Basics of Manufacturing Non-disclosure Agreements in China

Page 1. ContractsIn today’s blog post we are going to take a closer look at different contracts and agreements that help European companies to protect their precious IP in China. In particular, you will learn more about non-disclosure agreements and non-use, non-disclosure and non-circumvention agreements. 

Introduction: contracts in China

Many SMEs view Chinese manufacturers as cheap, technically-skilled, attractive options for manufacturing their products and as such pursue partnerships with them. While Chinese manufacturers can be the key to the products needed to give your company worldwide reach, China—like all countries—can be home to unscrupulous merchants with a taste for IP theft. As such, tailoring contracts to suit your intellectual property rights (IPR) is an important way to ensure that your company’s specific intellectual property assets are adequately protected when dealing with Chinese manufacturers. In particular, this article will address use of so-called NDAs (non-disclosure agreements) and NNNs (non-use, non-disclosure, and non-circumvention agreements) to protect an SME’s trade secrets—“any non-public technical or business information with commercial value that is guarded by confidentiality measures.”

What are NDAs and NNNs?

At its core, a non-disclosure agreement (NDA) between an SME and a Chinese manufacturer is an agreement which states that once the SME reveals its trade secrets to the Chinese manufacturer, the manufacturer will refrain from disclosing those secrets to anyone else. Once a secret loses its secrecy—once it is revealed to the public—it no longer has any kind of legal protection and, most likely, will lose its economic value. That is why NDAs are go-to contracts for any SME which seeks to use a Chinese manufacturer. Otherwise, the manufacturer could reveal the SME’s trade secrets, making those secrets impossible to protect and capitalise on. Continue reading “Basics of Manufacturing Non-disclosure Agreements in China” »

Champagne or Sparkling Wine? Geographic Indications Protection in China

Photo Andrea Parrish GeyerAs the food and beverage market offers many business opportunities to European SMEs as Chinese consumers are looking for healthy quality products, we have dedicated today’s blog post to geographical indications protection in China. Registering geographical indications in China offers another layer of protection to SMEs that are producing European high-quality products associated with certain regions or production methods.

What is a Geographic Indication (GI)?

“Champagne”, “Bordeaux”, “Parma Ham”, “Parmesan”. Each of these products, associated with certain regions, are renowned and trusted for their nature, quality and authenticity. As a consumer, you are probably more familiar with “Scotch”, “Cognac” and “Bavarian beer” than unnamed brands claiming to use the same ingredients. A GI is therefore a labelling that identifies a good as originating in a specific territory, region or locality, where characteristics of the good are associated with its place of origin.

GIs are protected by World Trade Organization (WTO) signatories, including all 28 European Union (EU) Member States (MS) and China – since 2001. This is designed to prevent unfair competition and to protect consumers from purchasing goods that misleadingly claim to be from a particular place.

Made in China?

China’s middle class is growing; as has its appetite for imported – predominantly Western – products. Younger generations spend significantly less time cooking than their parents and are increasingly quality- and status-conscious. In addition, food safety concerns in recent years have encouraged Chinese shoppers to more carefully consider the origin of the products that they consume. Purchasing patterns have therefore experienced a significant shift. Regarding food, large numbers of Chinese people are purchasing brands that are recognised for their quality and food safety standards – this has stimulated a rise in sales of Western goods. Similarly, while sales of traditional alcoholic drinks, like baijiu, still dominate in many places, individuals in wealthy Tier 1 cities are increasingly opting for higher-end Western wines, beers and spirits.[1]  Continue reading “Champagne or Sparkling Wine? Geographic Indications Protection in China” »

The Next Vintage: The Future of Wine Anti-Counterfeiting; Advice from our Experts

Corks smallToday’s blog post will sum up our Wine series that we have been running for the past couple of weeks and discusses the future of IP protection in the wine industry.

Wine counterfeiting in China is at a critical stage for the European wine industry. In recent years we have had a taste of what Chinese consumption means to the European producers, with over a quarter of a billion litres of European wine consumed annually by what represents only a fraction of the potential market in China. As the market moves from commodity and gift wines to drinking ‘table’ wine, so do the counterfeiters, flooding supermarkets and restaurants with wines bearing (often validly registered) appellation marks which have no connection to the liquid inside the bottle.

Chinese palates are at a crucial developmental stage, and exposure to poor quality counterfeits of European wine not only damages profits, but also poisons the reputation of European producers in the Chinese marketplace. Competition with domestic producers is already fierce, and Europe’s wine industry can no longer afford to stand by and let this threat go unchallenged.

