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Hong Kong Firm Fubs Mainland TM Appeal: Appeal From the Publication Notice Not F...

January 12, 2018| Mr. David A. Dodge, Esq. | Uncategorized

We were retained recently to handle a China trademark appeal as to a rejection our client received while being represented by their previous legal representatives in Hong Kong. It appeared that our client’s supplier in Dongguan or another party affiliated with them, had filed for the TM before the client did. This is commonplace in China. Hence, our firm’s first task for clients doing business in China is to secure their IP rights as it is a “first to file” jurisdiction and the clients’ suppliers and China competitors will attempt to trademark and patent technology before the client is able to file for their own protection, resulting in a loss of their future intellectual property rights in China.

The previous Hong Kong law firm (overpriced and inexperienced in matters involving mainland China intellectual property matters) received the client’s Certificate of Incorporation and had their Mainland patent agents file an application for that TM with the State Intellectual Property Office (SIPO).

Because the client’s supplier had previously filed a TM application with SIPO, a notice of rejection due to the previous filing by the competitor/supplier was mailed out by SIPO. Under Chinese law, an appeal of the rejection notice is due within 15 days from the date of the receipt of the notice.

However, it is meaningless to appeal the rejection notice if there is a previous filed application (the competitor’s). SIPO will reject the appeal of the rejection notice as if there is an existing same trademark application that has already been filed.

Under these circumstances, instead, the foreign client must file an opposition against the previous filed trademark application (the competitor’s application) and apply for a new trademark just as same as the original contemporaneous with filing an opposition to the competitor’s TM application.

In order to accomplish this successfully, one must look to when the competitor’s publication period commenced, in other words, the date it was published. Under Chinese law, there is a three (3) month period during this publication for any parties with superior rights (i.e. the client who already has a previously granted USPTO TM) to file an application and opposition against the competitor’s application for the TM.

This is in accordance with the Trademark Law of the People’s Republic of China, Article 33:

“For a preliminary approved and published trademark, within three months from the date of publication, a prior rights holder or an interested party which believes that paragraph 2 or 3 of Article 13, Article 15, paragraph 1 of Article 16, Article 30, Article 31, or Article 32 of this Law is violated or any person which believes that Article 10, 11, or 12 of this Law is violated may file an opposition with the Trademark Office. If no opposition has been filed upon expiry of the publication period, the registration shall be approved, a certificate of trademark registration shall be issued, and the registered trademark shall be published.”

The Hong Kong IP firm was advising the client (wrongfully and expensively) that they must appeal from the rejection notice they received from SIPO. Fortunately, we were retained to step in and file and application and opposition against the competitor’s application for trademark rights to our client’s company name in China.

Drafting China Manufacturing and Supply Agreements (MSA) — Huge Errors

January 10, 2018| Mr. David A. Dodge, Esq. | Uncategorized

We recently advised a client who had retained their regular corporate counsel in the U.S. to draft a China Manufacturing and Supply Agreement (MSA) in regards to their Chinese potential suppliers in Dongguan and Shenzhen. The client was concerned that although the MSA appeared to be workable in the U.S. context, there was nothing China-particular.

There were numerous huge errors in contract drafting and legal judgment made by their corporate legal counsel who had advised the client in the past on non-China matters.

The contract itself was what I would call “U.S. boilerplate” and there needed to be several changes beyond translation to render it China appropriate and, most importantly, enforceable in the PRC context. Without internationally enforceable and China appropriate enforcement provisions the agreement had no teeth. Particularly as it related to the dispute resolution clause.

1. The Manufacturing and Supply Agreement (MSA) had a non-disclosure and confidentiality provision embedded in it as part of the agreement — a huge error in the China context. What happens when parties engage in negotiations and information disclosure but do not reach an agreement? Then the Chinese supplier has all of the plans and specifications as to the product but there is no enforceable confidentiality agreement?

Also, there were no provisions as to non-circumvention and non-competition. A huge issue in the China manufacturing context.

We had to clean the whole thing up and style things as a non-disclosure, non-circumvention and non-competition (NNN) addendum. The timing of entering into an NNN as a separate consideration to the MSA is crucial. In the event parties do not reach a final agreement, our foreign client’s proprietary and confidential information disclosed in negotiations should be protected from any prospective Chinese supplier engaging in wrongful disclosure, competition and/or circumvention.

