On The State Of Intellectual Property In China.

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http://www.chinalawblog.com/2011/03/on_the_state_of_intellectual_property_in_china.html

China policy guru Benjamin Shobert has written an excellent article for the Asia Times on IP in China. The article is entitled, “China’s IPR thorn still needles West,” and it says what we have been saying: IP protection in China is getting better, but it is not there yet. 

Shobert quotes from a recently released US-China Business Council report to back up this position:

Perhaps with this question in mind, the US-China Business Council (USCBC) released a report in mid-February on the question of IPR enforcement in China. The report acknowledged that China deserves to be recognized for the advancements it has made in this area: “The IPR legal framework … has become less of an issue over time … because of China’s efforts to build an increasingly comprehensive regulatory framework for IPR … many – but not all – companies report that the overall IPR picture has shown steady improvement, though at a slow pace.”

He also quotes me:

Not only does the USCBC see positive adjustments in this realm, but so do American lawyers who specialize in these matters. Dan Harris, a partner at Harris Moure and blogger at the award winning China Law Blog, agrees: “IP protection in China is very slowly improving and that has been true over the last 18-24 months as well.”

What I really like about the article though is how Shobert distinguishes between the effectiveness of IP enforcement by region and by industry. He notes that IP enforcement remains “highly uneven across cities and provinces” and how IP protection for software, movies, and music, is particularly problematic.

Shobert concludes the article with advice from Mike Bellamy and from me that foreign companies doing business in China must consider non-legal methods of protecting their IP:

For Mike Bellamy, China operations director at PassageMaker, the answer is to compartmentalize key technologies from one another, and utilize a third party for final assembly.

According to Bellamy, “We call this our ‘black box’. Put simply, the black box concept is designed to protect the intellectual property of our clients by having semi-finished or finished products delivered to our facility and then, behind closed doors … do the final branding, final assembly, packaging and inspection.” But even this model has its limitations, which Bellamy is quick to point out: “Once the product is in the market place then it is much harder to control who sees the product. But forcing your competition to reverse engineer and wait for your product launch is much better than having your ideas floating around among suppliers and competitors from day one.”

Harris, no stranger to IP issues in China, echoes this advice: “As a lawyer, we always do what we can to protect our clients on the legal front, but there is always more that can be done to add IP protection to the operations side.”

What are you seeing out there? Is IP protection really getting better in China?

Product Name Makes No Sense? Probably a Trademark Issue

Greg Anderson at the ChinaBizGov blog has a great little trademark find from his area of expertise, China’s auto industry:

China Car Times reports that the new Chevrolet Volt was unveiled at an event in Shanghai today, though it won’t be going on sale until sometime in 2011.

I’m always curious to know how the names of foreign products are Sinicized for sale in the Chinese market. In this case, GM has picked the Chinese name 沃蓝达 (wo lan da), a name apparently intended to sound somewhat like “volt”. (Incidentally that’s the same 沃 used in Wal-Mart in China: 沃尔玛.)

I wondered why they didn’t simply call it “volt” in Chinese. I mean, they do have electricity there, and it’s also measured in volts. So I looked it up.

The word “volt”, meaning a measurement of electricity, is translated as 伏特 (fu te), which sounds exactly like the Chinese translation of Ford Motors, “福特” (fu te).

Excellent example of how product names and trademarks intersect in China. You’d probably be surprised how often that strange brand or product name you see was actually the second, third, or 14th choice of the brand owner. Why settle for the crappy name? All the “good” ones were already taken.

Now consider the complexity of multi-jurisdictional trademark practice, as illustrated in that Volt example. In a perfect world (as envisioned by a trademark lawyer), all product/brand names would be cleared in all jurisdictions, for all languages, prior to any sort of rollout/PR/usage of that name.

Sounds simple, right? Choose a few possible names, farm the searches out to your global trademark counsel, and choose the best one that has been cleared everywhere.

Well, I can think of several reasons why real life doesn’t work that way:

1. Budget — Many firms (not GM, but smaller companies) simply don’t have the budget to obtain global clearances for all product names.1 They have to prioritize markets, and then they clear the name in additional jurisdictions as they move into those markets. If a conflict arises, they use an alternative name. This end result is what GM is doing with the Volt.

2. Preference — Let’s say that the U.S. is by far your number one market, and the name “Volt” can be used there. Even if you find out that the name is not available in China, it might be worth it to go ahead anyway, knowing that an alternative will have to be used in China, and perhaps in other countries. Your preference for “Volt” in the U.S. is so strong that it trumps trademark conflicts in less important markets.

