July Edition

Intellectual Property Rights

One of the key concerns of foreign businessmen investing in China is whether they can protect their intellectual property rights.  The good news is that the situation is improving but it is often a case of “two steps forward and one step back” as you will se from the following articles.

US Software Co. Wins Case

China has a bad (and often deserved) reputation for infringing intellectual property rights.  We are always telling clients that the situation is improving and it is, especially as more and more Chinese companies have valuable intellectual property that they wish to protect.

Nevertheless it is always pleasing to be able to find some hard evidence of improvement.  At the beginning of July Adobe Systems Inc. a US provider of software (you’ve probably used their Acrobat software to download files) won a case against an unidentified Chinese company that infringed its copyright through unauthorized use of its software.  According to the Xinhua News Agency, the First Intermediate People’s Court in Shanghai ordered the company to pay Adobe RMB 150,000 (US$ 18,000 approx.).

Infringement of copyright, especially for software, is still widespread in China and officials have said that they intend to introduce new legislation to combat the practice by the end of the year.

Shell Loses Trademark Case

 By way of contrast, Shell, the Anglo-Dutch oil company has just had a trademark complaint against a Chinese drink manufacturer rejected by the State Trademark Agency (STA).  It appears that the name “Shell” was registered as a trademark for a drink developed by Ningbo Native and Livestock Products in 1996.  Shell formally complained to STA in 1998 and demanded that Ningbo be prevented from using the trademark.  This cut little ice with Ningbo and they made a counterclaim to be allowed to retain the name. 

The STA recently decided that the two “Shells” produced entirely different products and there was no infringement of intellectual property rights in this case.  Shell now intends to go to international trademark arbitration to get the decision overturned. 

This is a cautionary tale for all foreign companies and holders of trademarks.  Registration is not mandatory for the use of a trademark in China but registration is required for adequate protection, as failure to register a trademark means that the owner has no exclusive right to use it.  China operates on a first-to-file basis and protection is only offered to registered trademarks.  What is interesting about the Shell case is that China is a member of the Paris Convention which provides for the protection of well known trademarks without registration.  If Chinese law does not protect worldwide trademarks  such as Shell, then other companies with less well known trademarks must register them in China before someone else does. 

The trademark registration process is currently taking 18-24 months to complete, so companies have no time to lose.  Are your trademarks registered in China and if not what are you going to do about it?  Business Development International works closely with a trademark agent in Beijing and we can register your trademark on your behalf.  Give us a call if you want to discuss this further. 

UK Government Invests in China 

An unlikely headline but it is true. CDC Capital  Partners (part of CDC which is wholly owned by the UK Department of Overseas Development) has formed a 50:50 joint venture - CGU-CDC China Partners – with the British insurance company CGNU with the intention of taking private equity stakes in up to a dozen mainland projects in various industry sectors over the next three years.  The fund has US$ 100 million to invest in both the old and the new economies, but it is expected that considerable emphasis will be placed on information technology.  The fund wishes to invest in both start-up ventures and in well established companies that are looking for an injection of new capital. 

The British Government is very conservative (with a small “c”) and if it is investing in China there has been a sea change in attitude.   Companies should ask themselves: What are the developments in our industry in China?  Are we missing good opportunities?  Can we establish ourselves in China for a reasonable investment?

 China’s Financial Reforms

China has promised to introduce a number of financial reforms to open its markets and prepare firms for entry into WTO.  Many of these reforms will introduce greater transparency into financial markets.  Initially these reforms will help Chinese companies but ultimately a more open and transparent stock market will encourage foreign companies to use an IPO (Initial Public Offering) as an exit route to recoup part or all of their investment.  Unilever is reported to be in advanced discussions with the Chinese financial authorities about a flotation of part of Unilever China.

Two reforms which could have a more immediate impact on foreign companies are currency and interest rate liberalization.  China needs a more flexible currency to act as a buffer against financial shocks expected after joining WTO and it is rumoured that the IMF has suggested floating the currency early next year.  The People’s Bank of China is also working towards allowing interest rates to be determined by the market. 

WTO requires administrative transparency and another reform being considered is the phasing out of the so-called neibu (hidden) regulations that have caused so many problems for foreign firms over the years.  However, we expect this to be later rather than sooner.