Navigating China Guide (2012) - New Zealand Trade and Enterprise

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Taiwan and China have an Economic Co-operation Framework Agreement (ECFA), essentially a free trade agreement, providing for tariff cuts on goods, reducing non-tariff barriers, opening up service sectors and further lifting investment restrictions. KEY LEARNINGS Hong Kong and Taiwan are options for entering or building a market in mainland China. To varying degrees, both offer broadly similar benefits including: • identification of partners and customers in China • management of marketing and distribution in China by Chinese companies • opportunities to commercialise technology, utilising China • test markets for development and adaptation of products for sale on the mainland • strategic locations for regional offices servicing wider China and Asia. 3.4 PROTECTING INTELLECTUAL PROPERTY Protecting intellectual property Protecting intellectual property (IP) – including products, design and processes, trademarks and patents, promotional material, user manuals, trade secrets and domain names – is one of the biggest issues New Zealand businesses face when entering China. There is a considerable risk of piracy, counterfeiting and reverse engineering in China. The US Government estimates that on average 20 percent of consumer products sold in China are counterfeit. There are laws to protect and enforce IP rights, but China’s businesspeople do not have a long tradition of intellectual property compliance. There can also be inconsistencies of court proceedings on IP. In addition, China’s IP laws are different from New Zealand’s. China has a first-to file system that requires no evidence of prior use or ownership, leaving registration of popular foreign marks open to third parties who register famous marks before the legitimate owner. It can be difficult, time-consuming and expensive to recover these marks, so it is far better to register trademarks early. These legal differences and the risk of IP breaches mean that a New Zealand business entering the market needs a well researched and executed strategy to protect its IP. But you shouldn’t let fears of IP losses alone dominate your decisions on entry into the Chinese market. The business opportunities are huge, the risks can be managed and the situation – both in terms of the dangers and the remedies – is improving. You need to take steps as early as possible to protect your IP and you should have a clear plan that takes timing into account. For example, trademarks take 18 months to be granted, design patents take six to eight months and copyright recordal procedures can take three months. Luke Minford, partner of global IP consultancy Rouse and Co International, says after you have registered your rights early it’s “primarily a case of then making sure you have a clear strategy and good local knowledge about what is going on in different areas”. While some companies may see IP protection as imposing costs and delays when they need to move fast in the market, his advice is that “in the long run they will thank themselves because China is not going to go away – it will continue to grow solidly over the next decade. “The companies that will succeed long term will be those companies that have put IP protection in place and been sensible in terms of making sure that the basics are right.” Luke Minford says there are three essential steps to protecting your IP. You need: 1. A budget for intellectual property. IP rights are long-lasting assets that should be invested at the parent company level and not left to local business units to find budget for. 2. A strategy before you arrive that breaks down all your IP assets and identifies how you are going to obtain rights, protect, commercialise and enforce them. 3. Support on the ground in China for your strategy, whether that be good local counsel, or a reliable partner that understands IP. The best way to protect your IP in China is to register whatever rights you can, including patents, trademarks and recordal of copyright. If you do not register your IP with the Chinese system, you have no rights. So register early and use the system pro-actively. For help doing this you should contact a qualified lawyer or agent with experience of working in China. Including China as part of a process of applying for international patent or trademark protection can be beneficial. These benefits include streamlining the legal process and reducing the risk that IP could become public in one country before it is protected in China. Contact NZTE for a list of IP specialists in China. KIWI LESSON – AVOID PARALYSIS Kevin Maurice, Managing Director of Atrax, says no exporter should be paralysed by the fear of intellectual property theft in China. Whenever the Auckland-based specialists in aviation and logistics weighing technology use a subcontractor in China, they never divulge what they are making will be used for. “Some of these things are in conflict with Western management styles,” Maurice says “but I’m the only guy who knows all the parts of the jigsaw.” Understanding risk versus opportunity The risk to IP needs to be balanced against the considerable opportunities presented by China. While enforcement can be challenging (see section below) it would be wrong for companies to assume that IP is not enforceable – by believing this you may be giving away IP that you could and should be protecting. 32
It is also important to put IP issues in perspective. Some companies in China are prepared to accept borderline imitation of their products because they feel it does not harm their core business. Others want to take a tough line against infringers because they fear infringements will multiply if they are seen to be passive. You should also outline with your local partners and/or counsel what you, as the rights owner, are prepared to accept in the market and what you are not. You should also be clear and firm about your IP with your local partners. Many IP problems arise within supply chains and sales channels, because your partners abuse your IP, deliberately or otherwise. Ensure that you have Non-Disclosure Agreements signed before you reveal any confidential information and have contracts in place that ensure your partner cannot take liberties with your IP. Prevention is the best strategy. Communicate to your partners early and often that your IP is important and do not brush issues under the carpet. You should not enter into relationships on blind trust or assume that contracts cannot be enforced – they can. Protecting patents Under China’s Patent Law three types of IP can be protected: • invention patents – lasting 20 years • design patents – 10 years • utility model patents – 10 