Copyright Law Blog

Music Matters – A Window Into The Asian Music Market

August 14th, 2009 at 06:35am Under copyright act

I’ve been a regular to several of the major worldwide music conferences over the years, from MIDEM (Cannes) and Popkomm (Berlin) to Canadian Music Week (Toronto). These have not only been a great opportunity to meet and do business with companies in major Western markets, but to also gain a true perspective on the challenges and opportunities specific to those markets. So, it was with quite some excitement that I made my way to Hong Kong for my first trip to Asia, and the 4th edition of Music Matters at the Grand Hyatt from June 2-4 ( http://www.musicmatters.asia ).From the start, it was clear that Music Matters has a distinctly different feel from most other conferences, more of what I’d call a ‘family affair’. Unlike other conferences that offer a plethora of simultaneous, often lightly attended, Music Matters sets a unified program followed by all delegates. The message is clear: If you want to understand the Asian market, here is the information you will need. And whereas the other conferences make participants available to facilitate scheduling meetings in advance, Music Matters takes a completely opposite approach. “We want a free-flowing networking event where everyone has access to everyone else in a open format,” explained Commercial Director Stan Ruza.While I was initially skeptical that this would work, it ended up being a nice and productive change, especially for someone looking to build up a broad base of contacts in Asia. I left with as many contacts as I do from other conferences, even though it was much smaller — composed mostly of decision makers from all the major Asian markets: from Tokyo to Mumbai, Sidney to Kuala Lumpur.Japanese NirvanaWhile I learned a lot about the Asian market in those 2 days, the most surprising “revelation” was actually a question: when will the Japanese music market surpass the US for the #1 position? More shocking were the estimates ranging from only 5-10 years.So what exactly is happening to justify this doomsday scenario (at least from the US perspective)? Simple: the Japanese love music, and are still more than willing to pay for it, whether old or young. Kei Ishizaka, CEO & Chairman of Universal Music LLC Japan and RIAJ (Recording Industry Association of Japan) Chairman presented some facts in his opening keynote “New Strategies & Opportunities in Japan” that might make some in the West red with envy:* Digital sales in Japan have increased from 7.5% in 2005 to 20% in 2008* Mobile is the driver, accounting for 89% digital sales in 2008* Note that this is a slight drop from 94% in 2005, credited to iTunes Japan which, accounts for 50% of online sales* Japan is the only music market where digital sales have made up for losses in physical sales – that is until 2008, when physical losses appear to be outpacing the growth of digital sales* Japanese music consumers appear relatively price inelastic, with a willingness to pay the highest prices of any country for music: up to $4/ringtone and $30+/CD album* The Japanese music industry is still a hit-driven onePerhaps most importantly, the Japanese music industry has not abandoned its most profitable customers: those over 40. The dirty little secret in the US is that according to Soundscan, CD sales have fallen faster amongst those over 40, largely out of neglect by labels focused on the youth market. The Japanese music companies on the other hand, have consciously developed products for the over 40 demographic, which (i) do not download music and (ii) are willing to pay big bucks ($30+) for a high-quality CD (ie music, packaging…).This is not to say that Japan is a complete musical nirvana: more music was acquired via illegal means (407 million tracks) than legal (329 million tracks) on mobile platforms. In 2006, the RIAJ sent over 220,000 takedown notices, and have since filed criminal charges against mobile BBS (Bulletin Board System) site operators. But despite these challenges, the Japanese market has been growing non- stop, with the exception of 2008 when it recorded a measly 3% drop in sales, which is not generally viewed as a trend for the coming years.Get Me A Piece Of That Pie!By this point, you’re probably trying to devise ways to grab of a piece of the Asian pie. Think again! You’re still more likely to make it in the US or Europe than earning any yens or yuans. Just like the Great Wall of China, the Asian market presents nearly insurmountable challenges for even the most savvy western artists.First, the Asian market is completely dominated by local repertoire. Japan is actually one of the more accessible markets, with international repertoire accounting for a little over 20%; though, this has been decreasing over recent years. Look outside of Japan and the numbers are downright depressing. Take the fastest growing markets such as Malaysia, Indonesia, India and China; and their local repertoires accounts for nearly 99% of total.Put simply, Asians want music that they are culturally/linguistically comfortable with and can relate too. Of course there is Hip Hop, Pop, and Rock throughout Asia, but it is all sung in their respective native language, with their cultural nuances. This is in complete contrast with the West where English is, for all intents and purposes, a necessity to become an international star, whether you’re called Shakira, Bjork or The Scorpions.In addition, Asia has no long-tail effect. It is still a hit-driven market, which tends to play against foreign acts. The general consensus among conference speakers and attendees appears to be that Asian consumers are just too busy working to go hunting for new music, to listen to podcasts, or to endlessly surf social media sites.As such, Asian consumers are much more ‘captive’ to recommendations and editorial leads than say the US, where we have a proud tradition of bin-diving for that rare LP – wasn’t the old Napster and today’s MySpace simply the digital shape of this art form? The fact that mobile drives music consumption as opposed to the net, has some