BizChina

I am always preaching how foreign companies must register their trademarks in China if they are going to be doing business in or producing product in China (see, for example, "China Trademarks -- Do You Feel Lucky? Do You?"). And in most cases, companies should register their trademarks in China now. Right now.

China is a first to file country, which means that, with very few exceptions, whoever files for a particular trademark in a particular category gets it. So if the name of your company is XYZ and you make shoes and you have been manufacturing your shoes in China for the last three years and someone registers the XYZ trademark for shoes, that other company gets the trademark. And then, armed with the trademark, that company has every right to stop your XYZ shoes from leaving China because they violate its trademark.

But saying a company must register its trademark if it is going to do business in China does, at least to a certain extent, beg the question as to when that company should register the trademark. I always tell our clients and potential clients that they should register their trademarks right away. My thinking on this is that if they are going to be doing it anyway, they should do it right away so as to make sure nobody beats them to it.

But what if you are an American company that is thinking of introducing your product into China in a couple of years? What do you do? Well if you are a massive company with a lot of money, you go ahead and register your trademark right now. But if you are a small company, spending the money now may or may not make sense. Where and how do you draw the line? There is no one answer here; it is more a case of knowing it when you see it.

I thought about all this yesterday because I received a call from a small company that was referred to me by a China sourcing company we represent. The China sourcing company had the foresight to tell this other company (let's call it Company A) that it needed to register its trademark in China before the sourcing company started going out and trying to find manufacturers for Company A's product. But when I spoke with Company A, it immediately became clear to me that its funds were very limited and that it was very unsure if it would even be able to find a manufacturer at a price that would make sense and if it did find that manufacturer, whether its product would catch on in the US or not. Company A's not unreasonable plan was to make a limited quantity as a test run and then, if that worked, secure financing to ramp things up.

Company A: Is a trademark really necessary in China?

Me: It is necessary if you are going to be sure to protect yourself from someone taking your name from you. How important is your name to you? If someone takes it, could you stamp a different name on your product for the next go round?

Company A: I really like our name, but I could always come up with a new one if that were to happen. Do you really think someone is going to register our trademark right away in China?

Me: The odds certainly favor you, but you just never know. You can consider waiting until after you see if your product will have legs.

Company A: I would prefer to do that. Am I taking a huge risk?

Me: A lot depends on whether the worst case scenario of having to come up with a new name is terrible for you or not.

You will never get me to say anything other than how important it is to register your trademark in China right away (because I do not want anyone to be able to blame me if "their" trademark is registered by someone else), but obviously the decision on when to register is sometimes a bit more complicated than that.

What do you think?

"Whoever wants to know the heart and mind of America had better learn baseball, the rules and realities of the game."
Jacques Barzun

I love watching and reading about sports. Always have. Always will. Growing up, I never missed school unless the Cubs were on the television. No way was I going to waste a sick day on I Love Lucy and the Beverly Hillbillies.

Many years ago, a London lawyer friend of mine (who happens to be a baseball fan) was asking me about racism in the United States. I told him of an incident in Ken Burns' amazing documentary, Baseball, that to me, pretty well summed up both the absurdity and shame of American racism. The story (as I remember it now) was Curt Flood (or was it Lou Brock?), an intelligent, thoughtful, and articulate black man, talking about a doubleheader his minor league team played in Arkansas (I think it was Arkansas) where he had to sit out the second game because the local laundry would not wash the clothes of a Black man. I then instructed my friend to read David Halberstam's book, October 1964, which does as good a job of any in explaining American racism. My read it and loved it.

Though I know it to be a total cliche, I cannot resist also pointing out that sports teach you about life. Because they do. Read this amazing article on Walter Payton and then try to dispute that.

All this is a preface to pointing out that there is some excellent China sports writing going on out there in English, of which you should be aware.

The China Sports Review Blog and China Sports Today are both excellent general sports blogs.

China Sports Today describes itself as follows:

From our base in Beijing, China Sports Today covers the Chinese sports world - from professional leagues and Olympic teams to sports marketing and recreational events. Our daily news updates, events calendar (coming soon), guides and listings of relevant locations (coming soon) around China will help you make sense of the rapidly evolving sports scene here.

