All of this concerns patents and technology, but the World Bank stats on royalties and license fees I wrote about yesterday also include trademarks. What’s the usual way to deal with trademarks and what does the government really care about in that discussion?

First, it’s pretty obvious that trademarks are a bit less complicated than patents in several ways. For one thing, for our purposes, there is really only one kind of trademark/service mark, whereas there are three kinds of patents available in China. Therefore if we’re dealing with an official statistic from the China Trademark Office, there are only two numbers possible: applications filed, and trademarks registered. To the extent that the number is indicative of anything, I would prefer to go with registrations since many applications are rejected.

Do the number of trademark registrations mean anything? Sure, as numbers go up, that means that the economy is growing. Moreover, it does indicate that the applicants thought that this form of IP was valuable enough to pay money to secure those naming rights. I think we cannot extrapolate too much from this and say that everyone over here has therefore “bought in” to the importance of IP protection, but it is a step in that direction.

Second, why does the government emphasize trademarks, and what do they really care about? Once again, all we need to do is look to a State-run newspaper for a good example. Here’s China Daily on the subject from last week:

China needs to raise the proportion of Chinese brands in its exports, to improve the nation’s trade quality and efficiency, a senior official said here Wednesday.

Chinese brands make up less than 10 percent of China’s exports, said Fu Shuangjian, deputy director at the State Administration for Industry and Commerce (SAIC), at the 2010 China Trademark Annual Meeting, which kicked off Wednesday in Xining, capital city of west China’s Qinghai province.

Excluding overseas invested companies, less than 20 percent of Chinese exporters have registered trademarks in China, while less than 5 percent have registered trademarks abroad, said Fu.

I would argue that, just with patents, we should keep an eye on the bottom line here. Certainly the number of trademarks filed is related to overall economic activity and the acceptance of IP as a significant asset. However, just as important, or more, is the relationship between domestic brands and value added exports.

As I discussed yesterday, China’s IP trade deficit is moving in the wrong direction. For branded products, there are two ways to fix this. First, substitute foreign brands for domestic brands. Second, sell more domestic brands abroad. The article excerpted above focuses on that second possibility. The idea here is that Chinese firms should file more trademarks abroad and then, most importantly, start selling those branded products for higher prices overseas.

Moving up the value chain, a stated goal of China’s innovation society, is not just about patented technology. If a Chinese company like Li Ning can sell shoes with its own brand overseas (with a heftier markup than no-name shoes), that IP trade deficit I talked about yesterday can be narrowed and China’s GDP will continue to rise.

Looking at the number of trademarks filed alone tells us nothing about whether this export strategy, or import substitution for that matter, is actually working.

[You may have noticed I did not address the issue of how Chinese companies can develop brands for overseas markets. This is a topic for another post and is very complex. Suffice it to say that many lessons remain to be learned with respect to marketing and branding before we'll see a significant number of Chinese consumer brands being successful overseas at the higher end.]

Related posts:

1. China Innovation Metrics: the Good, the Bad, and the Worthless
2. IP Stats and China’s Innovation Society
3. Trademarks Await

© China Hearsay, 2010. | Permalink | Add to del.icio.us | Who is linking?
Post tags: branding, exports, innovation, patents, trademarks, value added

China Car Times reports that the new Chevrolet Volt was unveiled at an event in Shanghai today, though it won’t be going on sale until sometime in 2011.

I’m always curious to know how the names of foreign products are Sinicized for sale in the Chinese market. In this case, GM has picked the Chinese name 沃蓝达 (wo lan da), a name apparently intended to sound somewhat like “volt”. (Incidentally that’s the same 沃 used in Wal-Mart in China: 沃尔玛.)

I wondered why they didn’t simply call it “volt” in Chinese. I mean, they do have electricity there, and it’s also measured in volts. So I looked it up.

The word “volt”, meaning a measurement of electricity, is translated as 伏特 (fu te), which sounds exactly like the Chinese translation of Ford Motors, “福特” (fu te).

Excellent example of how product names and trademarks intersect in China. You’d probably be surprised how often that strange brand or product name you see was actually the second, third, or 14th choice of the brand owner. Why settle for the crappy name? All the “good” ones were already taken.

Now consider the complexity of multi-jurisdictional trademark practice, as illustrated in that Volt example. In a perfect world (as envisioned by a trademark lawyer), all product/brand names would be cleared in all jurisdictions, for all languages, prior to any sort of rollout/PR/usage of that name.

Sounds simple, right? Choose a few possible names, farm the searches out to your global trademark counsel, and choose the best one that has been cleared everywhere.

Well, I can think of several reasons why real life doesn’t work that way:

1. Budget — Many firms (not GM, but smaller companies) simply don’t have the budget to obtain global clearances for all product names.¹ They have to prioritize markets, and then they clear the name in additional jurisdictions as they move into those markets. If a conflict arises, they use an alternative name. This end result is what GM is doing with the Volt.

2. Preference — Let’s say that the U.S. is by far your number one market, and the name “Volt” can be used there. Even if you find out that the name is not available in China, it might be worth it to go ahead anyway, knowing that an alternative will have to be used in China, and perhaps in other countries. Your preference for “Volt” in the U.S. is so strong that it trumps trademark conflicts in less important markets.

3. Timing — Some industries have very short product development cycles. Getting something on the market fast is key to success, and waiting for several years (potentially) to clean up a trademark conflict is simply impossible. If a conflict arises, a quick decision to either abandon the name, or pay to license/assign the mark, must be taken.

These are only a few reasons. Remember that we are talking about multiple jurisdictions, each with their own local rules. Moreover, each industry has its own quirks related to product lifecycles, advertising restrictions, and name preferences.

The number of factors is quite intimidating, and companies must also make sure that all the right people are “in the loop” when such decisions are being made. This can be quite challenging when it’s a multinational, with individuals responsible for branding stationed worldwide, many of them speaking different languages.