3. Timing — Some industries have very short product development cycles. Getting something on the market fast is key to success, and waiting for several years (potentially) to clean up a trademark conflict is simply impossible. If a conflict arises, a quick decision to either abandon the name, or pay to license/assign the mark, must be taken.

These are only a few reasons. Remember that we are talking about multiple jurisdictions, each with their own local rules. Moreover, each industry has its own quirks related to product lifecycles, advertising restrictions, and name preferences.

The number of factors is quite intimidating, and companies must also make sure that all the right people are “in the loop” when such decisions are being made. This can be quite challenging when it’s a multinational, with individuals responsible for branding stationed worldwide, many of them speaking different languages.

So the next time you see a bizarre brand name, keep in mind that there’s a good chance it’s the fault of some trademark lawyer.
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1.By the way, searches can get really expensive. Not only are they performed based on the product/service in question, or related items, but separate searches should be done for alternative languages. The different permutations can add up quickly.[↩]
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http://www.chinahearsay.com/

USITC Holds Second Unnecessary Hearing on China IP

I am distinctly underwhelmed. Here’s what happened:

The U.S. International Trade Commission (USITC) has launched the second of two investigations into the effect on the U.S. economy and U.S. jobs of intellectual property rights (IPR) infringement in China.

The investigation, China: Effects of Intellectual Property Infringement and Indigenous Innovation Policies on the U.S. Economy, is the second report requested by the Committee on Finance, U.S. Senate, in a letter received on April 20, 2010.

In its letter requesting the investigations, the Committee stated: “Despite widespread evidence of the harm to U.S. industries, authors, and artists resulting from IPR infringement in China, the U.S. Government has not conducted a comprehensive economic analysis of the effect of China’s ineffective IPR protection and enforcement on the U.S. economy and U.S. jobs.” As requested, the USITC will deliver two reports to the Committee. The first investigation, China: Intellectual Property Infringement, Indigenous Innovation Policies, and Frameworks for Measuring the Effects on the U.S. Economy, was instituted on May 5, 2010.

In the second investigation, the USITC, an independent, nonpartisan, factfinding federal agency, will describe the size and scope of reported IPR infringement in China; provide a quantitative analysis of the effects of reported IPR infringement in China on the U.S. economy and U.S. jobs; and discuss actual, potential, and reported effects of China’s indigenous innovation policies on the U.S. economy and U.S. jobs, and quantify these effects to the extent feasible. The second report will build upon the qualitative findings described in the first report. The USITC expects to deliver the second report to the Committee by May 2, 2011.

The USITC will hold a public hearing in connection with the two reports at 9:30 a.m. on June 15, 2010.

China Law 2010. Stepped Up IP Enforcement Is The Sixth Trend.

Damn.

I just knew it.

I knew there would be no way I (or any lawyer on any subject) would be willing to stay confined to just five.

Let me explain.

As 2009 was drawing to its close, I wrote a post for Shanghaiist, entitled, “Dan Harris: China’s top 5 business law trends of 2010″ I talked about visas, company formation, labor law, monopoly enforcement, and taxes. I did not say a word about intellectual property enforcement getting better in China, and mostly that was because such enforcement has been steadily getting better for years.

Way back in 2006, we said that “the more the Chinese courts and officials come to realize IP enforcement is in China’s long term business interests, the greater the enforcement.”

Over the last few months, there has been an increasing drumbeat of comments from Chinese government officials on the need for innovation within China and for the need for protection of innovation. That drumbeat became a shout (I know I am mixing metaphors) last month when President Hu Jintao stressed the value of intellectual property rights for Chinese companies:

Nowadays, the competition in information technology is extremely fierce. I hope you, as a software company, will treasure technological innovation as your life. You need to own intellectual property rights for your products. I hope you will be pioneers in the development of our country’s software industry.

The President’s comment was then posted on the Ministry of Commerce Intellectual Property website, as part of an article, entitled, “President Hu stresses importance of technological innovation in Zhuhai.” (h/t IP Dragon)

On a somewhat related front, I wrote a few weeks ago how my firm had been seeing a huge increase in matters involving American and European companies seeking to license their technology to Chinese companies. The Chinese government is very explicitly telling Chinese companies to step up their technology and to improve their quality and to secure foreign technologies wherever necessary. This has led Chinese companies to technology licensing agreements from Western companies in numbers I have never seen before.

