Slide background

China Trademark Filings: National or Madrid Protocol Filing. National Filing is ...

December 19, 2018| Mr. David A. Dodge, Esq. | Uncategorized

As more and more businesses continue to expand their interests to China, Dodge Zhong Partners is commonly asked by clients how best to protect a trade mark there?

It is currently possible to register a trade mark in two ways:

  1. designating China under a Madrid Protocol application; or
  2. filing a National Trade Mark application directly with the Chinese Trade Marks Office (CTMO).

Both systems have their advantages and disadvantages. In this article, we will evaluate both systems in more detail so businesses can make an informed decision.

The Madrid Protocol (MP)

The MP is an extremely cost-effective way of obtaining protection in a range of countries under one application. Working like a shopping cart, countries of interest can be added from a designated list of over 90 countries, including China. Each country designated will examine the application in accordance with local laws. If the trade mark receives an objection when it is examined, the applicant may decide that it does not wish to pursue protection in that particular country and simply remove that country from the MP application without it affecting the other designated countries.

Another advantage is if a business decides at a later date to protect a mark in additional countries, then provided those countries are party to the MP, it can add them to the existing registration. However, it should be noted that rights in those additional countries can only run from the date that they are designated rather than from the filing date of the original MP registration.

In order to utilize the MP system it is necessary to begin by having an application or registration (base mark) for the chosen mark in the home territory. This application or registration will then form the basis for the MP application.

For the first five years of the life of an MP application it is important that the base mark remains validly registered. This is because if the base mark is successfully ‘attacked’ in those first five years, resulting in the base mark being rendered invalid, then the MP application and the countries designated will also be deemed invalid. If this were to happen, all is not lost as it is possible to ‘transform’ the designated countries into individual registrations. However, this would increase costs and the applicant would no longer have all of its countries encompassed under one MP application.

When designated under the MP application, the goods and services in China cannot be any broader than the goods and services covered by the original application or registration.

Furthermore, while the goods or services listed might be acceptable in the home territory, it does not automatically follow that such goods or services are acceptable in China. The application may receive a provisional refusal from the CTMO requesting further clarification. This can result in a delay in the progress of the application and additional costs. This can be less of an issue if the goods or services are extremely precise and for a limited list of items.

Seeking protection in China under a MP application can take longer than a National application as the CTMO has between 12-18 months to examine any applications which have been filed via the MP route. If protection is required relatively quickly in China, the MP route may not therefore be the best route for the client.

Once registered, a Chinese designation under a MP application is recognized and enforceable in China. However, the CTMO does not automatically issue registration certificates to those marks which have been protected in China via the MP route. In order to enforce a mark in China, it is necessary to have a Chinese registration certificate and so there will be additional costs associated with obtaining these registration certificates from the CTMO. It can take between three to five months for the certificates to be issued.

Renewing a MP registration is very cost effective as only one renewal fee is payable to cover all of the countries which have been designated. Management of a trade mark portfolio is also easier with a MP registration as it is only one registration number to look after.

Any changes to ownership of a MP registration can take a long time to be reflected on the CTMO register (normally 10 months at least) and after the changes are recorded, the CTMO will not issue a certificate proving the change and the correct owner. In such circumstances it is necessary to apply for a correct certificate indicating the updated information from the CTMO.

Finally, if a third party were to challenge the validity of a Chinese designation of an MP application or registration, the notice can be sent directly to the applicant rather than the recorded representative. Such notifications may be ignored which can lead to the cancellation of the Chinese designation if the deadline set by the CTMO to file a response is not met.

National Filings

A National filing in China is not dependent upon the validity of any other applications or registrations.

If China is the only country of interest, then it may be more cost effective to file a National application.

The CTMO are generally quite strict on the specifications for goods and services, tending to only accept the standard or basic standard specifications. Furthermore, each class breaks down further in to sub-classes, so protection of the mark in one subclass does not prevent another third party from registering the same mark in a different subclass within the same class.

The benefit when filing a National application means it is possible to overcome this problem by listing one item from every subclass within the class of interest. This guarantees protection for the whole class. Dodge Zhong Partners works closely with a number of trusted Attorneys in China who can provide guidance on the broadest specifications to ensure a trade mark meets with the CTMO’s strict requirements while providing our clients with the protection that they need.

