3 protections registering trademarks in China will grant you!

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3 protections registering trademarks in China will grant you

We all know we must register our trademark in China to get any legal protection. But what specific protection can be expected? According to the revised Trademark Law, there are three kinds in total:

1. Trademark. It’s not allowed to use the same or similar sign with a registered trademark in the same or similar products. By use, we mean manufacture as well as sell.

2. Trade name or company name. The revised Trademark Law also makes it clear that the Anti-Unfair Competition law will be applied if any company uses a registered trademark, or a well-known unregistered trademark as its trade name and causes public confusion. It means using other’s trademarks in company name may be restrained.

3. Domain name. Using the same or similar registered trademark to be the domain name and go in for e-commerce of related goods is also forbidden.

In conclusion, if you go about registering trademarks in China, you cannot only stop others to use the same or similar sign in their products, but also stop others to use the same or similar words in their company name or domain name.

Is dealing with a Hong Kong company safer?

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Is dealing with a Hong Kong company safer

While discussing how to protect yourself against trade fraud, one of our clients said: “I prefer dealing with a Hong Kong company, it’s safer, at least.” However, among all frauds I’ve heard about, half of the victims sent money to an HK account.

Safe or not depends on what kind of HK company it is. Typically speaking, a traditional HK company is set up by business people who base their company mainly in HK. However, because virtual offices are permitted for a HK company and little capital is needed to incorporate an HK company, there are two kinds of HK companies.

The first type of HK company is set up by business people in other jurisdictions, for the benefit of convenience, such as free flow of funds or nearly unlimited business activities. For example, many factories in Mainland China set up an HK company to do international trade. However, another situation is an HK company set up by fraud, the only purpose of the ‘so-called’ “ HK company” is to scam!

Dealing with an HK company is not a guarantee. If you are dealing with a HK company, you may pay a visit to its office, or pay someone to do so. Don’t make a full payment until the goods are to your satisfaction. These are useful ways to effectively protect yourself.

PRC Releases New Trademark Amendment, Violators Face Fines: ~500K USD

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PRC Releases New Trademark Amendment Violators Face Fines -500K USD

China’s top legislature– Standing Committee of the National People’s Congress (NPC) adopted an amendment to the Trademark Law which went into effect on 30th of August, 2013.

The amendment, raises the compensation ceiling for trademark infringement to 3 million RMB (about 500,000 US dollars), six times the previous limit, it also includes clauses that will effectively prevent malicious registration of trademarks.

The amendment added that trademark agencies are not allowed to accept entrustment if they know or should know that their clients are conducting a malicious registration or infringing on the trademark rights of others. Agencies violating this law will face fines and a bad credit record filed by industrial and commercial authorities. Those involved in serious cases will have their businesses suspended.

The amendment also offers protection for renowned trademarks, giving owners the right to ban others from registering their trademarks or using similar ones — even if such brand names are not registered. But the words “renowned trademark” shall not be used in promotions or advertising.

According to the amendment, clauses regarding the examination period of applications for trademark registration were also changed to make sure a more efficient procedure.

As of June this year, China held the world’s largest number of registered trademarks and valid trademark registrations, at 8.17 million and 6.8 million respectively, according to latest official statistics.

For more legal information, please visit AsiaBridge Law

Too good to be true, rings true, when buying from or selling to China!

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Too good to be true rings true when buying from or selling to China

Nothing is as it seems in China

When I wrote blogs about protecting yourself while sourcing in China, I got a call from an overseas client who was trying to sell his wine to China. He told me he would fly to China to sign a contract with his buyer. The Chinese buyer approached the company and asked to buy seven containers of wine from him. It seemed like a good thing, however “too good to be true”, so he wanted to consult with me after the meeting with his buyer.

A couple days later, my client came to me with the signed contract, “It seems we are safe, because we will not send over any goods before we are fully paid.” However, no one orders seven containers of wine for the first order, unless wine has sold very well already. I reviewed the contract with my suspicion.

The buyer will pay 30% deposit, and then the balance before the goods are delivered, so my client wouldn’t supposedly suffer any loss. However, according to the contract, the contract should be notarized by a local notary officer in order to be valid. Since it’s an international sales contract, both parties must pay for the notary fee fifty/fifty.

The Chinese buyer said, my client doesn’t have to go to the notary office in person, they can let the buyer to do the notary, as long as my client pays his share of the notary fee, which is equal to 6% of the amount involved in the contract.

The Chinese buyer provided a sample of power of attorney together with their bank account.

However, I pointed out that:

1. Once the parties signed the international sales agreement, the agreement will be valid and enforceable. No notary is required by the law;

2. If notary is necessary, then both parties have to show up in the notary office to sign the agreement in the officer’s presence. No proxies are allowed!

