Mathew Alderson, Autor bei Harris Sliwoski LLP Schwierige Märkte, mutige Anwälte Mon, 26 Feb 2024 15:15:46 +0000 en-US stündlich 1 https://wordpress.org/?v=6.4.3 https://harris-sliwoski.com/wp-content/uploads/cropped-Harris-Sliwoski-Logo-FinalIcon-White-1-32x32.png Mathew Alderson, Autor bei Harris Sliwoski LLP 32 32 Australien Cannabis: Update der Gesetzgebung für den Freizeitgebrauch https://harris-sliwoski.com/cannalawblog/australian-cannabis-recreational-use-legislation-update/ Fr, 23 Feb 2024 15:00:42 +0000 https://harris-sliwoski.com/?post_type=cannalawblog&p=134995 Australia is said to have one of the highest cannabis prevalence rates in the world and public attitudes to its use are shifting. North American, European and other cannabis companies looking for investment opportunities would do well to follow these shifts. Growing cannabis for medicinal and scientific purposes was legalized under federal law in 2016.

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Australia is said to have one of the highest cannabis prevalence rates in the world and public attitudes to its use are shifting. North American, European and other cannabis companies looking for investment opportunities would do well to follow these shifts.

Growing cannabis for medicinal and scientific purposes was legalized under federal law in 2016. Low-THC hemp foods were then legalized federally in 2017. Recreational use, though, remains prohibited under federal law. Similarly, at the state and territory level it is mostly illegal to use, possess, grow, and sell cannabis. Despite these continuing prohibitions, there are legislative trends toward legalization.

If passed, the Legalising Cannabis Bill 2023 would change the federal landscape. It would legalize cannabis for adult recreational use in Australia. The Bill would establish the Cannabis Australia National Agency as a statutory agency to register cannabis strains and regulate cannabis activities. These activities include growing and possessing plants, manufacturing and selling cannabis products, operating cannabis cafes, and importing and exporting cannabis products.

The Senate Legal and Constitutional Affairs Committee is presently conducting an inquiry into the Bill. Submissions have now closed and public hearings have opened. The Committee’s reporting date is May 31, 2024. The Bill is expected to be debated in federal parliament later this year. At the same time, cannabis legalization bills are now being debated in several Australian states.

Despite shifting public attitudes, federal legalization may still be a way off. While the federal Bill has been promoted by a minority party, it does not enjoy the support of the ruling party or the major opposition party. It also lacks the support of the Australian Medical Association.

Stay tuned for updates on Legalising Cannabis Bill 2023 and all thing Australian cannabis. And please reach out to us if you are interested in doing business in Australia.

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Psilocybin und MDMA - Therapeutische Verwendung in Australien ab 1. Juli 2023 erlaubt https://harris-sliwoski.com/psychlawblog/psilocybin-and-mdma-therapeutic-use-permitted-in-australia-from-july-1st-2023/ Thu, 02 Mar 2023 15:00:32 +0000 https://harris-sliwoski.com/?post_type=psychlawblog&p=130074 Psilocybin is a naturally occurring psychedelic prodrug compound produced by more than 200 species of fungi. Commonly found in tablet or crystal form, MDMA is a potent psychoactive drug with stimulant properties that produces experiences of empathy and sympathy. Both are currently prohibited in Australia, but will soon be available for therapeutic use. In so

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Psilocybin is a naturally occurring psychedelic prodrug compound produced by more than 200 species of fungi. Commonly found in tablet or crystal form, MDMA is a potent psychoactive drug with stimulant properties that produces experiences of empathy and sympathy. Both are currently prohibited in Australia, but will soon be available for therapeutic use. In so doing, Australia will position itself as among the first countries to provide a legal pathway to psychedelic therapies.

Therapeutic Goods Administration

Medicines and other therapeutic products are regulated nationally in Australia by the Therapeutic Goods Administration (TGA). Using a scheduling system, the TGA classifies medicines and chemicals and controls how they are made available to the public.

Substances are classified into Schedules according to the level of regulatory control over their availability that is considered necessary to protect public health and safety.

The Schedules are published in the Poisons Standard and are given legal effect through state and territory legislation. The Poisons Standard is a record of decisions made by the TGA on the classification of medicines and chemicals into the Schedules. Schedule 8 concerns controlled drugs, being medicines thought to require strict legislative controls, such as opioid analgesics. Schedule 9 is for prohibited substances, which are those considered to have no therapeutic use while also being open to abuse, such as heroin. Presently, psilocybin and MDMA are both Schedule 9 prohibited substances. The use of Schedule 9 substances is limited to authorized research and analytical purposes.

Amendment to the Poisons Standard

On February 3rd 2023, the TGA published an amendment to the Poisons Standard that will take effect on July 1st 2023.  From that date, psilocybin may be used for treatment-resistant depression (TRD) and MDMA may be used for post-traumatic stress disorder (PTSD). For those purposes, respectively, the substances will be controlled drugs classified in Schedule 8. For all other purposes, they will remain prohibited in Schedule 9.

From July 1st 2023, each substance may be prescribed or supplied, for the permitted purpose, only by a medical practitioner with an authority governing that substance. They may also be used in approved clinical trials. Only psychiatrists with the necessary authority are considered by the TGA to have the training and expertise to diagnose and appropriately treat the relevant conditions. In Australia, a consultation with a psychiatrist generally requires a referral from a general medical practitioner.

The reclassification of certain uses of psilocybin and MDMA occurred because the TGA concluded that the benefits to patients and public health now outweigh the risks, even though there are yet no established treatment protocols. The TGA regards the reclassifications as aligned with the current body of clinical evidence, which is limited to TRD for psilocybin and PTSD for MDMA. The body of evidence demonstrating efficacy of these substances for the treatment of other conditions is considered insufficient to justify increased access for therapeutic use.

In its decision, the TGA noted that therapeutic uses of psilocybin and MDMA are largely prohibited outside clinical trials in many countries, including Canada, New Zealand, the U.K., and the E.U. Nonetheless, the TGA conceded that therapeutic uses of these substances are under review in many countries, including the US, where the FDA has designated MDMA as a “breakthrough” therapy for TRD.