The Chinese government knows that for technology licensing agreements to have premium value to Chinese companies that enter into them, there must be adequate enforcement of intellectual property rights in China. Everything I have seen over the last six months or so tells me that IP enforcement in China is rapidly improving and will continue to do so. You will, no doubt, still be able to buy fake DVDs and software on the street, but I expect enforcement of patent and trademark rights to continue stiffening.

This is the sixth trend and I should have caught it. What are you seeing out there?

http://www.chinalawblog.com/

Google Infringes on Chinese IP. Ohh.. This Could Get Interesting.

Walk down any street in Shanghai right now and you will find knockoff book vendors who have loaded up on the most recent titles.  It is the latest offering for an already saturated market of goods (DVDs, bags, watches, pens, etc), and becoming yet another issue that members of various foreign industry associations and governments was having to take up with the Chinese government.

So, when reading this mornings headline Google Books Settlement: The Chinese Chapter on the WSJ China Journal site, I was intrigued to learn that the Google had foudn themselves in trouble for violating Chinese IP.  Specifically, they were scanning and selling roughly 18,000 books without the prior consent of the original author’s, and get this:

According to the proposal, those accepting the settlement decision should make their claims by June 5, or Google will consider the failure to make a claim as a waiver of future claims. Those who refuse the settlement should file lawsuits before January 5.

An action that has sent China’s Written Works Copyright Society (CWWCS) into a frenzy, and already has lined up a few lawyers looking for a fight.

Initially I had two reactions:  (1) Where does Google get off jsut scanning these books without prior consent? and (2) Awesome.  Google did what no one else to date managed to do… find a way to turn the tables and highlight the fact that China also has IP that can be infringed.

Personally, I doubt that this is an issue that will be allowed to blowup to far given it would force China to account for efforts to address the issue (efforts both Bill Gates and Rupert Murdoch have publicly, in China, call laughable), however I am hoping (sorry Google shareholders) that this goes to the courts.  That, through the coursts, a settlement is reached, and that this will set the precidents for more legal actions in the future.

And that is why I suggest anyone operating in China follow this case.  Just to see what happens.  Will Google back off their policy (honestly, the settlement sounded pretty good to me)?  will this become a “foreigners stealing from China” issue?  Or.. will it create a dialogue among China’s artists to begin pushing for IP protection, and setting the ball in motion?

Either way, I think this case could reach Danon vs. Wahaha levels of drama were the conditions right.

http://www.allroadsleadtochina.com/

Piracy In China. T’Ain’t No Big Thing.

Businesses are secretive. Some more so than others. My firm has a long history of representing companies in the international fishing business. Fishing companies are almost laughably secretive. I say laughably, because they try to keep things secret that the whole world already knows about. Just the other day, a Russian fishing client of ours was in our office revealing the secret of how they had recently switched to using so and so as their new agent in Pusan, Korea. I promised secrecy, but I then pointed out that two people had already called me to ask me why the switch had been made. Another time, a US based company told me that they now had a couple of vessels in the Russian fishery, but that I should be sure not to let anyone know. I went to my office and printed out a couple of articles saying the same thing.

I mention all this because the fear of piracy in China is similar. Everyone is afraid of piracy in China, but really only a small percentage of companies need worry much. Yes it exists, of course, but how much impact does it really have no your business?

With very few exceptions, my firm’s China clients have either not been hit with piracy in China or they are too focused on making money from their own products to worry about it much. I do not mean to minimize the problem in China because it is most certainly there, but it is not nearly as much of an impediment to profits as believed. I am writing about piracy today because Shaun Rein just came out with an excellent Forbes article on the subject and I know from our own discussions that our views on it generally coincide. The article is entitled,”How To Deal With Piracy In China” and its subtitle is “It needn’t be an insurmountable problem for your business.”

Shaun is right.

The article starts out talking about how piracy is an issue of wealth, not morality. I agree. Shaun sees piracy in china declining as china’s consumers get wealthier. I agree.

Shaun then calls on how companies selling their software and DVDs in China need to change their sales and pricing strategies. I sorta agree. I say sorta because my firm represents a number of gaming and educational software companies and rather than selling their products on disks, their methods (which have worked pretty well for the most part) have been to sell the product in digital format online with all sorts of security measures. Can these security measures be hacked? I am sure they can. Are these companies making good money nonetheless? I think they are. I know that sometimes companies are very reluctant to lower their prices in one country (let’s say China) for fear of angering their customers in other countries. That is certainly a valid consideration and one that every company needs to weigh.

