Lockdowns and China Service Providers

In recent months, the lockdowns brought on by China’s attempts to achieve zero-COVID have wreaked havoc on China’s manufacturing base and its supply chains. See The China Supply Chain Nightmare: It Is Time to Panic. But it’s not just manufacturing that is suffering. As I confirmed during a recent conference, China’s service providers are also feeling the lockdown pain.

The International Trademark Association’s (INTA) annual meeting is the gathering for IP professionals from around the world. This year it was held in Washington, DC, making it pretty easy for U.S.-based INTA members like yours truly to attend. But, as at every INTA annual meeting, there were tons of overseas participants.

Yet there were noticeably far fewer Chinese participants than in years past, which is not surprising, given China’s lockdowns and travel restrictions. Even for those in Chinese cities that are relatively more open, the prospect of a lengthy quarantine upon return was a serious deterrent.

For those who did attend, getting there wasn’t easy. One lawyer with whom I spoke foresaw trouble and left China weeks before the event, to ensure he could make it to DC. Another was not really focused on IP but was drafted to represent her firm because she was based abroad. For service providers from China with a foreign clientele, an office abroad may be a matter of survival going forward.

Being unable to attend a conference might not seem like a big deal. But for IP practitioners, INTA is a unique chance to build international networks that in turn lead to referrals and joint work. It is an opportunity to maintain existing relationships, in an ever more competitive world. In addition, some large brands except their local counsel to attend the INTA meeting, allowing their in-house staff to consolidate travel and training. Service providers who do not attend are at a clear disadvantage compared to those who do. Potentially, the impact of lockdowns on these service providers can be just as great as it is on manufacturers who cannot ship their product.

For China’s service providers, the stakes are even higher. Every conversation at INTA has the potential to turn into a work opportunity, but the likelihood of this happening is higher for participants from China, everything else being equal. Companies from around the world manufacture and source in China, and it is often one of the first international markets companies consider. Even if they are doing business in other international markets, the imperative of registering and enforcing their IP rights in other markets might not be as great as it is in China. See If Manufacturing in China, Do Just ONE Thing: Register Your Trademarks AND Your Design Patents.

Those who didn’t make it to INTA this year might draw some comfort from the fact that China was underrepresented, leaving many competitors in the same boat. But that doesn’t mean that there were no options for participants from other countries looking for China contacts. For one, there were the service providers from China who did make it, few as they were. But there were also service providers based elsewhere that can assist with China work — such as my law firm and me.

Of course, it’s not just INTA, but business relationships of all sorts that are impacted by lockdowns and travel restrictions. Even if manufacturing activities themselves are not affected, it matters to foreign customers if they cannot exercise oversight over what happens at their suppliers’ facilities. And it isn’t just a matter of ensuring that product quality standards are met: Foreign companies want reassurances that their suppliers aren’t engaging in unauthorized production of their products and/or failing to adequately protect their IP.

A lack of visibility also increases compliance risks. Even a company’s best efforts might be insufficient to detect the use of forced labor by a particular supplier. But if foreign customers and their auditors cannot even enter the country, let alone get past the factory gate, there’s little deterrent against the use of forced labor. You can learn more about the due diligence challenges, even in the pre-COVID halcyon days, in Forced Labor in China: Don’t Trust AND Do Verify.

Contrary to what China’s leadership thinks, the show must go on, and foreign companies are finding ways to make that happen. And by necessity, much of that involves looking for other destinations to source, make and/or sell their wares (adding further pressures to service providers in China, such as IP lawyers). If the Chinese authorities keep this up, businesses in China might find that their clients and partners don’t come back once the lockdowns end.