So the next time you see a bizarre brand name, keep in mind that there’s a good chance it’s the fault of some trademark lawyer.
________________________________

1. By the way, searches can get really expensive. Not only are they performed based on the product/service in question, or related items, but separate searches should be done for alternative languages. The different permutations can add up quickly.

________________________________

Related posts:

1. When Not To File A Trademark (yes, you heard me)
2. PRC Trademark Practice Tip – use it or lose it
3. Is Nothing Sacred? Trademark vs. Branding

© China Hearsay, 2010. | Permalink | Add to del.icio.us | Who is linking?
Post tags: brand name, branding, trademark

This approach gives us a steady diet of this sort of mind-numbingly boring news article:

The article basically refers to three different metrics: R&D spending, total patents filed, and invention patents filed (called “innovation patents” in the article). Are these accurate measures of innovation performance?

1. Using patents filed is OK, but patents granted is even better. This supposedly kicks out invention patent applications, for example, that do not meet novelty requirements.

2. Total patents vs. invention patents. Design and utility model patents are real patents, but since they are not subject to substantive review during the application process and can therefore be worthless “junk” patents, invention patents are perhaps a better indication of where things are headed.

3. R&D spending is a very broad measure. Moreover, when we’re talking about money spent by private enterprises, it’s very difficult to tell what is actually going on. Suffice it to say that the account books of many Chinese companies are, well, not really transparent/accurate. I don’t have a great deal of faith in their reported expenditures on R&D spending, particularly since they know that the government wants them to inflate those figures as much as possible.

So if these metrics leave a great deal to be desired, what else can we look at? I’ve been saying for years that one of the big motivators here is not just “IP for the sake of IP,” but the net result of IP trade. In other words, the government doesn’t care so much in the end how many patents are filed, but rather how many of those inventions ever get licensed/sold to foreigners, contributing to China’s trade numbers. This was the subject of a Xinhua editorial last month on China’s “IP trade deficit.” Related to this, of course, is the burden of license fee payments on Chinese manufacturers; lower license fee payments equates to more competitive exports.

If we want to focus in on those trade figures, it actually isn’t all that difficult. I took two minutes and found useful data on the World Bank’s web site, which has a time series for China’s royalty and license fee receipts as well as payments. Let’s take a quick look at those numbers for the past couple of years and then see if there is a trend for the balance of payments (i.e. deficit or surplus).

Royalty and License Fee Receipts (inward payments to China)

2005 — $157,401, 786

2006 — $204, 503, 785

2007 — $342,634,075

2008 — $570,536,223

Royalty and License Fee Payments (outward payments from China)

2005 — $5,321,253,863

2006 — $6,634,081,020

2007 — $8,192,067,402

2008 — $10,319,466,356

Both trends are positive, which is what you would expect from a rapidly developing country like China that is actively encouraging the creation of IP. However, if we subtract payments from receipts, we get numbers that are not too pleasant for Beijing:

Royalty and License Fees (China’s Balance of Payments)

2005 — ($5,163,852,077)

2006 — ($6,429,577,235)

2007 — ($7,849,433,327)

2008 — ($9,748,930,133)

You can see that the trend is quite clear and moving in the wrong direction (from China’s perspective). By the way, the deficit for 2009 was reported to be $10.6 billion, continuing the trend towards larger deficits.

So is China making progress in building an innovation society? Yes and no. All those patents being filed, engineers graduating and money spent on R&D spending is probably helping, and you can’t argue with that positive line for inward payments of royalties/license fees. However, these things might take quite a while to kick in on a larger scale, sufficient to make up for the much large outward payments.

In the long term, we should keep our eyes on the bottom line: the so-called IP deficit. Currently, that figure is not only tilting in favor of foreigners, but the trends is for higher, not lower, deficits. When we see the payments and receipts lines narrowing, perhaps then one can say that China’s innovation society reforms are actually coming to fruition.

Related posts:

1. China’s Innovation Metrics II: a Brief Note on Trademarks
2. An Exception To My Usual Rule — Some China Patent Statistics
3. IP Stats and China’s Innovation Society

© China Hearsay, 2010. | Permalink | Add to del.icio.us | Who is linking?
Post tags: design patents, innovation society, invention patents, patents, statistics, utility model patents, value added, world bank

That isn’t to say that the 7th Annual Intellectual Property Forum hosted by Managing IP Magazine was not memorable. It was a pleasure being there, and I not only enjoyed seeing some old friends and colleagues, but I learned a few things along the way. Not bad. Thanks again to Peter Ollier and all the folks over at MIP. (Peter also did double duty moderating a IP valuation and licensing panel on the second day that was excellent.)

More important to me, of course, was the panel on Social Media I moderated on Day 1, which went quite well, IMHO. That was probably because I shut up most of the time and relied upon my fellow panelists for their expertise. In order of presentation they were:

• Danny Friedmann, author of the IP Dragon blog and PhD Candidate at the Chinese University of Hong Kong (working towards a degree in PRC IP law).
• Xie Lin, also a PhD Candidate at the Chinese University of Hong Kong and fresh off a stint at Oxford University (also studying IP law).
• Chris Baily of Rouse, a very well known IP firm that has been specializing in China IP registration and enforcement for a very long time – they are also in other Asian jurisdictions as well as the UK. Chris is based in Guangzhou and, as you can imagine, handles a lot of anti-counterfeiting projects.

Very nice group. After I introduced what Social Media is and why IP lawyers should care about it (I believe I used the term “freaked out”), I turned things over to the panel.

Danny spoke on trademark law, introducing a very provocative vision of the future where Social Network operators assume more liability for trademark infringement based on Terms of Use, and in return are given more flexibility/protection from straightforward (national law based) trademark actions. Interesting stuff – perhaps he will publish this idea? Danny used to be a journalist and is a blogger, so he comes at this topic with a very unique perspective.

Xie Lin went next and took us through copyright infringement, focusing on ISP liability and Safe Harbor issues. This is Xie Lin’s speciality, so it was a treat having her there to boil down this technical field into some easily digestible bits. To give you a taste, she stated that liability concerns related to the Safe Harbor provision in the US and related law in several other jurisdictions turn on ISP/operator knowledge. For the purposes of this topic, what did the Social Media enterprise know and when did they know it within the context of a typical Notice and Takedown scenario. She sounded a bit skeptical that Safe Harbor was, in the end, all that safe. Hmm.