part to play in this as well. For the same reason, all-you-can-eat subscription services competing with iTunes are not likely to gain a sufficient subscriber base despite the markets’ sizes.But let us say, for argument’s sake, that you do develop some recognition in an Asian market. How do you expect to generate money from it? You’ve all heard of the scourge of piracy in Asia, so I don’t want to rehash the topic. Let me just leave you with this fact from Google China’s Bin Lin: of the 7,000+ music services in China, only 0.1% of their offerings are legal downloads.Licensing isn’t much help either. Unlike North America and Europe, where Performing Rights Organizations (PROs) have a long history, collection agencies are relatively young in Asia and have yet to get a grip on the digital market. As a consequence, there is a lot of mistrust between publishers and PROs, which significantly hampers licensing opportunities. If one takes the Indian market for example, where 70% of music consists of soundtracks (courtesy of Bollywood), music labels have been collecting all relevant rights until recently.Even the mature Japanese market has its eccentricities, such as songs being available free of sync licensing for commercial purposes up to one year after its release. As a consequence, success in the Japanese market may well depend on a willingness to waive sync rights for commercial use, representing an important way to break a song, explained Kimitaka Kato, Universal International Managing Director.Are You Depressed Yet?Frankly, I’m not! My recommendation is too look at the Far East as the Wild West: full of opportunity for those with the patience and guts too tough it out. The first lesson is that you are nobody unless you are here. Thus I made the trip to Music Matters and then to Beijing, where I met a successful music pioneer, Kenny Bloom.Bloom, who was kindly referred to me by NARIP’s (National Association of Record Industry Professionals) Tess Taylor, came to China over 20 years ago to launch Warner Music. He now runs Mogo (www.mogo.com.cn), one of the coolest video sites in China serving the young, hip (undeserved) Chinese urban youth. So why is he still in China with everything I previously mentioned?(i) China has the largest internet population (around 300 million, ie, the entire US population)(ii) Around 80% of Chinese internet users are music consumers (240 million)(iii) Music was the #2 search term for the last 3 years(iv) At $50 billion annually, China is now the 2nd largest advertising market (It just recently surpassed Japan for the #2 position)He also has a different take on the Chinese consumer. According to Bloom, it’s not so much that the Chinese are busier or harder working, but that they are in an underdeveloped media market. Media in China (TV, radio and to some extent the internet) is directly or indirectly controlled by the Communist government.As The Economist recently noted “the proliferation of channels for media, information and entertainment offers unbounded scope for the [Chinese Communist] party to get its message across, abetted by commercial operators.” One consequence of this is the sanitizing of media in order to appeal to a national audience that includes rural peasants as well as urban dwellers. It’s a process not unlike our over-conglomeratized radio or broadcast TV markets, which is suffering from competition by more original and niche programming on cable, satellite and the internet.The upside is that this presents unique opportunities to serve the growing chique urban class, which the centralized media market is incapable of satisfying; a segment Bloom estimates to be 40 million and growing. By serving this high-value segment with high-quality, original video programming, Mogo is able to attract big-name brands such as Converse that place a premium on this demographic. To some extent, Mogo is trying to do for China today what MTV did for the U.S. in the 80’s.Another Beijing-based company to watch is Yobo Music (www.yobo.com), a recommendation and discovery site for music. Its founder Allen Guo was perhaps the most eloquent at Music Matters on the need to offer Chinese consumers a variety of models and services that enhance their music experience. Only by meeting the various needs of different consumer segments — as the Japanese music market has done so successfully — will alternatives to piracy be sustainable.Future revenues will be driven by value-added music services rather than easily pirated downloads or ringtones. And while advertising may seem a panacea to many in the U.S. and China (did I mention they are the 2 largest advertising markets), Allen noted some success by Yobo Music with other revenue models such as micro-payments and music gifting.The Silver LiningIn the end, the Wild West was tamed and I believe the same will happen with China. America in its first 50 years was home to pirates (ie., privateers) and some of the worst copyright/patent infringers of the time. This is part of what lead to the growth of the young, scrappy republic. But as it matured, and itself became more of a creator/innovator, America began to place increasing value on protecting copyright/patents.The same will be true for China. As Bloom noted, “How do you expect a people that had no concept of private ownership 10 years ago to understand, let alone value, something like copyright?” In other words, not only has copyright been a foreign concept, it would have been counter-productive to the country’s development. But as it begins to export more cultural goods and develop new patents, that trend will reverse as surely as it did in the US. The only question is whether it can put the genie back in the bottle when the time comes.I happened to arrive in Beijing on the 20th anniversary of the Tiananmen Square incident. Sure enough, I could not access Twitter or YouTube, and any coverage on foreign TV channels, like BBC were blocked by a blank screen. Once the Communist Party determines that copyright is something worth putting the effort towards protecting, I wouldn’t give those 7,000+ so-called music services much of a chance.