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Mit chinesischen Unternehmen verhandeln: Die lange Version https://harris-sliwoski.com/chinalawblog/negotiating-with-chinese-companies-the-long-version/ Thu, 17 Sep 2020 10:58:18 +0000 http://harris-sliwoski.com/chinalawblog/?p=46696 In the early 1980s the US Air Force commissioned Lucian Pye, an eminent sinologist, to write a report on how Chinese negotiate with foreigners. Published in 1982, it was called Chinese Commercial Negotiating Style. Based on extensive interviews with foreigners engaged in China trade, Pye’s paper analyzes the negotiating style the Chinese use with foreign businesspeople. Pye’s

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In the early 1980s the US Air Force commissioned Lucian Pye, an eminent sinologist, to write a report on how Chinese negotiate with foreigners. Published in 1982, it was called Chinese Commercial Negotiating Style.

Based on extensive interviews with foreigners engaged in China trade, Pye’s paper analyzes the negotiating style the Chinese use with foreign businesspeople. Pye’s overall conclusion was that the way most negotiations are initiated usually sets in motion a process that helps the Chinese side achieve its preferred strategies and tactics.

Though some of Pye’s political and economic observations are now somewhat dated, I was nonetheless struck by his report’s enduring relevance and I now recommend it to anyone interested in doing business with China. A recurring theme is Chinese mastery of contractual preliminaries.

One key point: Pye never moralizes or suggests there is anything wrong with the Chinese approach. He merely points out how different it is from the typical Western approach, leaving readers to conclude that foreigners ignore or disregard the Chinese negotiating tactics at their own peril. This is certainly consistent with our view that one should not rush to blame the Chinese when things go wrong.

The “Courtship” Phase

In Pye’s view, foreigners often follow the historical practice of coming as guests seeking permission to do business in China. This naturally casts them in the role of supplicants asking for Chinese beneficence. They are visitors from afar and their hosts call the tune on the procedures and the timing of meetings. Problems associated with visas, invitations and access to officials or business leaders contribute to foreign anxiety about “doing the wrong thing” when doing business in China. So when problems arise, the foreigners are prone to suspect they are somehow at fault. In this way, the Chinese hosts gain the advantages of surprise and uncertainty in agenda arrangements.

According to Pye, the Chinese tend to limit preliminary exchanges to generalities so as to size up the foreign party and to determine its vulnerabilities, especially any lack of patience. At the same time, foreign business leaders tend to jump straight in. The novelty and status associated with visiting China frequently compel foreign CEOs to be the first to engage in talks with the Chinese, without waiting for subordinates to prepare the ground. The graciousness and bountifulness of Chinese hospitality can make the foreign visitor feel awkward about being too businesslike. Consequently, foreign CEOs tend to be very obliging in following the Chinese practice of seeking initial agreement on very general principles, without clarification on the specific details. Much of what occurs at the preliminary stage has a tacit quality and foreigners frequently misjudge their progress. In taking this approach, Pye says, foreigners violate one of the first principles of negotiations and diplomacy — summit meetings should never take place without extensive preliminary spadework by subordinates.

When mid level executives are later sent to work out the details of a contract they usually discover the Chinese want to rely on the agreed “principles” put in place by the CEO. Such principles were often taken by the foreigners to be no more than ritual statements, but the Chinese tend to use them to practical advantage by suggesting the other party has not lived up to their “spirit.” See China LOI and MOU: Don’t Let Them Happen to You. Instant authorities on China, these CEOs returned from their initial visits to report success, saying they found the Chinese to be cooperative and gracious. The mid level executives and others tasked with working out details then come under great pressure. They are constrained to avoid acting in ways that might irritate the Chinese and spoil relationships established by the boss. So, when the big guns are sent in first the foreigners lose the advantage of dispatching their highest people for critical negations at the consummation of the deal. Their second appearances must now be limited to generalities where civilities prevail.

The Contract Formation Stage

Chinese culture traditionally shuns legal considerations and instead stresses ethical and moralistic principles. By contrast, Westerners are thought to be highly legalistic. The Chinese tend to reject the typical Western notion that agreement is best sought by focusing on specific details and concrete matters, while avoiding discussions of generalities or rhetoric. The Chinese prefer to agree on general principles before dealing with details. They can, Pye says, be tenacious in holding to their principles but surprisingly flexible about details. The Chinese focus is on the “spirit” of the deal. Agreement on principles usually takes the form of letters of intent or protocols, the purpose of which often mystifies the Westerner. The Chinese attach great importance to symbols and symbolic matters. Symbols such as the spirit of the agreement have a reality for the Chinese and there is a distinct Chinese bias in favor of the publicity or “face” these symbols can generate.

The Chinese, Pye says, conceive of their business relationships in longer and more continuous terms than Westerners. They expect an agreement to set the stage for a growing relationship in which it will be proper for the Chinese to make increasing demands. A proclivity for seemingly unending negotiations can even make the Chinese insensitive to the possibility that “canceling” contracts may cause trouble in the relationship with the foreign party. From the Chinese perspective, nothing about a contract is ever final. Westerners usually think a contract will provide for a given period of fixed and predictable behavior but the Chinese look for continuous bargaining and regard this bargaining itself as suggesting an enduring relationship. For Westerners there can be a great deal of give and take before agreement is reached, but afterwards the expectation is that neither party should lean on the other to seek further advantages. For the Chinese, the very achievement of a formalized agreement, like the initial agreement on principles, means that the parties now understand one other well enough that each can expect further favors. They will therefore not hesitate to suggest changes immediately on the heels of an agreement. They tend not to treat the signing of a contract as signaling a completed agreement.

Pye advances several explanations for the Chinese tendency to seek early agreement on general principles. First, he says, it is easier to extract concessions when details are to be worked out later on. Second, agreement on principles can easily be turned into agreement on goals. This can in turn support a later insistence that all discussion of concrete issues must support these goals. Finally, Pye says, agreement on general principles can be used later to substantiate tactical claims of bad faith.

Specific Negotiating Tactics

According to Pye, Chinese negotiators tend to use the following tactics:

Open with flattery — In response to flattering remarks the foreigner feels compelled to give an enthusiastic affirmation. The foreigner is then called on to give an emphatic denial of a feigned, self-deprecating remark. This puts the foreigner on the back foot from the outset.

Operate on two levels — There is the manifest level of bargaining about the concrete and there is also the latent level at which attempts are made to strike emotional bargains based on dependency. Chinese negotiators seek relations in which the foreigner will feel solicitous toward China, thus implicitly becoming a protector and more a superior than an equal.