Examination of an application is quicker for a National filing as it must be completed within nine months. If the application is provisionally approved there is a three-month opposition period. So, if everything goes smoothly, it will take around 12 months to secure a National registration.

For a National filing, if it is approved for registration, the CTMO will automatically issue the Certificate of Registration.

The timeframes for recording any changes to the proprietor details are much shorter under a National filing, with the CTMO issuing a certificate to reflect the change in details.

For any third-party challenges to the National application or registration, the CTMO will always send notification to the representative recorded before the CTMO and will be dealt with in a timely manner.

Clearly, both routes have their advantages and disadvantages. If a client is seeking to protect a mark in a number of other countries in addition to China, and have very specific goods or services, then the MP route might be the more favorable option. However, if protection is only required in China, and that protection is required quickly, then the National route may be better. Dodge Zhong Partners can advise on the best route to take once it has a clear understanding of a client’s requirements for China.

 

Chinese Competitors Registering .CN Domain Names in Your Company’s Tradema...

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

We recently received an email from a well-established American company perplexed that they had registered several TM’s in China but still found their company’s .cn domain name had been registered by a Chinese competitor.

Our email response:

“Thank you for your message regarding the TM infringement / domain name matter.

CNNIC (the China Internet Network Information Centre) is a non-profit organization authorized by the Ministry of Information Industry to operate and administer China’s domain name registry for China’s country code top level domain known as “.cn”

In China, a brand name or trademark registration in China is independent from domain name registration. Brand name and trademark registration are administered by the Trademark Office of China (CTMO) administered under the State Intellectual Property Office (SIPO). It is important to note that both registrations are on a first-to-file system.

We advise our clients who are multinational corporations operating in China to have registered a number of “.cn” domain names (even in the hundreds) that contain the keywords of their brand names or trademarks in order to secure their distinct identity and avoid them being registered by others.

In terms of the current situation, we can assist your company by:

1. Working with your IT team to add additional hyphens, letters or numbers to make several new domain names and registering them in China;
2. Negotiating with the registrant entity to transfer the domain name to your company and/or to cease and desist violating our rights to our trade name by forwarding to competitor companies that are violating our TM;
3. Initiating dispute resolution, as called for by the CNNIC, and following the dispute resolution procedures as to behavior which violates IP rights.

CNNIC regulations provide that if a company determines that its legal rights and interests have been breached as a result of a particular domain name being registered by another party, either of the two CNNIC accredited domain name dispute resolution institutions should be contacted. One of those is CIETAC which we are familiar with.”

Registering a TM in China DOES NOT equate to securing your company’s .cn domain name or variants thereof.

 

 

Getting Money Out of China — Legally Expatriating Corporate Profits from C...

June 28, 2018| Mr. Bowen Zhang, Esq. | Uncategorized

From the end of 2016 to present, China has been increasingly tightening its capital controls. Faced with an outflow of money resulting from a depreciating yuan, Chinese officials are restricting the flow of money into foreign currencies such as the US dollar, causing severe complications to businesses with a large portion of international operations and profits in China from moving their profits to their home jurisdictions.

Recently, one of our firm’s client, who is a foreign investor, wanted to use their Chinese WFOE to invest in a country outside of China. Such a transaction generally requires the approval of at least four (4) regulating entities: Applications with Ministry of Finance (MOF), Peoples Bank of China (PBOC), State Administration of Foreign Exchange (SAFE) and the National Development and Reform Commission (NDRC). As a result of the complexities involved in this process, it took nearly half a year for our firm to obtain approval for this transaction.

Also, adding to business uncertainty in the process, during the process of receiving approval from the above-stated formal entities no one can confidently say whether such approval will be granted or not. Based on our experiences in several cases we have handled, we would like to summarize the following factors, at bare minimum, regulators would want to evaluate surrounding a client expatriating money from China:

1. The nature of the transaction;

2. The nature of the parties (a lot more than just their corporate structures);

3. The histories of the parties;

4. The location of the parties;

5. The nationalities of the parties (especially the receiving party);

6. The source of funds to be demonstrated; and,

7. That all involved entities demonstrate that they have paid sufficient tax in China to the relevant taxation authorities.