As we saw in our ‘Terroir IPR’ articles, producers do not stand alone in the fight against counterfeiting, and national agencies such as INAO, as well as regional regulatory bodies such as the CIVB are in working to register GIs and combat the most obvious fraudsters. These two organisations are a minority however, and their pockets alone are not deep enough to fund a comprehensive campaign. Without support of more organisations, and ultimately the producers they serve, they can only do so much to slow the poisonous effects of counterfeiting in China. Continue reading “The Next Vintage: The Future of Wine Anti-Counterfeiting; Advice from our Experts” »

An Introduction to Intellectual Property Protection and Enforcement in China and South-East Asia

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This article is written by our China IP Expert, Ms Alessandra Chies, on the occasion of the Texworld Trade Fair, the No.1 European Trade Fair for Worldwide Apparel Sourcing which this year took place in Paris on 18-21 September. It gathered over 600 international suppliers, companies and EU SMEs, as well as about 950 fabrics manufacturers from 27 countries. 90px-Aguayos This article provides a concise yet comprehensive introduction to Intellectual Property protection and enforcement in China and South-East Asia, and summarizes the main talking points discussed by Alessandra Chies at Texworld on 18 September 2017. 

Intellectual Property (IP) protection is a primary method for securing a return on investment in innovation, offering to IP owners a competitive edge that others will not have. SMEs invest a tremendous amount of time, passion and monetary efforts in R&D and marketing, but often fail to consider that, in most countries, the only way to enjoy exclusive rights over their creative efforts and their business identity (trademark) is through IPRs registration. Considering that in the textile sector one single product can brilliantly encompass almost all form of IP rights, understanding and defending them is a paramount objective: a Patent for the new man-made yarn, the Design for an innovative texture of the fabric, the Copyright for the drawing painted on it, the Trade-secret for the dying procedure and the Trademark as representation of the business identity, all in one small piece of cloth.

The point is that Trademarks, Designs, Patents, are territorial rights and most countries adopt the first to file principle: this means in practice that the IPRs belong to their creator only if their creator was the first one to register it in that Country. And each Country in the world has its set of rules, its peculiarities, its advantages and pitfalls. Without being secured through registration, with the assistance of lawyers, expert in the jurisdiction, your IPRs can be freely exploited by anybody else. Considering the importance of the China market and the wonderful opportunities it offers in terms of production abilities, raw and semi-processed materials and the growing purchasing power and awareness of Chinese consumers, SMEs cannot afford to put-off investments in IP registration and enforcement in China and in the South-East Asian countries that are slowly but steadily emerging. Continue reading “An Introduction to Intellectual Property Protection and Enforcement in China and South-East Asia” »

Terroir IPR Part 2: Regulatory bodies and collective action against counterfeiting

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In our previous article we discussed wine’s history as a product heavily reliant on geography, soil quality, and climate, or terroir for its unique characteristics, the resultant importance of regional classifications, and the legal protection available for producers based in distinctive wine regions. In this article we’ll be looking at how certain regulatory bodies and wine associations can, and in some cases already do, help producers to protect the reputations of their brands. Finally we’ll look at how the wine industry can come together to tackle the counterfeiting industry which continues to damage the sales and reputation of this much loved beverage.

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Some weeks ago, we contacted INAO, Institut National de l’Origine et de la Qualité, The National Institute of Origin and Quality, France’s public administrative authority responsible for the implementation of French policy on official signs of identification of the origin and quality of agricultural and food products, including wine.

Over the last decade, INAO has worked hard to protect French PDOs and PGIs in China, and has seen its actions in China increase considerably between 2008 and 2015. Indeed INAO has seen bad faith trade mark registrations of French GIs quadruple in recent years with just 12 predatory French GI registrations in 2009 rising to 60 in 2014 with no sign of a reduction in numbers. In their experience these have been a mix of true ‘trade mark squatters’, simply out to make a profit, as well as shady importers of genuine GIs registering trade marks in an attempt to gain exclusivity over the market, thereby ignoring the collective nature of GIs.

INAO, like other national bodies, has not sat idly by however, and has filed numerous opposition or annulment actions before the Chinese Trade Mark Office (CTMO) against marks which infringe French GIs. The average cost of these actions comes to around €2,000 and as the number of infringing applications is on the rise they are beginning to feel the strain on their budget.

As such, INAO has been less able to involve itself in ‘boots on the ground’ investigations and actions against individual counterfeiters. Representatives have expressed their dissatisfaction at their inability to tackle these counterfeiters, who are damaging the industry as a whole, however the prohibitive costs in tackling the numerous infringers is too high for their already overstretched budget and they need more support if they are to tackle the roots of the problem.

Regional organisations have also made attempts at reducing the problems of counterfeiting in China. The Bordeaux Wine Council; Conseil Interprofessionel du Vin de Bordeaux (CIVB)[1] has been working for years to combat wine fraud, and with the help of the French Finance Ministry runs a specialist laboratory to test suspected fakes, as well as commissioning an app; Smart Bordeaux[2], which allows buyers to check the details of vintages by taking a photo of a wine label or scanning a bar code[3].