Also, they needed to include non-competition and non-circumvention provisions that are China appropriate and enforceable in China as that is a huge consideration for the China side business.

2. There was no treatment as to liquidated damages although contract damages can be difficult to prove internationally and, in particular, in the China context. Furthermore, there needs to be some leverage over the supplier such the liquidated damages provide a strong motive to abide by the terms of the contract. We needed to draft an LDA as to liquidated damage considerations that spoke as to delays in the Contract Schedule or violation of the NNN or the wrongful retention of the client’s tooling. We styled the NNN as an addendum so that we could decide which provisions we wished to incorporate and which not.

3. Next was the issue of dispute resolution — namely, it was nowhere addressed. I asked their corporate counsel, “What happens if a disagreement arises with the Chinese supplier?’ He answered, “We would sue them in federal court.” Obviously, it would be utterly foolish to sue most Chinese companies and in particular suppliers in a U.S. federal court who have no assets in the United States. Obviously, with Chinese courts being decidedly pro-Chinese companies, we needed a choice of arbitration clause that could be enforced in Chinese court that also would be cost-effective and expedient. Otherwise, the foreign client would have no negotiating power with the Chinese supplier if and when problems arose.

I asked their corporate counsel to start contemplating whether we prefer CIETAC or HKIAC binding or non-binding arbitration in the event of disputes with our supplier. They had no idea what I was speaking of, let alone how to properly proceed.

When doing business in the China context, we strongly encourage our clients to seek competent legal counsel with China experience.

COGSA Defenses in a China Shipping Case — Not Always Applicable

January 9, 2018| Mr. David A. Dodge, Esq. | Uncategorized

We recently received correspondence in regards to our Shenzhen, China client’s claims against a major global shipping company that had botched the release of 3 container loads of our client’s goods shipped from port in Shenzhen and, subsequently, bailed in a warehouse in Long Beach. The goods were transmitted to the buyer absent transmission from our client of the original bills of lading as to the pertinent goods. We received a response from the shipper and logistic company’s corporate counsel in Manhattan that our client’s claims were:

“. . subject to the rules governed by the terms, conditions and exceptions of the Carriage of Goods by Sea Act 46 U.S.C. § 1300, et. seq., the Federal Bill of Lading Act, 49 U.S.C. Chapter 801, and/or other legislation pertinent to the shipment which is the subject of the claim.”

COGSA has been a defense for shipper liability both due to its $500.00 per package damage limitation and due to its restrictive one (1) year statute of limitation period.

Goods, however, that are bailed in a warehouse and no longer on board the subject vessel may not be subject to COGSA limitations. As we stated in response:

“However, it is clear under federal law that when the goods at issue were transferred to land and no longer on the subject vessels at issue in this matter, COGSA does not apply. COGSA only applies by its own force during “the period from the time when the goods are loaded on [the vessel] to the time when they are discharged from the ship.” 46 U.S.C. § 1301(e). In this case, the goods were wrongfully transferred by —– to —–‘s customer, absent the appropriate transfer of three (3) original bills of lading, while in the warehouse on land, not at sea. Thus, your reliance on COGSA is misplaced. Further, since —– does substantial and regular business in the State of California their actions while in this state are subject to the laws and judicial authority of the State of California.

Furthermore, federal admiralty jurisdiction is not invoked in this dispute, and California law and jurisprudence is the appropriate mechanism for relief as —– was not acting solely as a “maritime” agent, but also as a logistics agent and “bailee” of the goods at issue. Said another way, —–’s breach and negligence were solely related to their duties as a “bailee” operating in the State of California. The general rule for exercising admiralty jurisdiction in a contract case is that “jurisdiction arises only when the subject-matter of the contract is ‘purely’ or ‘wholly’ maritime in nature.” Transatlantic Marine Claims Agency, Inc., v. Ace Shipping Corp.,109 F.3d 105, 109 (2d Cir. 1997) (citing Rea v. The Eclipse,135 U.S. 599, 608 (1890)).”

Lastly, even if COGSA limitations did apply to our client’s goods shipped from port in Shenzhen to Long Beach, there were several limitations to a carrier’s COGSA defenses. As stated:

“Even if we were to proceed in federal court in respect to your COGSA arguments and bring the other state law California claims forth under the Court’s ancillary and supplemental jurisdiction, there are a number of weaknesses to —–‘s proposed defenses:

1. Under the doctrine of “substantial deviation” under COGSA, our Federal Circuit (the 9th Circuit) defines this term fairly broadly in terms of gross negligence as a quasi-deviation; and,

2. With respect to package limitation exceptions, the fundamental breach doctrine bears close resemblance to the deviation doctrine. This close relationship effectively allows deviations and quasi-deviations to be viewed as a subset of fundamental breaches. Thus, a carrier could face liability for a fundamental breach without committing an infraction that attacks the “essence of the contract.”