years. Food, beverages, flavourings, chemical and pharmaceutical products are all patentable. There are some items that cannot be patented in China, including plant varieties and, scientific discoveries. Software can be protected as a patent for certain applications. Applications to register a patent in China go to the State Intellectual Property Office (SIPO). New Zealand companies which do not have a business office in China must apply through a registered patent agent. Applications must be in Chinese and include relevant drawings, details of any claims and a description of the technology. Design patent applications require drawings or photographs of the design. If SIPO decides the application complies with the Patent Law it will issue a certificate, register the patent and issue its decision. Patent rights are effective as of the date of publication. There are two key dates: • publication, whereupon the previously filed patent can be viewed by the public and objected to • the grant, which can be some years later. After the patent is published, the patentee has the right to request damages from any alleged infringers, but this right is not yet enforceable. Once the patent is granted you can go back and claim damages for any infringement during that period. You also have a fully fledged patent right, meaning you can claim proper damages calculated from the date of granting as well as court injunctions to actually stop infringers. At present, publication of invention patents in China is always either six months from when the patent is filed in China or 18 months since it was first filed anywhere, whichever comes later. Design and utility patents usually take about a year to register, though it can take two to three years to register an invention patent. You can register a utility model and invention patent simultaneously for the same invention, meaning that the utility model is granted first, then if the invention patent is granted, you have to abandon the utility model. This is more expensive as you are filing two applications, but allows you to obtain quick protection from the utility model first, and then your protection switches to the invention patent. This can be useful for very valuable inventions that you want some early protection for. Protecting trademarks The best way of protecting your trademarks is registering them so they are covered by Chinese law initially for 10 years, but this is renewable. You should register both an English and Chinese translation of your trademarks, logos and domain names with China’s Trademark Office. If you don’t have a physical presence in China, you must register your marks through a trademark agent. However, lawyers or your Chinese agent may prepare the application. If you have a Chinese company or a representative office they can register your trademarks directly. Failure to create and register a Chinese version of your trademark opens up the chance that the market will give your product a ‘nickname’ which you may not like and have no rights to. Also someone else in China could even register your trademark or the Chinese ‘nickname’ as their own, forcing you to buy it back. Trademark applications can cover words, designs, letters, numbers, three-dimensional signs and colour combinations, as well as combinations of these elements. If you let another party use your trademark under a licensing arrangement, under Chinese law you must execute and register a trademark licensing contract. This is not only good practice but allows the licensee to remit royalty payments overseas in foreign exchange. The cost of having an application prepared to trademark one brand in one class is around NZ$650. This includes the official filing fee, administration fees and disbursements. The application must be accompanied by specimens of your trademark and all documents must be submitted in Chinese. China uses the International Classification of Goods which categorises commodities and services into 45 classes. A trademark must be registered in connection with at least one particular class of goods. Each category must be registered separately in Chinese. Registering a trademark can take 18 months, although examination periods are now falling to close to 12 months. 33
Page 1 and 2: NAVIGATING CHINA For New Zealand Bu
Page 3 and 4: This booklet provides practical adv
Page 5 and 6: is somewhere between half a million
Page 7 and 8: KIWI LESSONS - LOCAL EXECUTION IS V
Page 9 and 10: For China, and the rest of the worl
Page 11 and 12: Telecommunications China’s teleco
Page 14 and 15: 2. RESEARCHING THE MARKET 2.1 RESEA
Page 16 and 17: 2.2 MARKET VISITS Visiting the mark
Page 18 and 19: However, cold calling (for self int
Page 20 and 21: • Seek advice on the choice of ch
Page 22: If the Chinese side is hosting a di
Page 25 and 26: Testing the waters New Zealand comp
Page 27 and 28: much higher than this. The authorit
Page 29 and 30: Other options • Coat-tailing - ta
Page 31 and 32: closely with them at all levels, on
Page 33: KEY LEARNINGS • thoroughly resear
Page 37 and 38: Administrative enforcement The main
Page 39 and 40: 3.5 BUILDING RELATIONSHIPS Building
Page 41 and 42: WAIKATO UNIVERSITY CASE STUDY My cu
Page 43 and 44: Meetings Understanding meeting prot
Page 45 and 46: Deep guanxi is a strong feeling of
Page 47 and 48: Entertaining Evening banquets are n
Page 49 and 50: On it’s website, NZTE has a list
Page 51 and 52: • ask for details on the company
Page 53 and 54: KIWI LESSON - BEWARE OF OVERPROMISI
Page 55 and 56: Before signing a contract with a di
Page 57 and 58: KIWI LESSON - LOGISTICS ARE STILL A
Page 59 and 60: You should also build into your pri
Page 61 and 62: Trade media CATEGORY Food and Bever
Page 63 and 64: “Recommendations are a company’
Page 65 and 66: Chinese television personality and
Page 67 and 68: • registration information and qu
Page 69 and 70: agreement was missing (should be A8
Page 71 and 72: How to make contact with ‘half-pa
Page 73 and 74: Accounting records must be kept in
Page 75 and 76: If you have a long-standing relatio
Page 77 and 78: These foreign exchange controls are
Page 79 and 80: translations in all cases - it’s
Page 81 and 82: Using e-logistics China faces a num
Page 83 and 84: 6.6 LANGUAGE AND USING INTERPRETERS
Page 85 and 86:
Things to avoid: • leaving senten
Page 88 and 89:
7. MANUFACTURING IN CHINA 7.1 PROS
Page 90 and 91:
BUSINESS MODELS Least Cost and oper
Page 92 and 93:
Finding and building a relationship
Page 94 and 95:
ATRAX CASE STUDY Sourcing from Chin
Page 96 and 97:
Protecting intellectual property In
Page 98:
The contents of this brochure are t
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Navigating China Guide (2012) - New Zealand Trade and Enterprise

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