Next up was Chris Bailey, who had suggested to me before we started that I flip the order of speakers so that he would go last. Great idea, and it worked out perfectly. Chris built upon the trademark and copyright issues raised by Danny and Xie Lin and rolled it up into some practical concerns for IP owners to consider when putting together Social Media monitoring and enforcement programs.

Sorry for the technical legal-speak. If you’re not into IP, you may have long since abandoned this post. Fair enough, but let me end with a non-legal anecdote from the trip to reward all you faithful readers.

Aside from the conference, the trip was a mixed bag. Due to procrastination, I was stuck flying with China Eastern on a ridiculous Beijing-Shanghai-Hong Kong itinerary that tripled the time it should have taken me to get to HK. Of the four individual flights (i.e., including the return to Beijing), two were delayed. Nice percentage.

I’m a nice person, though, and I did not complain about the delays. Neither did I get upset when the woman in Shanghai dropped her suitcase on my head as she was attempting to heave it into the overhead compartment. She did apologize, so I thought that was acceptable. I think my neck hurts today, though, which is making me decidedly grumpy (me grumpy? perish the thought!).

My usual reaction to Hong Kong is that I’m happy when I leave. If I lived there it would be different (everyone I know who lives there loves it), but when you fly in, hang around Central or Kowloon for a day or two, push through the crowds like a sweaty race walker trying to get to your next meeting, and then rush to the airport to make your flight out, well, that’s just not too enjoyable.

At least I had a few moments of downtime and amusement. Top of the list was when I was returning to my hotel Wednesday night after some boozing with a friend. I was on Salisbury Road, about a block away from my destination, when a hooker sidles up to me and says “What hotel you staying in?” I did not make eye contact (very important) and did not break my stride, thinking that my dismissive wave off was sufficient to dissuade her from continued efforts.

Didn’t work. She kept up the pace. I played the stoic (easy for me) but almost lost it when she said “I have many skills.” No doubt. I tried not to laugh and ended up turning slightly to her and saying “Bye bye,” which finally worked.

All in all, the trip was definitely worthwhile. Not only did I have a great time at the conference, but the next time I pitch a client on a new project, there will not be any of the usual brochures or summaries of my experience. I will simply look the prospective client in the eye and say: “I have many skills.” It might work, you never know.

Related posts:

1. Life Intrudes on Blog: MIP IP Forum in HK
2. Whither Hong Kong?
3. Online Copyright Infringement: The View From Hong Kong

© China Hearsay, 2010. | Permalink | Add to del.icio.us | Who is linking?
Post tags: Managing Intellectual Property, social media, social networks

At first, this shanzhai shoe phone discussed on the Cloned in China blog looks like just another example of trademark counterfeiting:

Generic Phone Inside, Trademark Infringement Outside

Impossible is nothing, so now we have this Adidas shoe phone, another game the Shanzhai players did with these worlds most famous brands. When we don’t take it to the seriousness that concerns the law, we feel it’s kind of funny. The phone looks like a sport short from the front size and even the back is also made to look like the sole of a shoe. But after opening it, its charm fades completely. It’s a just an ordinary clamshell phone, though the Adidas logo could be seem on the phone’s End Call and Answer Call buttons.Compared to the phone’s design, its others specs are not even worth being mentioned.

Not so fast. In the world of fake stuff, there is a wide range of IP infringement going on out there. You’ve got your trademark infringement on products like shoes, cigarettes, and luxury items, and in another camp there are the patent infringers who rip off designs and technology. Let’s skip copyright for the moment.

So that “Adidas” phone is an example of trademark infringement, and as the blogger mentions, the phone innards are nothing special. This is a pretty cheap knockoff, I guess.

But if you’re going to slap a counterfeit trademark on an electronic device, at some point an entrepreneurial shanzhai firm that is already cranking out fake iPads or Nokia mobiles is going to wonder what sort of price they can get with a “double shanzhai” product. I could see, for example, a fake iPhone that looks like a Ferrari from the back. How about a shanzhai Lenovo touchscreen netbook that looks like a Gucci or Prada bag (with counterfeit trademark, of course) from the outside?

We’re already halfway there, folks.

Related posts:

1. Shanzhai Saturday: Going Full Pirate
2. Shanzhai Saturday: Inside a Putian Shoe Factory
3. Shanzhai Saturday: Chengdu’s Fake Great Wall

© China Hearsay, 2010. | Permalink | Add to del.icio.us | Who is linking?
Post tags: shanzhai saturday, trademark infringement

I was certainly not in a good mood after reading this introduction:

The truth is that China is not working hard to protect IP, but the conventional wisdom in the west is that, once China’s own economy begins to create intellectual property with global value — patents, drug formulations, movies for the world market — its government will see more gain than pain in a stringent IP regime.

But is that right to assume?

China has big problems with its IP enforcement, but to say that it is simply not trying tells me right off the top that the authors don’t really understand what’s going on in China. Fair enough, let’s just hope that they at least understand intellectual property.

Perhaps not. The second point there regards the conventional wisdom that once Chinese companies start having big problems with IP infringement, they will push the government on enforcement measures. Unfortunately, I don’t think the authors understand this either.

We are talking about China IP law, not the global system. It doesn’t matter if Chinese companies become multinationals; we already know that their trademarks and patents will be enforced in the U.S. and EU. What’s important is the effect of increasing infringement of Chinese IPRs in China.

Well, that was just the introduction, and I’m already in a bad mood. But actually, the rest of the article isn’t so bad, it’s just irrelevant to the premise. After throwing out the idea that China may not enforce IP in the future, the authors spend the rest of the article on the well-tread subject of how the world, and business models, have changed because of the Internet.