Focus on mutual interests — Westerners like to think of themselves as conciliators. The Chinese tend to reject the principle of compromise and prefer instead to stress mutual interests. When mutual interests have been established it is easier to ask the foreign party to bear a heavier burden without protest.

Use meetings as seminars — Negotiations are seen partly as information-gathering operations. Foreign competitors are played off against against one another to extract maximum technical intelligence from presentations. Negotiating sessions are used frequently for training purposes. The foreigner is encouraged to perform so as to impress the passive Chinese host. The obliging guest entertains in repayment for hospitality and brings “gifts of knowledge”. Put simply, Chinese companies often claim to want to do a deal with you when all they really want is to get access to your technology or know-how. I cannot stress enough how often our China lawyers see this sort of situation.

Blur the lines of authority — You can’t tell who reports to whom or where the apparent leader fits in the hierarchy of the Chinese company. Negotiating teams tend to be large but the lines of authority are diffuse and vague. Chinese negotiators are often unsure of their mandates and of the probable decisions of their superiors. They therefore tend to give inaccurate signals about the state of negotiations. Foreigners persist in trying to find a particular person who has command authority at each level. In China it cannot be assumed that power is tied to responsibility. Proof of a person’s importance often lies precisely in their being shielded from accountability.

Never say “no” — Chinese negotiators will frequently seem to be agreeing when they say something is “possible” but often this is an ambiguous way of saying “no”. They will often respond with silence to a proposal and then at a much later date suddenly return with interest.

Never telegraph their next move — Chinese negotiators don’t telegraph their next moves through displays of emotion. The level of friendliness or impersonality remains the same whether negotiations are heading for success or failure. This brings surprises. Warm and progressively friendly meetings can lead to disappointing outcomes. Chinese negotiators are quite prepared to end meetings or negotiations on a negative note. As negotiators often have little authority they often find it prudent to maintain a negative attitude. At the same time, apparently disinterested negotiators can suddenly announce that a positive agreement is possible.

Exploit Chinese members of the foreign team — Ethnic Chinese associated with the foreign team will be sought out in the belief that they are naturally sympathetic to China. Our China attorneys have also seen many instances where an Ethnic Chinese person on the foreign side is accused of disloyalty for not siding with the Chinese side in the negotiations — always in Chinese, of course.

Use “shaming” — Chinese negotiators may be quick to point out “mistakes” in an effort to put the foreign party on the defensive. There is a deep belief that people will be shattered by the shame of their faults so there is a tendency to make an issue over trivial slip-ups and misstatements.

Make big asks — Chinese negotiators often have no hesitation in presenting what they must understand are unacceptable demands. These demands are often accompanied by a hint that they will be withdrawn in return for only modest or symbolic concessions. Extreme language is often used to obtain symbolic victories.

Stall — Chinese negotiators are masters of creative use of fatigue. They have, according to Pye, great staying power and almost no capacity for boredom. These traits keep foreigners’ hopes alive. This approach may also reflect lack of experience, bureaucratic problems or a subordinate’s fear of criticism from above. Conversely, when agreement reached it is often the Chinese who become impatient for deliveries by the foreigners.

Negotiation Tips for Foreigners Negotiating with Chinese Companies

Take general principles seriously. According to Pye, the Chinese usually prefer to begin with agreement about general principles before moving to concrete items, while foreigners like to begin with specifics and avoid generalities. Agreement on generalities allows the Chinese to make headway by drawing subsequent negotiations back to the “spirit” of the agreement. If you follow the Chinese route it is imperative you decide ahead of time the precise general principles you are prepared to accept.

Avoid the indebtedness trap. Chinese negotiators often seek to put foreigners in a position where they will feel obligated or indebted. Pye says that foreign negotiators need to be aware of the obligations they may be accruing. They should be skeptical in the face of the “effusion of personal friendship” often used to elicit an acknowledgement of the indebtedness. See How NOT To Choose Your China Business Partner.

Prevent exaggerated expectations. Exuberant Western sales techniques are often read to mean the foreigner is prepared to do more than they intend. Once the Chinese assume a relationship has been established they will genuinely count on generosity and flexibility from their partners. If the Chinese decline an offer of generosity in one instance, they may consider themselves entitled to ask for the same kind of generosity in future. Chinese “face-saving” can involve turning down initial offers but there is no loss of face in asking for help later.

Handle the shaming. When disappointed, Pye says, Chinese negotiators tend not to search for appropriate counter moves but attempt to shame the foreign party with moralistic appeals and denunciation. They believe that if the other party can be shamed into doing the “right” thing they will be grateful and not resentful. You can often satisfy the shaming tactic with symbolic responses.

Master the record. A Chinese negotiator will normally be completely knowledgeable about the deal history and will test the other side’s memory to advantage. What was previously discussed or settled may be contradicted in an attempt to take advantage of new negotiators or changed circumstances. There is a belief that foreigners are careless and deserve to be penalized if they make mistakes. Pye’s tip is that you keep an exact record of your negotiation history.

Control the damage. It will inevitably be necessary, at times, to adopt positions the Chinese may find offensive or that may violate their beliefs about how people with mutual interests should behave. Pye’s tip is to concentrate on limiting the damage and not engage in mutual recriminations, which will only convince the Chinese side that the foreign side is insecure. According to Pye, the Chinese have a strong need to publicize what they perceive as mistreatment. Avoid an aggressive defense at all cost. Better to pass something off as an unavoidable misunderstanding about which the Chinese side has the right to be upset.

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Sportübertragung und Musikvideo-Urheberrecht in China https://harris-sliwoski.com/chinalawblog/sports-broadcasts-and-music-video-copyrights-in-china/ Thu, 13 Aug 2020 10 :58:08 +0000 http://harris-sliwoski.com/chinalawblog/?p=45178 Sports broadcasts aren’t recognized as copyright subject matter under Chinese statute law although they have been accepted as such in some of the Chinese case law. This makes it necessary for sports brands, such as leagues or their licensees, to tackle piracy using Chinese anti-unfair competition laws. These laws are considered less desirable because the

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Sports broadcasts aren’t recognized as copyright subject matter under Chinese statute law although they have been accepted as such in some of the Chinese case law. This makes it necessary for sports brands, such as leagues or their licensees, to tackle piracy using Chinese anti-unfair competition laws. These laws are considered less desirable because the claims are harder to prove and often require the disclosure of market-sensitive information of a kind not typically required in copyright proceedings.