Whether you are a journalist looking for the names of China's top badminton players, a rugby player looking for a team to play with in Shanghai or a sports fan coming to the 2008 Olympic Games in Beijing next August, China Sports Today is your online source.

China Sports Review describes itself as follows:

China Sports Review was established in Oct. 2008, one month after the Beijing Olympics Games, with the objective of providing up-to-date news about China’s sports industry, analysis and opinions on current happenings in the Chinese sports world, as well as information on Chinese sports media, education, culture and history.

And though I am of the Golf is a good walk spoiled view (mostly because I suck at it) I love Dan Washburn's Par for China blog, which he describes as follows:

I am Dan Washburn, an American writer based in Shanghai, China. I am currently researching a book about the development of golf in China. Golf, its emergence and growth in China, is a barometer for the country’s rapid economic rise. But golf is also symbolic of the less glamorous realities of a nation’s awkward and arduous evolution from developing to developed — historical prejudice, class struggle, political corruption, environmental neglect, and an ever-widening gap between rich and poor. This website is dedicated to some of my work on the topic.

It is often said that to fully understand a culture, you have to understand its humor. I think the same holds true of a country's sports and its relationship to those sports. If you want to know more about China through sports, I recommend you read China Sports Review, China Sports Today, and Par for China .

Not so long ago, I spoke at a China round-table where someone asked me what sort of US businesses Chinese companies are interested in buying. I mentioned how Chinese companies typically buy US companies for one of two reasons: expertise or brand name. Later that night I thought about how Chinese companies should be buying US companies for their brand names, but they really are not doing so in any large numbers.

Newsweek Magazine recently did an interesting article (h/t All Roads) seeking to explain China's lack of brand names. The article is entitled, "Generic Giants:Why China Can't Create Brands" and it is subtitled, "China is the world's factory, but its top firms remain oddly anonymous." It posits cutthroat domestic competition and lack of IP protection as the cause:

The simplest explanation for China's failure to build global brands is cutthroat domestic competition. In most product categories, hundreds or thousands of firms compete for domestic market share, leaving profit margins razor thin. China has 150 firms licensed to make cars and other motorized vehicles, and more than 500 bicycle manufacturers. And because foreign brands have taken much of the market's high end, most companies are forced to compete on cost, leaving little room for investment in R&D or marketing. China's weak protection for intellectual-property rights—the patents and ideas that are the solid core of any brand—makes it risky for companies to invest heavily in innovations that could make them famous worldwide but could easily be stolen by rivals at home. Finally, the recent string of product recalls—including poisonous pet food and faulty tires—has left consumers wary of made-in-China goods.

I disagree.

First off, China's intellectual property protection for most companies is just not that bad. Yes it is horrible for companies requiring copyright protection, like software companies that sell their product on CDs and movie companies that sell their product on DVDs and publishing companies whose products are books. It is also horrible for pharmaceutical companies whose products can be easily duplicated, at least in appearance. And yes, China's patent protections are not nearly as rigorous as those in the United States, for instance. But, China's trademark protections are actually pretty good and there are a whole slew of foreign consumer and industrial companies making money head over fist in China, while doing a great job of building and protecting their brand name. KFC, Nike, Audi, Shangri-La, and Emerson Electric immediately spring to mind and there are hundreds of others, both big and small. China's IP protection may explain the lack of international brands in some product categories, but it does not even begin to explain the lack of Chinese brand power across the board.

The same is true of the alleged cutthroat competition. Yes, China has cutthroat competition (what country doesn't?) and yes price is central to the Chinese consumer. But many foreign and domestic brands are thriving. (Haier and Huiyuan, for example). No, that cannot be the explanation.

My explanation is more elemental. Most Chinese companies just do not value brands as highly as Western companies. At least not yet. For the most part, they do not understand the value in spending massive amounts of money to create positive brand name recognition in places like the United States.