This is a big topic that would take a long time to deal with. To cut it short, yes of course the Net has made some traditional business models obsolete. Yes, we could probably do better with a system that cuts back on the scope/time of patent protection. I wouldn’t argue with any of that, and I also agree that some sectors (music, publishing) are desperately in need of some new thinking.

All that being said, the authors somehow forgot their original thesis, which was that China in particular may choose not to enforce IP rights in the future. I think that the structure of the argument here was supposed to be:

1. China currently does not enforce IP rights.

2. Things are changing in the “Information Age” such that protecting IP rights doesn’t make as much sense as it used to.

3. China may therefore just decide to chuck it all and never enforce IP rights.

Hopefully that’s an accurate summary. Well, as I said above, #1 is just a false statement. China’s IP laws are at international standards and it does enforce them. Granted, enforcement is problematic, spotty, and downright awful depending on a number of factors — but the government has made a lot of progress over the years. If a decision has been made at the highest levels of government about the direction that China will go with respect to enforcing IP rights, it is emphatically that IPRs will be taken seriously.

Therefore, even if the “Information Age” has had dramatic effects on how we look at IP rights, the premise here fails. China’s IP regime is not some tabula rasa, it has been around for quite a few years and is headed in the right direction.

Now, if the authors wanted to make the claim that the entire world may end up scrapping copyright, patent or trademark, that would have at least been something worth arguing. I personally favor a slightly less muscular global IP system but believe that a world without copyright or patent is a Cory Doctorow pipe dream.

Related posts:

1. Yet Another China Book That Might Make My Head Explode If I Read It
2. China IP Reality
3. Conflicting Reports on China Commercial Lending

© China Hearsay, 2010. | Permalink | Add to del.icio.us | Who is linking?
Post tags: copyright, intellectual property rights, patent, trademark

Real vs. Fake Nikes (Image from NYT)

This week’s column will be slightly less fun and entertaining and a bit more on the serious side of IP infringement and enforcement. For anyone interested in the world of China IP, instead of reading about the latest outrageous fake product, your time will be better spent simply reading “Inside the Knockoff-Tennis-Shoe Factory” by Nicholas Schmidle in the New York Times Magazine. The article does not particularly break any new ground or anything; it is not news, but a lengthy summary of the China IP situation. It’s one of those things that people tell you to read if you don’t have the time or inclination to read anything else on the topic, and I mean that as a compliment.

Schmidle takes a shoe factory in Putian as his concrete example and then uses that as a platform to discuss the IP problem in China generally, using quotes from several of the heavy hitters on the China IP scene, including Mark Cohen (used to be head of IP with the U.S. embassy in Beijing, now with the U.S. law firm Jones Day) and Joe Simon (Baker & Mackenzie law firm). Again, nothing startling in what Mark or Joe have to say, but the fact that Schmidle found his way to them tells me that he talked to the right (foreign) people while he was doing his research.

One thing you will not find in the article is advice on how to fix the problem. This is actually a point in its favor, since the only people that have a quick “solution” to the IP problem are charlatans and hucksters (i.e. lawyers, investigators and consultants) looking to drum up business. Schmidle instead explains what some of the problems are, letting his readers understand that solutions will be difficult and long-term.

For example, Schmidle uses a quote from the Putian factory owner, named Lin, who explains that years ago, it was relatively easy to get prototypes and new product information from legitimate factories, allowing shanzhai manufacturers to produce even more quickly sometimes than the IP owners. These days, security measures have put an end to that sort of thing:

“There’s no way to get inside anymore,” Lin told me, describing the enhanced security measures at the licensed factories: guards, cameras and secondary outer walls. “Now we just go to a shop that sells the real shoes, buy a pair from the store and duplicate them.”

Good news/bad news, though. Maybe they’re not as fast as before, but reverse engineering a shoe purchased legally is not only easy, but the practice is impossible to stop. The point here is that even with pretty good IP laws (seriously) and a lot of enforcement activities, it is still extremely difficult for China to put an end to this sort of thing.

In his description of the business model of the Putian factory, Schmidle also educates his reader on just how difficult it can be to catch some of these producers. Consider that many of them now manufacture fakes on a per order basis, shipping product out immediately as opposed to leaving counterfeits sitting around in their warehouse and subject to raids by the Administration of Industry and Commerce. Moreover, even when sting operations result in catching them with shanzhai product, lots of other factories are waiting in the wings to pick up the slack on the supply side.

I have a feeling that Schmidle’s article will be widely read and perhaps even used by the usual industry folks in their perpetual mau-mau lobbying campaign in places like Washington, D.C. for more vigorous bilateral negotiations with China. I know it’s asking too much of them, but it would be nice for those folks to pick up on a couple of subtle points:

1. The NYT article is to some extent limited in scope and should not be used to generalize about all kinds of IP infringement and enforcement in China. Consider these statistics:

In the last fiscal year, U.S. Customs and Border Protection seized more than $260 million worth of counterfeit goods. The goods included counterfeit Snuggies, DVDs, brake pads, computer parts and baby formula. But for four years, counterfeit footwear has topped the seizure list of the customs service; in the last fiscal year it accounted for nearly 40 percent of total seizures. (Electronics made up the second-largest share in that year, with about 12 percent of the total.)

Yes, you can find a dizzying variety of fake stuff here, but the big numbers are from big brand consumer items like shoes as well as electronics (add those together, and you have over 50% share of fakes seized by the U.S.). I wonder what those numbers would look like if you also added in digital media piracy?

The point is that you have a few industries that are being hit the hardest, and while almost everyone has IP issues with China these days, not everyone is having their market share savaged by Chinese pirates. There’s a reason why Schmidle went to a shoe factory.

2. This is really a story about global counterfeiting, not about China IP problems. It’s easy to look at China as the source of the IP infringement epidemic. After all, the products are being made here. Consider, though, that everything is produced in China these days; why should fakes be any different?

In other words, if I’m an international distributor of counterfeit products, where am I going to go to find experienced factories capable of making quality fakes? Of course the answer is China. These transactions involve China producers, and distributors and purchasers from all over the world – they all use the Net of course to handle purchase and sale details.