These are some other restrictions to consider:

1. The government will not allow money to exit China destined to certain countries deemed at high risk for fake transactions unless there is conclusive proof that the transaction is bona fide — in other words, requiring significantly more proof than would otherwise be required.

2. Money will not be cleared for transfer outside China for certain types of transactions, especially services, which are often used to disguise moving money out of China illegally unless there is a lawyer who can document that the relevant services were indeed rendered.

Under the most restrictive regulations, there are still some legitimate alternative methods we have pursued to get large sum money out of China:

1. A WFOE or shareholder, if it turns a profit, can legitimately repatriate (expatriate from China) its profits as dividends to the overseas holding entity. This incurs a tax burden – both the profits of the business, and the dividends paid to the holding company of the WFOE in China, incur tax (which is 25%). The operation of repatriating profits can be administratively complicated and requires completion of the annual full company audit and a lawyer’s certification;

2. The WFOE can lose in a foreign arbitration and, thus, be required to pay litigation costs and liabilities outside China. This approach is complex and requires particularized advice and consultation;

3. Money can be paid to an overseas service provider, including for services such as consulting, training, design, and the like. Tax rates depend on the nature of the service, and whether withholding taxes are due, but can be less than 7%. This is a legitimate channel for payments overseas, but tightly regulated. SAFE would be responsible for approving each payment, which requires some complex legal work and takes approximately 2-3 weeks; and,

4. Each Chinese citizen has an annual exchange allowance of $50,000 USD, which can then be transferred overseas. This exception to restrictions can be used to operate what is known as “Smurfing”, whereby anyone requiring funds overseas would pool the personal allowance of friends and family — eventually fanning the payments out to all the contacts in this network.

Of course, there are some electronic methods such as Bitcoin and other electronic “money” that can assist in such a transfer. However, such electronic “money” can only be transferred with a high degree of risk of some or total loss. The value of Bitcoin has dropped significantly during the last half year. Our firm strongly recommends against becoming involved with any illegal, tax evasive activities that could result the in the risk of loss of a company’s monies and/or incurring criminal and tax liabilities when attempting to expatriate capital outside of China without seeking legal advice as to how to properly proceed.

Issues in International Licensing and Sublicensing

June 18, 2018| Mr. David A. Dodge, Esq. | Uncategorized

Issues and questions pertaining to licensing and sublicensing are becoming increasingly common in our practice as companies outside the PRC that we assist with successfully obtaining duly registered and approved PRC trademarks, copyrights and patents in China seek to further expand their business by contracting with Chinese companies, third parties and/or subcontractors in order to sell their products to Chinese consumers.

Obtaining favorable terms to these licensing and sublicensing agreements is critical to both protecting a licensor entity’s rights and assuring a strong future royalty stream. Having a clear policy that supports a strong negotiating position toward sublicensing is the first step in dealing effectively with this sometimes contentious issue.

There are several issues to be aware of when contemplating the granting of license and sublicenses in the China context.

Royalty Structures and Sublicensing  

Sometimes the head license agreement will provide that the licensor receives a royalty on the sale price of the sublicensee.  Alternatively, the license agreement may provide that the licensor receives a percentage of the royalty that the licensee gets from the sublicensee.  In other agreements, a hybrid arrangement may be agreed, whereby the licensor receives milestones at different stages of development of licensed products, whether by the licensee or a sublicensee.  The licensor does not receive a percentage of milestone payments received by the licensee from the sublicensee. but does receive a percentage of royalty payments received by the licensee from the sublicensee calculated on the sale price of licensed products (sometimes known as running royalties).  All of these provisions require very careful drafting.  We have occasionally been asked by clients to base royalties on the ultimate sale price to the consumer for example by a retailer who may have purchased the products from a sublicensee.  It may be very difficult to audit such sales, so such a structure should usually be avoided unless the licensor has strong auditing rights granted in the sub-licensing agreement and a monthly or bi-annual right to inspect the sub-licensees books.

