Trip Notes on IP Protection and Doing Business in China
© 2000 Gorman & Williams
by:
Francis J. Gorman
Gorman & Williams
FJGorman@gandwlaw.com
www.gandwlaw.com
Phone: 410-528-0600 (Baltimore)
202-628-0564 (Washington)
Fax: 410-528-0602 (Baltimore)
More clients are doing business in Mainland
China. Gorman and Williams has long maintained strong legal relationships
in Taiwan. For legal relationships in Mainland China, however, we decided
that a personal visit was needed to go beyond faxes and e-mails and to
personalize and strengthen our relationships in Mainland China.
In July, 2000, Frank Gorman traveled to Taipei
and then to Shanghai. What follows are notes and comments made after
the trip about protecting patents, trademarks, and copyrights while selling
and licensing products and services in Mainland China and in Taiwan.
Mainland China
1. Selling -- to sell into Mainland
China, you need a both buyer and a Chinese entity authorized to enter into
contracts.
2. Licensing -- subject to government
control, including regulation of royalties. A license must be registered.
In addition to royalties paid by the Chinese licensee, consider a management
agreement requiring the payment of a management fee in order to augment
income out the business in China.
3. Sales Representative in China --
A sales representative can act as your “eyes and ears.” To set up
a sales office in China, various documents and forms have to be completed
and filed with governmental authorities. To hire employees, you usually
must go through the government labor office. At times, the process
of setting up a sales representative in China can be difficult because
the business systems are newer, the country is so large, the legal system
is still developing, and government regulations in many areas are not transparent.
Another option is to set up a non-Chinese subsidiary and qualify it to
do business in China.
4. Intellectual Property.
A. China has
statutes protecting patents, trademarks, copyrights, and unfair competition/trade
secrets. These laws will strengthen after China joins the World Trade
Organization (WTO) and is required to comply with the minimum standards
of the TRIPS Agreement. China’s entry into the WTO should occur in
early 2001.
B. Intellectual
property protection can be obtained by application to the governmental
offices in Beijing for patents, copyrights, and trademarks. (The Chinese
Copyright Office has branch offices in each province or municipality, such
as the Shanghai Copyright Office). As a general matter, an application
for a mechanical patent in China –- from filing to grant -- takes about
four years, although less if the patent application was previously filed
in another country using the Patent Cooperation Treaty and designating
China as a PCT filing country.
Trademark applications must be filed in both
English and Chinese language. A trademark search can be done only
by the government’s trademark office.
C. Enforcement
of intellectual property rights can be through administrative channels
or judicial channels, civil or criminal. These enforcement methods
are closely interwoven. A frequent activity for intellectual property investigators
and attorneys in China is conducting raids with governmental authorities
to seize counterfeit products.
Administrative enforcement with respect to
patent infringement requires proceedings brought before the Patent Administrative
Authority, for trademark infringement before the Administrative Authority
for Industry and Commerce, and for copyright infringement before the Chinese
Copyright Office.
There are four levels of courts in Mainland
China –- the basic court, the intermediate court, the higher court, and
the Supreme Court. If a party is not satisfied with the judgment
of the first trial court, it may appeal to a second trial court and the
judgment of the second trial court is considered final. In patent
infringement cases, the “first trial court” is usually the intermediate
court where the infringement occurs and the “second trial court” is the
higher court of the province or region. For trademark and copyright
infringement cases, on the other hand, the “first trial court” is the basic
court and the “second trial court” is the intermediate court of the province
or region. In a significant case with wide impact, the “first trial
court” can begin at even higher levels.
Whether seeking administrative or judicial
enforcement, a duly-executed power of attorney must be supplied to a Chinese
law firm, along with other certification documents which the Chinese firm
can supply to the party to be filled out and signed/notarized. In
addition, evidence of ownership of a valid patent/trademark/copyright,
evidence of infringement, and evidence of damages must also be supplied.
Like the United States, judicial proceedings
in China can be slow and complicated and are to be used only as a last
resort.
D. Domain Names.
Domain names in China are granted in both English and Chinese languages.
ICANN is not the granting authority in China but instead there is a separate
Chinese authority with a connection to ICANN.
5. Law Firms. There were no private
law firms in China before 1980. Then the government set up a small
number of law firms. These government-established law firms were
not partnerships. In 1990, Chinese partnership law was established
and the government began licensing private law firms to be established
as partnerships. Today, a number of foreign law firms have been licensed
to practice certain areas/aspects of law in China.
In Shanghai, there was a full range of law
firms –-from smaller firms that specialize in counterfeit raids performed
in close cooperation with local police authorities to specialized intellectual
property law firms doing only patents, copyrights, trademarks, and unfair
competition/trade secrets. There are also large, private Chinese
law firms (100 attorneys or more) specializing in banking, corporate law,
and financing and government approval of large projects. Gorman &
Williams has established relationships in each category.
6. Personal Comments On Shanghai.
There are unusual rules on currency exchange. At the end of your
trip when you are at the airport in China, you will not be able to convert
your Chinese money into another currency unless you obtained your Chinese
currency in the first place from an authorized government currency exchange
office and you have the receipt evidencing that you obtained your Chinese
currency in that way. Cabs in Shanghai are very efficient and very
reasonable in price. Shanghai is very open, very large, sophisticated
and modern, and very commercial in atmosphere. There is no sense
of an omnipresent government which is more likely to be felt in Beijing
or in outlying provinces.
Taiwan
The official name of Taiwan is “Republic of
China” as distinguished from the “Peoples Republic of China” on the Mainland.
When Mainland China enters the World Trade Organization, it will be known
of course as “China,” and when Taiwan enters the WTO, it will be known
as “Chinese Taipei.”
1. Selling
And Licensing. Taiwan has a free and open market. Although
there are government controls, they are transparent and can be complied
with.
2. Sales Representative
In Taiwan. It is not difficult to set up “eyes and ears” in Taiwan
because of its more mature economy and more open commercial system.
The country is small in geography, and there are developed business and
legal systems. The American Institute in Taiwan, which serves as the United
States’ diplomatic and commercial office in Taiwan, can assist U.S. businesses.
3. Intellectual
Property. -- Taiwan has established intellectual property laws and
regulations which are consistent with the WTO’s TRIPS Agreement.
It is expected that Taiwan will become a member of the WTO after China
has entered as a member.
4. Law Firms.
There are many quality attorneys and firms in Taiwan, offering the full
range from solo practitioners in small firms to large U.S.-style firms.
Many U.S. and foreign law firms have offices in Taiwan. Gorman &
Williams has relationships in Taiwan in all of these categories.
5. Personal
Comments On Taiwan. The country has become “westernized” in many
respects over the past fifty years. The economic base has shifted
from labor-intensive, low-skilled products which were exported in the 1950s
through 1970s to high-tech industries such as computers, telecommunications,
electronics, etc. Taiwan business use lower cost labor from other
Asian countries, especially Mainland China. The people are reserved
but very friendly and helpful once you have been introduced and get to
know them. Business contacts are almost always made at offices or
in restaurants, not private homes. Foreign exchange is freely convertible
both into and out of the country.
Conclusion
Each business has to weigh the benefits an
opportunities of the markets and potential markets in China against the
current difficulties and risks of doing business in China. It may
not be necessary to make an all or nothing, go-or-no-go decision.
An incremental process with phased goals and objectives may be more prudent.
Business benefits and risks can be reassessed at each stage, and management
can decide whether to proceed as planned, to withdraw, or to accelerate
the process.