This explains why the FBI, and others, have stepped up international cooperation strategies in recent years. It also suggests that in ten years, after a lot of the low-end manufacturers have completed their moves from China to Vietnam, Bangladesh, and Alabama, we will start to see ramped up counterfeiting from those areas.

Just a guess. Maybe 20 years from now, you will have investigative reporters from China Daily writing stories about corrupt government officials from towns in Mississippi who protect the local shanzhai shoe factories. I imagine the quotes will include “But the factory is the town’s largest employer and taxpayer. And besides, the fakes are just being exported to China anyway. No harm, no foul.”

Related posts:

1. Shanzhai Saturday: Dawn of a New Era?
2. Shanzhai Saturday: Going Full Pirate
3. Shanzhai Saturday: Chengdu’s Fake Great Wall

© China Hearsay, 2010. | Permalink | Add to del.icio.us | Who is linking?
Post tags: counterfeiting, Joe Simone, Mark Cohen, nike, shanzhai, shoes, trademark infringement

Today we present a rich, tasty stew of shanzhai goodness. First off, a Lenovo affiliate gets into the knockoff game console business:

In what can only be described as a bizarre tale of mystery, a Lenovo co-founded company has decided to produce what amounts to an Xbox 360 knockoff as well as a motion sensing peripheral that unquestionably takes inspiration from Kinect.

Hey, at least it's not called an "iBox"!

Lenovo of course has been hot on the imitation trail for some time now, with products like the “LePhone” and the forthcoming “LePad.” I’ll let you guess which competitor they are targeting. I would have expected that the shanzhai Xbox would have been called the LeBox, but no, they are going in a new direction with this one, which will reportedly be sold under the name “eBox.” Very imaginative.

I’m not aware that the major game studios will be making eBox versions of popular titles, or even porting, so unless the eBox will be sold as a paperweight, I must assume that it is going to be compatible with Xbox titles. So explain to me why this thing won’t be shut down immediately by Microsoft’s IP lawyers?

In our next offering, fake monks. Those of you who are now aware of my views on religion are probably wondering why I care about shanzhai priests. Fake, real, no difference to me. True, but these guys in Inner Mongolia were not only passing themselves off as monks, but were peddling “medical products” as well. That’s even worse than proselytizing!

More than 178 fake monks were arrested in Guyang County, Baotou city of north China’s Inner Mongolia autonomous region on Aug 7, the North News reported on Wednesday.

The detained are all farmers from Henan province pretending to be monks to make money by selling medicines, curing illnesses and some by blackmailing or extorting.

Local police said the group was manipulated by an organized crime gang, which they will investigate further.

Shit, that’s a lot of fake monks! That’s almost enough for 18 minyans. Do monks have quorum rules? Anyway, not only were these farmers pretending to be monk pharmacists, but they were fronting for some local mafiosi. Dios mio!

Last, but certainly not least, another ‘image project’ (形象工程): structures or complexes with no practical use other than to raise a town’s profile. Unlike bold recreations of the Shanghai Expo’s China Pavilion, the Great Wall, or London’s Big Ben, this newest entrant into the ‘image project’ Hall of Shame is a real doozy, winning scads of points for creativity, not to mention style:

As home to the painter Salvador Dalí and inspiration for some of his greatest and strangest artistic endeavours, the Costa Brava fishing port of Cadaqués is used to the surreal.

A Chinese developer has decided to build a replica of the town half-way across the globe in Xiamen Bay, where mainland China looks out towards Taiwan.

More than 100 acres of land will be used to build a near replica with a capacity to house some 15,000 Chinese holidaymakers who want to enjoy the Costa Brava experience without having to travel 6,500 miles.

Well, sure, I think we can all understand that. The Mediterranean is a frothing pit of chemical filth, so no one wants to go on holiday there anymore. Chinese waters are so much cleaner. Besides, all the tourists want is a chance to take a photo standing next to a giant, drippy clock.

But seriously, these folks in Xiamen must be hardcore Dali fans (probably Deadheads, too). Not to excuse this utterly wasteful image project, but these developers might just be riding out a multi-decade long acid trip. To their distorted world view, this thing probably looks like a sound investment.

Related posts:

1. Shanzhai Saturday: Dawn of a New Era?
2. Shanzhai Saturday: Going Full Pirate
3. Shanzhai Saturday: Chengdu’s Fake Great Wall

© China Hearsay, 2010. | Permalink | Add to del.icio.us | Who is linking?
Post tags: copyright infringement, design infringement, image projects, monks, Salvador Dali, shanzhai

The China Film Copyright Protection Association (CFCPA) held a press conference recently to announce that had filed its first ever civil copyright lawsuit since it morphed from a simple trade association to a copyright management group back in 2008.

It said it had filed a complaint of copyright infringement against
365pub.com, Cnnip.com, in addition to several unnamed Internet cafes, and is seeking an end to the infringement, a public apology, and, of course monetary damages. (Zeropaid.com)

While copyright infringement suits are extremely common in China these days, including suits that deal with online distribution of digital works, this one is a first for an association that represents motion picture studios.

Until now, that sort of activity is something one associates with the Motion Picture Association (MPA), a U.S.-based trade association that has been on the IP beat in China for a very long time. In addition to the usual lobbying and education campaigns, the MPA has even gotten into the litigation game, hiring local law firms to go after DVD shops, etc.

I suppose the MPA welcomes the “competition.” The more voices out there drumming up interest in copyright infringement and going after the bad guys, the better.

Even more interesting, though, would be a China-based industry group that sponsors industry studies and regularly puts out infringement statistics. A great deal of U.S. government activity on this front is supported, or should I say goaded on, by MPA-sponsored research, some of which I have criticized on this blog in the past for questionable methodology (others have as well).

If CFCPA or other groups consistently publish statistics that differ from those of the MPA, that will at the very least muddy the waters. In the article I excerpted above, I found this quote to be particularly noteworthy:

“Playing pirated films on the Internet for just three days probably lost us 100 million yuan at the box office,” said An Xiaofen, producer of the popular Chinese action film Ip Man 2, one of the movies observed being pirated en masse.

