Chinese Business Practices Under Fire

LAS VEGAS (CN) - By nearly anyone's standard, Ron Merrit has a very nice home. He should. He's chairman of the board of California-based Bond manufacturing, a family owned manufacturer and distributor of outdoor household products.

Merritt's home is so nice that the company uses it in its packaging and promotional materials for its products sold in hardware stores and national home-improvement chains.

When Bond's president, Cam Jenkins, saw images of Merritt's home used to market outdoor products during the 2013 National Hardware Show at the Las Vegas Convention Center, it did not surprise him.

What did surprise him was that the images were used to market products made by a Chinese company that Bond once used to make many of its products.

That relationship had ended, but the Chinese company counterfeited and sold its knockoffs as genuine Bond products and displayed them at its own booth during the trade show.

Bond sued in Federal Court, managed to get the counterfeit products and materials seized and won a $7 million judgment.

Bond makes patio heaters, outdoor lighting, patio furniture, fountains, grills, gardening tools and other products. Its not the only company that has suffered from Chinese shenanigans at trade shows in Las Vegas, the world's top location for trade shows and conventions.

Las Vegas attorney Mark G. Tratos, with Greenberg Traurig, has handled intellectual property cases for more than 25 years and teaches law courses on intellectual property at the University of Nevada-Las Vegas and the Practising Law Institute. He helped Bond to fight the counterfeiting discovered during the National Hardware Show.

Chinese firms have been infringing on patents and trademarks for years, but enforcement has become more prominent recently, particularly at trade shows.

"As the economy started to come back, we've seen a greater emphasis on trade shows, and infringements have picked up," Tratos said. "When the corporations are doing well, they will increase their budgets for participating in trade shows."

Several other U.S. firms have gone to court recently to stop Chinese infringers of patents and trademarks at Las Vegas trade shows.

Toyo Tires obtained an injunction in November 2014 to stop a Chinese company from infringing on its trademarks during the Specialty Equipment Market Association's annual SEMA Show, the largest trade show for aftermarket automotive components. Federal marshals seized infringing products from a Chinese company that mimicked Toyo's trademarks, trade dress and logos.

HDMI Licensing, which owns patents and trademarks for HDMI cables used on HDTVs and computers, sued the owners of the annual InfoComm technology show, accusing InfoComm International of contributory trademark infringement and counterfeiting by knowingly and repeatedly allowing a Chinese company to display infringing products at its trade show.

Although it did not involve a trade show, the Las Vegas Sands in January won a $2 million judgment against unknown infringers of its trademarks to promote 35 gambling websites in Southeast Asia.

While many Chinese infringers have been accused and found guilty of infringing upon patents and trademarks, China does recognize and enforce intellectual property rights, although with varying degrees of success.

The U.S. Chamber of Commerce recently released an updated index of global intellectual property with many nations assessed. China showed slight improvement from the first report published in 2012, but the 2014 report indicates a great deal of improvement is needed.

The report credits China with improved trademark registration and enforcement. It also indicates increased efforts to enforce laws protecting trade secrets and combat piracy and counterfeiting in specific sectors.

But the report shows that China continues to benefit from high rates of thefts of trade secrets, and that foreign companies are forced to share their knowhow in exchange for market access in China.

Registering for patent and trademark protections in China can be confusing.

"Though China is a party to international agreements to protect intellectual property, a company must register its patents and trademarks with the appropriate Chinese agencies and authorities for those rights to be enforceable in China," according to the U.S. Embassy in China. "Copyrights do not need to be registered but registration may be helpful in enforcement actions."

The Embassy says China gives patents and trademarks to the first to file, regardless of whether they invented the product or previously used the mark being registered.

Enforcing intellectual property rights in China is a tricky affair.

"The problem with China is, they don't have consistent enforcement in courts," Tratos said. "They'll pass a law, but training in the courts is not consistent, like it is here."

Rulings in Chinese courts can be more subjective and vary greatly from one judge to another, Tratos said.

Since 1984, China has enacted and revised patent, trademark, copyright and unfair competition laws, according to the U.S. Embassy.

"In 1998, China established the State Intellectual Property Office, with the vision that it would coordinate China's IP enforcement efforts by merging the patent, trademark and copyright offices under one authority," the Embassy says. "However, this has yet to occur."

The Embassy says intellectual property infringement by Chinese offenders can be addressed by filing complaints with administrative agencies or through the Chinese court system. The former is the most prevalent means and requires knowing which agencies are responsible for which types of infringements.

"We frequently have to rely on government entities and not the courts to enforce China's intellectual property laws," Tratos said. "Administrative agencies, licensing authorities and oversight agencies will be much more effective at enforcing intellectual property rights in China."

The U.S. Chamber's report does give China relatively high marks for trademark protections and patent protections of some products and technologies, but it indicates poor protection for pharmaceutical products.

The report also gives China very poor scores for protecting copyrights, general protection of trade secrets, and barriers to market access.

When it comes to intellectual property enforcement, the U.S. Chamber gives China very low scores for its high rates of product counterfeiting and software piracy.

China also scores poorly in providing civil and procedural remedies and penalties for violating patents, trademarks and copyrights.

China does have administrative bodies that can help U.S. firms enforce their intellectual property rights and stop specific infringements.

The Embassy says the State Administration on Industry and Commerce Trademark Office, State Intellectual Property Office, National Copyright Administration and Administration for Quality Supervision, Inspection and Quarantine are among Chinese agencies that have proven helpful when U.S. firms seek enforcement of their intellectual property rights in China.

China has civil and criminal enforcement agencies and procedures, and the U.S. government can help through its U.S. Mission in China or the Department of Commerce in Washington. The federal government can help companies identify the most effective Chinese agencies and attorneys to enforce intellectual property rights.

When it comes to Chinese infringers, Tratos said, U.S. manufacturing firms are targeted most often. In many instances, the infringements arise from prior agreements with Chinese companies that are licensed to build products for U.S. firms and continue to do so after the relationship has ended.

"Trademarks, trade dress and patent infringements are the most robust," Tratos said. "Direct infringement is clearer in patents, while trade dress can involve making a product that has the same colors."

The incidence of Chinese infringements of U.S. intellectual property rights reflects the increased trade deficit with China. Violations have increased along with the trade deficit.

In 1985, the trade deficit with China was a nearly nonexistent $6 million, according to U.S. figures.

The deficit grew to $33.79 billion in 1995 and $202.28 billion in 2005. Last year, the trade deficit was $342.63 billion.

With rising trade deficits come increased opportunities for Chinese companies to infringe on intellectual property rights.

Categories / Uncategorized

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Chinese Business Practices Under Fire

Subscribe to Closing Arguments

Additional Reads