It’s a trick. Its aim is not to get your goods (almost everyone’s aware of that), it scams you by asking you to pay a government fee. If you don’t know about Chinese business rules, it seems reasonable. But as I said, no one is willing to pay for seven barrels of wine for the first order, there must be something unusual!

So, still the same words, “too good to be true.” Whether you are buying from or selling to China, do some research, or consult with local expert before you make the final decision.

China sourcing: Be smart when drawing up contracts

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China sourcing Be smart when drawing up contracts

This morning, I spoke with a client. He said he needs a simple supply contract to use for his sourcing business in China.

I sent him a checklist, so that he can let me know what he expects the contract to specify. He replied that he needed quick advice, he can’t sit and write all this. He repeated saying that he needed a “quick” and “simple” agreement, so he can use on “many, many products monthly”, and use “across different factories.”

I began telling him that if he wants to use it that way, the contract must be comprehensive and can’t be simple. Some businessmen tend to think lawyers complicate things, even though he needs just a simple agreement.

So I want to clarify here: if you hope your contract will be binding to your suppliers, and may be used as the basis to solve any potential dispute you may have with your suppliers, the agreement cannot be simple!

For example, you can’t just say that “the supplier must provide good quality products.” You have to verify your idea of “good quality,” and specify that the supplier must acquire quality authentication for certain types of products. If necessary, you should assign an inspection company to do inspection during the production or before delivery, if the supplier fails the inspection they should reproduce the product, however, if they can’t deliver the goods to you by the deadline, they will have to pay a fee for late delivery, etc.

How can a supply agreement be simple?

In fact, a simple agreement is akin to no agreement.

My advice to all buyers:

1. If you need a supply agreement, give yourself and your lawyer some time. You have to decide what your expectations of the agreement are, and let your lawyer know about these.

2. During the process, speak with your lawyer thoroughly, make sure you understand each other. China is probably a totally different jurisdiction than the one you are familiar with, so a thorough discussion will make sure the contract satisfies your requirements.

3. Don’t expect a quick and simple agreement, a responsible lawyer won’t give you such an agreement. Lawyers do not want to complicate things, they just want to make sure you are protected by your agreement.

What you need to set up a WFOE in China

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What you need to set up a WFOE in China

Setting up a WFOE in China

WFOEs usually take the form of limited liability companies and the liability of the foreign investor in respect of the WFOE is limited to the amount of capital it agrees to contribute. The risk of proceeding with a WFOE structure is that a foreign investor will not have the assistance of a domestic partner when obtaining government approvals, premises and land, and cannot benefit from the existing sales and distribution channels of a domestic partner.

However, many foreign investors using WFOE structures have found that doing business in the PRC is becoming less difficult over time and is less dependent on local connections.

Furthermore, the WFOE structure enables a foreign investor (or multiple foreign investors) to have complete freedom to implement the operational, investment and managerial strategies of the foreign parent company, without having to take into consideration the interests, needs and agenda of a domestic partner.

This makes WFOE easier to manage. In addition, it is easier for a foreign investor to protect its know-how and technology, as the WFOE structure makes it easier to limit access. For these reasons, WFOE have become favored to EJV [Equity Joint Venture].

Documents required for setting up WFOE in China

  1. 3x Certificate of Incorporations, or Equivalent document authenticated by Chinese embassy or consulate or notarized by a HK lawyer authorized by Chinese Department of Justice(If the parent company is incorporated in HK).
  2. 3x Bank Reference Letters from investor’s bank to declare a good standing
  3. Passport copy of WOFE’s Legal Representative
  4. WOFE’s Legal Representative provides 6 photos (2 inches size), brief resume signed by the Legal Representative.
  5. Statement of registered capital and business Scope of WOFE for us to prepare documents.
  6. Office address in China, 3x leasing contracts, 2x certificate of real estate ownership, and 2x landlord identification).

*Note: WFOEs are prohibited from being established in industries where there is an express requirement for a joint venture, or where a domestic party is required to hold a controlling interest under the Catalogue.

Don’t be fooled by a local partner in China!

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Dont be fooled by a local partner in China

Doing business in China is not easy. However, a local partner may help you navigate the Chinese business landscape easier. With a good partner you won’t have to worry about most of the headaches that come with the climate. A local partner in China can help you understand the law of the land, Chinese culture, especially with potential clients and the government, business etiquette, etc. Maybe you are focused only on business; however, it’s important to find a reliable partner.

Recently I was involved with a case regarding an overseas investor and his or her local partner. We’ll call the local partner, P, and my client, C, for this writing. P was from the same country as C, however, P had a Chinese spouse and had lived in China, more than five years. Cintended to set up a restaurant and was advised by P, ‘only Chinese may rent space zoned for restaurants.’ Essentially, P persuaded C to release investment funds to P letting P’s spouse oversee formation of the restaurant.