COGSA is not always a complete defense and bar to a client’s claims as to goods that are damaged or wrongfully transferred while on land in the context of a shipment from Shenzhen, China to Long Beach.

JV or WFOE Company Presence in China? It Depends on the Quality of Relationships

November 22, 2017| Mr. David A. Dodge, Esq. | Uncategorized

We have been recently advising a European client who has been in complex negotiations with a deep-pocketed Chinese company on forming their Joint Venture (JV) company in Shenzhen, China.

Earlier on, my associate and I felt that our international client had a trusted potential JV partner with the Chinese company due to introductions through previous working relationships that existed over decades — more akin to Chinese supplier type relationships. Based upon our early observations that there were some strong connection on the other side we were negotiating with (a concept called “Guanxi” in China). .

. . my associate and I moved forward on the JV concept without much hesitation. However, although at the outset the Chinese company engaged in a good faith negotiation process with our client that at first blush seemed to move along nicely, the process started to significantly deteriorate as time went on due to dubious tactics from the other side.

Although international and China JV’s are appropriate under the right circumstances where there is a very reliable partner on the other side and where the right “accountability” or “guanxi” is in place — we just throw this idea out there — forming a WFOE instead of a JV is generally preferable for an established foreign company entering China. Establishing a WFOE and then contracting with good Chinese and foreign run companies in China to do business with on the ground in China generally highlights all of the benefits without throwing in the unpredictability and downside risks. Furthermore, the foreign company can then start with a footprint with a WFOE and grow in China through the process of natural growth and experience. Based upon relationships where the parties need them in China and not vice-versa. To need another’s help on another’s turf is not the best bargaining position for any business.

We assist clients in this entire process in-house whether it be sourcing suppliers, setting up commercial space, hiring and recruiting talented staff through internet campaigns and local labor markets, ensuring proper accounting and auditing services, legally forming the proper entity in the proper place, etc. Our clients control the process on the road to establishing and growing their China business.

Due Diligence in China — Is Your “Supplier” a Middle-Man?

November 16, 2017| Mr. David A. Dodge, Esq. | Uncategorized

We are regularly contacted by clients to conduct due diligence on their Chinese suppliers in Shenzhen, Guangzhou and Dongguan in the Guangdong Province. After a few years of doing business with their supplier, they start to wonder — are we really dealing with the factory here or are we dealing with some middleman who is charging us a premium and may not be a reliable company in the future and as our business grows?

As an example, one of the lawyers in our firm out of our office in the Futian District in Shenzhen, who previously worked for the largest law firm in China focused on foreign clients, yesterday conducted a due diligence for our California-based client.

It seems that after doing 2 plus years of steady business with their Ningbo based supplier who claimed to be a manufacturer of plastic injected mold products, our client became concerned with repeated and recent supply disruptions.

A few hours of work by Mr. Zhang of our firm confirmed:

“As assumed by ——, there is no evidence to show that ————– Co Ltd. has any qualification on manufacturing. It seems to only be a front trade company.

I have searched the shareholding structure, there is no evidence to show that the shareholders of ————— Co Ltd. has invested in any factory, at least in China. The employment information of ————– Co Ltd. only shows that they are hiring sales manager instead of any position related to manufacturing. It shows that ——————– Co Ltd. has only been granted the license related to import and export. In China, a factory will have at least an environment report filed with the government and available to the public. However,  there is no evidence to show that —————- Co Ltd. has submitted such environment report.

Enclosed please find the Due Diligence report in Chinese and translated into English for our client.”

Now that the client has their suspicions confirmed (who wants to do business with a middle-man?) we can provide secure sourcing services to help the client find a factory to do business with and Mr. Danan of our firm can arrange for them to tour several good factories that specialize in their type of product for the client to do direct business with. Obviously, a TM should be filed in China for their company name and product, and an NNN should be entered into. Since our client does millions of dollars of sales on Amazon, they will be relieved to have a more reliable footprint in China for their future business needs.