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China Employers: Perform Your Obligations Upon Employee Termination

China Law Blog - 9 hours 16 min ago

When a China employer and one of its employees end their employment relationship, one of the most important things the employer must do is provide the former employee with a Proof of Termination of Employment Relationship document. This employer obligation is stipulated in the PRC Labor Contract Law (and in many local regulations as well). The Law says that if you as employer fail to perform this obligation, you can be subject to both administrative corrective orders and to damages.

Let’s consider an actual recent case in Beijing (simplified a bit for this post). An employee and employer entered into a contract for a 3-year term and it came to a natural end on May 3, 2014. Employee’s base salary was 16,000 RMB/month. The parties terminated the employment relationship on May 5, 2014. Employee alleged that Employer refused to provide a Proof of Termination of Employment Relationship document. Employee began working for a different employer (Employer B) on May 7, 2014. Due to the Employer’s failure to provide a Proof of Termination document, Employer B issued a termination notice on May 27, 2014 and the parties formally terminated their contract on May 30, 2014. On July 29, 2014 Employee received a job offer from a prospective employer. However, on August 8, 2014 Prospective Employer provided a notice of its decision not to extend employment due to Employee’s failure to provide a Proof of Termination of Employment Relationship document. Employer B paid Employee 22000/month and Prospective Employer offered the same rate.

Employee brought a labor arbitration claim and Employer was ordered to provide a Proof of Termination document. There was some disagreement as to whether Employee contributed to the non-issuance of this document. Employer still refused to provide a Proof of Termination document. Employee sued in court and asked for RMB 113,034.48 in damages or almost 6 months of salary.

Beijing Chaoyang District People’s Court sided with Employee and found the Employer’s failure to provide a Proof of Termination document caused Employee damages but did not agree that the amount of damages should be RMB 113,034.48. Without providing much analysis the Chaoyang court awarded the employee RMB 40,000. Employee appealed and the appellate court (Beijing Third Intermediary People’s Court) affirmed the lower court’s decision. It held that the damages Employee claimed were not actual, definitive, or inevitable losses and after considering the total circumstances of the case and the parties’ fault, the lower court’s decision was appropriate.

Bottom line: Perform your employer obligations at the time of employee termination, including most importantly, issuing your terminated employees a Proof of Termination of Employment document.

 

Categories: Chinese IP

Super Common China Contract Mistakes

China Law Blog - Mon, 01/16/2017 - 08:45

One of our China lawyers got an email the other day from a US company saying the following:

I read one of your blog posts saying that it almost always makes sense to draft a contract with a Chinese company in the Chinese language and to say that Chinese law applies and the dispute will be resolved in a Chinese court. Here is my contract which I will be translating into Chin00606ese. As you can see, it says Chinese law will apply. I also have chosen the Shanghai People’s Court as the Court because I understand that is the best court in China. Can you quickly tell me if you agree with what I have done here.

I was “nominated” to respond to this email and I did so as follows:

Sorry, but there is no way we can give you any legal advice without knowing a lot more about your goals with this contract, your fears with this contract (preferably ranked) and more about you and your Chinese counter-party. What I can tell you from five minutes skimming your contract is that translating a contract into Chinese and saying Chinese law applies does not make the contract appropriate for China. This contract has many provisions that do not make sense for China and will never be enforced and other provisions that are probably harmful to you. Your listing of a specific court in China is probably not a good idea, nor is your provision calling for a cooling off period before you can sue.

Let me break down and briefly explain the concerns I quickly noted in my email because the problems (and even the number of problems) in this contract are incredibly typical of what our China attorneys often see in contracts drafted by people — including lawyers — without substantial real world China contract drafting experience.

  1. Translating a contract into Chinese does not make the contract appropriate for China. It just doesn’t. Just as is true of every language and of every country, there are certain words and phrases that courts just know and if you nail the phrase exactly you will likely have no problem and if you do not come close to nailing the phrase at all you may or may not have a problem. But if you come close to nailing the phrase, but don’t, you are likely to have a major problem because the court will think the contract is specifically intended not to nail the phrase and specifically intended to call for something different than the usual. Then of course there are all the times where people put in provisions that simply will not work under Chinese law.
  2. Listing a specific Chinese court for your dispute is usually a mistake. Chinese courts tend to ignore any attempt by contracting parties to dictate where a matter will be litigated. Chinese courts usually determine jurisdiction based on the nature of the claim, the amount of the claim, the location of the parties, and the location of the witnesses to the dispute. If your choice of Chinese court jurisdiction is wrong (and it probably will be because China has speciality courts and complicated jurisdictional rules) your mistake could raise questions about the validity of Chinese Court jurisdiction or create other confusions.  The reason for crafting a dispute resolution clause is to avoid the expense, time, and  uncertainty of where and how your disputes will be resolved. Trying to get too specific about the Chinese court will likely only delay resolution and increase uncertainty and expense.
  3. Cooling off periods usually do not make sense. Suppose your Chinese manufacturer has started making and selling your product all around the world. Do you really want to be unable to bring a lawsuit to stop that as quickly as possible? Do you really think if this happens it will make sense for your company to have to spend 60 days “amicably” trying to resolve your dispute with this company and then have to spend another few months choosing a mediator and then an additional 4-10 months trying to reach agreement via mediation? Of course not.

What are you seeing out there?

Categories: Chinese IP

China Employment Contracts: Don’t Get Creative

China Law Blog - Sun, 01/15/2017 - 06:48

Employers in China are presumed to have greater bargaining power than their employees and China courts and labor boards therefore China’s labor laws tend to provide China employees with substantial protections and China courts typically favor employees in disputes with their employers, especially foreign employers. If you as a foreign employer want to avoid legal problems, you should strive to hew to the employment laws, especially when it comes to drafting your employment contracts.

China employment contracts are not a time to get creative and a recent court case out of Guangdong confirms this. In this case, an employee and a Guangzhou-based employer entered into an employment contract for a fixed term (more on this later). The parties explicitly agreed on a contract damages provision stating that if either party terminates the contract without good cause before the end of the contract term, the breaching party shall pay the other party 200% of the employee’s salary for the remainder of the term. This provision was intended to be effective both ways: it did not just apply to the employer.

The contract was properly executed and the employer eventually terminated the employee before the end of the term — about four years into employment, with about six years remaining on the term. The employee then sued the employer for double damages for unlawful termination and for the contract damages per the employment contract: 200% of salary for the six years remaining on the term. The employer argued that it was entitled to damages because the employee had deceived them in securing his job by falsely claiming to be a foreign expert.

The appellate court ruled that Chinese law prohibits imposing a penalty on employees unless an exception applies, which it rarely does and it did not in this case. The appellate court also upheld the damages provision as applied to the employer and held the employer liable for the contract damages. The court ruled that the damages provision as applied to the employee was illegal whereas that same provision as applied to the employer did not violate any laws. The employer therefore owed the employee 200% of his salary.