Xiaofen estimates that he lost perhaps as much as 100 million yuan ($15 million USD) being that the number of illegal downloads has surpassed some 10 million, and at least one third of pirates usually otherwise buy a legal copy of the DVD. [my emphasis]

I don’t know if Mr. An is associated with CFCPA or not, but his comment about how many illegal downloaders would actually end up purchasing a legal copy if the pirated version was unavailable is something you rarely see in a MPA publication. The MPA often likes to imply that the number of illegal copies and the number of lost sales are the same number.

Looks like China’s movie industry folks might be a bit more realistic when it comes to piracy and lost profits.

Related posts:

1. Microsoft Continues to Impress on Anti-Piracy Cooperation Programs
2. U.S. Congress Has an Anti-Piracy Caucus?
3. MS Anti-piracy Campaign: let the frivolity ensue

© China Hearsay, 2010. | Permalink | Add to del.icio.us | Who is linking?
Post tags: China Film Copyright Protection Association, copyright infringement, Motion Picture Association, motion picture industry, online infringement

[A]long with the arrival of the 10 percent tax reduction was the birth of “false high-tech companies.”

An official at the MST who asked to remain anonymous said, “At least 50 percent of the companies that have already received high-tech certification are not truly qualified. They were certified under falsified materials.” (Caixin)

Well, I suppose this should not come as a shock to anyone. Take a look at the basic requirements, and you can figure out what sort of documentation would be needed and how easy/difficult those documents would be to fake or obtain on the cheap:

According to the High-tech Policy, to obtain certification, companies must meet six requirements. For example, the company must own the intellectual property of the core technology for its main products or services; more than 30 percent of the company’s workforce must hold university degrees, and 10 percent of the employees must work in research and development department; and the company’s research and development budget must account for three to six percent of its total sales.

Let’s see. Is it difficult to get a fake university diploma? No, that’s been demonstrated quite well recently with the Tang Jun diploma scandal. Proving that the tech is being used for a particular purpose, R&D budget issues and ensuring that a certain percentage of the workforce is in R&D is a piece of cake – that’s all internal documentation and easy to manipulate.

That only leaves the IP, and what we’re talking about here is a registered (in China) patent. This can be either owned outright by the China-based firm or licensed (exclusively) from the owner for at least five years.

To give you an indication of some of the flexibility in the system, one client of mine back in 2008 that was filing for HNTE status wanted to use know-how, which is essentially a trade secret(s) that does not enjoy patent protection, to support their application. From the State-level advice we obtained, it was pretty clear that the regulations envisioned a patent right. However, when the company, and perhaps its local agent, approached the approval authorities in Guangdong (I can’t recall what city they were in) to see if a know-how license would be acceptable, they were given the green light.

That story happened during the first year under the HNTE rules, and I haven’t worked for anyone else that was not using a registered China patent to support their application. I don’t know whether other localities have also been flexible on this point, but I have a feeling the government finally drew a line in the sand on this issue and stopped some of these loose application practices.

That being said, there are other ways around the requirement that companies are using. It’s not that difficult to either arrange for a five-year patent license, for a negotiated fee, even if the technology under patent does not quite match up with what the company is planning on doing. Additionally, an applicant could comb through the files of granted patents to find tech that is not being used and purchase it from the owner for the purposes of getting an HNTE application approved.

This is all bad news. The purpose of the program is to provide for a tax incentive to those firms that are using advanced technology. Enterprises that obtain this benefit fraudulently are pretty much guilty of tax evasion and should be punished accordingly.

The good news is that the government agrees with that last point and is now going after these guys. Subsequent inspections of these HNTE certified entities is revealing a lot of these irregularities, and their high-tech status is being revoked. It would also be nice to see some hefty fines and penalties, not to mention criminal prosecutions, but that’s asking a bit too much in a “routine” case of fraud like this.

I know that some foreign-invested enterprises have pursued HNTE certification without meeting all the requirements, and yet through the use of agents, they have received approvals. Perhaps they have done so knowingly, or perhaps their agents have advised them that this sort of thing was tacitly accepted by the authorities.

Either way, companies with HNTE certification should make sure that everything is kosher by performing a quick check of their documentation to ensure that their agent didn’t smooth over a few wrinkles during the application process. You don’t want to get the HNTE rug pulled out from under you sometime in the future.

Related posts:

1. Protectionism and China’s High Tech Procurement Rules
2. The Law and New Tech in China
3. An Exception To My Usual Rule — Some China Patent Statistics

© China Hearsay, 2010. | Permalink | Add to del.icio.us | Who is linking?
Post tags: fraud, high-tech, High/New Technology Enterprise, HNTE, tax incentive

A Chinese commerce official on Monday called for creating indigenous brands to reduce China’s alarming trade deficit in intellectual property.

At the Intellectual Property Rights (IPR) Forum in Beijing, Ministry of Commerce official Wu Guohua noted China spends a large amount of funds on foreign intellectual property every year, adding that to create indigenous brands is imperative to China.

Wu said despite China’s surplus in commodity trade, the nation suffers a huge deficit in services trade, with royalties and license fees being the second largest cause of the services trade deficit in 2009.

In 2009, China’s services trade deficit stood at $29.6 billion — 1.6 times the 2008 level — of which $10.6 billion was royalties and licensing fees payments to foreign companies. (Xinhua)

The rest of that particular article is a discussion of the link between innovation and the protection of IP rights. There is no question about the need for a strong IP protection regime in developing countries. If the return on invention and branding is too low (due to piracy), then investments simply won’t be made.

Additionally, we all understand that China wishes to “move up the value chain” and produce high ticket items with larger profit margins. This is the motivation behind the “innovation society” reforms.