Global Economic Power Shifts From the U.s. and Europe to Asia

August 7th, 2009 at 12:35pm Under copyright act

India just reported GDP growth of 9.4% for the fiscal year ended March 2007. This is way above the 8% predicted rate of growth and moving toward China’s stunning 10.4% growth rate.

India, like China is becoming an engine of global growth. The U.S. is clearly no longer the important engine of global growth that it once was. Let us face facts. The U.S. has lost much of its global political leadership, and now its global economic leadership is coming into question.

The U.S. is still the world’s biggest economy, but with a growth rate of less than 1% in the last quarter, and with close to double digit growth in India and China there is little doubt that the U.S. will lose its status as the world’s biggest economy within a decade if these trends persist.

We are American, and we are pro-America, but we are also realists. Let us invest in those areas where the money is to be made. Let us invest in the countries that are growing fast and in the commodities and precious metals which will benefit from these trends. Let us look at the transportation companies whose products and services are necessary to effectuate this growth and at the energy and base metals which are the building blocks of any economy. Let us also look at the global financial intermediaries that will provide the financing for this growth and at the precious metals stocks where many of the profits will be invested.

In our opinion, gold will play a major part as a vehicle that central banks will acquire to strengthen their balance sheets. Recently, Spain sold some gold. The buyers were the central banks of countries with growing economies-the buyers were Asian central banks.

As power shifts from the U.S. and Europe to Asia, so do the central bank gold holdings shift from U.S. and Europe to Asia.

For more information on global investment visit http://www.howtoinvestglobally.com For more information on Monty Guild’s investment management visit http://guildinvestment.com

These articles are for informational purposes only and are not intended to be a solicitation, offering or recommendation of any security. Guild Investment Management does not represent that the securities, products, or services discussed in this web site are suitable or appropriate for all investors. Any market analysis constitutes an opinion that may not be correct. Readers must make their own independent investment decisions. The information in this article is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation, or which would subject Guild Investment Management to any registration requirement within such jurisdiction or country.

Any opinions expressed herein, are subject to change without notice. In addition, there are many market, currency, economic, political, business, technological and other risks that are beyond our control. We make reasonable efforts to provide accurate content in these articles; however, some content and some of the assumptions, formulas, algorithms and other data that impact the content may be inaccurate, outdated, or otherwise inappropriate. In addition, we may have conflicts of interest with respect to any investments mentioned. Our principals and our clients may hold positions in investments mentioned on the site or we may take positions contrary to investments mentioned.

Guild’s current and past market commentaries are protected by copyright. Apart from any use permitted under the Copyright Act, you must not copy, frame, modify, transmit or distribute the market commentaries, without seeking the prior consent of Guild.

Surprise, Surprise-energy, Precious Metals and Base Metals Will be in Demand in the Coming Years

August 5th, 2009 at 12:35am Under copyright act

Today, Morgan Stanley put out a number of comprehensive analyses discussing the demand for commodities and the outlook for some mining companies. In short, they remain bullish on many, but not all base metals and energy commodities, and the main reason is demand from China.

Those of you who have followed us for the last several years should know that this is an old theme for us, but one which is gaining more and more currency with investors globally. When big firms with a global following are pushing 75 page research reports to their wealthy clients about the demand from China and India for base metals and energy, you know a lot of buying will follow in these areas.

By the way, they raised their price objective for gold and the platinum group metals for 2007 and 2008 as well. We believe a large part of the increased demand for precious metals will come from the increased purchases by Chinese and other Asians [especially Indians] as they grow in wealth.

All of this continues to argue for a long-term increase in the huge quantity of assets, which will be invested in these areas in coming years. By these areas, we mean precious metals, energy and base metals.

Once the freight train of big money gets rolling into an investment theme, it is hard to stop.

For more information on global investment opportunities visit http://www.howtoinvestglobally.com For more information on Guild investment management services visit http://www.guildinvestment.com Guild Investment Management, Inc., is a registered investment advisor. All material presented herein is believed to be reliable. Investment recommendations and opinions expressed in these reports may change without prior notice. You can also read our past periodic market and economic commentary articles by going to the Commentary Archive on our web site www.guildinvestment.com.

These articles are for informational purposes only and are not intended to be a solicitation, offering or recommendation of any security. Guild Investment Management does not represent that the securities, products, or services discussed in this web site are suitable or appropriate for all investors. Any market analysis constitutes an opinion that may not be correct. Readers must make their own independent investment decisions.

The information in this article is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation, or which would subject Guild Investment Management to any registration requirement within such jurisdiction or country.

Any opinions expressed herein, are subject to change without notice. In addition, there are many market, currency, economic, political, business, technological and other risks that are beyond our control. We make reasonable efforts to provide accurate content in these articles; however, some content and some of the assumptions, formulas, algorithms and other data that impact the content may be inaccurate, outdated, or otherwise inappropriate. In addition, we may have conflicts of interest with respect to any investments mentioned. Our principals and our clients may hold positions in investments mentioned on the site or we may take positions contrary to investments mentioned.

Guild’s current and past market commentaries are protected by copyright. Apart from any use permitted under the Copyright Act, you must not copy, frame, modify, transmit or distribute the market commentaries, without seeking the prior consent of Guild.

Periodic Market Corrections and Rotation Occur….they are Normal and Create Opportunity

August 4th, 2009 at 06:37am Under copyright act

Although temporarily painful, market corrections are a healthy development. Rising markets, that periodically correct, and climb the proverbial wall of worry, last longer and rise higher.

The current market correction in metals, energy and stocks is a normal one; and we have expected it. Accordingly, we have built a large cash position which we will use to buy good stocks as they fall to attractive levels. We like panic days like yesterday. They provide low prices at which to buy stocks.

Long experience has taught us to buy when others are throwing things away irrationally. Yesterday looked like the start of one of those periods to us. We are actually excited at the prospect of finding some good bargains.

The extreme pessimism that dominated the market psychology on July 26, 2007, was much like we have seen near the bottom of past market corrections.

The gold, metals and stock markets may not have seen the end of this correction, but a lot of the damage has already been done. Many stocks are within a few percent of their eventual bottoms, and when the markets rally, the rise will be quick and volatile…and it will leave many would-be buyers on the sidelines.

YEN CARRY TRADE

Part of the panic is caused by fears that the borrowing of cheap yen at 0.5% per year or less to invest in foreign currencies, metals, bonds and stocks will end. A further fear is that there will be a panic to unload all of the aforementioned groups of investments. This is a panicky and patently unreasonable fear at this stage.