In reaching its decision, the court noted that China’s labor laws allow for penalties against employees in only the following two circumstances:

  • Pursuant to an education reimbursement agreement, an employer can require its employee reimburse the company for the education expenses if the company pays major expenses for an employee’s employment-related education or training, but the employee quits the company upon completion of the training.
  • Pursuant to a non-compete agreement, an employer can require an employee pay a penalty to the company if the employee violates any non-compete terms by, for example, working for a competitor after leaving employment.

Except for the two circumstances above, an employer and an employee may not agree on any provision that requires the employee pay a penalty to the employer.

Bottom line: Chinese laws are strict about when an employer can impose a penalty on an employee and employers typically cannot contract around China employment laws. For these reasons, it rarely makes sense to draft an employment contract with provisions that purport to do otherwise.

Categories: Chinese IP

Negotiating China Contracts: It’s Tough Out There

China Law Blog - Thu, 01/12/2017 - 10:13

Despite all that you may have read about China’s economy being on the downswing and despite all that you may have read about China factories closing, our China lawyers are starting to see distinctly tougher negotiating by China factories. We attribute this to the following:

  1. To greatly simplify, ten years ago China factories made socks and rubber duckies and with thousands of factories capable of making these things competition was incredibly intense. On top of this, price was oftentimes the foreign buyer’s only real concern. Today, China factories are making incredibly complicated products and oftentimes few or sometimes only one China factory has the capability to make the exact product the foreign buyer wants. Sometimes a China factory even holds a patent for some aspect of the product and so that factory is the only factory that can produce the product with that one aspect. Needless to say, being unique or nearly unique increases pricing power.
  2. To again greatly simplify, ten years ago, there were a number of China factories that knew little to nothing about pricing. It would not be an exaggeration to say that our China lawyers oftentimes dealt with China factories that did not even know their costs, leading us to often joke that they would make up for their selling widgets at a dollar under their costs by selling massive quantities of widgets. Most of those factories either wised up or no longer exist.
  3. Read all you like about factories closing in China, but recognize that there are plenty of profitable China factories these days with very good long term relationships with good stable foreign buyers. Those China factories are in no rush to take on your production on bad terms.

So what we are seeing now is a power shift, with Chinese factories more and more often gaining the upper hand. In subtle ways, this is making our job as China lawyers more difficult, while increasing legal fees for our clients. In the old days, our typical scenario would be that we would draft a manufacturing agreement (a/k/a OEM or ODM contract), send it to the Chinese company and get it back signed within 24 hours. Nowadays, it is far more common for us to receive pushback from the Chinese company on terms, including on terms to which the Chinese company previously agreed with our client. Needless to say, one of the more common push-backs is on price, with the Chinese factory oftentimes saying something like, we quoted $5 per widget with the understanding that we would have 90 days to produce after receiving the PO and now you are asking for 45 days (even though the email trail reveals that our client had made clear it was 45 days all along).

We are also seeing increased toughness even in the pre-quoting stage from China companies. About a month ago, I received an email from a foreign buyer telling me that a potential supplier was saying that it would sign an NNN Agreement with the foreign buyer agreeing not to use any secret information provided by the foreign buyer to compete with the foreign buyer, but if the foreign buyer ended up using another supplier to make its widgets, it would not be bound by the NNN Agreement. In other words, it would be free to use the foreign buyer’s top secret information to compete with it. The foreign buyer asked if something like this would work, to which I replied as follows:

No, this will not work. Not at all. This could be terrible for you. Imagine this scenario. Imagine you get quotes from five other good manufacturers ranging from $5 per widget to $7 per widget, but this one Chinese company is quoting you at $12 per widget. Do you pay the obviously inflated $12 per widget price, because if you do not, that Chinese company can (and likely will, otherwise why is it’s price quote so out of line with everyone else’s) will start making your widgets and competing directly with you. So you can see why this is not acceptable. We have actually never heard of a Chinese company making this sort of proposal so you should not face this situation with any other potential suppliers.

But then yesterday, one of our China lawyers got a similar email from a foreign buyer asking us essentially the same question. I discussed all of this with co-blogger Steve Dickinson and his response was “that’s what’s so cool about Chinese companies. They tell you what they are going to do. These two Chinese companies are saying if you don’t choose us we will steal your product. The choice is up to you. It’s up to our clients to listen”

I guess that is true. To which I can only ask whether you our readers agree that doing business in China and with China is only getting tougher.

For more on China manufacturing pricing, check out China Manufacturing Agreements: Binding Contract or Contract Terms.

Categories: Chinese IP

China Trademarks: Register in More Classes, Take Down More Counterfeit Goods

China Law Blog - Wed, 01/11/2017 - 09:28
China trademark takedowns

China’s lack of an affirmative trademark use requirement allows trademark owners to register marks in more classes and covering more products and services than what they actually sell. Starbucks is a prime example of a company that has taken full advantage of this strategy by (for example) registering “STARBUCKS” as a trademark in all 45 classes of goods and services.

The benefits of registering in a whole host of China trademark classes really comes into play when dealing with infringing goods on Alibaba and other e-commerce platforms. Many of our clients have found that infringement starts with their core lineup of products but quickly moves to things they haven’t released and perhaps never will. Any consumer product is fair game for knockoff artists. If they can imagine it, or more precisely if they can imagine someone buying it, it will turn up on Alibaba.

Though Alibaba is responsive when you request a takedown for a product covered by your trademark registration, they often will decline to take action if the product is outside the scope of your registration. So if an enterprising Chinese merchant began selling Game of Thrones brand deodorant on Alibaba, HBO might only succeed with a takedown request if it had already registered a trademark covering deodorant.

Registering your trademark is the only realistic way to gain trademark protection in China, and that protection is limited by the classes and subclasses of goods and services covered by your registration. If you want protection for other products, you need to register in the appropriate classes and subclasses to cover those products.

Registering in all 45 classes is not a realistic strategy for most company. But when devising your IP strategy for China, you should think about not just the products and services you intend to sell in China, but also the ones you don’t want someone else to sell under your name.

Categories: Chinese IP

China and Hollywood Panel: January 19 in Los Angeles

China Law Blog - Tue, 01/10/2017 - 08:12

Our Beijing-based entertainment attorney, Mathew Alderson, will be speaking on a panel at Southwestern Law School in Los Angeles on January 19th. The panel is entitled “China and Hollywood: Distribution and Censorship in a Cross-Pacific Partnership“.

Mathew’s panel is part of the Southwestern Law School’s 14th Annual Media Law Conference, whose theme this year is: Keeping the Beat in a Crazy Year: Blurred Lines and Border Crossings.

Mathew’s panel will focus on how to work within China’s legal system on new productions and on how to deal with the unique challenges China presents when doing productions there. The event will be moderated by Covington’s Nicholas Francescon. The other panelists will be J. Martin Willhite, General Counsel and COO of Legendary Pictures, and Sheri Jeffrey from Hogan Lovells. The Conference is presented by the Biederman Entertainment and Media Law Institute and the Media Law Resource Centre.