Prohibiting License Assignment

One of the first priorities in constructing sublicensing terms and conditions is to distinguish clearly between sublicensing and assignment.

Due to the complexity of international enforcement issues and the potential for complex legal maneuverings by licensees, assignment of a license should simply be prohibited. That advice is sometimes difficult for licensors to enforce, however. Licensors should prevent sublicensees from automatic assignment but may permit assignment under specific circumstances.

For example, licensors can ordinarily permit assignment of a sublicense by the sublicensee in the context of mergers and acquisitions of the entire business to which it pertains, except in the event that the proposed M&A partner is a direct competitor of the patent or trademark owner.

Licensees Should Seek Notification and/or Approval

Licensors generally differ on whether to ask for notification or approval of sublicensing rights. Most licensor companies are reluctant to grant the open-ended right to approve sublicenses. Further, licensees are often reluctant to seek that right, preferring instead to seek notification and ensure original license agreements stipulate that sublicenses comply with the original license terms.

Most licensors should ask for a complete, nonredacted copy of the sublicense in their licensing agreements. Licensors should also add language in the license agreement that the sublicensee will be bound by all of the terms and conditions in the original license agreement.

Licensors should also consider having a pro forma sublicense document attached as an exhibit to their licensing contracts, so the parties have agreed in advance to the terms and conditions of the sublicense.

Require Reporting of Sublicense Income

Reporting and payment of sublicense income is another area that requires due diligence on the part of the licensor. Irregularities in reporting sublicensing income occur often, so licenses should allow for regular audits of sublicensing income.

Generally, licensors should put in a provision where the licensor will pay the cost of any audit of sales unless it shows an underpayment of 5% or more under the agreement in which case the licensee will be responsible for the cost of the audit and will pay the amount of the deficiency plus a penalty which is usually prime plus 4%.

Licensors should also consider requiring that any royalty report is signed by the licensee’s and/or sublicensee’s chief financial officer, ensuring that there the licensee and/or sublicensee is more careful about the accounting. Thus, if a licensor finds irregularities in the sublicensing data, the licensee would have the right to audit their sublicensee or allow for the licensor to conduct an audit at the licensors and/or sublicensors expense.

Should the License Extend to Affiliates of the Licensee? 

Understandably, many licensees wish the license to extend to their group companies.  This can be addressed in different ways.  If affiliates are “automatically” covered by the head license (for example, by defining the Licensee to include Affiliates), this raises contractual questions including: (a) can the licensor sue an affiliate for breach of contract, indeed is the affiliate bound by the terms of the license; (b) can an affiliate sue the licensor to enforce its rights (whether as a party or third party beneficiary); and (c) if affiliates are directly parties to the license agreement, does the person signing on behalf of the licensee have signing authority on behalf of every affiliate?  Sometimes, these issues are glossed over, which in our view is undesirable.  Instead, it may be preferable to include a provision in the license agreement allowing sublicensing to affiliates of the licensee.

Sublicensing and Subcontracting 

Licensees sometimes assume that they are entitled to subcontract manufacturing or other rights under the license to a third party.  If the grant clause includes a specific right to “have made”, then subcontracting of manufacture is permitted.

A fairly recent trend in license grant clauses is to provide that the licensee may not only “have made” but may also “have sold”.  Depending on how the clause is worded, this is potentially troubling for a licensor, as if a licensee appoints someone to make and sell the licensed product on the licensee’s behalf, this could amount to sublicensing via a back-door route.

Sublicensing Conditions 

A licensor may wish to impose conditions on sublicensing, including ensuring that the sublicensee is bound by certain terms of the head license.  Template license agreements often include detailed provisions in this area.  An important issue is whether the sublicense survives termination of the head license by the licensor.  From the sublicensee’s perspective, the sublicense may be of limited value if it can be terminated due to no fault on the sublicensee’s part, for example, if the head licensee is in breach of the terms of the head license agreement.  Sometimes, a sublicensee will enter into a side agreement with the head licensor to ensure that the sublicense continues in such circumstances.

 

International Trademark Classes

June 18, 2018| Mr. David A. Dodge, Esq. | Uncategorized

Here are the forty-five so-called “Nice classes” into which trademark applications are classified. The classes are named after the city of Nice, France, where the first listing of classes was negotiated in 1957.

