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

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KIWI LESSON – ADDITIONAL RISKS “You do need to be careful about protecting your intellectual property if you are operating in China. Of course this is true of doing business anywhere, but it is generally accepted that there is additional IP risk in China where companies have found that it can be difficult to enforce intellectual property rights.” – David Thorrold, CEO, BioVittoria Protecting copyright Unlike patents and trademarks, you do not need to register copyright to obtain protection. China gives automatic copyright protection to nationals of countries that are party to the Berne Convention which includes New Zealand. However, you can register voluntarily with China’s National Copyright Administration, which provides you with a certificate and is a convenient way to prove ownership if you need to enforce the copyright. Registration of a copyright licence with the copyright administration may also be required to remit licence and royalty payments abroad. Another important fact you should consider is that if you need to file for Customs recordal to facilitate seizures of pirated copyright material by China Customs, a copyright registration certificate is necessary. There is copyright protection for graphics or arts related to: • product designs • diagrams and manuals • computer software • musical, video, dramatic and artistic works • architectural works • photographs. Copyright protection applies for 50 years. In some cases, you can protect product design as an ‘artistic work’, but this can be challenging in respect of everyday objects. To protect the shape and exterior design of a product in China it is better to file a design patent when the design is first created. Dealing with unfair competition and trade secrets China’s unfair competition law prohibits the theft and disclosure of trade secrets. It also deals with attempts to ‘pass off’ a fake product as legitimate, or in a way which creates confusion. In relation to trade secrets, companies should take the following steps to protect trade secrets in the workplace: • Identify your trade secrets and review who has or could have access to them. • Control access to trade secrets by implementing proper security measures and restricting access to relevant computers and equipment, documents and areas. • Documents and materials that are trade secrets should be labelled. • Impose a strong and clear contractual obligation on employees at each level to protect your trade secrets. Upon hiring, companies should ask each employee to sign an agreement that confirms the employee’s obligation to protect the firm’s trade secrets. • Seek advice of labour lawyers or HR specialists in China on what is enforceable in employment agreements. In relation to ‘passing off’, you are protected if your product or service has a reputation in China and if the infringer’s imitation may cause confusion, even if you have not registered any trademarks or other rights, or if the infringer has not used the same trademarks. However, it is essential that your product or service is already sold in China to demonstrate reputation. The threshold for proving whether the alleged infringer has caused confusion is a subjective one and such cases can be challenging. Having good records of your marketing activities can improve your case. (BPMC (2005). Protecting your Trade Secrets in China. Hong Kong: Alibaba Group) What can I do if my IP is violated? While China has a reputation for having weak IP enforcement, in reality, standards of enforcement have improved dramatically in recent years. This is mainly because many Chinese companies are themselves IP owners and are also taking legal action against infringers. While there is still inconsistency between different IP agencies, the courts and between different locations, you should not assume that the odds are against you. It is more likely that, if your rights are in place and you have a clear case, you will be successful, although the level of punishment of the infringer may be less than you expect. “It’s not so much in terms of how the law is interpreted anymore, it’s the threshold that the authorities set for you in terms of how much evidence you’ve got to produce and how much you’ve actually got to convince them.” – Luke Minford, Rouse and Co International He says there’s been a huge increase in the number of cases going to court and that has really improved the quality of the judges. “It’s improved the impartiality of the decisions. We’re seeing some very good, fair, fast decisions coming out of the courts. The cost of enforcement can be a lot less than in New Zealand.” New Zealand companies should be prepared to act quickly and decisively regarding enforcement. There are several enforcement options for dealing with violation of your IP: • administrative enforcement • civil litigation • criminal enforcement • cease and desist (C and D) letters. 34
Administrative enforcement The main way to deal with infringements is to file a complaint with one of the Chinese enforcement agencies that have specific powers to enforce IP rights: • for patents this is the State Intellectual Property Office • trademarks – the Administration for Industry and Commerce • copyright – the Copyright Administration. Customs and other agencies such as the Technology Supervision Bureau also have powers to deal with counterfeit goods. While their powers vary, these administrative agencies can usually fine infringers, seize goods or equipment and issue penalties. However, they do not have powers of arrest and cannot award compensation. While the administrative enforcement is usually very quick and low cost – it does not require any court procedure – it can be a limited deterrent and fines may be small. For complex IP cases, you may need to use the courts and for very large cases, you may want to try criminal prosecution (see below). An administrative action can cost US$4,000–$8,000. Civil litigation Companies can take civil action through a local People’s Court or an Intellectual Property Tribunal. The courts are suitable where: • you have a more complex case that cannot be handled by administrative authorities • you want to obtain damages, or send a strong message to the infringer. Civil litigation is more suitable where the infringer has assets and has the ability to pay damages. Though slower and more expensive than administrative action, more and more companies are going down the litigation route. Although damages awards for IP infringement are much lower than you might expect in New Zealand, they have been rising in recent years. You can consult the website www.ciela.cn which gives useful statistics on IP cases in China’s civil courts. You should try to bring your case in courts in larger cities, such as Beijing, Shanghai or Guangzhou, rather than in local courts which may have less IP expertise or which may be subject to local bias. Criminal prosecution China’s criminal law allows for prosecution of serious cases of piracy and counterfeiting. Only cases which are relatively large scale, and where trademarks or copyright have been exactly copied, are eligible. The threshold for prosecution is based on a specific monetary value of the case, although valuing the case (by the number of counterfeit goods sold or seized) can be challenging. The police, as in many other countries, have limited resources and may be reluctant to investigate cases which they consider small scale. Generally you need to prepare the details of the case in advance and report to the police – they will not simply act on preliminary leads. It is common for a case to be transferred from the administrative authorities (see above) if it’s large enough. Criminal cases require investment of time and resources to investigate the leads and guide the case through the prosecution process. Costs can range from US$ 20,000 – 40,000. Cease and desist Cease and desist (C&D) letters can be an effective way of getting an infringer to stop, if you believe the infringer is too small scale or not serious enough to merit spending a lot of money. For example, traders on the internet are a suitable target for C&D letters if you want to demand that they take down any infringing products or logos online. To be most effective, the letter should be written in Chinese, sent by a Chinese law firm and followed up with calls. While C&D letters are not likely to be effective against a hardened counterfeiter, do not rule out the effect that a simple letter can have in dealing with a problem. KEY LEARNINGS • Take steps as early as possible to protect your IP. • Have a clear intellectual property plan and budget that anticipates risks. • Get expert support on the ground in China ahead of market entry. • Educate your own employees and partners about IP and ensure your contracts fully protect you. • Be prepared to act quickly and decisively regarding enforcement. (Source: Chris Bailey, Partner and Deputy Country Manager China, Rouse and Co) It is possible to combine administrative and civil action, so that you can conduct an administrative ‘raid’ first and then file a civil suit to claim compensation. Costs for civil litigation can vary considerably depending on the complexity of the case, but may vary from US$ 20,000 – 100,000. 35
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 and 34: KEY LEARNINGS • thoroughly resear
Page 35: It is also important to put IP issu
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
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7. MANUFACTURING IN CHINA 7.1 PROS
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BUSINESS MODELS Least Cost and oper
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Finding and building a relationship
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ATRAX CASE STUDY Sourcing from Chin
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Protecting intellectual property In
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The contents of this brochure are t
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