Zhejiang Courts Making a Mark on China's IP Law (Republish)

Over the years, folks familiar with China’s IP laws know in general that courts in Beijing, Shanghai, and Guangdong are pretty good.  These courts are good for many reasons: the judges are well trained and versed in intellectual property laws; the judges make reasonable decisions; the courts are not terribly biased toward foreign parties.  Overall, foreign IPR holders are more likely to have a fair trial in courts situated in these locales. 

However, I have noticed another trend–IP courts in the eastern province of Zhejiang are also making noticeable decisions as well.  In fact, in a conversation with Toronto-based international lawyer, Paul Jones, both of us were pretty impressed by the some of the courts in Zhejiang because the judges seem to “get it.”

A recent piece out of the American Daily confirmed my observation and hunch about the Zhejiang Courts.  In that piece, the author notes:

For years, foreign companies have complained that patent and trademark infringers in China are treated too lightly. With damages typically capped at 500,000 yuan ($73,000), actual awards are often much lower.

But some courts in China’s Zhejiang province have recently gotten tough, ordering high-profile infringers to pay millions of dollars in damages. Unfortunately for multinational corporations, the verdicts have all been against them.

Last month, Samsung Corp. was ordered by a Zhejiang court to pay 50 million yuan ($7.3 million) for infringing  local company Holley Communication’s cell phone technology patent. Earlier in 2008 another Zhejiang court ordered well-known Hong Kong clothing chain G2000 to pay 20 million yuan ($2.9 million) for violating a local entrepreneur’s “2000″ trademark. In 2007 brewer Zhejiang Lanye won a 3 million yuan ($439,000) judgment against Pepsi over the latter’s use of the phrase “blue storm” in a marketing campaign.

These verdicts follow the most closely watched case of all: In September 2007 France’s Schneider Electric was ordered to pay a whopping 334.8 million yuan ($49 million) for violating Wenzhou-based CHINT Group’s circuit breaker patent. Schneider says the damages are more than 20 times greater than the next-highest award by a Chinese court in a similar case.

China Business Law Blog discussed most of the cases in the past.  Read the post about Lanye here, where I analyzed why the Court held in favor of a little known brewer and against the American beverage giant Pepsi.  Read the post about G2000 here and here , where I analyzed how G2000 fell short in protecting its trademark rights by not registering for a wider range of goods and the bitter fruit of that failure.  Taken as a whole, the four notable IP cases out of Zhejiang Province all bear the same remarkable characteristic–very large award for damages.  The $49 million hit against Schneider Electric is a pretty hefty chunk of money to fork over for any IPR holder, in any jurisdiction.

So, what do all these cases out of Zhejiang mean?  Will the Zhejiang courts lead the way for large awards in IP infringement cases in China?  So far, we know that three of the cases referred to above have not been reversed/remanded yet, and that means the Zhejiang courts will likely continue to hand out heavy fines for IP infringements.  However, as suggested by the American Daily article, the large fines have so far been levied against foreign/Hong Kong defendants, which tends to lead one to conclude that the Zhejiang courts hold foreign IP infringers to a higher standard, thus subjecting them to harsher penalties.  We don’t know yet, if and when given an opportunity, if the Zhejiang courts will be willing to levy harsh fines against Chinese infringers where the circumstances require as such.  

Assuming that the courts do not, then this local favoritism will not go challenged.  When the Chinese courts do adhere to the 500,000 RMB damage limit, foreigners cried foul.  Now, when the Chinese courts do hand out much larger fines, as had been wished for by foreigners, foreigners held accountable cry foul too.  Of course, this complaint is a legitimate one if there is indeed local favoritism.  To confirm, a comprehensive study based on statistics is warranted.  However, if no study or reliable data can confirm that the Zhejiang courts are biased, then foreign IP holders really have a problem themselves because they cannot have the best of both worlds on the damage issue.

I see that the Supreme People’s Court may need to speak up once again on damages in IP lawsuits.

Basics about Setting Up Business in China (Republish)

A few days ago, I ran into this article intended for Australians who want to set up business in China.  It discusses eight (8) basic elements that each businessperson  needs to know before charging into China.  I thought it was pretty good, and would like to share below.

1.  You have more than one way to skin the cat.  Namely, you can do joint ventures, wholly foreign owned enterprise, or a representative office.  Each form of business entity has its own advantages and disadvantages, and they have been well discussed by folks at China Law Blog and China Briefing.  Not to keep beating the dead horse, but you need to know that a representative office is not a really good way to go if you want to conduct business on the ground in China.

2.  Articulate clearly what you intend to do in China.  If you have a business idea/concept, you need to be able to articulate how you plan to execute that big plan, how you intend to make money.  A vague idea will not do.  This is so because when you fill out all your application materials, you have to draft, by yourself or through your lawyer, a feasibility study, which has to be somewhat detailed in describing your business.

3.   Pick your spot in China.  Even though China is big, places suitable for your business might be few.  Take full advantage of the tax breaks on the table courtesy of the Chinese government.  Western and central provinces still have nice tax cuts to hand out.

4.  Put down your minimum registered capital.  The local industry and commerce bureau office/administration where you submit your application will determine, pursuant to your business plans and feasibility study, how much minimum capital you need to inject.  You may contribute a part of your IP or equipment toward that registered capital, but they set the cash-equipment ratio for you.

5.  Treat your Articles of Association seriously.  This is a very important piece of governing document for your business in China because the business scope therein may impact your ability to repatriate profits back home.  If your actual business scope is larger than the scope described in the AOA, problems may arise since you are technically doing part of your business illegally.