Let’s look at the facts. When you borrow at 0.5% and reinvest at 5.25% in British pounds or 6.0% in Australian dollars you make a huge spread for your efforts. The Japanese currency must rally a lot to remove your profits. The Japanese saver who is the main user of the carry trade is weakening the yen every time he or she sells yen to invest abroad in a foreign currency to earn more interest. Thus, downward pressure on the yen will continue until Japanese interest rates rise more than a little bit from these levels. They must rise high enough to convince the Japanese saver that investing abroad is no longer profitable. In our opinion, the carry trade panic is just another excuse for a market correction. The correction has been brought on by a desire of traders to take profits.

CHINA

China’s trade surplus of June was a record. China’s economic growth looks like a record too; an astounding 11.7 % in the second quarter. It gets a little boring reporting month after month that China, India, Singapore Thailand, Brazil, Indonesia, Hong Kong, Korea and many other countries are enjoying record growth. It may be boring, but it’s profitable.

PEOPLE ARE SLOW TO REALIZE THAT WORLD ECONOMIC LEADERSHIP IS SLIPPING FROM U.S. HANDS

In the 1960’s the U.S. was by far the dominant economy in the world. Europeans were very slow to realize it. Even twenty years after the end of World War II, Europe clung to the illusion that it was still the economic center of the world. At least they hoped so.

Much the same is happening in the U.S. today. Today, the U.S. is transitioning from the most powerful nation economically to a much less powerful status. China will within a few decades be much more powerful than the U.S. Possibly India will surpass the U.S. as well.

We expect the U.S. will hang onto its illusion for a long time, maybe decades like the Europeans did. It must be human nature to remember past glories. U.S. illusions will decline as the dollar declines.

THERE ARE SOME POTENTIAL CLOUDS ON THE HORIZON…LONGER TERM:

1. After the Beijing Olympics in summer 2008, will it be like year 2000 in technology (lots of preparation and building which outstrips demand)? Will China be temporarily overbuilt?

2. The U.S. presidential election and the raising of taxes in the U.S. after April 2008.

3. There is a surplus of liquidity in the system, thus the problems in the U.S. subprime, credit markets, etc. are not yet devastating. When the surplus liquidity is finished being pumped into the system, watch out below. The estimated date of this occurrence? Hard to say now. We are watching.

BONDS…..WE ONLY HOLD VERY SHORT TERM MATURITIES OF THE BEST QUALITY ISSUERS DENOMINATED IN NON U.S. CURRENCIES

We have serious concerns about bonds. After a 27 year interest rate decline, why not a ten year rises in interest rates? Such is the nature of cycles, and the interest rate cycle is no exception.

Several weeks ago we sold all the income related stocks and bonds for our clients with the exception of short term government bonds (less than 2 years duration). These are all denominated in currencies other than the U.S. dollar. Our favorites for the past few years have been British government bonds denominated in pounds, Canadian government bonds denominated in Canadian dollars and Australian government bonds denominated in Australian dollars. We used to own Euro denominated German bonds, but the yields were too low. We also owned New Zealand bonds but sold them because of New Zealand’s large current account deficit.

WE HAVE BEEN HARPING ON OUR THEMES FOR YEARS, AND THEY ARE STILL THE BEST THEMES IN OUR OPINION

1. Growth in demand for Energy

2. Growth of China, India, developing Asia and Brazil

3. Continued growth in demand for Base Metals and Precious Metals

4. Continued decline in the value of the U.S. Dollar

5. Growth in demand for Transportation Equipment to transport the raw materials for the world’s growth

6. Growth in demand for Financial Services to deliver the capital for the world’s growth

As everyone knows these themes have been correct and the investment vehicles connected to these themes have been rising for years.

Yet, as we examine the economics, the politics and the social issues surrounding these and other themes, our best analysis leads us to the conclusion that THESE REMAIN THE BEST THEMES FOR THE NEXT FEW MONTHS.

We are finding opportunities, and we believe our themes are in sync with what is happening in the global markets. If you are interested in hiring Guild Investment Management to manage your portfolio, please contact us.

Thanks for listening.

Guild Investment Management, Inc., a registered investment advisor. All material presented herein is believed to be reliable. Investment recommendations and opinions expressed in these reports may change without prior notice.

You can also read our past periodic market and economic commentary articles by going to the Commentary Archive on our web site www.guildinvestment.com.

These articles are for informational purposes only and are not intended to be a solicitation, offering or recommendation of any security. Guild Investment Management does not represent that the securities, products, or services discussed in this web site are suitable or appropriate for all investors. Any market analysis constitutes an opinion that may not be correct. Readers must make their own independent investment decisions.

The information in this article is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation, or which would subject Guild Investment Management to any registration requirement within such jurisdiction or country.

Any opinions expressed herein, are subject to change without notice. In addition, there are many market, currency, economic, political, business, technological and other risks that are beyond our control. We make reasonable efforts to provide accurate content in these articles; however, some content and some of the assumptions, formulas, algorithms and other data that impact the content may be inaccurate, outdated, or otherwise inappropriate. In addition, we may have conflicts of interest with respect to any investments mentioned. Our principals and our clients may hold positions in investments mentioned on the site or we may take positions contrary to investments mentioned.

Guild’s current and past market commentaries are protected by copyright. Apart from any use permitted under the Copyright Act, you must not copy, frame, modify, transmit or distribute the market commentaries, without seeking the prior consent of Guild.