If you are interested in China media and entertainment law or media and entertainment law generally (particularly IP law), you should go. The conference runs from 1 pm until 7 pm, with the post-event reception scheduled to last until 8 p.m. Go to this link to register.

We hope to see you there.

Categories: Chinese IP

China Manufacturing Agreements: Binding Contract or Contract Terms

China Law Blog - Mon, 01/09/2017 - 09:13
Do not fall for manufacturing contract illusions

A good China manufacturing agreement must address many issues, including, most importantly, the basic business terms for purchase of the manufactured product. The key business terms are price, quantity and date of delivery. When our China lawyers draft a manufacturing agreement for a China factory, we have to determine at the outset how to address these essential terms in the agreement.

There are two options.

Option One. With respect to the purchase of goods, we make the manufacturing agreement a binding agreement for a specific quantity of product to be delivered within a specific timeframe at a specific price. The foreign buyer is obligated to purchase and the manufacturer is obligated to sell and failure to perform is a breach of contract. This type of agreement is often supported by a letter of credit.

Option Two. The agreement provides the terms and conditions for a purchase of goods contract formed only after a purchase order is submitted by the foreign buyer and only after that purchase order is accepted by the Chinese manufacturer. If the foreign buyer never submits a purchase order to its Chinese manufacturer or if the Chinese manufacturer rejects the purchase order submitted by the foreign buyer, no purchase of goods contract is ever formed. The failure to submit a purchase order is not a breach. In the same way, the rejection of a purchase order is a also not a breach. Since there is no binding contract, this type of agreement is not supported by a letter of credit.

Multinationals that purchase large quantities of product from Chinese manufacturers generally follow Option One. This provides two major benefits. First, the product price is locked for a specific period. The risk of cost changes for materials or exchange rate or anything else is borne by the two parties equally. Second, the delivery date for the product is mostly fixed, allowing the buyer to plan for seasonal variations in demand. The major risk the buyer takes is that its product will not sell and then the buyer will be “stuck” with a substantial quantity of unsold product.

Buyers not willing to take this risk follow Option Two. Option Two is typical for startups and for entities introducing a new product with an uncertain sales market. This arrangement provides the foreign buyer with substantial flexibility. It allows the foreign buyer to test the market for its product and if its product fails, the buyer is not locked into purchase obligations and being stuck with unsold product.

But this flexibility comes at a cost. Many foreign buyers will do not realize that with this sort of agreement, there really is not agreement on business terms. If the Chinese factory decides it does not want to accept the foreign buyers’ terms it can and will simply reject the foreign buyer’s purchase order. If the Chinese factory wants to raise its price, it rejects. If the Chinese factory is unable to meet the required quantity, it rejects. If the Chinese factory is unable to meet the required delivery date, it rejects. Such a rejection is not a contract breach and the buyer has really no choice other than to accept the rejection.

At its simplest level, this situation means it is impossible for the foreign buyer to negotiate best terms with the Chinese factory. Since the foreign buyer has no real leverage, it cannot negotiate effectively on price. The foreign buyer may think it forced its Chinese counterpart to agree to a rock bottom “China price,” but the China manufacturer can easily turn the table by waiting until the foreign buyer has fully committed to the factory and is hard against a time deadline. The Chinese manufacturer then rejects an important purchase order and negotiates a price increase.

Consider what this means for a startup company with a single new product. The company has worked hard on marketing its product for the holiday sales season. After substantial effort, the startup receives enough orders. Those orders require delivery of the new product on a specific date, in specific amounts and at a specific price. The U.S. or EU buyers insist on a binding contract. The startup is obligated to perform.

Only after receipt of these orders does the startup then submit a purchase order to the Chinese manufacturer and then the Chinese manufacturer rejects the purchase order. The Chinese manufacturer may demand a higher price or it may say: “Sorry folks but you waited too long to place your order. We are all booked up and we don’t have the manufacturing capacity to handle your order.”

Consider what this means for the startup. It has fully binding sales obligations to its U.S. or EU retail customers and its failure to deliver on those obligations is a breach of contract that will subject it to a lawsuit in its home country. Its inability to fulfill its contracted for orders is both a financial liability and it also destroys the credibility of the startup as a real player in the retail field. If the startup does not have deep financial backing, it is usually impossible for it to recover from this blow. Usually, this all comes as a complete surprise to the startup, since it was operating under the illusion that it had a binding contract with its Chinese product supplier on all relevant business terms.

Our China attorneys get desperate calls and emails from U.S. and EU retailers who have unknowingly put themselves in this “no business terms” trap, but our phones ring off the hook with these from October to December. And usually all we can tell them is to do it right the next time (all while wondering if they will have a next time).

This business terms issue must be resolved for every manufacturing contract. It extends to other issues too. For example, say your contract provides for your Chinese manufacturer to provide a certain type of packaging which is included in the price of the product. The manufacturer decides to make a change. Under Option Two, the Chinese manufacturer simply rejects the purchase order and negotiates for a change. The original provision was an illusion since the manufacturer was not obligated to perform.

Warren Buffet once sad that “only when the tide goes out do you discover who has been swimming naked. The holiday season is when so many U.S. and EU companies learn that their failure to have a good manufacutring contract with their Chinese manufacturers has left them with no clothes. If you are looking to have your products made in China, the first thing you must decide is which option will apply to your purchases and you then need a contract that reflects and legalizes your decision. An illusion about your real situation with your Chinese manufacturer can and usually will lead to unpleasant consequences.

For more on what you should do to protect yourself when manufacturing in China, check out Having Your Product Made In China: The Basics on Protecting It and You.

Categories: Chinese IP

China’s Cybersecurity Law and Employee Personal Information

China Law Blog - Sun, 01/08/2017 - 06:44

The PRC government promulgated its Cybersecurity Law on November 7, 2016, with an effective date of June 1, 2017. To say that foreign tech firms are concerned about the impact of this new law on their business in China would be an understatement. In addition to tech firms, our China lawyers have received a steady stream of questions from clients with China WFOEs who are concerned about an entirely different set of issues. Article 35 of the law states that “personal information and other important data gathered or produced by critical information infrastructure network operators during operations within the mainland territory of the People’s Republic of China, shall store it within mainland China.” Our clients keep asking what this will mean for them.

The surprising answer is not much.

Any company that operates a WFOE in China collects personal information about its employees. China’s new cybersecurity law defines personal information as “all kinds of information, recorded electronically or through other means, that taken alone or together with other information, is sufficient to identify a natural person’s identity, including, but not limited to, natural persons’ full names, birth dates, identification numbers, personal biometric information, addresses, telephone numbers, and so forth.” Certainly, the standard information any company maintains on its employees will qualify as personal information under China’s new cybersecurity law.

In the EU and various other jurisdictions, such personal information must be maintained within the jurisdiction and there should be no transfer of such information across borders. This causes many problems for companies that seek to manage an international workforce through a central location.