The value of a sports broadcast diminishes rapidly as the game, race or event unfolds. Unlike scripted film or TV content, there is little value in re-runs or re-makes, and every instance of piracy involves mass infringement.  Sports brands need to take action against pirates in advance of an event or in its early stages. This requires urgent injunctive relief in every case. The introduction of copyright protection would make an entitlement to this relief clearer. No stakeholders or interest groups, whether foreign or Chinese, oppose this.

Why, then, aren’t sports broadcasts clearly recognized? The reason is that Chinese copyright law insists that the thing being broadcast be a copyright work. Unsurprisingly, Chinese law does not regard a game, race or similar event as a copyright work because, among other things, it is not scripted. That leaves only one candidate for protection: a “work of cinematography”. A work of cinematography enjoys protection as a copyright work, with streaming and other rights, because it is regarded as original. By contrast, the lesser category of “video recording” is not regarded as original and has only limited protection under neighboring rights. So, protection requires that thing being broadcast be a cinematographic work.

The trouble is that, even if you accept (as US copyright law does) that the making of a broadcast necessarily involves the simultaneous affixing of a recording, even that recording is regarded under Chinese law as being insufficiently original to be a copyright work. Maybe it’s a video recording, but in that case there’s no copyright protection at all. The absence of a script is more or less dispositive — unscripted likely means no copyright. On this view of things, no recognition can be given to the roles played by directors, editors, designers and technicians whose job it is to simultaneously assimilate live feeds from dozens of cameras. You’re then left with a bare broadcast, and that doesn’t help much either — the rights of Chinese broadcasters, under copyright law, extend no further than preventing re-broadcasts or the making of recordings, and they do not yet enjoy a streaming right.

The same issue arises in the Chinese music business, where it has been critical in cases brought by music labels against karaoke bars in connection with music video copyright. A public performance license is required by the bar only if the music video is a work of cinematography. No license is required if the music video is merely a video recording. Again, the rule of thumb applied by the courts is whether the music video is scripted or not. To use an example given by Jiarui Liu of Stanford Law School, this would mean the music video for Michael Jackson’s Thriller would enjoy copyright protection in China but the video for Moonwalker Live at Madison Square Garden would miss out.

I’ve spoken at and attended a number of conferences and seminars dealing with sports broadcasts in Beijing over the years.  The topic always comes back to an all-or-nothing approach to originality. At some point there is a debate about copyright versus neighboring rights, and someone usually stands up and says something like, “Ah yes, but Chinese copyright law is based on German law and this is how it’s done in German law”. People shrug and nod and mental notes are made to invite German lawyers next time, but otherwise the inquiry tends to stop there. So, I was happy when Jiarui Liu addressed the point during a recent Berkeley Law webinar moderated by Mark Cohen. In Liu’s view, under German law copyright and neighboring rights are in fact cumulative (in the sense that one work can have both) but in China they somehow became “alternative” or mutually exclusive. So, as he put it, perhaps something has been lost in translation.

Whatever the origins of the issue may be, the proposed introduction of a new audiovisual work is unlikely to help much unless the 2020 draft amendment to the copyright law changes or the implementing regulations provide some guidance. Although audiovisual works are set to replace cinematographic works under the current draft, no definition of audiovisual works is provided and the lesser category of video recordings is to remain. Implementing regulations from prior drafts indicate that originality, as presently conceived, will continue as the decisive criterion. The stranglehold of originality continues.

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Musiklizenzgebühren in China: Wer ohne Sünde ist, werfe den ersten Stein https://harris-sliwoski.com/chinalawblog/music-royalties-in-china-let-those-without-sin-cast-the-first-stone/ Sat, 25 Jul 2020 11:58:56 +0000 http://harris-sliwoski.com/chinalawblog/?p=43621 China is digital. Its music market is almost entirely digital. Physical sales here comprise only about 20% of the total market.  China has more than twice as many internet users as the US has people. There are about 900 million mobile internet users here, 70% of whom consume music online. That means there are around

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China is digital. Its music market is almost entirely digital. Physical sales here comprise only about 20% of the total market.  China has more than twice as many internet users as the US has people. There are about 900 million mobile internet users here, 70% of whom consume music online. That means there are around 630 million mobile digital music consumers. With mobile payment penetration at about 85%, there are around 540 million consumers in China who can easily buy music on their phones. They may only be spending ¥10 ($1.45) a month for a premium service, or to download an album, but Chinese audiences are being conditioned to pay for their digital music and that is a big development that has taken a long time.

Despite the actual and potential growth, China’s music industry is beset by systemic royalty accounting problems. The temptation is to blame China for this. But when you take a closer look at the royalty ecosystem, the blame doesn’t lie squarely at China’s feet. Entrenched global practices in the music industry seem to have a lot to do with it.

As I said during a recent webinar, there are three main factors contributing to China’s royalty accounting problems.

Inadequate Metadata.

To account properly to foreign labels, Chinese DSPs (digital service providers) need adequate data, but according to Chinese DSPs, the majority of publishers do not generally provide the complete song lists or other data sets required. In many cases, there are technological reasons for this — many foreign publishers use systems not commonly used by the Chinese DSPs, such as the common works registration or CWR system. But the MCSC (Music Copyright Society of China) is also sometimes criticized for not providing full song lists and other data to the DSPs. The result is that proper accounting is impossible or impracticable. There are insufficient data for matching. As one DSP executive puts it, it’s a case of “garbage in, garbage out”.

Exclusive Deals, Big Advances.

China’s market for foreign music has been dominated by exclusive deals granted to Chinese DSPs in return for big advances for the major labels. Under these exclusive deals, minimum guarantees have been paid instead of royalty income based on actual transactions. Payments structured in this way tend to overvalue music catalogues and are effectively buy-outs in which transactional accounting is impossible or discouraged. The major labels have left themselves open to the criticism, often made in China, that big advances with no prospect of reporting are the desired outcome as they result in non-allocable surpluses or “breakage” that may be retained.  Exclusive deals also support webs of sub-licensing and copyright transfer agreements which contribute to the inadequacy of metadata, attract multiple payments for the same properties, and give rise to accusations of anti-competitive conduct. About the only good thing people have to say about exclusive deals is that they have driven a rapid reduction in piracy because exclusive licensees have had the incentive to eradicate infringers.

Messy Copyright Collections.