Best Practices for Trademark Protection in China

July 20th, 2009 at 06:41pm Under trademark law

While Chinese Intellectual Property laws have seen considerable improvements over the years, they can do little to supplement the lack of initiative on behalf of businesses that fail to timely register their trademark rights. The most effective protection that trademark holders can achieve over their rights begins by exercising proper diligence and care. Being able to take full advantage of the possibilities offered by the legal framework governing this discipline in order to achieve the most adequate level of security is based upon this fundamental assumption. This is a rule valid worldwide and China is most certainly not the exception. However, a sad series of common misperceptions often distort this reality.With this in mind, this article delves into some of the fundamentals of securing trademark protection in the country.WHERE TO STARTIt is important to note from the outset that China essentially follows standard international practice in terms of the cost, the complexity, and the steps entailed in securing trademark protection and registration. It is in no small part thanks to China’s participation and accession to the World Trade Organization. There are certainly a few particularities that are not present in other countries –particularly Western ones-, but most negative can be easily overcome with adequate preparation and, most importantly, having well-versed local counsel.Registration is naturally the first and most basic step that needs to be undertaken. Nevertheless, it never ceases to amaze how foreign entities initially neglect this crucial aspect while misguided by fabled notions that wrongly override their common business sense. In fact, many –if not most- of the best practices that guide business decisions in the rest of the world apply equally to China. No emphasis can be spared in highlighting that this is the key to overcoming some of the obstacles in the field.Wisdom accrued through past experiences dictates that the ideal time to proceed with registration is even before entering the Mainland’s market. It is best to begin as early as possible; a philosophy underlined by the fact that the mere use or adoption of a trademark in connection with a particular commercial activity does not grant the holder exclusive rights or a priority for their acquisition.Indeed, China uses a “first-to-file” system, meaning that under most circumstances a prior registrant’s claim is more likely to succeed over that of a prior user. There are many tales of competitors or sadly even employees or local trade partners that have come to realize that this is a fact that can be used to leverage, take advantage of, or pressure foreign entities that have not proceeded to timely address the necessity of securing their trademark rights. This is not the case, however, for well-known marks thanks to the extended privileges granted to them under the Paris Convention. REGISTRATION WITH CHINESE CHARACTERISTICSWhile beginning the process of registration is a positive first step in the right track to commence a successful trademark enforcement strategy, it is important to consider that branding and localization not only play an important role, but also are a necessity to account for the cultural and practical considerations that arise due to the language barrier.Some of the most successful cases of entities conducting business in China are tied to masterful local branding. Take for instance the case of the “Coca-Cola” or “Pepsi” trademarks. Despite the language differences, they have cleverly managed to phonetically tie their valuable local and global brands, while also giving Chinese consumers a meaning that they can relate to in their own language. Respectively, both trademarks arguably sound somewhat similar in Chinese and Western pronunciations, thus being able to take advantage of their associated worldwide goodwill, but also –through a clever play of words- adopt a completely new meaning when written in Chinese characters, which makes them far more appealing locally. While these may be extreme examples in the sense that considerable branding effort was undertaken by the owners to come up with an optimal marketing strategy, they serve to exemplify a basic fact when it comes to Chinese trademarks. That is, most consumers have difficulty reading or understanding the Latin alphabet. This can be overcome by employing the services of a branding agency or the assistance of local counsel fluent in the language to help adapt the mark and the name of the owner to the market. However, it should be noted that the Chinese Trademarks Office can register marks written both in the Latin alphabet and in Chinese characters. In fact, a single application can cover both instances. However, to ensure that the rights holder gets the broadest possible scope of protection, it is advisable to secure each registration in as many forms and variations as deemed convenient. Of course, this entails additional work when applying for registration and during the process of conducting searches to clear the mark for availability, but not doing this may entail the risk of crippling the registration’s effectiveness.While obtaining the corresponding registration is as simple as in most jurisdictions, a not-so-desirable characteristic of the Chinese process is its duration. Obtaining approval can take several years under normal conditions. However, this is no cause to despair, as senior applicants are granted protection against junior applicants for conflicting trademarks as of the date of filing, provided that all substantive requirements for registration are complied with.THE BORDERS OF PROTECTIONOne final fact that should be noted, while not strictly related to the registration of trademarks rights in China, but it does have significant importance over their enforcement, is that customs authorities have been empowered with their own monitoring system to help prevent the export of counterfeited goods. Trademark owners, provided they are registered in China, can now apply for protection of their trademark rights directly at the borders, by having customs agents actively check for potentially infringing exports. Product samples, packaging and even suspected instances of piracy can be submitted before their consideration, which causes them to, ex officio, take measures to curb and stop these kinds of practices when detected. Simple cares such as the ones mentioned in this article can help prevent some common pitfalls when entering the Chinese market. In the trademarks field, many problems can be avoided by taking simple precautionary measures that go a long way in avoiding the need to engage in costly and uncertain litigation.

Your Intellectual Property Deserves Iron-clad Security From Your Outsourcer

July 15th, 2009 at 12:41pm Under intellectual property

Insight

Intellectual property security breaches are making headline news with alarming frequency and creating headaches for consumers, businesses, governments and institutions everywhere. The specter of identity and intellectual property theft hangs over everyone’s head, brought home by incidents like the following:

? Two 200-MB files containing incomplete portions of the source code for Windows 2000 and Windows NT operating systems were stolen and posted to the Internet. An individual downloaded the code and offered it for sale. An undercover FBI agent bought the code and the seller was indicted under the U.S. Economic Espionage Act. 1

? The over $20 billion video game industry shook when news came out about the hacking of the computer network and Internet-leaking of the source code at Valve Software, the maker of the mega-popular Half-Life 2, a first-person shooter (FPS) video game. The financial ramifications of source code already licensed to developers, but now available for free on black-market sites, is something no executive wants to encounter. 2

? The U.S. Federal Trade Commission (FTC) announced that consumer data broker ChoicePoint, Inc., will pay $10 million in civil penalties and provide $5 million for consumer redress to settle FTC charges that its security and record-handling procedures violated consumers’ privacy rights and federal laws. Because of the security breach, at least 800 cases of identity theft have been reported. 3

Today companies must employ safeguards across the entire enterprise to ensure that intellectual property is secure. As outsourcing vendors are increasingly being entrusted with a company’s intellectual property in order to leverage cost savings and productivity gains, these vendors must also fall under the firm’s security checks. It is imperative that companies scrutinize every aspect of an outsourcer’s security protocols to protect valuable intellectual property.