In January 2011, the CIVB engaged Nick Bartman, a specialist counterfeit investigator, to put together a team and investigate wine counterfeiting in China[4]. However due to budget constraints, the scope of the investigation was limited, as was the legal action which followed. The team’s actions on behalf of the CIVB resulted in an estimated €30 million worth of damage to counterfeiting operations. Bartman believes however that without the limits on investigative scope and freedom to litigate, this figure could have been vastly improved. With more time, and a fully-fledged cross-border investigation, enough damage could be done to infringement operations to significantly deter future wine counterfeiting in the region.

In addition to Mr Bartman’s activities, the CIVB has also engaged another old China hand; Thomas Jullien. Based out of Hong Kong, Mr Jullien and his team work both to promote Bordeaux wines in China, as well as chase down counterfeits and tackle infringers. In their anti-counterfeiting efforts Thomas’s team work to register GIs for all of Bordeaux’s 50 appellations, as well as track down and take action against infringers. This project has now been active for over 5 years and has removed a great number of counterfeits from the market. However, enforcement remains a key issue and even though Thomas’s team focus their efforts on large scale infringers, with more obvious counterfeits, lack of education within enforcement authorities regarding wine counterfeiting means that officials in less experienced bureaus remain reluctant to take risks to shut down infringers. Without the resources to help educate the numerous local authorities around China, this barrier to enforcement will remain and successful actions will be limited primarily to first tier cities, thereby limiting the effective impact that these experienced anti-counterfeiting teams can have on national production.

It’s not just the investigators feeling this frustration; Dr. Paolo Beconcini, managing partner at Carroll, Burdick & McDonough LLP[5], has spent more than 15 years taking down counterfeiters in China for some of the biggest brands in business and has studied and written on wine counterfeiting in the past[6]. Paolo’s philosophy when it comes to counterfeiters is akin to a well-aimed sledgehammer; once found you have to hit them fast, and you have to hit them hard. This ‘shock and awe’ tactic is incredibly effective, and works not only to close down the immediate counterfeiting operations, but also to deter other counterfeiters of those products.

Each year, Paolo attends working groups for the Quality Brands Protection Committee of China (QBPC)[7], as well as Interpol’s China and South-East Asia Trafficking in Illicit Goods and Counterfeiting Sub-Directorate[8] which provides training for customs officials and police on recognition of products, thereby assisting them in carrying out the investigations and raids which have marked Paolo’s successful career.

These working groups, and the lobbying clout they represent could catapult the wine industry into the crosshairs for Chinese police officials, and yet representatives are conspicuously absent from their memberships. Without the education and support of these Chinese officials, and relying on the comparatively shallow pockets of individual producers and organisations like the CIVB, the wine industry is unable to bring to bear the strength necessary to tackle the now established counterfeiting operations which continue to damage profits and reputations of wine producers around the world.

For lasting success in the war against counterfeiters, a much larger coalition is required; a global wine protection initiative with the support of national and regional wine associations, importers, retailers, and individual producers. With this kind of backing individual costs would be slight, but the political weight and financial power behind the investigators and legal teams would be the greatest threat yet seen by counterfeiters in any industry.

Alex Bayntun-Lees
China IPR SME Helpdesk

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The China IPR SME Helpdesk supports small and medium sized enterprises (SMEs) from European Union (EU) member states to protect and enforce their Intellectual Property Rights (IPR) in or relating to China, Hong Kong, Macao and Taiwan, through the provision of free information and services. The Helpdesk provides jargon-free, first-line, confidential advice on intellectual property and related issues, along with training events, materials and online resources. Individual SMEs and SME intermediaries can submit their IPR queries via email (question@china-iprhelpdesk.eu) and gain access to a panel of experts, in order to receive free and confidential first-line advice within 3 working days.

The China IPR SME Helpdesk is co-funded by the European Union.

To learn more about the China IPR SME Helpdesk and any aspect of intellectual property rights in China, please visit our online portal at http://www.ipr-hub.eu/.

[1] http://www.bordeaux.com/

[2] https://itunes.apple.com/gb/app/smart-bordeaux-bordeaux-wines/id404568006?mt=8

[3] http://www.ft.com/cms/s/0/07aa952e-1345-11e5-ad26-00144feabdc0.html#ixzz3ron4bpRI

[4] Suzanne Mustacich. (2015). Thirsty Dragon, China’s Lust for Bordeaux and the Threat to the World’s Best Wines. London: Henry Holst and Co. p130-156.

[5] http://www.cbmlaw.com/

[6] https://www.linkedin.com/pulse/china-counterfeiters-wine-business-paolo-beconcini?trk=prof-post

[7] http://www.qbpc.org.cn/

[8] http://www.interpol.int/Crime-areas/Trafficking-in-illicit-goods-and-counterfeiting/Trafficking-in-illicit-goods-and-counterfeiting