Table of Contents
- Author’s Point of View
- Key terminology:
- Counterfeit vs knockoff vs gray channel
- What can be protected under copyright law?
- What cannot easily be protected under copyright law? When are patents and trademarks better?
- Case Study: Slime
- Is copyright at tool just for creatives like inventors, artists and filmmakers?
- Pro Tips
- Should I register my copyright in China?
- Common Mistake: Not realizing a 3rd party actually owns “your” copyright
- What is the Procedure, Timeframe and Cost for Copyright Registration in China?
- FAQ: Can foreigners get a fair shake in a China court of law?
- Case Study: Copyright concerns when sourcing fashion products from China
- Conclusion: Copyright Strategy: China IS different
- Additional Resources
- About the author
Author’s Point of View: This blog post is written for businesspeople who design, import and/or distribute products with proprietary designs. If you are worried about knock offs and counterfeits in China, this article is for you.
You are probably already aware that creative works such as books, music, recordings, plays, films, paintings, sculptures, photographs and such are subject to copyright. But even if you source a “boring widget” from China that is neither “unique”, “artistic” nor “creative”, there are still many ways that you can use copyright law in China to hold back competitors and knockoff artists. This article explains how in great detail.
The lessons in this blog post are pulled from the author’s 20 years as a buyer’s representative in China, helping clients manage their global supply chains.
Before diving into the article, let’s review some of the key terminology:
Counterfeit vs knockoff vs gray channel
A counterfeit is an imitation of something valuable or important with the intention to deceive or defraud the end user. Examples: Pirated Software. Fake Gucci Bag.
Counterfeits in the marketplace hurt the actual owner of the Intellectual Property (IP) so much because these fakes are often made of poor quality and have the ability to destroy a brand in a short period of time, especially when you consider how fast reviews go viral on the internet. For obvious reasons, counterfeits are clearly illegal, even in China! “How about enforcement” you ask…we will get to that topic later in the article!
Knockoffs are products that resemble the original item but they are not identical. They are “inspired” by the original and usually found at a much lower pricing point. They can be sold legally unless you can prove that the copycat is so close to your original that the consumers can’t tell the difference.
Gray channel goods come from the same factory as the original, but the sales are unauthorized and cannibalize legit sales. For example, you place an order for 10,000 units at a Chinese factory for delivery to USA. They make 15,000 and sell 5,000 to Dubai without informing you. The 5000 are unauthorized. The gray channel really becomes a problem when that Dubai trader sells to a Canadian importer who distributes into the USA!
The form of intellectual property known as copyright protects your right to reproduce, publish, or sell your original work of authorship. For example: literary, musical, dramatic, artistic, or architectural works.
What can be protected under copyright law?
Copyright only protects what is known as the “form of material expression”. The ideas, concepts, techniques themselves are not protected until they are expressed in a physical form. It is the physical form that can be registered as a copyright. For example, a story handed down for generations in spoken word format is not protected, but the moment it is put on paper, that document can enjoy copyright protection. For copyright to apply, the work must be “fixed in a tangible form”.
What cannot easily be protected under copyright law? When are patents and trademarks better?
Things like titles, names, slogans, and symbols should be trademarked as they cannot be copyrighted.
Ideas, procedures, methods, systems and processes are not easily protected by copyright because the copyright would protect only the reproduction and distribution of the tangible form. Ideas, methods and such enjoy more protection when they are registered as patents, because the patent protects unauthorized use of your idea, regardless of the format in which the idea is shared.
Case Study: Slime
My daughter (age 8) loves to watch YouTube videos about how to make slime. She has a whole slime factory in our utility room. Glow in the dark slime, butterscotch slime, even “unicorn poop” slime! She experiments in her little slime factory and came up with a new type of slime of her own. She asked me how to prevent others from copying it. I explained that if she made a YouTube video about how to make it, the video itself would be subject to copyright. Meaning others can’t copy and distribute her video. But if she wanted to prevent unauthorized parties from using her formula, she would need to seek a patent for the slime in question and the patent office would need to make sure the formula is new and never done before.
Is copyright a tool just for creatives like inventors, artists and filmmakers?
Copyright is actually relevant to almost all businesses! Even if you are making “boring widgets,” copyright protection can be one tool in your IP protection toolbox.
Even if the product you make at your factory is not particularly “creative” or even “unique”, the articles, photographs, drawings, designs, models, websites and such that you created to market your “boring product” are your intellectual property and protected by copyright. Sadly, it’s not uncommon for knockoff artists and competitors in China to blatantly lift the marketing materials of the original product. So even if your product is not “unique” or “creative”, consider using a copyright to protect strategic marketing assets like:
- Your website’s design and wording
- Marketing images and text
- Custom software
Not So Obvious Assets:
- Product drawings, sketches and graphic design
- Email templates
- Even your customer database!
Pro Tip: Copyright is not only a tool to defend yourself against the competition, but it also helps prevent your own employees from stealing your business tools word for word. That’s a real issue in China where there is high employee turnover and the non-compete clauses in labor contracts offer little protection to the foreign employer.
And don’t be afraid to enforce your copyrights in China. I’ll explain how in the rest of this article.
Should I register my copyright in China?
You may have heard that copyright is an automatic right that arises the moment a work is created. That’s true, even in China. Furthermore, even if your work was created outside of China, you automatically enjoy copyright protection in China, and most of the world for that matter, under the Berne Convention for the Protection of Literary and Artistic Works, of which China is a signatory party.