What can companies do?

When intellectual property is breached or stolen, any business is in for a rocky ride. All too often, a company believes its security measures are satisfactory but then something happens and it becomes evident that what security was in place was not good enough. And “not good enough” is unacceptable if your company’s intellectual property is at stake. Like the proverbial locking the barn door after the horse already bolted, improving security after data theft happens is too late.

When companies outsource their valuable intellectual property, the potential for increased risk is there. Although the governments of China and India have made strides to address copyright infringement, clearly work still needs to be done. The wheels of justice turn slowly and outsourcing vendors cannot rely on government agencies to police intellectual property. Unfortunately, not all outsourcers value their customers enough to invest in state-of-the art security, nor do they have a culture where integrity is at the core.

As part of the due diligence process when selecting an outsourcing vendor, organizations should determine that the outsourcing vendor adheres to the highest security standards to ensure their valuable intellectual property is safe and specific security arrangements should be detailed in the contract. A reputable outsourcing vendor would respect and applaud these efforts.

Practice IP-safe outsourcing.

It is critical that an offshore outsourcing company invest and employ a multi-faceted safe-guard approach to protect the client’s critical business information. A good vendor regards their clients’ intellectual property as central to their own business success. To achieve maximum intellectual property protection, Long Circle recommends that, as part of the security due diligence process, a company examines how an outsourcer addresses the following areas.

? Weak links: Unethical or unsuspecting employees

Unethical employees are an obvious risk to vulnerable data. Development departments everywhere have to be on guard to ensure that back-door code doesn’t slip by, ensure “do not enter” safeguards are in place so hackers can’t get in, as well as have “does not leave the premises” protection in place so employees can’t steal intellectual property. However experts caution that yet another serious security challenge faces corporations today: social engineering.

Mobile phone accounts of 400 T-Mobile customers – including socialite Paris Hilton’s Sidekick II device — were compromised by hackers. Hilton’s videos, personal phone numbers of her celebrity friends and messages immediately hit Internet sites, as well as provided fodder for late night TV monologues. According to a story reported by the Washington Post, a hacker posing as a T-Mobile employee obtained access to security information that was provided by an unsuspecting employer via a phone call. The practice of social engineering – tricking someone with legitimate access to restricted data to reveal confidential information – underscores the need to train employees to guard against inadvertently giving away sensitive data over the phone, in person, or in public.

? Secure the perimeter

Intellectual property should be locked in a remote site which has a strong security defense against unwanted access. The building itself, the entrance, and the sensitive areas should be guarded to ensure end terminals cannot be tampered with. In addition, a bag check policy should be applied to employees and guests alike: no data copying device can be brought in the door and no data can leave the premises. Protocols should include measures such as guest and contractors sign in when they enter the premises, wear identification badges, are always accompanied by designated employees, and access is limited and monitored.

? Many eyes

The outsourcer should have a culture where each employee takes security, privacy, and integrity to heart. Security is about patrolling the beaches. Privacy is about keeping information in only the right hands. Integrity is about demonstrating the proper care, behavior, and attitude towards protecting the client’s intellectual properties. Alert and vigilant employees are one of the best guards against threats to a client’s intellectual property.

? Separate and secure

The confidential information of each client should be physically segregated. The client’s software and hardware design should be stored on secured servers that can only be accessed by authorized personnel and network traffic should be contained on a dedicated Ethernet network (LAN).

In addition, development teams should work in physically separate areas with restricted access. As a general policy, proprietary client information should not be shared between employees who work on separate teams; violation should a result in severe consequences.

? Stops leaks

It goes without saying that background checks should be conducted on all employees. An outsourcer should enforce a strict policy that forbids any employee to remove, copy, print, or transmit any data and the physical plant should support the policy. Computers that handle client information should be physically bolted down, stripped of all copying devices and external device interfaces, and connected to an isolated LAN that allows only traffic destined to pre-programmed, legitimate addresses. Although employees have e-mail and Internet access; but there should be no Internet access on any client-dedicated workstation.

Conclusion

IP-based businesses now represent the largest single sector of the U.S. economy and, according to the U.S. Commerce Department, intellectual property theft costs U.S. businesses an estimated $250 billion per year and 750,000 American jobs.

An outsourcer is not only tasked with R&D development, but equally important, is expected to keep that intellectual property safe. No company can afford to do business with an outsourcing vendor that bypasses or takes shortcuts with security. As a company moves its intellectual property offshore, it must take care that security is not left behind.

About Long Circle

Long Circle provides outsourced engineering services to companies whose products and services rely on embedded software and hardware technology. Long Circle and the Long Circle China Center of Excellence enables U.S. companies to reduce costs, increase engineering bandwidth, and broaden market reach by providing low-risk, strategic access to China’s engineering talent, manufacturing industry, and emerging markets. To learn more about Long Circle, visit http://www.longcircle.com.