So what clients keep asking our China attorneys is whether China’s new cybersecurity laws will establish the same sort of protective system within China? The simple answer is that it will not. China does not have a comprehensive law or regulations relating to the collection, processing or transfer of employee data gathered by a WFOE or other business entity in the normal course of its China business operations and China’s new cybersecurity law does not change that situation.

The cybersecurity law specifically provides that its personal data maintenance and collection rules apply only to critical infrastructure network operators. Network operator is defined as “network owners, managers and network service providers.” In more general terms, this means telecom operators and Internet ISPs. The requirements do not apply to the China business operations of normal private businesses with respect to their normal record keeping requirements for their employees.

Even though nothing has legally changed in China, it is still best practice for foreign companies employers in China to follow the basic rules the PRC government imposes more generally in the consumer context on the collection and maintenance of personal information, including the following:

1. Be sure the disclosing party (your employee) is aware that the company maintains personal information. The company should have a written policy (in Chinese and in English) on how long that information is maintained and that policy should be revealed to the employee.

2. You should not collect more personal information than necessary.

3. You should maintain the confidentiality of the personal information you collect and maintain. That means you should limit internal access to that information and you should take proper security measures to prevent a data breach of the company’s online systems.

4. You should not sell or otherwise transfer the personal information to any third party. Stated more bluntly, do not sell employee personal information to marketers or spammers.

Categories: Chinese IP

China Arbitration Developments*

China Law Blog - Sat, 01/07/2017 - 05:58

The below is a summary of recent decisions impacting China arbitration.

Anti-monopoly disputes are not arbitrable in China

In August 2016, the Jiangsu Provincial Higher People’s Court held that anti-monopoly cases involve the public interest and therefore such disputes cannot be arbitrated between private parties. The court was hearing a case where the plaintiff had entered into a distribution ggreement with a manufacturer that contained an arbitration clause. The plaintiff sued the defendant in Nanjing Intermediate People’s Court accusing it of abuse of market dominance. Defendant alleged the court lacked jurisdiction as there was an arbitration agreement between the parties. The court not only rejected the jurisdiction objection but it also rejected the request for arbitration becuase the agreement designated more than one arbitral institute which made the arbitration agreement invalid.

The Jiangsu Provincial Higher Court affirmed the Intermediate Court’s ruling on appeal and listed the following three reasons why anti­monopoly cases may not be arbitrated:

  1. Relevant laws and judicial interpretations expressly provide for civil litigation to resolve civil monopoly disputes.
  2. Public policy considerations favor litigation over arbitration.
  3. Anit-monopoly cases involve the public interest, third­-party interests and consumer interests and therefore override the preference of the parties for private dispute resolution under the arbitration clause.

Failing to Specify The Arbitral Seat in An Arbitration Clause May Result in an Unenforceable Award: 

In Wicor Holding A.G. v. Taizhou Haopu Investment Limited the Taizhou Intermediate People’s Court refused to enforce an ICC arbitration award because the arbitration clause in the Joint Venture Agreement was invalid for having failed to specify the arbitral body for the arbitration. The Joint Venture Agreement mandated that the parties’ disputes be arbitrated “in accordance with ICC mediation and arbitration rules“ but the Court found this did not clearly specify that the ICC be the arbitral body and without a clear choice for the seat of arbitration, the arbitration provision was deemed invalid. The Supreme People’s Court upheld this ruling and since the ICC award was improperly rendered on the basis that the arbitration agreement was valid, enforcing the award would contradict the social and public policy of China.

Editor’s Note: The clear lesson from this decision — and one we have many times emphasized on these pages, is that there is a right way and a wrong way to write an arbitration provision and you will pay the price if you write one incorrectly. We estimate that around half of the China contracts our China lawyers review or see contain arbitration provisions with readily identifiable errors.

SCIA Updates its Rules to Hear Investor-State Arbitrations.

The Shenzhen Court of International Arbitration (SCIA) published updated rules which will enable it to hear investor-state disputes and to administer arbitrations under UNCITRAL rules. These updated rules went into effect in December 2016 and they make SCIA the first arbitral body in mainland China to administer investor-state disputes.

* This post was guest-written by Chris Campbell, a foreign legal consultant who graduated from Tsinghua University with an LLM in Chinese law and international arbitration. Chris has worked on various projects related to trade and International Arbitration in mainland China, Hong Kong, and East Timor.

 

Categories: Chinese IP

Quick Question Friday, China Law Answers, Part XXXVII

China Law Blog - Fri, 01/06/2017 - 07:51

Because of this blog, our China lawyers get a fairly steady stream of China law questions from readers, mostly via emails but occasionally via blog comments as well. If we were to conduct research on all the questions we get asked and then comprehensively answer them, we would become overwhelmed. So what we usually do is provide a super fast general answer and, when it is easy to do so, a link or two to a blog post that may provide some additional guidance. We figure we might as well post some of these on here as well. On Fridays, like today.

In yesterday’s post, Defrauded by an Alibaba Seller? Here’s What To Do, we talked about what to do if you order and pay for a product on Alibaba, but receive nothing in return or something way way different from what you have ordered. In response to that post, I received two incredibly similar emails, about ten minutes apart (so similar in fact, that they may have been from the same person, using different email addresses). The emails essentially said the following:

Great post on recouping funds from an Alibaba fraud seller, but isn’t it true that even after doing all that you say in the post you will end up with nothing?

No, that’s not true. Not going to get up anyone’s hopes here, but recovering on this sort of fraud is a lot like recovering anything in China. If you can actually trace the actual scammer quickly your odds of getting maybe half of what you lost are probably a bit less than 50-50. This is just a somewhat informed estimate based on the experience of the China lawyers in my law firm and on what we have heard from other China attorneys who, but I think it is a fairly accurate measure to use to determine whether it will be worth pursuing the person or entity that stole your money. So just by way of one example. If you lost $300,000, you have a roughly 50% chance of recovering $150,000. It therefore would probably be worth it to you to spend $10,000 to get to a point where you can then make a new decision as to whether to proceed. But if you lost $30,000, you have about a 50% chance of recovering $15,000 and so it probably is not worth it to spend $10,000 to get a better feel for your chances.

Would love to hear from anyone else about how they do these sort of calculations.

Categories: Chinese IP

Defrauded by an Alibaba Seller? Here’s What To Do

China Law Blog - Thu, 01/05/2017 - 11:14

 

Lexology ran an excellent article the other day, entitled, Catching the Bad Guys: Recovery for a Defrauded Alibaba Buyer. The article was written by Kai XUE of DeHang Law Offices. Our China lawyers can attest to the need for this sort of article as hardly a week goes by where we are not contacted by someone with a major China Alibaba supplier problem. Note though that these issues are certainly not confined to Alibaba. The article nicely sets out how to handle a situation where you have sent payment for an Alibaba purchase but you receive “either junk or nothing and [you] can no longer reach the seller.” As noted in the article, most of these fraud situations involve a Chinese seller that “is a newly registered entity with little registered capital that uses a fake office address.”