Please note that the terms in the class headings or short titles of the classes are generally too broad to be used alone as your actual description of products or services. Also, an international class number alone is never an acceptable listing.

Product (“Goods”) Classes

Class 1: Chemical Products
Chemicals used in industry, science and photography, as well as in agriculture, horticulture and forestry; unprocessed artificial resins; unprocessed plastics; manures; fire extinguishing compositions; tempering and soldering preparations; chemical substances for preserving foodstuffs; tanning substances; adhesives used in industry.

Class 2: Paint Products
Paints, varnishes, lacquers; preservatives against rust and against deterioration of wood; colorants; mordants; raw natural resins; metals in foil and powder form for painters, decorators, printers and artists.

Class 3: Cosmetics and Cleaning Products
Bleaching preparations and other substances for laundry use; cleaning, polishing, scouring and abrasive preparations; soaps; perfumery, essential oils, cosmetics, hair lotions; dentifrices.

Class 4: Lubricant and Fuel Products
Industrial oils and greases; lubricants; dust absorbing, wetting and binding compositions; fuels (including motor spirit) and illuminants; candles and wicks for lighting.

Class 5: Pharmaceutical Products
Pharmaceutical and veterinary preparations; sanitary preparations for medical purposes; dietetic substances adapted for medical use, food for babies; plasters, materials for dressings; material for stopping teeth, dental wax; disinfectants; preparations for destroying vermin; fungicides, herbicides.

Class 6: Metal Products
Common metals and their alloys; metal building materials; transportable buildings of metal; materials of metal for railway tracks; nonelectric cables and wires of common metal; ironmongery, small items of metal hardware; pipes and tubes of metal; safes; goods of common metal not included in other classes; ores.

Class 7: Machinery Products
Machines and machine tools; motors and engines (except for land vehicles); machine coupling and transmission components (except for land vehicles); agricultural implements other than hand-operated; incubators for eggs.

Class 8: Hand Tool Products
Hand tools and implements (hand-operated); cutlery; side arms; razors.

Class 9: Computer and Software Products and Electrical and Scientific Products
Scientific, nautical, surveying, photographic, cinematographic, optical, weighing, measuring, signalling, checking (supervision), life-saving and teaching apparatus and instruments; apparatus and instruments for conducting, switching, transforming, accumulating, regulating or controlling electricity; apparatus for recording, transmission or reproduction of sound or images; magnetic data carriers, recording discs; automatic vending machines and mechanisms for coin operated apparatus; cash registers, calculating machines, data processing equipment and computers; fire extinguishing apparatus.

Class 10: Medical Instrument Products
Surgical, medical, dental, and veterinary apparatus and instruments, artificial limbs, eyes, and teeth; orthopedic articles; suture materials.

Class 11: Environmental Control Instrument Products (lighting, heating, cooling, cooking)
Apparatus for lighting, heating, steam generating, cooking, refrigerating, drying, ventilating, water supply, and sanitary purposes.

Class 12: Vehicles and Products for locomotion by land, air or water
Vehicles; apparatus for locomotion by land, air, or water.

Class 13: Firearm Products
Firearms; ammunition and projectiles; explosives; fireworks.

Class 14: Jewelry Products
Precious metals and their alloys and goods in precious metals or coated therewith, not included in other classes; jewelry, precious stones; horological and chronometric instruments.

Class 15: Musical Instrument Products
Musical instruments

Class 16: Paper and Printed Material Products
Paper, cardboard and goods made from these materials, not included in other classes; printed matter; bookbinding material; photographs; stationery; adhesives for stationery or household purposes; artists’ materials; paint brushes; typewriters and office requisites (except furniture); instructional and teaching material (except apparatus); plastic materials for packaging (not included in other classes); printers’ type; printing blocks.

Class 17: Rubber Products
Rubber, gutta-percha, gum, asbestos, mica and goods made from these materials and not included in other classes; plastics in extruded form for use in manufacture; packing, stopping and insulating materials; flexible pipes, not of metal.