Does Selling China Apple Iphone Violates The Copyright Law?

July 13th, 2009 at 04:25pm Under copyright law

if i changed the name of the apple iphone to apple tphone does it violate the copyright law?

Intellectual Property Protection In China

July 12th, 2009 at 06:43am Under intellectual property

If imitation is indeed the sincerest form of flattery, then the Chinese can be very sincere flatterers indeed. But if you prefer prosperity over flattery it would be wise to take precautions against losing your shirt (or at least the rights to it) in one of the world’s most dangerous IP jungles. It isn’t that the legal regime is deficient – it’s enforcement that’s lacking. For the present at least, China is a net importer of intellectual property. A relatively lawless IP environment is advantageous to China’s short-term interests, just as a strictly enforced IP environment suits the interests of net IP exporters such as the United States. This issue has been constant irritant in relations between China and Western nations, as well as Japan. Nevertheless, China’s enforcement of intellectual property has steadily improved in recent years.
Protecting intellectual property (IP) in China requires a multi-pronged strategy including registration, workplace security, employee contracts, commercial contracts and enforcement.
Registrations
China’s IP registration regimes are more or less consistent with international standards.
Trademarks – are protected on a first-to-file basis, with an exception for well-known trademarks. Do not rely on the “well-known” exception, however (unless you are Coca-Cola), because whether a particular trademark is “well-known” or not is a time-consuming argument that keeps IP lawyers in business all over the world. If a trademark uses words, the Chinese language equivalent should also be registered.
China has adopted the international Classification of Goods and Services under the Nice Agreement, and has also adopted the international registration regime under the Madrid system.
FIE Business Names – must be in Chinese and registered with the local Administration of Industry and Commerce before an application to set up a Foreign Invested Enterprise can be submitted (see this site’s Company Startup Guide for details on company name registration). Since China does not have a national register of business names, registrations are valid only within a particular locality (and an FIE business name cannot be registered in any location except its location of establishment). Trademark registrations offer better protection in this respect.
Patents & Designs – are protected on a first-to-file basis. China is a member of the Paris Convention, so filings in a member country within applicable time limits can also gain priority in China. More ominously, compulsory licenses may be granted (i) to qualified enterprises if the owner of the patent fails to license the patent on reasonable terms, and (ii) in the event of a national emergency. Because of this, many foreign companies do not register patents for sensitive technology in China. See Technology Transfers and Licensing for related information.
Copyrights – Copyrighted material may be registered with the China National Copyright Administration. As in the United States, copyrights are not granted on a first-to-file basis. Registration does serves as useful evidence of ownership of a copyrighted work, but it is not a legal precondition to enforcement.
Software – is considered copyrighted material and may be registered with the China National Copyright Administration. Registration requires the filing of source code (with some code blacked out). As a consequence, many foreign companies refuse to register their software in China.
Domain Names – are protected on a “first-to-file” basis. A foreign company
must have an FIE or Representative Office in order to register a “.cn” domain name in China.
Workplace Security
It is strongly advised to create a “plumbing” system to control IP leakage in the workplace.
IT systems and any hard copies of IP should be kept in an access-restricted, secure location.
Confidential information should be distributed on a strict “need to know” basis.
Confidential material should be marked “Confidential Information” in Chinese in anticipation of possible litigation in Chinese courts.
Employees
Independently investigate the reputation and trustworthiness of applicants for sensitive positions during the recruitment process.
Labor contracts should be prepared carefully. You should consider including the following in all labor contracts:
Confidentiality obligations
Non-compete clauses – Post-termination non-competition clauses should be limited to a reasonable geographic area and time limit. Compensation is also required to be paid during the period of non-competition.
Assignment – Although China recognizes the work-for-hire principle, the labor contract should clearly assign ownership of intellectual property created in the course of employment; otherwise IP rights may prove practically impossible to enforce against an employee who creates an IP-related work for hire.
Product Selection
Despite the additional tax breaks and incentives available, think carefully before manufacturing products that require new and sensitive technology in China. Components requiring new and sensitive technology may be imported into China in a secure manner for integration with the rest of the product.
Commercial Contracts
Since many commercial arrangements, even sourcing materials and components, can necessitate an exchange of intellectual property, adequate protections should be included in the contracts and associated documentation.
Administrative Enforcement Action
Various government organs have the power to take administrative action against IP infringers:
National Copyright Administration – The NCA is the “big gun” of the Chinese IP enforcement arsenal and is endowed with broad enforcement powers. They may order cessation of the infringing activities, confiscate illegal income, confiscate and destroy illegal copies, and impose fines.
State Administration of Industry and Commerce – The SAIC and its local AICs have a reputation for efficient trademark enforcement action, including investigations and raids. The SAIC also handles disputes regarding business names, registered trademarks, trade secrets, and passing off activities.
Customs – may confiscate products that infringe trademarks, copyrights and patents.
China Patent Office – may help with patent enforcement through investigation, mediation and raids.
General Administration of Quality Supervision, Inspection and Quarantine – may get involved if product quality and health issues are at issue.
Administrative enforcement is a relatively inexpensive and efficient alternative to litigation, and it is easier to win a conviction.
Litigation
If administrative action fails to bring the desired result, litigation may have to be resorted to. Chinese courts can issue injunctions and award damages, although in practice their enforcement powers are typically weaker than in Western nations.
Criminal Prosecution
Criminal liability, including imprisonment, can be imposed for IP violations, although successful prosecutions are rare. Financial thresholds that must be met before criminal liability can be assessed can be difficult to prove. These thresholds include:
RMB50,000 turnover for knowingly selling goods with counterfeit registered trademarks
RMB50,000 turnover or RMB30,000 profits if trademarks are applied to goods without authorization
International Enforcement
Products that infringe intellectual property rights can be interdicted by customs at the destination port. It is also possible to seize the overseas assets of infringers located in China.
Technology Transfers and Licensing
Foreign investors often license technology and intellectual property such as trademarks, patents, copyrighted material and trademarks to the FIEs they invest in. A foreign party may also license technology to unaffiliated Chinese companies, such as in manufacturing or management contracts. Unlike joint venture contracts, licensing contracts can be governed by foreign law.
Proper licensing will help the foreign party control its technology and secure the payment of royalties (registration is required for the latter). Only the brave, however, will dare to license sensitive technology to an entity which the foreign party does not control.
Technology transfers are understandably less common than licensing and are usually used as part of the foreign investor’s contribution of technology to a Foreign Invested Enterprise as Registered Capital.
Technology Restrictions
Chinese foreign trade law recognizes three categories of technology: Permitted, Restricted, and Prohibited. These are contained in a catalogue that lists specific technologies.
Permitted technology is simply technology which has not been classified as Restricted or Prohibited.
Restricted technology may not be imported without a license, and is generally related to the chemical, petrochemical, biochemical, biological, and petroleum refining industries.
Prohibited Technology is technology that is considered to endanger national security, the public interest, or public morals by placing people’s lives or health at risk or destroying the environment.
Paperwork
A license for restricted technology must be approved by and registered with the Commission of Foreign Trade and Economic Cooperation (COFTEC). COFTEC will adjudicate a license application within 30 days. Licensing contracts for Restricted technology are effective only after COFTEC issues the corresponding Technology Import License.
Prohibited technology may not be brought into China.
Certain types of Permitted technology, while not subject to licensing requirements, are still subject to filing with COFTEC.
Technology transfers relating to certain major projects must be registered with and approved by the Ministry of Commerce. Trademark licenses must be filed with the
China Trademark Office within three months of execution in order to remit royalties out of China. Foreign trademarks must be recorded at the China Trademark Office in order to remit royalties out of China. Trademark recordation takes about a year and a half.
Improvements
A foreign company may not prohibit a licensee from improving the licensed
Technology, and these improvements become the property of the improver.
Technology as FIE Capital Contributions
Technology may be contributed as part of an FIE’s Registered Capital; however, the FIE will then become the owner of the technology and the foreign contributor will have to license the technology from the FIE if it wants to use it.
Technology contributed as capital is required to be appraised upon importation and should also be appraised by the Ministry of Commerce or the relevant local COFTEC as soon as the FIE is approved.
Since the Company Law requires 30% of the Registered Capital of an FIE to be contributed in currency (20% of the initial installment of Registered Capital), it follows that alternative forms of contribution, including technology, cannot total more than 70% and 80%, respectively.