Initiate a police report. The article notes that in a fraud case, you should report the crime to the police to try catch the fraudulent seller and to try to recoup your monetary loss. The article rightly notes the importance of going to the police quickly and ignoring various stalling tactics employed by the seller:

When confronted fraudulent sellers will reflexively claim that the matter is a commercial dispute to avoid involving the criminal justice system. For this reason, in cases of clear fraud it is advisable to proceed quickly to report to police and ignore last minute entreaties by the suspect to amicably settle. These apparent attempts by the fraudulent seller to settle not only may be an insincere attempt to delay for time but are also designed to create the appearance of a commercial dispute to dissuade police from pursuing an investigation.

The article notes the importance of going to the right police department (Hong Kong or Mainland) and of going to the police department with sufficient evidence to entice them to pursue an investigation.

Negotiating a settlement with the suspect. The article goes on to discuss how negotiating for restitution with the seller often should be undertaken, even in conjunction with the police pursuing its investigation of the seller:

Once put in detention and questioned by police, the realization of serving prison time acts as a strong impetus on the fraudulent seller to settle claims with the buyer. In exchange the buyer can agree to make best efforts to end the police investigation or ask for leniency for the fraudulent seller before the court if the case has advances to an indictment.

According to Chinese law, if an accused person returns some or all of the defrauded money and obtains a written pardon from the victim, her/his criminal responsibility may be mitigated. It’s on this basis that a fraudulent seller looks for a reduced sentence or release from detention by striking a deal with the buyer.

The article notes that one way to be able to tell whether the fraudulent seller has exhausted its available resources is “the extent that the fraudulent seller’s immediate and extended family make contributions:”

If a family member of the fraudulent seller provides a mortgage over real property or liquidates real estate assets to pay for restitution, then it’s likely that the fraudulent seller has cobbled together the maximum possible restitution payment.

 

Bottom Line: If you have been defrauded by an Alibaba seller (or any other China seller for that matter), the key is to act as quickly as you can in going to the police and in trying to negotiate repayment from the defrauding seller. The quicker you act, the more likely you are to get at least some of your money back.

Categories: Chinese IP

Six Common Myths About China Employment Laws

China Law Blog - Wed, 01/04/2017 - 08:40

I have been writing a lot lately about various myths regarding specific aspects of Chinese employment law. The below posts — all written this year — set forth many of those myths:

But I have yet to write about the most common China employment law myths overall. Until now.

Myth 1: A China employer can hire an independent contractor to avoid having to hire someone as a regular employee and have to pay all kinds of employee benefits. Though retaining someone as independent contractor is not entirely impossible, it can only be done under only very limited circumstances. First, you need to consider the tasks of the person you are seeking to hire. For example, if you are a software company and this person is expected to work as a software design engineer, you probably need to retain this person as an employee. If your “independent contractor” is being managed according to your rules and regulations and all other company policies, it is very likely that such person will be deemed an employee for purposes of Chinese labor law. Moreover, if you wish to have full control over such person’s behavior, you might as well hire him/her as an employee in the first place. This is not something you want to get wrong and yet we constantly see foreign companies get this wrong.

Myth 2: In China, employment at will is possible, provided there is a well-crafted contract in place. Wrong. China is not an employment-at-will jurisdiction. Nonetheless, China employees can leave pretty much at any time for pretty much any reason so long as they give advance notice (generally speaking, 3 days notice during the probation period and 30 days written notice once past the probation period). In some Chinese cities (but not in others), with a well-crafted employment contract in both English and Chinese, it is possible to have an at-will arrangement with a non-Chinese employee.

Myth 3: A China employee on an open-term contract cannot be terminated. Ever. You cannot terminate a lifetime employee without cause just like generally you cannot terminate an employee on a fixed term contract without cause. Having an open-term contract means the employee has much more leverage when it comes to negotiating a mutual termination and that you will likely need to pay much  more to dismiss the employee than to an employee on a fixed term contract. However, such employee is not untouchable. For example, if he or she has materially breached your rules and regulations, you may have valid grounds to terminate.

Myth 4: Employer rules and regulations are just a formality. I cannot stress enough the importance of having a set of English and Chinese rules and regulations that work for China. If you don’t have one, you should get started on drafting one NOW.

Myth 5: Overtime rules are not enforced and I know this because most other employers in my locale don’t follow the overtime rules. Wrong. The general direction in China is toward more enforcement and furthermore and “foreign” employers are always going to be under closer scrutiny than their Chinese counterparts. Most importantly, even if the local human resources and social security authorities are not cracking down on illegal practices in your area, this does not mean your employees will not pursue you in labor arbitration for overtime.

Myth 6: We acknowledge are sales people are employees and we give them all social insurance and other employee benefits but because they get so much in commissions, we don’t need to provide them with any base pay. Wrong. If someone is hired as an employee, the safest route is to pay him or her a monthly base salary. Generally speaking, the absolute minimum is the local minimum wage standard. It usually does not matter that the employee’s average monthly pay is a lot higher than the local minimum. Where there is no base pay each month, the argument that the employee made a ton during the busy season is likely to fail and you will be deemed to have violated minimum wage laws.

Categories: Chinese IP

Manufacturing in China: Control Your Molds (Part 3)

China Law Blog - Tue, 01/03/2017 - 08:03

In Part 1 of this series, I discussed how the increasing complexity of products made in China has led to a corresponding increase in the complexity of the molds for those products, and of how that means our China attorneys increasingly must draft contracts to protect our client’s IP within those molds. I concluded the first part of this series by noting how most mold IP issues arise in two settings: dealing with third party mold fabrication shops in China and dealing with the Chinese outsource factories themselves. In Part 2 of this series, I addressed mold IP issues when dealing with third party mold fabricators, sometimes called mold fabrication shops. In this, Part 3, I will discuss the sorts of issues our China lawyers have been seeing lately with Chinese manufacturers on mold issues.

The Chinese manufacturer has produced a series of molds for a product for its foreign buyer. Now that the product has become commercially successful, we often see the following three basic problems arise:

  • The Chinese manufacturer announces a substantial increase in the price of the product. This is often a surprise to the foreign buyer, who had expected the per unit price of the product to go down as production increased.
  • The Chinese manufacturer is not able to keep up with increased production requirements. This is often a surprise to the foreign buyer, who had been assured by the manufacturer that it has ample capacity for any scale of orders.
  • The stress of increased production demand causes the quality level from the Chinese manufacturer to progressively decline, reaching unacceptable levels. This is often a surprise to the foreign buyer, who had expected quality to improve over time.

In response to these issues, the foreign buyer gives notice to its Chinese manufacturer that it intends to move production to a different manufacturer, often a direct competitor of the current manufacturer. In the past, the issues that arose at this stage mostly focused on ownership of the physical molds. This issue can be resolved by a relatively simple mold ownership agreement. To the extent that a mold ownership agreement resolves the issues, this is old news. See Product Molds And Tooling In China: Three Things You Must Do to Hang on to Yours.