6.  Take care of your labor relations.  Enough has been said and discussed about China’s Labor Employment Law.  Even though enforcement is pretty lax right now due to the global economic crisis, don’t count on the Chinese government to cut you some slack all the time.  Do it right from the start.

7.  Know your local partner.  Dances with Wolves might be romantic, but it is also dangerous.  No kidding, go ask Danone, Inc. if you have doubts about this.  If you want control of the joint venture, make sure you know exactly what it means to control a business in China from a legal stand point, i.e. stock ownership, having a trustworthy local manager, be in charge of that all powerful corporate seal, etc.

8.  Develop local relationships.  This includes relationships with your employees, staff, local government officials, suppliers, etc.  An earlier postdiscuss how to do this.

These are very basic stuff for preparing to do business in China, and I’d like to add the following:

9.  Protect your intellectual property.  If you got intellectual property components in your business, treat like they are yours.  China will protect your IPR in trademarks, patents, copyrights and trade secrets if you take the initial steps toward safeguarding them through proper registration, recordation, and non-compete/nondisclosure agreements.  I disagree with assertions that China has no IP laws.

10.  Be patient.  Things WILL take longer than you planned.  Simple as that.  I’m not saying that the Chinese are inefficient or incompetent; I am saying that things will go wrong, little things, like renting a place for your business and the landlord has no proof of land ownership, like you don’t have a board resolution for something.  Similarly, things will be different with handling your local staff.  They have different experiences and expectations, and you have yours.  It takes time to mesh.

11.   Find the nuance.  China changes quickly.  Its laws, regulations, macro socio-economic factors all change constantly.  It’s hard to imagine a business will thrive in an country with impactful yet nuanced changes in its business and legal environments.  The Chinese government adjusts its macro economic policies constantly in accordance with local and global shifts.  For example, when the economic situation got worse in the last two quarters, China quickened the pace for granting business license to foreigners (Read China Law Blog’s latest post.); when China wanted to slow down exporting and start to make its growth more sustainable, it stopped the VAT rebates to exporters (available yet again recently), and put a ban on certain manufacturing in parts of China.  To be able to survive China, a businessperson must be constantly on the lookout for nuanced changes in China.

12.  What can you do for China?  ”Ask not what your country can do for you; ask what you can do for your country.”  While you contemplate business success in China, ask yourself what you can do for China.  It maybe creating jobs, generating tax revenue, contributing to charity, setting up university scholarships, making available internship opportunities for local students, or whatever.  Small measures of kindness, small gestures of friendship will make you a “hero,” rich and successful ultimately assuming you do 1-12.  The Chinese almost “deify” foreigners that do stuff for China.  Consider the Flying Tigers, Dr. Henry Norman Bethune.  Of course, you don’t need to be a savior, just do something while you make money.

China Business Law Blog Moved

China Business Law Blog 中国商法博客 has been relocated to http://chinabusinesslawblog.com.

Click here for posts at the new site.

New Boss at the Supreme People's Court of China

After almost ten (10) years of service at the SPC, Hon. Xiao Yang is stepping down, and his replacement has been selected and confirmed by the National People’s Congress...

The rest of the post is here.

Vulnerability of Chinese Lawyers

The sudden disappearance and resurfacing of Beijing Lawyer Teng Biao captured lots of attention and generated much reporting in the media.

If you haven't listened to this (the fourth one on the list) radio program, discussing Teng Biao's experience with the Beijing Police and the challenges that Weiquan lawyers face, I strongly recommend it.

It makes me want to watch To Kill a Mockingbird again.

Common Questions about China-related Law Practice

I just received an e-mail (ABA China Committee Listserve) with a list of most-frequently-asked questions posed by students and young lawyers about China-related law practice. As a law student, with a strong interest in a China-related law practice, I thought it relevant to post, and hope that readers would provide some good responses.

Here are the questions:

(1) What are the most important skills for a US lawyer in a China practice to possess?

(2) What do your clients perceive as being the greatest advantage to having a US-trained lawyer as opposed to a Chinese lawyer for their China-related work?

(3) Specifically how does knowledge of US law add to your competitive advantage within China?

(4) Should a US lawyer entering a China practice have a specialization within the law? Or is being somewhat of a generalist acceptable (or even advantageous)?

(5) Is experience in the US necessary or desirable before working in a legal capacity in China? If so, how much experience would your recommend and why?

(6) What opportunities do you see for US-trained lawyers in China outside of the law firm setting? Outside of the law altogether?

(7) How important is knowing the Chinese language to practice in China? Is it necessary or desirable to know any dialects? If so, which ones and why? Assuming that Chinese language skills are a necessity, is comprehensive fluency necessary prior to working in a China office, or is language something that can be improved upon while working there?

(8) Would an LLM degree in Chinese Law or international law enhance a US lawyer's marketability with respect to potential employers?

(9) Would admission as a Hong Kong solicitor (lawyer) make a US lawyer more marketable if the US lawyer wants to practice in mainland China only?

(10) Do you have any other advice that you would give to a student or young lawyer interested in working in this area?

Your comments are much appreciated.

China Business Law Blog, Moving Away from Blogspot...

I have been test-driving a clone of China Business Law Blog for one week at http://www.chinabusinesslawblog.com/ via wordpress, and it's been working out ok. So, I want to let readers know that I will gradually move to the new site. During the transition, I will post at both sites concurrently.

If you are a frequent reader of CBLB, please reset your “favorite” to http://www.chinabusinesslawblog.com/. If you have kindly linked to CBLB, please extend your courtesies by adjusting your blogroll. And if you are a reader out of China, you should be able to access CBLB directly at http://www.chinabusinesslawblog.com/.