I mentioned in a recent post on audiovisual copyright  that one of the ongoing difficulties with Chinese copyright law is that, although it enumerates the rights comprising copyright, it does not clearly state which of these rights apply to which copyright works or other subject matter. An indeterminate class of rights — such as the rights of “consent” or “remuneration” — is often the only link. In the Chinese music business, distinctions between mechanicals, public performance and streaming are therefore unclear. Other markets have developed customs and practices to handle these kinds of distinctions. In the UK, for instance, 75% of a download is regarded as mechanical and 25% as public performance, while streaming is divided between those rights 50/50. In China these kinds of customs and practices do not yet exist. To make matters worse, the “streaming” right — the right of network communication or online dissemination — is poorly understood and rarely, if ever, anticipated in a grant of rights under a music publishing agreement between foreign parties. The rights acquired under such agreements aren’t assimilated easily into the Chinese system.

The legal issues are compounded by unclear or overlapping local industry practices. For instance, though foreign publishers deal directly with the Chinese DSPs, the main Chinese collection society, the MCSC, also deals with the DSPs for the same music. Publishers and the MCSC then make competing claims to the DSPs. The very existence of these competing claims means the distinction between the writer’s share and the publisher’s share is unclear or in practice non-existent. The writer’s share is, as Outdustry’s Ed Peto recently put it, “a cultural import largely met with shrugs”.

Despite these royalty accounting problems, there have been some encouraging developments in copyright law, and China’s digital environment is clearly driving substantial investment activity in the music business. A recent $3.4 billion deal in which a Tencent-led consortium bought 10% of Universal Music Group certainly evidences this. The Chinese music business may now even have eclipsed the film business in the international investment arena. Still, investment has it limits. Foreign investment in production of audio-visual products and network publications in China remains prohibited.

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Chinesisches Unterhaltungsrecht: Ein neues audiovisuelles Werk ist in Sicht https://harris-sliwoski.com/chinalawblog/chinese-entertainment-law-a-new-audiovisual-work-on-the-horizon/ Mon, 29 Jun 2020 13:49:02 +0000 http://harris-sliwoski.com/chinalawblog/?p=42287 China’s copyright law, in its present form, has been in place since 2010 and numerous proposals for amendments have been floated since that time. The National People’s Congress recently released another draft amendment and solicited public comment. As far as I can tell, this would be the 5th draft since 2010. In a recent post

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China’s copyright law, in its present form, has been in place since 2010 and numerous proposals for amendments have been floated since that time. The National People’s Congress recently released another draft amendment and solicited public comment. As far as I can tell, this would be the 5th draft since 2010.

In a recent post I looked at proposed copyright law changes that would impact the music business. In this post I’ll be discussing changes that would impact the film and TV industries. To understand these changes, we need to revisit the current law.

Extant cinematographic works

China’s current copyright law recognizes a class of works that covers both cinematographic works and works created by a process analogous to cinematography. I’ll refer to all of them here as cinematographic works.  The law also makes an important distinction between cinematographic works and video recordings.

The implementing regulations of the present law defined cinematographic works as those consisting of a series of related images which, when shown in succession, impart an impression of motion with the aid of suitable devices, whether together with accompanying sounds or not. Cinematographic works are protected by copyright.

In the implementing regulations of the present copyright law, video recordings are defined as “recordations” of a series of related images, with or without accompanying sounds, that are not cinematographic works. Video recordings are not considered to have reached the high but fairly vague standard of originality applicable to copyright works in China. They are not given the same level of protection as cinematographic works and are protected only by certain neighboring rights.

Incidentally, one of the ongoing difficulties with Chinese copyright law is that although it enumerates the rights comprising copyright it does not clearly state which of these rights apply to which copyright works or other subject matter.  An indeterminate class of rights — such as the rights of “consent” or “remuneration” — is often the only link. These rights apply at times to both copyright works and non-copyright works, making the distinction between copyright protection and neighboring rights protection hard to follow.

Proposed new audiovisual works

Under the 2020 draft amendment to the copyright law, audiovisual works would replace cinematographic works. Audiovisual works would be treated in substantially the same way as cinematographic works are presently treated. For instance, copyright in an audiovisual work would still be owned by the producer; with the writer, director, cinematographer and others having a right of authorship.

The treatment given to video recordings would not change substantially and it may be inferred that the definition would also remain unchanged.

It may also be inferred that an audiovisual work would be more than just a cinematographic work — otherwise why have the new term at all? The trouble is that the draft law does not define what an audiovisual work is.

Perhaps some further amendments will be proposed or maybe a definition will be provided in the implementing regulations if the latest draft is enacted. At present, the only guidance as to the definition is to be found in the 2014 draft amendment, which, of course, was never enacted. It provided that an audiovisual work is a work composed of a series of continuous pictures, with or without sound, that can be perceived with the help of technical equipment. Cinematographic works and TV series were expressly included but TV programs or parts of TV series were expressly excluded. The definition is obviously unsatisfactory as it relates to TV. The intention may have been to exclude certain recordings, such as those of sporting events, on the basis that they lack sufficient originality.

The distinction between audiovisual works and video recordings?

As the proposed definition of audiovisual work is unclear, the distinction between an audiovisual work and a video recording is unclear too.

In 2014 it seemed that the problem might have been solved by simply removing video recordings from the equation. An explanatory memorandum to the 2014 draft proposed that the category be abolished entirely. The reason for the enduring distinction remains unclear.  Perhaps certain stakeholders or interest groups don’t want the added burden that would result if royalties become payable on a broader class of subject matter.

What is fairly clear is that originality will probably continue as the underlying criterion by which the distinction is made. Like the present category of cinematographic work, the new audiovisual work would be for things that have originality, but a mere video recording would continue for something without originality.

Though they aren’t dispositive, some of the Chinese court guidelines issued in connection with copyright infringement claims assist in understanding the thinking behind the distinction. Video recordings — the reasoning goes — capture events or productions with no storyline or only a simple storyline. They are not to be regarded as the personal creation of a director and there is no role, or only a limited role, for a cinematographer or an editor. It’s this same reasoning, by the way, that has prevented the protection of sports broadcasts as copyright subject matter in China. It’s a blunt instrument. I’ve  called it the stranglehold of originality.

Let’s hope the necessary definitions and distinctions become clearer if the new version of the copyright law comes into effect.

At present, supplementary contractual provisions can assist when a party wants a recording of borderline originality treated as a copyright work in a China contract. The need for provisions of this kind will likely continue if the new law is enacted in its present form.