However, in the past year we have seen Chinese factories make arguments (like those below) that render the situation far more complex:

  • The Chinese factory says: “It is true you paid the fabrication fee for the molds. But that fee only covered the material costs and the time involved. However, in addition to that, we at the factory spent a lot of time and money doing the CAD drawings and related specifications required to fabricate the molds and we also spent additional engineering time in integrating the molds into our production process. Before you can take the molds, you have to compensate us for those costs. We won’t even charge you a markup. Just pay us for our out of pocket costs.” Then the factory provides an unreasonably high invoice for those costs and if you do not pay the invoice, the factory will continue to hold your molds hostage. This has become almost standard practice in outsource manufacturing, particularly in southern China. It is therefore essential for foreign designers to make clear in a written contract that all amounts paid for molds include both design and fabrication costs and that no additional payments will be required when the foreign buyer seeks to take possession of the molds.
  • The Chinese factory says: “It is true that you own the molds and you can take them whenever you want. However, we did all the design work on those molds so we own the design embodied by the molds. We will give you a license to use the molds in production in another factory. However, that license is limited. You have no right to copy the molds. We, on the other hand, have the right to copy the molds and we have the right to use the mold design for our own production or to provide copies of the molds to third party factories for their own production. The only thing you own is the physical object. You do not own anything else.”
  • In the more extreme case, the Chinese factory says: “We did all the design work for the molds so we own that design and we already registered a design patent in the molds. Since we did all the work, we are the inventor for patent purposes. It does not matter that you paid us for the molds. We still remain the inventor and our design patent protects us. You can have the physical molds, but if you want to use those molds for production at a different factory, you must pay us a royalty fee.” This royalty is then quoted at a price so hight that you cannot economically have your product produced at a third party facility.\
  • Lately, the more honest Chinese factories make the situation clear. The foreign buyer pays for fabricating the mold, but that payment does not convey any ownership interest in the molds to the foreign buyer. The Chinese factory does the design work and the Chinese factory owns the molds. The Chinese factory will agree to use the molds only for the purpose of producing the product for the foreign buyer, however, the foreign buyer has no right to move the molds to any other factory. In this setting, some Chinese factories will say that you are free to make new molds at your new factory, but some will assert ownership to the mold design and not allow you to have copies made at the new factory. Often Chinese factories will make this contention even when they do not have a registered design patent. To them the situation is obvious. They both designed the mold and arranged for its fabrication and so they own all rights in the mold without any need to register a design patent. Whether this position would be supported by a court is unclear. But since it is unclear, most Chinese factories will refuse to work with the new factory. What is so interesting about this approach is that the Chinese factory is clear about its intent from the beginning. The Chinese factory intends to hold the foreign buyer hostage by guaranteeing that the foreign buyer cannot go to any other factory in China as an alternative manufacturer of the product. By holding the foreign buyer hostage, when the Chinese factory raises its price or delivers the products late or produces defective products, the foreign party is pretty much trapped. It has no place else to go and no real leverage for dealing with the issues. We are getting a call a week from foreign companies in these situations, with little that can be done beyond essentially starting over.

This is where outsource manufacturing is going in China. Foreign product designers need to deal with it. At a first level, the foreign designer can enter into written contracts that provide protection. However, at a second level, if the Chinese factory intends the “hostage” result, it will reject signing a contract that will prevent that. When that happens the foreign designer is forced to face reality and decide whether manufacturing its new and innovative product in a setting where it is hostage to a Chinese factory makes economic sense or not. Or whether it can or should try to find another manufacturer. Our clients often argue that it does make sense. We are not so sure.

Categories: Chinese IP

China Litigation Versus Arbitration: It’s Case by Case

China Law Blog - Mon, 01/02/2017 - 09:45
International litigation versus international arbitration?

If you have any interest in international litigation or arbitration and all that entails (things like service of process, enforcement of foreign judgments or awards, gathering up evidence from a foreign country), you should be reading the Hague Law Blog, written by my good friend Aaron Lukken.

The Hague Law Blog recently did a post extolling the virtues of arbitration for international disputes. The post is entitled, Arbitration– a bright idea for international dispute resolution and it very nicely sets out a whole host of reasons to consider arbitration for your international disputes, including the following that I view as the big three:

  • It’s far cheaper than litigating a dispute.
  • Decisions are made by specialized neutrals selected by the parties.
  • Arbitral awards are more acceptable to foreign courts if the losing party doesn’t pay up. Awards won in U.S. litigation… much harder to enforce.

The post makes clear that arbitration is not always the best way to go for your international disputes and it even calls out an article I wrote on why it usually (but not always!) does not make sense to arbitrate against Chinese companies:

Now, to be sure, it isn’t always the way to go. Dan Harris argues, quite lucidly and from much experience, that arbitration clauses are a waste of time in Chinese contracts. Despite China’s accession to the New York Arbitration Convention , they don’t follow through on their obligations to enforce awards. Accordingly, Dan continues, the best thing you can do in China is choose (1) Chinese courts as the venue, (2) Chinese law as the controlling doctrine, and (3) Chinese as the operative language of the contract.

The post then rightly notes that China is just one country and then makes the point that our [the United States] biggest trading partners—China excepted—believe in arbitration, and their courts are far more likely to compel a losing party to pay on an arbitral award than on a verdict.

Yes, but.

My firm’s international lawyers always tell our clients that we need all sorts of information before we can decide on the best method of dispute resolution. At minimum, we need to know the countries involved, the nature of the contract, our client’s goals (both with respect to the contract and enforcement) and information regarding the counter-party. And then we decide on the best method for resolving potential disputes.

Arbitration is usually not the best way to go when dealing with Chinese companies, but sometimes it is. And though I agree with the Hague Law Blog that arbitration is usually the best way to go when dealing with most companies from most other countries, oftentimes it isn’t, and here are two common reasons why:

  1. Arbitration is not always less expensive than litigating. Sometimes it is way, way, way more expensive. It would be far cheaper to litigate a case in Vietnam or in Thailand than to arbitrate it before three arbitrators in London or in Geneva. Like maybe 50 times cheaper. Sometimes it makes sense for our clients to have dispute resolution be incredibly expensive (like if they believe they are more likely to get sued than the reverse) but sometimes the exact opposite will make sense. It really must be reviewed on a case by case basis.
  2. There are countries where getting a US court judgment enforced is super easy. Canada, England and South Korea immediately spring to mind. Enforcing a US judgment in those three countries is barely more difficult than enforcing a California judgment in New York. So again, these issues must be examined on a case by case basis.

Arbitration or litigation? It’s case by case.

Categories: Chinese IP

Happy New Year

China Law Blog - Sun, 01/01/2017 - 09:32

 

Happy New Year, everyone!

 

I was asked at a party last night (not kidding) what the China lawyers at my firm saw as the biggest trends/issues for China in 2017, and my answer was the following:

  1. Getting money out of China. This will be THE big issue for 2017. It will be a big issue for both Chinese companies and for foreign companies that are doing business in China.
  2. Technology transfer and technology licensing agreements and, more particularly, the tension between Chinese companies wanting/needing top-line technology and their desire to acquire that technology for way way way less than it is worth.

