BizChina

The World Trademark Review, in its article, "Research reveals increased US confidence in China’s rights enforcement regime," [subscription required for full article] just came out with a story on a recent US-China Business Council (USCBC) survey finding that US brand owners are becoming less concerned with IP rights enforcement in China. IP is now only number seven on a list of the "Top 10 issues," way down from first place in 2005.

China Law Blog's own Steve Dickinson is quoted on how trademarks are actually pretty well enforced in China these days:

Steve Dickinson, a partner at Harris & Moure, told WTR that, following entry into the World Trade Organization, China has “made remarkable progress in enforcement of trademark and patent rights”, but warned: “The same is not true of copyright, and this is where considerable problems still continue. The rate of copying has not really declined.”

However, Dickinson is unsure whether this [the proposed trademark law changes] will have an impact on confidence over the next year: “Most people are unaware of the amendments. Moreover, the changes are not really focused on enforcement and people who have been in China for some time have learned not to rely on changes in legislation. It is never clear when a law will be adopted or what the final version will say. Many proposed laws are changed dramatically in the final version, so we have to wait and see what is adopted.”

The article goes on to talk about how the proposed changes in China's trademark laws will only make things better.

For more on how IP protection in China is improving, check out "Piracy In China. T'Ain't No Big Thing."

This is the follow-up post I promised to my last post on joint ventures, "The China Joint Venture. It's BACK!!!" I promised a follow up post because the first one received so many comments and a few of them raised issues I thought needed addressing.

That last post was really mostly a podcast I did with AmCham, which can be found here.

In particular, I wish to address when a joint venture with a Chinese company makes sense, and how best to structure it when it does. I will confine this post to when a joint venture makes sense and will write later in the week on how to structure them when it does.

I want to first go on record (again) as stating that my views on joint ventures have not changed one bit since I first started doing them around fifteen years ago. My experience is that they are always risky and that they should be thought through very carefully. I mention this only because some commenters seem to think that whereas I was once against joint ventures, I am all of a sudden in favor of them now because the economy has gone bad and American companies have no other choice. Wrong. My position has always been that it is my job as lawyer to explain the legal risks and the job of my client to figure out whether the potential rewards justify the risks. Now that more companies are unable to go into China without going in as part of a joint venture, the risk/reward equation has shifted to the extent that there is now more often no other, perhaps safer option.

Having said this, when exactly does it make sense to go into a China joint venture. The obvious answer is when the reward outweighs the risk and when a joint venture makes better sense than a Wholly Foreign Owned Entity (WFOE). But when is that most likely to be true?

Restricted Industries. It is going to be true in whatever industries the Chinese government prohibits foreign WFOEs yet permits joint ventures. These businesses are most commonly found in mining, fisheries, farming, energy, telecommunications, media, and finance. If the Chinese government prohibits foreign companies from conducting business in China as a WFOE, but allows it as a joint venture, the choice is clear.

Supply Chain Access. I hate to use a cliche, but it fits here. China is not one market. It is many and some parts of China are far more and far less developed than others. I suggest you read All Roads Lead to China's weekly China logistics wrap-ups blog to get a better feel for logistics in China. A few posts from that site ought to tell you that moving product within China can be very difficult. Add to that the fact that well established national retail distributors and chains are extremely rare and you can see how getting a product to market in China can be difficult and expensive. Being able to slide your company into an established supply chain on either a national or multi-regional or even regional level is one of the best reasons for joint venturing in China.

Ready to Go Factories. This is where I have seen the most change since the recession started. Whereas a few years ago our clients were mostly choosing to establish their own manufacturing facilities in China by way of a WFOE, they are now much more likely to opt for a joint venture so as to be able to take advantage of an already existing facility with workers ready to go. This is an area though where a WFOE would typically make better sense, but if a company is faced with the choice of having Chinese manufacturing via a joint venture or not having it at all, then certainly a joint venture must be considered.

We have worked on a number of these deals where the American company contributes its technological know-how (and some cash) and the Chinese company contributes its factory and its workers. On one level this makes sense, yet on another, this sorts of arrangements can be particularly risky because once the Chinese company has learned the technology and burned through the cash, the need for the American company may be over. Concomitant with our handling of these sorts of joint ventures increasing, our handling of these sorts of joint ventures having gone bad has also increased. These are the joint ventures that most require smart handling, which handling I will discuss in our next joint venture post.

All Roads Lead to China just came out with a fascinating, but way too short, post on a few interviews of Shanghai's underclass. It is called, "It's All About Hope and Opportunity in China" and I urge everyone to read it.

All Roads' post touches on the sorts of things China Law Blog used to discuss a lot more often when when we first started oh so long ago.

I can remember writing a number of posts and comments where I would talk about how the Chinese are more like Americans than many realize. And how I have always felt far more "at home" in China than in what I see as for more hierarchical and formal societies like Korea and Japan.

The All Roads post brought back some fond memories for me of one of my longest and best China friendships. Excuse me for a rare burst of maudlin here, but it all goes back to a case I was handling in Qingdao where I and a Qingdao lawyer ended up spending the better part of two days together waiting for a ship to come in to Qingdao's port and then hunting it down once we heard it had arrived. We had a lot of time to talk and one of the things I will never forget about our conversation was how we both saw our countries so similarly.

We talked about how what we most liked about our country was how it was still possible for people from poverty to rise up and achieve just about anything. And of how this belief is so essential to the fabric of both our countries. This belief is our core. And this now very wealthy, exceedingly well educated Chinese lawyer knew of this from the heart as he is one of 13 children from a tiny village whose father had a 4th grade education.

We then talked about what most concerned us about our respective countries and we both again said that our biggest concern was how this was changing. We both talked of how the wealthy are starting to live in gated communities and send their kids to private schools and we both worried about the long term impact this might have on our countries' futures. Our two law firms eventually established a formal affiliation, but it has always been built more on our friendship than on any piece of paper.

All Roads' piece talks about the hopes of the financially downtrodden to do better by their next generation. CLB's Steve Dickinson is always telling me of conversations he has with waiters and waitresses and others in China's less respected jobs. And what he says reinforces what All Roads is saying. That these people believe their hard work will pay off in a better future, if not for them, than for their children.

When I was in college, I took a course on revolutions and the two things I best remember from that course (in fact, probably the only two substantive things I remember from that course) where that revolutions typically spring from the urban middle class (this is obviously less true of China than of most countries) and they spring from those who believe the elites have blocked the paths upward.

Rich, put me down as someone else who would love to see more of your street interviews.

Just a few random thoughts....

What do you think?

The Transcript from my AmCham interview on China joint ventures is now online here. We are working on a post on how companies can best protect themselves if they do go forward with a joint venture in China, but in the meantime, this transcript does a nice job (thanks in large measure to Josh Gartner's interviewing skills) of teasing out the state of the joint venture in China today.