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Dinge in China herstellen lassen - Tipps eines chinesischen Fabrikbesitzers https://harris-sliwoski.com/chinalawblog/getting-stuff-made-in-china-tips-from-a-china-factory-owner/ Sun, 07 Jun 2020 10:58:15 +0000 http://harris-sliwoski.com/chinalawblog/?p=39046 Let me tell you about a European friend of mine in China. Well, he’s not really in China. Right now he’s in Thailand. Like many an expat, he went there for a quick holiday before the border closed and has been stuck for months because of virus travel restrictions.  My friend desires anonymity. We’ll just

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Let me tell you about a European friend of mine in China. Well, he’s not really in China. Right now he’s in Thailand. Like many an expat, he went there for a quick holiday before the border closed and has been stuck for months because of virus travel restrictions.  My friend desires anonymity. We’ll just call him Peter.

Peter has been operating his own factory here in China for the past decade or so. He started up in Jiading, which happens to be where the Tesla factory is now located, just outside of Shanghai. The local government kicked him out of there — on short notice, without cause, and without compensation, he says — and the land on which the factory stood was developed. So now, at considerable expense, Peter has re-located his factory to Wuxi, in Jiangsu Province, where he currently has about 60 workers. He rents the factory space, and hires the workers, through his WFOE.

In the early stages of the US-China trade war, Peter’s company decided to open another factory in California. The American factory was not intended to replace the Chinese one. They are operating in tandem. Peter isn’t giving up on China just yet. One of Peter’s biggest customers just happened to ask him to open his factory in America.  This particular customer now requires half of its products be made in the US, and they wanted to give Peter orders they would not otherwise send him in China. Peter’s American factory employs around 12, with plans to hire more as production increases.

Peter’s factories are both original equipment manufacturers, or OEMs. They produce goods according to their customers’ proprietary requirements, and they typically don’t hold any of the intellectual property rights in the specifications, processes, or finished items. I won’t say precisely what they make, but the finished items are comprised of upholstery, metalwork, woodwork and plastics. They are supplied to, and sold under, major international brands. The American factory serves customers in the US, and the Chinese factory serves customers worldwide.

I asked Peter how the American factory compares to the Chinese one and what tips he has for foreign companies that have their products made in a Chinese factory.

China is still better — for now

A major advantage of the American factory was that it would allow shorter lead-times on US orders. Another plus was that customers could apply a label saying “Made in USA with global materials”. These labels are required by many of the government departments that take the goods from Peter’s customers at the very end of the supply chain. Just like in the documentary American Factory, the main challenge has been to get the American factory to reach the same performance benchmarks as the Chinese factory. From his experience in China, he knows precisely how many seconds or minutes each stage of production should take and he expects to achieve this in California, although not overnight.

Even with tariffs of 25% on imports to the US, Peter has found he can still produce and export many components of his products more cheaply and efficiently in China than anywhere else. For Peter, China is still a great place to make complex products. It’s hard to beat the vast infrastructure and supply chain. Power and coiled steel are still cheaper here in China, and his Chinese employees work very hard. Even so, it’s hard for a foreign factory to compete with local Chinese factories on price. Foreigners are under greater scrutiny and they just can’t game the system to achieve a lower cost base like the locals. So, Peter’s competitive advantage is quality — the quality of his products and the quality of his service.

Overall, though, Peter feels that the advantages of China manufacturing are easier to see only if products are being made for the Chinese domestic market, or for markets in nearby Asian countries. China, Peter says, is offering fewer and fewer advantages when products are being made for export to the US or Europe.

And Peter’s tips for foreigners still having their products made in a Chinese factory?

Never have a local sourcing team

Peter says the smartest foreign companies have no salaried sourcing employees and no overhead in China. One company he knows, — that just “got smart” — decided to fire its entire local sourcing team. Why? Because the local teams tend to cut themselves into the sourcing deals and thereby create costs that need to be hidden or added on. They partner with the very factories they are supposed to supervise. They often can’t help it. There is simply an expectation that a person placed in a position of power in China should use that power for their own advantage.

Never have a local QC team

The local QC has the power to decide whether your products leave the factory. The local QC will ask the factory manager if they want the products approved or not. Everyone knows what that means. Peter goes so far as to say it’s safest to regard local QCs as saboteurs. He wishes he had a dollar for every foreigner who has told him, “We know there are some sharp business practices in China, but our guy is different …” Our China lawyers wish the same thing. As we’ve said before, the leading consultants in this space are usually foreigners fluent in Chinese. For more on this point, see How to manage a Chinese factory.

Go for QA, not just QC

Quality control is all very well but it tends to focus on the very end of the production process, by which time it can be too late to change anything or impossible to detect every problem. Proper quality assurance is very different. In Peter’s production lines, there are typically more than 20 quality control points for each product. For complex products, quality needs to be assured at each step, not just controlled at the end. The only way to do this is to focus on QA as an ongoing process.

Just because everyone’s out to get you doesn’t make you paranoid

Peter says business practices in China manufacturing are not as bad as you imagine — they’re far worse. The way business is done here is not going to change. It’s not bad or good. It’s just the way it is. So be paranoid. If you’re hyper-vigilant you stand a chance of achieving efficiency.

And, no; Peter is not a China-hater. He’s made China his home and he has raised his kids here. He just wishes sometimes that foreigners would take the time to understand the prevailing business culture and work with it properly.

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Wie man eine chinesische Fabrik verwaltet https://harris-sliwoski.com/chinalawblog/how-to-manage-a-chinese-factory/ Wed, 13 May 2020 16:15:14 +0000 http://harris-sliwoski.com/chinalawblog/?p=37898 Many Chinese factories are hurting right now. Badly. This should come as no surprise. First they went through months of closures due to the coronavirus, and just when they opened they faced massively reduced demand. Chinese factories are closing left and right and many of those that are open are facing reduced demand and falling

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Many Chinese factories are hurting right now. Badly. This should come as no surprise. First they went through months of closures due to the coronavirus, and just when they opened they faced massively reduced demand. Chinese factories are closing left and right and many of those that are open are facing reduced demand and falling prices. See China’s factory deflation deepens as pandemic hits demand. 