The above two things took up a large portion of our the time our China attorneys spent during the last 3-4 months of 2016 and I have no doubt that they both will take a up large portion of our time in 2017 as well.

But, hey, if there are any China legal or China business or just pure China issues you want us to be sure to cover in 2017, please let us know via a comment below.

And let’s all do our best to make 2017 a great year!

Categories: Chinese IP

Cuba as the Next China?

China Law Blog - Fri, 12/30/2016 - 10:13

Of course it’s not, but having just returned from ten days there, I figured I needed to write about it and since this is the China Law Blog (and not the Cuba Law Blog, which url my firm owns!), I figured I would need to get “China” somewhere in the title.

But Cuba does have a lot of similarities to China, at least China two decades ago. I went to Cuba in large part because my firm has an office in Barcelona, Spain, and to our Spanish clients, going into Cuba just is not all that exotic. One quick side note. I went to Barcelona immediately before heading to Cuba to meet with our Spain lawyers there and to give a speech on protecting your IP from China. I probably told a dozen people of how I would be heading to Cuba right from Spain and probably a half dozen of them said something along the lines of how they were worried about how “the Americans are going to spoil it.” After getting back, I share their concerns.

But without further ado, here are my random thoughts on Cuba.

  1. I spent 90 percent of my time in Havana, at an AirBnb in Nuevo Vedado, with a host who spoke maybe ten words of English, but who actually seemed to enjoy speaking with me despite my less than perfect Spanish. This host let me know that though most people in Cuba rely on either God or the government, he — being an engineer — had learned to rely on his own intellect. I also went to Viñales and to Miramar (which is really just a Havana suburb).
  2. I was surprised at how often I was approached on the street by people who simply wanted to use their English and who wanted me to know that “the United States is the best country in the world.”
  3. Pretty much everybody also wanted me to know that they thought Trump was either “crazy” or “interested in just the money.” I heard both of these things so many times that I began to wonder whether the press was saying this.
  4. Speaking of the press, every single person I asked (of all skin colors) insisted that racism had been “eradicated” in Cuba. I wish that were true, but know that it is not, but based on my observations alone (and the huge number of interracial couples and friendships), the situation appears impressive.
  5. Cuba is an incredibly safe city. Every person (including those I trusted) said violent crime is virtually non-existent. Many warned me of pick-pockets as though they were everywhere, but I saw no evidence of that. Nobody seems to hesitate to walk alone at night, anywhere.
  6. The food was much better than I expected. I would describe it as very good, but not amazing. The two best restaurants were Atelier (where President Obama went) and La Guarida (where every celebrity goes. As evidence of their standing, these were the only two restaurants that had Diet Coke.
  7. You cannot use your American credit cards anywhere, and I suspect this is because no American bank will run them through. Yet.
  8. The Internet is terrible in Cuba. Terrible. It literally went out for a day, pretty much everywhere in Havana, including the airport. The only fast Internet I found was in the business center at the Hotel Nacional. Second best was at the Melia Hotels.
  9. The grocery stores are not well stacked. At all.
  10. Many small businesses are springing up.
  11. Some of the people with whom I spoke had nothing but good things to say about Cuba. Some told me that 75-80 percent of the people eat pretty much nothing but rice and beans and eggs and bread, all of which are really really cheap, but most every other sort of food is not.
  12. Most of the foreign investment in Cuba is from Spanish companies, but Canadian, Mexican and other Latin American companies are there as well, with China seeming to be accelerating its investments too, especially in building new hotels.
  13. Things do not happen on American time. We wanted to go to Trinidad one day and the taxi driver with whom I had made the arrangements and confirmed multiple times showed up 45 minutes late and with a different car, one that was way way way too small. So we had to adapt. There is a lot of that in Cuba. I can remember only one meal where the restaurant had everything we ordered off the menu.
  14. Jose Marti Airport has five terminals, spread throughout the city. At least two are international terminals, so know before you go.
  15. Cuba’s foreign investment regime makes China’s seem like a can of corn (figured I had to get in a baseball reference somewhere).

The question everyone asks me is whether they should go to Cuba and, if so, when. My answer is as follows:

Most emphatically yes. The people are great. The scenery is great. The buildings are great. The cars are great. The food is good. The place is safe and great for walking. But do not go there expecting Paris because you will be disappointed. And I cannot stress enough how you have to be prepared for no internet and no credit cards. Bring a lot of money and bring a guidebook. Multiple times people would see us with our guidebook and plaintively ask us where we got it, and then when we told them the U.S. they would ask to take pictures of certain pages. Oh, and go now before the Americans spoil it.

Categories: Chinese IP

China Trademarks: When (and How) to Prove Use of a Mark in Commerce

China Law Blog - Thu, 12/29/2016 - 05:58

Unlike the United States, China does not have an affirmative requirement to prove that a trademark is being used in commerce. You do not have to prove use for a trademark application to proceed to registration, and once a trademark is registered you do not have to prove you are still using it to maintain or renew the registration.

Foreign companies have come to realize that China’s lack of a use requirement is a double-edged sword. On the one hand, it allows trademark squatters to register marks for a wide range of products and services they have no intention of ever providing. On the other hand, it allows “real” trademark owners to register their marks to cover a much wider range of products and services than would be allowed in most other countries. As we have noted before, Starbucks employs this strategy better than anyone: it has registered “STARBUCKS” as a trademark in all 45 classes of goods and services.

However, China will require evidence of use if a trademark registration is challenged for non-use. The basic rule is that once a mark has been registered for three years, it is vulnerable to a non-use cancellation. At that point, if a third party files a non-use cancellation, the owner has two months to provide evidence of use within the past three years.

If you are actively marketing your goods or services in China, then it should be fairly easy to provide evidence of use. Your use of the trademark in question on packages, containers, labels, manuals, advertisements, product displays, signage or at exhibitions are all likely to be sufficient. In general, original documents are required, but when a product has a lot of ephemera this is a low bar.

Where it gets difficult is when the only use of the trademark in question is on a product manufactured solely for export. It is not completely resolved in China whether such use constitutes either (1) use in China with respect to a trademark infringement action or (2) use in China with respect to a non-use cancellation. But in our experience, the Chinese Trademark Office (CTMO) will generally accept manufacturing in China, even if solely for export, as sufficient to defeat a non-use cancellation.

But you still need original documentary evidence!

It is all too common for foreign companies to order products from their China manufacturer for years on end using English-only documents that never identify the trademark on the products, and often never even identify the product with sufficient specificity. That makes it almost impossible to prove use to the CTMO’s satisfaction. What you want is documents that are in Chinese and clearly demonstrate your use of the mark in China on the products covered by your trademark registration: documents like invoices, shipping documents, quality inspections, and customs export declarations. Photographs are helpful to provide context but, standing alone, are usually insufficient to demonstrate use.