Class 18: Leather Products (not including clothing)
Leather and imitations of leather, and goods made of these materials and not included in other classes; animal skins, hides; trunks and traveling bags; umbrellas, parasols and walking sticks; whips, harness and saddlery.

Class 19: Non-Metallic Building Material Products
Building materials (non-metallic); nonmetallic rigid pipes for building; asphalt, pitch and bitumen; nonmetallic transportable buildings; monuments, not of metal.

Class 20: Furniture Products
Furniture, mirrors, picture frames; goods (not included in other classes) of wood, cork, reed, cane, wicker, horn, bone, ivory, whalebone, shell, amber, mother-of-pearl, meerschaum and substitutes for all these materials, or of plastics.

Class 21: Houseware and Glass Products
Household or kitchen utensils and containers; combs and sponges; brushes (except paint brushes); brush-making materials; articles for cleaning purposes; steel-wool; unworked or semi-worked glass (except glass used in building); glassware, porcelain and earthenware not included in other classes.

Class 22: Ropes, Cordage and Fiber Products
opes, string, nets, tents, awnings, tarpaulins, sails, sacks and bags (not included in other classes); padding and stuffing materials (except of rubber or plastics); raw fibrous textile materials.

Class 23: Yarns and Threads
Yarns and threads, for textile use.

Class 24: Fabrics and Textile Products
Textiles and textile goods, not included in other classes; beds and table covers.

Class 25: Clothing and Apparel Products
Clothing, footwear, headgear.

Class 26: Lace, Ribbons, Embroidery and Fancy Goods
Lace and embroidery, ribbons and braid; buttons, hooks and eyes, pins and needles; artificial flowers.

Class 27: Floor Covering Products
Carpets, rugs, mats and matting, linoleum and other materials for covering existing floors; wall hangings (non-textile).

Class 28: Toys and Sporting Goods Products
Games and playthings; gymnastic and sporting articles not included in other classes; decorations for Christmas trees.

Class 29: Meat and Processed Food Products
Meat, fish, poultry and game; meat extracts; preserved, frozen, dried and cooked fruits and vegetables; jellies, jams, compotes; eggs, milk and milk products; edible oils and fats.

Class 30: Staple Food Products
Coffee, tea, cocoa, sugar, rice, tapioca, sago, artificial coffee; flour and preparations made from cereals, bread, pastry and confectionery, ices; honey, treacle; yeast, baking powder; salt, mustard; vinegar, sauces (condiments); spices; ice.

Class 31: Natural Agricultural Products
Agricultural, horticultural and forestry products and grains not included in other classes; live animals; fresh fruits and vegetables; seeds, natural plants and flowers; foodstuffs for animals; malt.

Class 32: Light Beverage Products
Beers; mineral and aerated waters and other nonalcoholic drinks; fruit drinks and fruit juices; syrups and other preparations for making beverages.

Class 33: Wines and Spirits (not including beers)
Alcoholic beverages (except beers).

Class 34: Smoker’s Products
Tobacco; smokers’ articles; matches.

Service Classes

Class 35: Advertising, Business and Retail Services
Advertising; business management; business administration; office functions.

Class 36: Insurance and Financial Services
Insurance; financial affairs; monetary affairs; real estate affairs.

Class 37: Construction and Repair Services
Building construction; repair; installation services.

Class 38: Communication Services
Services allowing people to communicate with another by a sensory means.

Class 39: Transportation and Storage Services
Transport; packaging and storage of goods; travel arrangement

Class 40: Treatment and Processing of Materials Services
Treatment of materials.

Class 41: Education and Entertainment Services
Education; providing of training; entertainment; sporting and cultural activities.

Class 42: Computer and Software Services and Scientific Services
Scientific and technological services and research and design relating thereto; industrial analysis and research services; design and development of computer hardware and software.

Class 43: Restaurant and Hotel Services
Services for providing food and drink; temporary accommodations.

Class 44: Medical and Beauty Services and Agricultural Services
Medical services; veterinary services; hygienic and beauty care for human beings or animals; agriculture, horticulture and forestry services.

Class 45: Personal, Legal and Social Services
Legal services; security services for the protection of property and individuals; personal and social services rendered by others to meet the needs of individuals.