But to posit that lack of IP protection is the main reason why Chinese brands and technology are weak is quite a stretch. Many have written on this subject before, and I don’t want to reinvent the wheel. Suffice it to say that when folks write about this issue, IP protection may make the list of reasons why tech companies are not at a higher level of development in China, but other factors are even more important. For non-tech “big brand” enterprises, IP protection may be way down the list in terms of expansion difficulties.

These factors include a lack of relevant business experience (i.e. Chinese companies are not that old), product quality problems, difficulties obtaining expansion financing (SMEs), and alarming corporate governance practices.

If IP protection was immediately ratcheted up in China in a huge way, would firms here all of sudden make huge breakthroughs in technology, become marketing geniuses overnight, and greenlight financing that was previously unthinkable? Probably not going to happen.

Faced with all these challenges, many of which have no public sector solution, it is somewhat comforting to think that everything will be better as long as the IP system is tightened up a bit more. Sounds nice, but IP protection is no panacea for what ails Chinese enterprises.
________________________________

1. Attributed to Abraham Maslow, although the exact wording varies considerably.

________________________________

Related posts:

1. Positive News on US Trade Deficit – or is it?
2. IP as Loan Collateral: Another China Innovation Policy
3. China Trade Reality Check

© China Hearsay, 2010. | Permalink | Add to del.icio.us | Who is linking?
Post tags: branding, innovation society, patent, trademark

Shanzhai refers to Chinese imitation and pirated brands and goods, particularly electronics. Literally “mountain village” or “mountain stronghold”, the term refers to the mountain stockades of warlords or thieves, far away from official control.

Over the past few weeks, I’ve told you about some “image projects” in different parts of China, buildings constructed for no reason other than prestige/tourism. A big waste of money and, in many cases, a local eyesore. You’ve seen pics of the fake Big Ben, the copycat China Pavilion, and the shanzhai Great Wall.

If I was a local official considering one of these image projects, I’d immediately dismiss something like a fake Big Ben or China Pavilion. Too provincial. Why think small when you can build something like the Great Wall? Not only do you get the benefits of copying a world-famous Chinese cultural icon, but all your local cronies know that when it comes to piracy, you don’t screw around. That’s some serious pirate street cred.

So, in addition to the Great Wall knockoff guys, who else has been going full pirate? Or to put it another way, what could compare to the sheer brazenness of constructing a shanzhai Great Wall?

There really is only one possibility, a landmark so infamous in China that I don’t even need to name it. I refer, of course, to this:

No Need to go to Beijing -- This is in Yinchuan, Ningxia

You just have to take your hats off to the good copycats of Yinchuan. They did indeed go full pirate — wall, building, flags, even the portrait. Congratulations!

This is a great idea, and so by the rules of the shanzhai community, we would not expect that this Yinchuan masterpiece is the only one of its kind. A quick online search and, lo and behold, a proliferation of unmentionable landmarks (courtesy of JSChina and Shanzhaiba):

Henan Knows What I'm Talking About

Arrgh! Shanxi Channels Its Inner Pirate

I could go on, but I think you’ve grasped the concept here. These shanzhai heroes are not content to rip off some cheap software, a movie, or a running shoe. No, these folks are thinking big, and only the best will do.

Unfortunately, some fantasies are never meant for reality, and I say that if you can’t copy well, you shouldn’t bother copying at all. The brave officials that commissioned those shanzhai masterpieces above shouldn’t have their proud pirate tradition sullied by poseurs like this:

Going Half Pirate in Nanjing (and that's being generous)

I’m thinking that China needs some sort of shanzhai quality standard. We can’t have our cultural and historical icons muddied by inferior fakes. Only the best knockoffs, approved by folks going full pirate, will be acceptable.

Related posts:

1. Shanzhai Saturday: Chengdu’s Fake Great Wall
2. Shanzhai Saturday: Dawn of a New Era?
3. Shanzhai Saturday: Fun and Games With the Spiritual and Surreal

© China Hearsay, 2010. | Permalink | Add to del.icio.us | Who is linking?
Post tags: counterfeits, fakes, knockoffs, piracy, shanzhai

I suppose I’m more of a ‘calm reflection’ sort of person, and there certainly are advantages to sitting on a story for a couple of days. Case in point: last Friday, the Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) announced the phase-out of the ‘China Top Brand’ logo, which would be discontinued by 2012.¹

This was rather big news. A lot of Chinese enterprises, including some of the biggest consumer brands, proudly display that logo and highlight it in their marketing campaigns.

As with any other government decision, though, there is a back story to this decision, not to mention subsequent clarification that was released over the weekend. As to the reason for the phase-out, one need look no further than the product quality problems over the past few years, including the Sanlu milk powder scandal. Suffice it to say that after those incidents, the government (i.e., the AQSIQ) was no longer so keen on having an official logo appear on sub-standard and dangerous products. Kind of looks bad.

As a result, there have been no new ‘China Top Brands’ selected for 2008 or 2009. The news on Friday suggested that AQSIQ had finally made a decision and that it was scrapping the program entirely, and the story was picked up by several papers and web sites.

AQSIQ responded yesterday with a clarification, saying that the entire program was not exactly being wrapped up, just suspended until it could be amended and relaunched. Here’s a short list of some of the problems (link is to a Chinese-language source) that need to be addressed:

1. Timing – The ‘China Top Brands’ program needed some time off owing to product quality scandals. The question is whether it’s now safe to relaunch or whether more time is needed.

2. Selection standards – There are thousands of top brands, many of which are products that no one seems to have heard of. Some of them may be popular regional brands, but others probably never should have been granted the designation in the first place. Obviously if the standards are too low, then saying your product is a ‘China Top Brand’ becomes meaningless.

3. Corruption – Related to the point above, there have been allegations of companies making their way on to the list the old fashioned way – by bribing an official. Call it a reverse famous brand. You first receive the designation, you publicize the hell out of it, and if all goes well, the product will actually be famous at the end of the process.

4. Innovation policy – China wants to create its own intellectual property. It wants strong products and brands that can be competitive in overseas markets. Encouraging domestic companies is a key part of China’s IP strategy, and branding is a big part of this policy. You can see how the idea of recognizing successful brands sounds like a great idea; it should help to incentivize domestic firms to innovate and invest. But if the regulators drop the ball, letting standards slip and allowing the selection process to become corrupted, then the original goals are no longer being met.