Whenever China’s factories are hurting your risk as a product buyer soars. Way back in 2011, in  China. Smells Like 2008, Gloom And Doom Edition, we wrote how factory risks rise during China economic downturns:

Chinese companies that are going out of business or believe they are going out of business have an annoying tendency to ship bad or fake or no product at all. In 2008, pretty much every week we were getting calls from companies saying that the product they had ordered just was not coming. We handled one case where a company had bought about a million dollars of fish and received containers of cheap bricks surrounded by fish. That fake shipment was the dying gasp of a company that ceased to exist. We have started to get those same sort of calls in large numbers again.

Nothing has changed since then. A bad economy directly translates to factory problems. Conversely, it also translates to buying opportunities as Chinese factories all of a sudden become willing to negotiate a lot more on prices and payment terms. Our international manufacturing lawyers have been seeing a lot of both good and bad things happening for foreign buyers of Chinese products.  There is an old saying about how lawyers do well when times are good and when times are bad, just not when things are staying flat. For foreign buyers of Chinese products, times are one part good, one part bad, with no part flat. That has meant the manufacturing side of our law firm has been keeping really busy of late helping some of our clients avoid problems while helping others secure better pricing and payment terms. Oftentimes we do both for the same client.

Most quality and compliance problems arising with goods made in China can be greatly reduced  by factory visits and product inspections prior to packing for shipping. This point applies to PPE as well as everything else made in China. Access to Chinese factories is becoming possible again as the pandemic abates in China, so now is a good time to look at how to manage your China manufacturing process.

  • Know your factory like never before. For most of the last decade, our recommendation to clients purchasing relatively small amounts of product was just to have one of our China lawyers make sure that the Chinese company from which they would be buying the product actually existed and was licensed to make and sell it. We are now recommending to our clients that we engage in a much more substantial due diligence of any new factory supplier and of their existing factory supplier. This more substantial due diligence investigation typically consists of our reviewing various Chinese government databases to confirm that the Chinese company from which the products will be bought actually exists and is licensed to sell what it is proposing to sell. These investigations also seek to determine whether the Chinese company is well capitalized, is in good standing with the Chinese government regarding fines and taxes, and not involved in lawsuits that would make one doubt its reliability. We also look at the company’s ownership because that sometimes gives us additional good insight about the company. After we search the Chinese government databases, we do an internet search on the company in Chinese and in English to try to get information about its overall reputation. We then draft a 5-8 page report along with recommendations. Sometimes these reports give our clients great comfort and other times they lead them to search out new suppliers. I cannot quantify how many times one of our due diligence investigations has prevented a client from sending money that would have disappeared, but I am certain that we’ve saved foreign buyers tens of millions of dollars.
  • Make friends with your factory manager Factory visits, product inspections, and other forms of due diligence are essential but a good relationship with your Chinese factory manager is key. They are the most important person of all. They can fast-track your order or slow it down. They can give you faulty materials and defective stock or put that stuff in someone else’s order. Despite their critical importance, few foreigners know how to keep their factory manager happy. Most foreigners are unaware of an underlying cultural expectation that serious buyers will befriend the factory manager as a natural part of doing business. This can’t be achieved by occasional site visits or video calls. It takes regular, personal visits with time devoted to eating and drinking together. Visits should become prestigious events during which the factory manager is shown “face” and given an opportunity to show hospitality. Local dignitaries can even be invited so that the power and influence of the manager may be on display. When handled correctly, these visits empower and motivate Chinese factory managers.
  • Get a brand ambassador Another important, and often overlooked, cultural reality is that Chinese businesspeople tend to dislike middlemen and distrust agents and intermediaries — Chinese or foreign. They will often drive a wedge between the foreign customer and the third parties representing the customer in the field. This is because kickbacks or undisclosed benefits are routinely sought by intermediaries, particularly when these intermediaries are locals. In fact, such payments are often the real source of income for the low-paid local intermediaries sent into the field by big companies claiming to protect the interests of their foreign clients. For these reasons, a good QC rep should be seconded to, or embedded in, the buyer’s businesses. When they are presented as part of the buyer’s team (not some third-party helper) the problems associated with intermediaries are reduced. They are more than a mere agent — they become your brand ambassador.
  • Consider a foreign QC rep The assumption is often made that locals are naturally better suited for this kind of work. It may therefore come as a surprise that the leading consultants in this space are usually foreigners fluent in Chinese. Such people have unique advantages, especially when it is routinely assumed they are not following everything that is said during an inspection, a meeting or a banquet. Key insights are gained in this way. A foreigner is also much less likely to be offered kickbacks or to be exploited by the Chinese side during negotiations. There’s also the prestige — it’s a big deal when a Chinese-speaking foreigner bothers to come to one of the small towns where a factory is usually located.

As Chinese factories slowly re-open they need to allocate limited resources among a bunch of outstanding orders and demanding, worried customers. Just by having someone show up as your company’s representative, you can show that you care and that you aren’t frightened to work in and with China. This kind of support is not easily forgotten by factory managers on the front line. Their payback is to greatly increase the chance of timely delivery of product in compliance with your requirements.

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China Streaming oder China Dreaming? Die Aussichten für ausländisches VOD https://harris-sliwoski.com/chinalawblog/china-streaming-or-china-dreaming-the-outlook-for-foreign-vod/ Mon, 02 Dec 2019 11:58:41 +0000 http://harris-sliwoski.com/chinalawblog/?p=36304 The numbers coming out of China continue to amaze. There are 855 million digital consumers in China and they have more than twice as many internet users as the US has people. The Chinese are spending an average of 358 minutes per day online. They spend 8% of their online time streaming video content. A

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The numbers coming out of China continue to amaze. There are 855 million digital consumers in China and they have more than twice as many internet users as the US has people. The Chinese are spending an average of 358 minutes per day online. They spend 8% of their online time streaming video content. A further 11% of online time is spent watching short videos, something that 800 million Chinese now do regularly.

Despite these big numbers, China’s internet penetration rate is still only 60%, online video growth has plateaued, and regulatory control is tightening.  Things have changed a bit since we last touched on streaming trends, so let’s look at the outlook for 2020

1. Production has slowed down. Contributing factors include a crackdown on entertainment industry taxation in the wake of the Fan Bingbing tax evasion scandal and subdued economic conditions generally — China’s economic growth is at a 27 year low and, according to some reports, nearly 2,000 Chinese film and TV companies have gone bust this year. The trade war is also contributing to reducing cooperation between Hollywood and Chinese production companies. All of this means fewer co-productions and collaborations, replaced by a lot of reviewing, reconsidering and waiting to see.

