreement (read about these on the blog) before you show them anything.  This should be in Chinese and in English. The alternative is to hire a sourcing company to find the right factory for you and to negotiate on your behalf. If you choose that route, we can give you names of the people we know and trust who do this. These people can also usually help with things like shipping as well.

4.  Then have a really good agreement with the manufacturer and you need to trademark your product name in China and you should be good to go (assuming your product does not call for a China patent). This agreement with the manufacturer is called an OEM Agreement, a Manufacturing Agreement or a Supplier Agreement and this should be in Chinese and in English as well.

I am sure I have left  out a few things, but the above are the basics.

Good luck.

What do you think?

Yesterday, we did a post on the importance of protecting your intellectual property in China. That post, entitled, “Protecting Your Intellectual Property In China, Part I,” was based largely on a recent talk co-blogger Steve Dickinson gave in Qingdao. That post talked of the importance intellectual property/intangible assets holds for companies today, particularly those in creative services. 

in today’s post, Steve focuses on some of the ways to protect your intellectual property in China.

China IP protection can be divided into four categories in terms of the effectiveness of the system of legal protection:

1. Patent and trademark protections work well in China for protection from large scale infringement.

  • For both patent and trademark, small time infringement is difficult to prevent. It is also unclear how well the trademark system works for famous consumer brands.
  • Patent and trademark are effective in preventing large scale infringers of non-consumer products.

2. Contractual measures work in China if properly implemented.

  • Trade secrecy agreements.
  • Licensing agreement.
  • Know how and technology transfer agreements.
  • These are contracts, and therefore must be drafted properly.
  • The contract should be enforceable in China by litigation or arbitration
  • Provide for specific monetary damages rather than injunctive remedies

3. Software copyright. China has a specific regime for software protection by copyright. The system is effective for commercial software. The system has had limited success in protecting retail software.

4. Copyright in creative works.

Copyright protection in China has not worked well for protection of creative works in the retail sector. Virtually all movie, film and music products are available on a wide scale in pirated form. On the other hand, copyright is effective in China for specific violations of copyright in a business to business setting. However, effective protection of copyright requires careful attention to the Chinese registration regulations. It does no good to rely on the general right of copyright for creative works.

Businesses must focus on the realistic risks within China. The risks vary depending on the type of intellectual property. The general situation is as follows:

1. If your IP has value, and if it can be copied with minimum effort, it will be copied. The result is certain. There are no exceptions. You must therefore prepare for this reality in advance. What kinds of assets are subject to this risk?

  • Trademarks, trade names and logos.
  • Exterior product design (design patent and copyright).
  • Books, photos, reports, drawings/plans any other medium that can be photocopied and reproduced.
  • Any material that can be copied in digital form: music, film, CAD drawings.

2. The Chinese seldom put much effort into independent copying of inventions and other technical IP that cannot be copied easily. If intangible assets cannot easily be copied, the Chinese will usually wait to be trained by the foreign business. They will seldom appropriate foreign technology on their own initiative. As a result, the motivation of most Chinese companies that work with foreign businesses is a desire to acquire technology, trade secrets and know-how via training from the owner of the IP. This occurs in virtually any area where Chinese companies work with foreign businesses:

  • Technology licensing projects.
  • Joint venture manufacturing or services.
  • OEM manufacturing
  • Product design and development agreements
  • Employee training
  • Distribution and sales agreements

Most technology, know-how and trade secrets are lost in China to parties who have been trained by the foreign owner of the intangible asset. Usually this loss could have been prevented with proper agreements and business practices.

Many foreign companies make the mistake of seeking perfection in China. When they cannot achieve perfection, they often abandon the IP creation/protection/exploitation process. This is a mistake. No protection in China will be perfect. However, China can provide many second best methods and second best protection is better than no protection at all.

Foreign owners of technology will often discover that their preferred and customary method of technology protection is not available in China:

  • Patent protection is often not available because of the one year rule.
  • Copyright is often not effective for easily copied digital media.

Faced with this, many foreign companies simply give up and operate in China with no protection at all. This virtually always leads to disaster in China. The correct approach is to work to find an alternative form of protection. This can be achieved in many ways:

  • Licensing agreements.
  • Secrecy and non-use agreements.
  • Technical controls, such as encryption.
  • Direct manufacture rather than OEM or joint venture.

Many foreign businesses fall into the trap of thinking that 1) China has no laws and 2) Chinese companies do not file lawsuits. This is a mistake. Chinese companies are very adept at using the Chienese IP system to their own benefit.

This can occur in two ways:

1. If the foreign side fails to register its intellectual property in China, a Chinese entity will register the IP in its own name. In this way, the Chinese company cuts the foreign company out of the foreign company’s own market. This happens regularly with trademarks, patents and commercial copyrights.

2. Many foreign companies mistakenly believe that China does not have a developed IP protection system. They therefore do not adequately investigate to ensure that they are not infringing the rights of others in their operations in China. This is especially of concern when the foreign company hires a Chinese contractor to perform services or engages in cooperative design or manufacturing operations with a Chinese company. The foreign company only learns later that it has infringed on the IP of another. The resulting damages can be quite significant.

Bottom Line: There is IP protection in China and it behooves you to figure out how best to protect your intangible assets.