Typically, most (or all) of the documents that can prove trademark use for export-only products are held by the factory. So while you are still on good terms with your factory, you should make sure to keep a complete, regularly updated set of documents for each of your China trademark registrations. If things go south with your supplier, you don’t want your trademarks to be at risk too.

Categories: Chinese IP

An Innovative Approach to Stopping China Counterfeits!??

China Law Blog - Tue, 12/27/2016 - 05:58
1. Register your trademark in China. 2. Register your China trademark with China customs.

One of our China lawyers got the following email from a client the other day about an AmCham China IP event:

Just saw that AmCham is putting on this Innovative Approach to Stop Counterfeit Goods and just wanted to congratulate you for having convinced me to institute that approach nearly five years ago.

The “innovative” approach to which both AmCham and the writer of this email are referring is the following, as described by AmCham in its lead-up to this talk:

Many companies with large overseas operations have to deal with lost revenues and reputational damage caused by counterfeit goods. As well as being a large potential market, China is also major manufacturing hub, for both fake as well as genuine products. Despite improvements in the legal framework regarding intellectual property rights, companies are often disappointed by the results of their attempts to prevent the proliferation of counterfeit goods through through the courts, the Ministry of Commerce and local governments.

Now there is a new, innovative approach to stemming the trade of counterfeit products. Based on their experience working with numerous clients, experts … will share details on how the Customs Bureau can help companies in the fight against counterfeits.

Seeing as how none of our China attorneys attended this event, we do not know what was discussed at it. But we can tell you what we have been saying on this blog and to our clients since at least 2013, and that is that not only must you file for a China trademark for your brands and your logos, but you should also then register your granted China trademark with China customs to stem counterfeits of your products from leaving China.

For instance, earlier this year, in China Trademarks: Customs Helps Those Who Help Themselves one of our China IP lawyers, wrote the following regarding the real benefits to be gained by registering your China trademarks with China customs: “For trademark owners, customs seizures can be a valuable part of an anti-infringement strategy. But don’t expect much help from the customs authorities if you can’t be bothered to help yourself.”

But long before that, way back in April, 2013, we wrote a post, Register Your China Trademark Now. Then Register It Again With Customs, where we called for exactly what the title of that post would lead you to expect: that you should not only be sure to file for a trademark in China, you should also be sure to take that China trademark once you get it and register it with China customs. It bears repeating what we said in that post because it so nicely sets out what exactly this will entail and why it is of such importance:

The implication for foreign companies doing business in China is clear: Chinese Customs can help protect your IP from infringement…. What the numbers [of China customs seizures] don’t tell you, however, is that nearly all of the seizures were of goods that infringed registered Chinese trademarks, and that those trademarks had been registered not only with China’s Trademark Office but also with Chinese Customs.

As we have written a number of times — see File Your Trademark In China. Now., China: Do Just One Thing. Trademarks, and China’s Changing Trademark Environment. Why You Need To Register Your Trademark Now. — the essential first step in any China IP strategy is to register your trademarks with China’s Trademark Office. Because China is a first-to-file country, until you register a trademark you have no rights in that trademark. But a trademark registration alone will not limit the spread of counterfeit goods. A trademark registration merely gives you the legal capacity to enforce your rights to that mark, and should properly be seen as one of the pieces in an overall strategy.

For any company concerned about counterfeit goods coming from China, the next step should be registering your trademark with Chinese Customs. This is not a legal requirement but a practical one: though China Customs officials have discretion to check every outgoing shipment for trademark infringement against the Trademark Office database, in reality they only check against the Customs database. No separate registration with Customs means no enforcement by Customs.

If you register your mark with Customs, they will contact you any time they discover a shipment of possibly infringing goods. At that point you have three working days to request seizure of the goods. Assuming you request seizure (and post a bond), Customs will inspect the goods. If Customs subsequently concludes the goods are infringing, they will invariably either donate the goods to charity (if the infringing mark can be removed) or destroy them entirely. The cost of destruction, and of storing the goods during the inspection process, will be deducted from your bond.

Registration with China Customs generally takes three to five months and can only be done after China’s Trademark Office has issued a trademark certificate. The latter currently takes approximately fourteen months, which means that within nineteen months of the date you file your trademark application, Chinese Customs could be helping to stop counterfeit goods from being exported from China.

Nineteen months can be an eternity in the retail world. Whether you’re a toy company producing dolls in Shanghai, a home video company making DVDs in Guangzhou, or a luxury goods company manufacturing high-end purses in Qingdao, there’s only one approach that makes sense. Register your China trademark now. Then register it again.

So though we never saw registering your China trademark with China customs as innovative, we have always viewed it as important, and that really is all that matters in any event.

Categories: Chinese IP

China Employment Laws: National Holidays in 2017

China Law Blog - Mon, 12/26/2016 - 05:58

 

Like pretty much everything else related to China employment law issues, the rest (or not) schedule for national holidays is a bit more complicated than one would think. For example, employees get a couple of long breaks but usually have to make up the time on a weekend, so the actual days off are shorter than they at first appear. This concept of “making up the time for a legal holiday” (节假日调休) for purposes of having a (superficial) long break is unique in China and as with so many other aspects of China employment law, is quite different from the U.S. or the European systems.

Per the PRC State Counsel’s recent notice, the national holidays for 2017 will include the following: New Year’s Day, Chinese New Year, Tomb sweeping day, Labor day, Dragon boat festival, Mid-autumn festival and National day. Specifically:

  • New Year’s Day: A one-day holiday. As January 1 falls on a Sunday, China employees will get January their day off on Monday, January 2. 
  • Spring Festival (aka the Chinese New Year): A three-day holiday, i.e., the first three days of Chinese New Year according to the lunar calendar. China employees will get a long break: from January 27 through February 2, however, they will have to work on January 22 (Sunday) and February 4 (Saturday), unless their employers provide a more generous time-off policy (e.g., per the employer rules and regulations).
  • Tomb sweeping day: A one-day holiday and the specific date will be according to the lunar calendar. China employees will get April 2-4 off, but will have to work on April 1st (Saturday).
  • Labor day: A one-day holiday: May 1st. Employees will get 3 days off: April 29, 30, May 1st. Note however April 29 and 30 are rest days so it’s really just one day off.
  • Dragon Boat Festival: A one-day holiday and the specific date will be according to the lunar calendar. Employees will get May 28, 29 and 30 off, but will have to work on May 27 (Saturday).
  • Mid-Autumn Festival: A one-day holiday and the specific date will be according to the lunar calendar) (Three days—October 1, 2 and 3). This Festival will be combined with National Day in 2017, meaning that China employees will get a long break from October 1 through 8, but will have to work on September 30 (Saturday).

Bottom line: As a China employer, if possible, do not have your employees work on a legal holiday.

 

Categories: Chinese IP

Happy Holidays!

China Law Blog - Sun, 12/25/2016 - 05:58

 

From all of us, to all of you,

Happy Hanukkah, Festivus, Kwanza, and Winter Solstice, and Merry Christmas too!

ENJOY the season/holidays!

Categories: Chinese IP

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