2.  Production has become more difficult. More and more subjects are off-limits, for both domestic Chinese and foreign content owners. Look what happened with The Eight Hundred. Even a reputable, major Chinese company like H Bros. couldn’t read the tea leaves. On the foreign side, several leading TV production companies have recently pulled out of China, giving local production difficulties as a reason.

3.  There’s no longer any market for foreign formats. China is no longer the biggest international market for foreign format owners. For many foreign companies, China is now one of the smallest markets for their formats. This is the result of 2016 regulations targeting foreign TV formats and specious co-productions. Challenges for foreign formats have been cited by UK trade body PACT in connection with its suspending its activities in China.

4.  There’s less foreign content but Chinese viewers don’t care. Recent regulatory intervention has resulted in less foreign content being bought for streaming in China. While the changes were working their way through the system there was conjecture about the impact. It’s now clear that China streamers and audiences seem quite comfortable with fewer foreign TV series. iQiyi, which has the second highest number of subscribers,  estimates that only 10% of its subscribers prefer US TV series, although the proportion is higher for foreign films

5.  Production focus has shifted to original content. Most content is now original as opposed to acquired or licensed. This original content is mostly local-language Chinese. There is now far less demand for production of foreign or foreign-invested content.

6.  Adaptations and remakes of foreign programs are out. This has put scripted foreign content under pressure. Foreign content libraries can no longer be mined so easily for Chinese adaptations. Adaptations and remakes are subject to a de facto ban.

7.  Foreign animation is now caught by the quota. In the past, foreign animation was exempt but, as part of changes introduced in 2018, it now comes within the 30% streaming quota applicable to foreign content.

8.  US streamers are not getting in. Despite frequent rumors and reports to the contrary, there is no reason to expect US streamers will be allowed to operate their own channels or do anything other than license their content for China within the 30% streaming quota.

9.  AVOD is down. Ad-supported revenue is shrinking. Tencent, which has the highest number of subscribers in China, disclosed in its Q3 filing a 28% decrease in advertising revenues. Unpredictability and uncertainty in scheduling releases were cited as the reasons. iQyi has also been hit by decreasing advertising revenue.

10.  SVOD is up. Subscription revenue is up relative to AVOD. It is now nearly the same as, if not more than, ad-supported revenue. The Chinese are now willing and able to pay for premium content or pay to avoid ads. This, together with improvements in IPR enforcement in China, has driven online piracy down to the point that it is no longer a major problem. But as indicated above, growth has slowed.

11.  China streamers are paying less and buying non-exclusively. This applies to both foreign and domestic content owners. Co-operation among streamers is up as they share quota spots and help each other with content license fees.

12.  No, China’s film “market” won’t eclipse North America’s in the near term. Despite the growth in digital distribution, ancillaries are mostly VOD and they still only account for about 25% of the market. Box office is still the biggest revenue source. It makes up around 75% of the market. Note that in North America the opposite applies — ancillaries are the greater part of that market. Reports predicting China’s “market” will soon eclipse North America’s can be misleading if they compare box office takings without considering the more substantial ancillaries in North America.

13.  Caution and uncertainty will continue during these “red” years. This year was the 70th anniversary of the founding of the People’s Republic. 2021 will be the 100th anniversary of the establishment of the Party. Regulatory caution and industry uncertainty will likely continue in the near term. Whether you’re a Chinese regulator, a Chinese producer, or a foreign studio executive, it won’t be a good time to be taking risks or pushing boundaries.

Here’s the thing: China may be getting harder for foreign business but it’s just too big to ignore. Foreign companies with a serious commitment and a realistic business model can still make it in these conditions and we are working with some that are. Generally, in the current climate, licensing-led approaches will be more advantageous than focusing on local production.

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Ausländer gewinnen 68 % der Fälle vor dem Pekinger IP-Gericht: Wie Sie dies zu Ihrem Vorteil nutzen können https://harris-sliwoski.com/chinalawblog/foreigners-win-68-of-cases-in-beijing-ip-court-how-to-use-this-to-your-advantage/ Sat, 02 Nov 2019 18:08:45 +0000 http://harris-sliwoski.com/chinalawblog/?p=36131 Many foreign IP owners doing business in or with China do not believe the Chinese court system works. They or their foreign lawyers therefore tend to choose foreign law and jurisdiction in their contracts. When this results in contracts that are unenforceable against a Chinese party, everyone blames the Chinese. The prophesy about the lack

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Many foreign IP owners doing business in or with China do not believe the Chinese court system works. They or their foreign lawyers therefore tend to choose foreign law and jurisdiction in their contracts. When this results in contracts that are unenforceable against a Chinese party, everyone blames the Chinese. The prophesy about the lack of IP protection when dealing with China becomes self-fulfilling.

Now, nobody would suggest that China’s court system is perfect but it’s certainly improving. It’s a lot better than nothing; and nothing’s what you get if you make the wrong choice of law and jurisdiction in your China contracts.

The improvement in China’s court system is borne out by some interesting Beijing IP Court statistics released during the UK-China IP Symposium in Beijing on November 1st. The Beijing IP Court is now hearing diverse claims from across China and it is rapidly becoming the preferred venue for foreign-related IP litigation.

Here are some key points from the Symposium’s Beijing IP Court session:

  • In the first half of this year the Beijing IP Court accepted around 1,200 cases involving foreign parties and resolved around 2,500 such cases. Last year, the Court accepted more than 3,500 and resolved more than 3,250.
  • Less than 4% of these foreign-related IP cases are civil. More than 95% are administrative. Patent disputes account for 48% of the civil cases, with trademark and copyright disputes each accounting for roughly 20%.
  • Of the foreign-related civil cases heard by the Beijing IP Court, foreigners comprised 76% of the plaintiffs and 19% of the defendants.
  • Foreigners won 68% of their civil cases.
  • The average award sought in foreign-related civil cases was $400,000 (CNY 2.8 million).
  • Awards were made in 49% of the cases and the average award was $194,000 (CNY 1.36 million).

The above statistics and the underlying cases on which these statistics are based tell us that foreign companies can prevail in intellectual property disputes against Chinese companies, but to do so they invariably must have either proper China IP registrations that they can allege were infringed and/or a good contract that they can allege was breached.

In other words you should be taking steps to protect your IP in China so as to minimize your chances of having to sue in China while also increasing your chances of prevailing in China if you do need to sue. In a subsequent post we will take you through those steps.

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