I smelled a rat when I heard this story. P lied to C’s face. In China any foreigner may set up a WFOE [Wholly Foreign Owned Enterprise]. Additionally, foreigners may serve in whatever capacity his or her enterprise entails.

Some foreigners will choose to find a local partner. One of the benefits of forming a partnership with a local is you will pay less in registered capital. In the case of P&C, P should have discussed options with C. However, the mistake’s been made. P admitted the investment was made by C. But C didn’t run the enterprise; P controlled all aspects of the restaurant. Under P’s control, the entity soon went bankrupt. C invested and lost more than 1 million RMB.

My client’s story is one of many. In my opinion, you may cooperate with a local partner, but before you enter into any agreement consult with a local lawyer. Make sure you understand the terms and conditions. During contract formation I suggest you hire an independent accountant who can make sure all money invested, is accounted for.28

China sourcing: Are bilingual contracts necessary?

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China sourcing Are bilingual contracts necessary

After AsiaBridgeLaw.com’s presentation regarding the importance of bilingual contracts at the Hong Kong sourcing fair hosted by Global Sources, some clients wrote me asking more about bilingual contracts. A few clients wanted to know, “Do you really think Bilingual contracts are necessary?”

I understand clients’ concerns. China sourcing issues are something that we deal with everyday; if something goes wrong, many clients doubt a good contract will protect them from trouble. Periodically I hear comments like: ‘the Chinese legal system is slated against foreigners.’ I agree that China’s legal system is far from perfect, but I don’t think it’s slated. A Chinese person could feel just as confused as any foreigner when dealing with all these changing laws and regulations, although foreigners do face the cultural difference and language barrier.

The truth is, it’s not easy for Chinese to win a case, and it’s more difficult for them to recover his or her money, even if the judge rules in his or her favor.

So, why do we need a contract?

First, a well prepared contract gives out the signal: I care. Other people will think before acting against you.
Second, a good contract provides remedy if anything should go wrong. Although it’s not easy to win a case, if you do yourhomework, you will find you can win!

In my opinion, doing business without a good contract is akin to parking your car in public with a broken window.

What do you think? Let us know in the comments below…

Buying from China? Beware, and double your diligence!

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Buying from China Beware and double your diligence

Fraud can always accompany business; only sometimes does it actually reveal itself. We say, double your diligence before you pay.

A couple days ago, a client buying from China voiced a complaint to me. The buyer told me that their supplier received payment for goods. However, the supplier denied receiving the deposit and refused to deliver the goods as per the agreement. The buyer said, “I received the supplier’s email from the same address with the supplier making a claim that their bank account was undergoing audit and asked us to make payment to an overseas bank account. Later I found out, the supplier never changed their bank account!”

Watch out! A typical hacking scam, within sourcing, goes like this:

First, hackers will break into trading company’s email inbox and follow communication between clients. A supplier’s email inbox is easy access to hackers. Hackers will then find an opportunity to send an email to the buyer. Most hackers will tell buyers, ‘they are using a new bank account and all the payment made should be directed to that account.’ If the buyer does as told without receiving confirmation from the supplier, by phone, regarding any changes, large amounts of money will probably be lost.

Remember: any changes that seem out of the ordinary to you, get phone confirmation from the supplier before adhering to new changes.

How to go about protecting intellectual property in China

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How to go about protecting intellectual property in China

One of my clients asked me a question, which I believe is a common concern:

“How can one go about effectively protecting intellectual property in China?”

The following was my answer:

1. First of all, register your IPR in China, ASAP. All IP laws & regulations in China are based on the protection for legitimate registered IPR. Furthermore, for IP registration, China operates a “first-to-file” system, which means, whoever first applies for IPR will be granted ownership. That means if you want to protect your IP in China, you should register it in China.

2. Sign an NDA or similar contract with your partner. Whether you want to sell, buy, or manufacture in China, make sure you sign a Non-Disclosure Agreement (NDA) or a contract with NDA clauses with your partners, who are probably your distributors, suppliers or local staff. In the NDA, you may specify that a penalty will be payable once either party breaches it, no matter if any actual damage has be made. Word of advice, it is vital to find a good partner, worst NDA +best partner is better than best NDA + worst NDA. Due diligence or IP audit is necessary when you choose your partner.

3. Register your IP with China customs. Though an NDA may work with a partner, you can’t stop any third party by signing an NDA with them. However, according to Regulations of the People’s Republic of China on the Customs Protection of Intellectual Property Rights, you may register your IP with customs to stop the infringed upon goods being shipped out of China.

4. Finally, but not less importantly, you may resort to the following procedure to stop infringement: civil litigation, criminal prosecution and administrative action. Different procedure has different effect; you had better consult your local lawyer before you do any of them.