I love telling a story of a matter in which I was called in to represent a US home goods company that was going to be entering into a joint venture with a Chinese company. The US company was based in the Midwest of the United States, where it had a really strong name. It had originally made its own product, but was now buying well over half of its products from a Chinese company, with whom it had a very good relationship. The plan was for the US company to help the Chinese company branch out into manufacturing more product and for the two companies to work together in expanding the products' footprint in the United States. The Chinese company would be expanding its product line while moving into the US wholesale and retail market and the US company would be getting access to Chinese product that would allow it to expand much more cheaply than if it were to make the product itself or even purchase it from some other Chinese company in a straight outsourcing deal.

The plan was to form a new US company, jointly owned by the Chinese and the American company and to market these home goods. The deal quickly fell apart, however, when the Chinese company insisted it wanted the new products to bear its company brand name. My client's insistence that using an unpronounceable Chinese name would be disastrous only seemed to cause the Chinese company to trust my client even less. These two companies still do business together, but their plans for worldwide domination have been put on hold. I initially thought their model would be duplicated again and again between US and Chinese companies, but that too has not been the case and I attribute much of that to Chinese companies simply not valuing brand names highly enough.

Not all that long ago, another Chinese company retained us to try to purchase a US trademark out of bankruptcy. The Chinese company made the product for the bankrupt US company and this product had an incredibly strong name within its relatively small niche. The trademark should have been worth more to the Chinese company that to anyone else. Eventually, the trademark went up for auction in bankruptcy and nobody could bid more than the amount it had deposited into escrow or had in cashier's checks. Our Chinese client kept asking us what we thought the trademark was worth and our answer was that we did not know that particular market and they should either retain an expert appraiser or just give us the absolute maximum amount of money they would be willing to pay for the trademark. They chose the later strategy and we went to the auction to bid. Well, within about a minute, we were out of funds sufficient to keep bidding and three bidders zoomed past us, all bidding at least three times what my client had bid. Even though this trademark should have been worth way more to our client than to anyone else, it valued it at well under the price of three other bidders.

What do you think?

For more on the topic of China branding, check out Aimee Barnes' very interesting post entitled, "Chinese Brands in America: A Conversation with Scott Markman, President of The Monogram Group." Also check out "Industrial Designers Tasked With Creating More ‘China Brands,'" which shows that the Chinese government recognizes China needs to improve on its branding and that it is trying to do something about it.

UPDATE: China Esquire did a post on this, entitled, "Lack of brand innovation in China?"

My law firm represents a fairly substantial number of companies that sell product worldwide over the internet. This stems from many years ago when we represented about forty such companies in an international lawsuit against one of the largest third party credit card processing companies. This work has given us considerable insight into the legal issues these companies often face and since I just did up a client memorandum analyzing the key legal issues this particular company will be facing as it ramps up its international business over the internet, I figured I might as well pull the highlights and set them out right here. The following is a list of the basic law related questions we typically grapple with when assisting companies that are starting to sell internationally over the internet.

1. What type of legal entity(ies) are you going to want? Where will you want them? These two questions must be answered in tandem.

2. From what countries will you accept purchases? Are you going to accept purchases from every country or are you going to limit yourself? Selling into multiple jurisdictions means you are going to be subject to multiple tax regimes. Who is going to figure out your taxes in each country? Are you going to use a third-party merchant of record to do this for you?

3. Selling into multiple jurisdictions means you are going to be subject to the privacy and consumer protection laws of multiple jurisdictions. We need to know the jurisdictions in which you will be selling to know what laws will apply to your company. Many countries have very strict shipping date and return requirements.

4. Is your product legal in all of the countries to which you intend to sell it? Is it legal for foreign companies to sell that particular product into all of the countries in which you intend to sell it? Is it legal in your home country to export your products into all of the various countries in which you intend to sell?

5. It would be nice if we could set you up with one law applying everywhere in the world, but most countries do not allow this when it comes to the sale of consumer goods. So we are going to have to discuss where you will be focusing your efforts.

6. Are you going to sell your products in local currencies or in just the major ones or in just dollars? Are you aware that some countries forbid its citizens from using foreign currencies?

7. Are the electronic contracts you propose using enforceable in all of the countries in which you will be selling?

8. Let's talk about dispute resolution. Arbitration? Where? Will all of the countries in which you are selling enforce this? Many will not enforce an online provision requiring their consumers to arbitrate in a foreign country.

Not that easy, is it?