The Basics Of Chinese Trademark Registration

July 10th, 2009 at 12:43pm Under trademark law

Though the United States media have published a number of stories deriding China’s intellectual property protection, those articles nearly always neglect to mention that in most instances involving trademarks, the fault lies with the foreign company, not with Chinese enforcement. The reality is that many foreign companies fail to register their trademarks in China and thus have no real right to complain about any “infringement” there. To expect protection, foreign companies must register their trademarks in China and the prudent company does this before going in.
There are actually a number of people in China who make a living by usurping foreign trademarks and then selling a license to that trademark to the original license holder. Once one comes to grip with the fact that China, like most of the rest of the world is a “first to file” country, one can understand how easy this usurpation is, and also, how easy it is to prevent it.
The fact that you are manufacturing your product in China just for export does not in any way minimize the need for you to protect your trademark. Once someone registers “your” trademark in China, they have the power to stop your goods at the border and prevent them from leaving China.
The key to protecting a trademark in China is actually very simple: register it in China.
China’s trademark requirements are actually quite similar to those in most other countries. The trademark must not conflict with an existing Chinese trademark and it must be distinctive. China allows for registration of all marks for goods, services, collective marks and certification marks.
China’s Trademark Office maintains a centralized database of all registered and applied-for trademarks. Trademark applications that pass a preliminary screening are published by the Trademark Office and subject to a three month period for objection. If there are no objections within this three month period, or if the Chinese Trademark Office rejects the objections as frivolous, the trademark is registered. If the Chinese Trademark Office supports an objection, it will deny the application. Denied applications may be appealed to the State Administration of Industry and Commerce Trademark Review & Approval Board and then to the People’s Court. Based on our experience, objections to trademarks are rare.
A Chinese trademark gives foreign companies a surprising amount of protection in China. If a foreign company learns that its trademark is being infringed in China, it has a number of actions available to it.
We usually advise our clients to pursue a multi-pronged approach to protect an infringed upon trademark and to pursue the infringer. The foreign trademark owner should usually file a lawsuit against the infringer, seeking damages and an injunction stopping the infringer from continuing to sell the infringing goods. The Chinese courts in the more commercialized regions are actually quite willing to enforce China’s trademark laws, even for foreign companies. Trademark infringement is a crime in China. For serious cases of infringement, a complaint to the office of the public prosecutor can often result in a criminal prosecution against the infringer. The Chinese police will close the offending operation and seize the counterfeit goods. The courts are authorized to impose both fines and imprisonment. Finally, if the counterfeit goods are destined for export, a notice to the Chinese customs authorities will prevent export of the counterfeit goods.