Shaun then talks about how the “the piracy situation has gotten markedly better in the past three years” in the luxury goods arena and how by “the end of next year, China will overtake the U.S. as the second-largest market, after Japan, for genuine luxury products.”

Shaun then discusses the results from his company’s comprehensive China consumer survey regarding luxury goods:

The vast majority of them told us they would buy nothing but genuine luxury products if they could afford to. Most said they already buy what real items they can and then match them with fake ones.

A 24-year-old secretary in Shanghai said, “Right now I can’t afford to buy all real Gucci, so I save to buy a real Gucci bag and match it with fake shoes. But I’m not fooling anyone with the fake stuff. My friends can tell. As soon as I have enough money, I’ll buy only real products.”

Consumers value the real thing when it comes to luxury items, unlike with DVDs and software. Fakes don’t bring them the status they aspire to. Therefore luxury goods companies shouldn’t waste time and money suing or raiding vendors of fake goods. They should build flagship stores, penetrate third- and fourth-tier markets and launch marketing campaigns that truly connect with the Chinese to create brand loyalty.

Way back in January, 2006, in a post entitled, “Faked in China — Protection is Possible,” I had this to say about counterfeit consumer goods in China:

Like everywhere else, those in China who can afford the real thing, prefer to buy the real thing. As Chinese wealth increases, and as more and more Chinese companies seek to protect their own brands, counterfeiting will decrease. This is what happened in both Japan and Korea, both of which were at one time, notorious for counterfeiting.

At this point, I do not believe the increased sale of luxury goods in China has anything to do with a decrease in sales of counterfeit “luxury” goods in China. In fact, I would expect sales on both fronts to rise in tandem for quite some time. But, the increase in luxury goods sales does prove out what both Shaun and I have been saying for a long time and that is that though China does have piracy, that has never stopped most good companies from doing just fine.

UPDATE: I just read a comment from someone who says this post is overly simplistic for ignoring the harm counterfeit products, such as medicines and food, cause China’s consumers. Though I would not use the word simplistic, I would wholeheartedly agree with the thrust of the comment. This post completely ignores the impact on consumers; it is written strictly from the perspective of harm to foreign businesses. It was written this way not to in any way minimize the huge problem this comment raises, but simply because I wanted to bite off only this small part of the apple.

http://www.chinalawblog.com/

Ralph Lauren in China – 15 Stores to Open – Significant IP Challenge

As his employer plans to roll out 15 stores in China,

George Hrdina, president of Ralph Lauren’s Asian business, said in an interview in Hong Kong. “We do more Ralph Lauren business on the island of Manhattan, New York than we do in Hong Kong and China.”

What an extraordinary public statement! Generally, execs are loathe to give any indication of sales volume in specific locations. One wonders if the company breaks out numbers by geography in its financial statements? As luxury sales slow in the West, the paradise of China passes through the minds of sales execs who must raise their numbers or, at least, stanch the bleeding.

Luxury brand Gucci plans to open two to four more stores this year in China, after opening its 28th outlet yesterday. Gucci chief executive Patrizio Di Marco is undeterred by uncertainty in the global economy as China is set to lead future luxury consumption.

Counterfeit Lauren has been a favorite of consumers (both Chinese and foreign) in Greater China for 25 years. How, other than by purchase in a Lauren store, can a luxury buyer ensure that what he’s purchased is the real thing? And what, frankly, is the difference between what passes, often, as superb fake and the genuine?

In 1988, a garment maker in Taiwan showed me both and I could not tell the difference. Granted, I was not in the business and did not have the eye or the touch that experience brings. The maker told me that the genuine shirt was priced at $14 ex factory; the fake at $7. Some of the counterfeits brought into the U.S. today are of high quality and priced to sell fast. The problem is bigger than ever before. The potential counterfeit market is now China, not merely Taiwan, Hong Kong, Korea and the foreign tourists who visited those tiny states.

Perhaps there is, other than price, little difference in the well-made counterfeit product. Some name brand contract factories in China — I will not specify what brand or product — produce extra for their own account for sale to the domestic market, even in the department stores. China does not present, if I may suggest, a marketing challenge for Lauren — everyone knows Polo by now — but a management challenge, specifically of its intellectual property. Daunting, in the face of weak IP enforcement and the ubiquity of excellent forgeries. The company must be well aware of this. Their strategy is worth watching as it plays out over the next few years.

http://www.asiabizblog.com/