But if you have intellectual property that can be copyrighted, and if that material is strategic to your business dealings with China, then you would be wise to register your copyright in China anyway, even though you already have automatic protection under Berne. Here is why:
- Copyright registration in China makes it crystal clear to your Chinese partners, employees, investors and competitors that you own this Intellectual Property and are serious about protecting it.
- Should a dispute arise, having the copyright registered in China in advance will save time and money.
- Perhaps most importantly, the fees associated with registering a copyright in China are very low. Here is a link to an English-speaking Chinese lawyer where you can download a rate sheet for reference.
Common Mistake: Not realizing a 3rd party owns “your” copyright
- Since your supplier in China has access to a low-cost print shop, you ask them to design and print your product’s packaging, labels and instruction cards.
- To keep costs down, your subsidiary in China is assigned the task of building your global software.
- You hired a freelancer in China to design your brochure and take pictures for your catalogue.
It’s essential to have a copyright ownership clause in your contracts with subsidiaries, suppliers, service providers and even employees in China if they play a role in creating copyrightable materials. Because under copyright law, “they own the IP” unless stated otherwise!
Imagine if your supplier wants to cut you out of the supply chain someday. If they own the rights to your IP, it makes it even easier for them to sell direct to your customer using “your” brochures, software, labels, instructional videos and such!
What is the Procedure, Timeframe and Cost for Copyright Registration in China?
Rather than dedicate a large portion of this article to the detailed procedures, simply visit this page for the following:
- the actual steps taken by lawyers in the AsiaBridge Law network when clients wish to register their copyright in China
- full list of the documents required for copyright registration.
Copyright Registration Time Frame
The total procedure depends on the project scope and national holidays, but the average project takes three to six months from the time the application is submitted to the point where the IP is protected.
Keep in mind that the China system is “first to register” rather than “first to market.”
Copyright Registration Costs
Download the latest rate sheet here.
FAQ: Can foreigners get a fair shake in a China court of law?
- The short answer is “yes, if you play by local rules.”
- The long answer is explained during the first 5 minutes of this video tutorial I made for the China Sourcing Academy entitled “An Inside look at the Chinese courts” (https://www.youtube.com/watch?v=RlJCiWvEkpU)
Case Study: Copyright concerns when sourcing fashion products from China
Generally speaking, fashion designs are not as easily protected as other creative works such as books, film and videos. The logic (from the regulatory perspective at least) is that apparel is a functional item and outside the scope of copyright laws. The attitude is changing over time as an argument is being made that a unique image on cloth, or the shape of a certain outfit or even the color choice is just as creative as a poem or any other work of art on paper. But it is still hard to prove that your fashion product is truly unique in the history of fashion!
However, there are ways to protect your fashion designs against knock offs, counterfeits and unauthorized production in China if you and your lawyers are willing to get creative. Here are 6 potential options for your consideration:
- Functional aspects of apparel fall under patents, but sometimes the aesthetic elements of a garment can enjoy copyright protection when the shape, colors, texture, lines and such are registered as a design or model rather than garment.
- Register your trademark (brand name/logo) then build your design around the trademark. Perhaps that is why brands like Fendi and Gucci often use repetitive logos as the artwork itself.
- Easier said than done, but stay ahead of the knockoff artists by rolling out totally new designs each season.
- Keep the product design hidden until the day it hits the market. When production takes place on the other side of the world, it is no easy task to keep things “on the down low”, but the following options are available:
- Blackbox manufacturing: Use a trusted 3rd party to conduct the final assembly in a way that keeps sub-suppliers and competitors in the dark. For reference, you can check out a company called PassageMaker (www.PSSchina.com) where I was the managing partner from 2002-2016, as they provide Blackbox assembly in China.
- Use strict terms and penalty clauses in the contract with your suppliers. A bilingual NNN Template (Non-Disclosure Non-Usage Non-Compete Agreement) is available via this link.
- Incorporate unique functionality into your fashion design and go for patent protection.
Conclusion: Copyright Strategy: China IS different
Lawyers and businesspeople lacking China experience will tell you that since copyright is automatically granted when you create something original you need not worry about it in China.
Those with deep China business experience paint a very different picture:
- You probably have more material than you realize that can be considered copyright in China.
- If these items are strategic to your business, make sure the copyright is registered in China as an extra precaution.
- Trust no one. When formulating a strategy for protection of your IP, think beyond the common concerns of suppliers and competitors. Also worry about your own subsidiaries, employees, service providers and sub-contractors!
- China is finally getting serious about IP protection but the marketplace is still rampant with counterfeits, knock offs and unauthorized production.
Regardless if you use the firm I am associated with, or other lawyers in China, if you are serious about doing business in China and assuming you have IP worth protecting, then take effort to get your IP registered in China. If you do that, you will be well-positioned to defend and enforce your copyrights when the inevitable day comes that you face counterfeits, knockoffs or gray channels.
More whitepapers & video tutorials on related subjects can be found https://www.asiabridgelaw.com/resources/
About the author: Michael J. Bellamy
Originally from Upstate New York, Mike moved to Asia in 1993 and is a China business advisor to both Fortune 500 companies and small businesses. Recognized as an expert on doing business in China, he has been interviewed by WSJ, CNBC, FT & Bloomberg.
A featured presenter on China issues at seminars, trade shows and corporate events across the globe, Mike is the author of “The Essential Reference Guide to China Sourcing” (available on Amazon).
Learn more about Mike and AsiaBridge Law at https://www.asiabridgelaw.com/business-advisory-services/