So what’s actually going to happen? Apparently there will be a phase-out of logo use applied to current designees:

According to AQSIQ’s statement, the 493 “China Top Brands” announced by the China Promotion Committee for Top Brand Strategy in 2005 will expire in September this year; the 556 brands announced in 2006 will expire in September 2011, and the 856 brands released in 2007 will no longer be used by September 2012.

After that, well, it depends; the AQSIQ denies that the logo is completely dead at this point. Jaded cynics will say that once the attention is off the program and after the product quality scandals (particularly those that are ‘China Top Brands’!) die down, the old program (with its old problems) will continue with some cosmetic changes. An optimist might say that AQSIQ may take this opportunity to correct some of the program’s defects before a relaunch.

IP Note: Do not confuse this ‘China Top Brand’ designation for what is commonly referred to in the trademark biz as a “famous” or “well known” mark. That’s a different thing entirely and regulated by a different part of the government (i.e., SAIC/Trademark Office). The ‘China Top Brand’ logo itself is best described as a kind of certification mark, similar in a very general way with marks like “UL,” “CE,” and “TUV.”
________________________________

1. My first reaction was positive. I’ve never liked the logo. To my overly-sensitive Jew eyes, those two blue zig-zag things together looks like the symbol for the SS. (Now I’ll probably get an email about Godwin’s Law like I did yesterday in a comment on china/divide.)

________________________________

Related posts:

1. Who Owns that Brand, Anyway?
2. ‘Made In China’ Brand A Work In Progress
3. China Branding Tip #17

© China Hearsay, 2010. | Permalink | Add to del.icio.us | Who is linking?
Post tags: Administration of Quality Supervision, AQSIQ, China Top Brand, quality certification, trademarks

Check it out:

Mmm. That’s some real shanzhai goodness. My only surprise is that this thing has been sitting there in Sichuan for quite a few years now, yet no one has hired the developers to construct a smaller version in Las Vegas.

Think about it. Vegas already enjoys huge numbers of Chinese tourists, but with a fake Great Wall, it would be destination #1, even higher on the list than New York, D.C., the Grand Canyon, and the Hoover Dam.

FYI: this is not strictly an intellectual property post. It’s not illegal to build your very own fake Great Wall, just a bit silly. It does prove that anything is fakeable (new word), though, if you have a pile of cash and enough land.

If you need more photos, you can indulge yourself here. Have a great weekend.

Related posts:

1. Shanzhai Saturday: Going Full Pirate
2. Shanzhai Saturday: Fun and Games With the Spiritual and Surreal
3. Shanzhai Saturday: Dawn of a New Era?

© China Hearsay, 2010. | Permalink | Add to del.icio.us | Who is linking?
Post tags: Chengdu, Great Wall, shanzhai, sichuan

A local court in the city will hear a case on Thursday in which an online shoe-seller is suing Google for damaging its reputation.

Beijing Letao Culture Development Co Ltd, which runs letao.com, accuses Google of unfair competition and violating advertisement laws, through ads on google.cn and google.com.

In early May, a Letao employee searched the name of the company on google.cn, and the second result showed: “If you want to buy sneakers, OKBuy is better than Letao.”

Letao asked that the ad be pulled and was put off, allegedly, until the suit was filed. The plaintiff is asking for RMB 500,000 and a public apology.

This is of course interesting in one sense because anything that happens to Google in China these days is going to be scrutinized. Whether its other problems will translate into less favorable treatment in a Haidian courtroom remains to be seen, although I have confidence in the experience and professionalism of Beijing jurists, who are a heck of a lot better than their colleagues in many other parts of the country.

So aside from the Google angle, what are the legal issues here? The plaintiff’s lawyer explains:

“Google acted illegally by using the Letao brand as a keyword to trigger ads of other companies on its website,” Letao’s lawyer Hua Jianming told reporters on Tuesday.

“The ads telling customers that its competitor is better than Letao, leads potential Letao buyers to turn to its competitor. It has tarnished Letao’s reputation and harmed its interests,” Hua said.

OK, looks like at least three separate issues here:

1. Internet keyword dispute. China has a keyword registration and dispute resolution system, so this is not exactly a new issue. Whether Letao ever registered its name as a keyword is not clear.

2. Advertising law violation. I assume the issue here is the claim “If you want to buy sneakers, OKBuy is better than Letao.” Generally under Chinese advertising law, competitor comparisons like this are not allowed. I’ve seen ads like this get pulled by AIC (the government regulator) before, so I’m not sure what OKBuy was thinking here.

3. Reputation damage. This one might just be a catch-all, tacked on as a matter of course. Whenever I see the term “reputation” now, though, I am quite aware that there are some new possibilities for litigation based on the new Tort Liability Law and the included right of reputation. Since the only claim here was that OKBuy is better than Letao, I’m not sure what the specific claim is with respect to reputation (if there is one).

If the court finds that the ad in question violated the Advertising Law, then perhaps it would need to determine whether Google failed to take it down in a timely fashion or whether it is liable for posting it in the first place. I’m pretty sure that with most online platforms like Google, there isn’t any formal legal oversight/due diligence of ads before they go up — it’s all in-house (the high volume does not allow for anything else) and not done by folks who necessarily know the finer points of China’s advertising laws and regulations. Whether they have decent training or not, I have no idea.

Anyway, fun stuff. Based on the keyword issue and the advertising law matter, I’m not at all surprised that this case, under an unfair competition theory, made it to the hearing stage.

Stay tuned. If anyone has details you can share, please do so.

Related posts:

1. This Is Not What They Teach You In IP School
2. Google Trademark Case is Interesting After All
3. Unfair Treatment

© China Hearsay, 2010. | Permalink | Add to del.icio.us | Who is linking?
Post tags: China advertising law, dispute resolution, Google, google.cn, Internet keywords, unfair competition