Top Legal Tips for Doing Business in China

Last week I gave a presentation for companies going through the MetroConnect program run by the San Diego Regional Economic Development Corporation (EDC). MetroConnect is an accelerator program for local San Diego companies looking to increase their exports around the world. The program is sponsored by Booz Allen, Deloitte, and JP Morgan.

The presentation I gave was about data regulations that companies encounter when they expand overseas. GDPR being first and foremost among them, with the idea that if you can comply with GPDR you're in a good starting position to comply with most any privacy regulation around the world. China's Personal Information Protection Law (PIPL) certainly takes its inspiration from GDPR.

There was also a great presentation, btw, on IP by Stephen Kozial of the USPTO's Silicon Valley office, and once again hats off to San Diego EDC for putting together a wonderful event.

But with all that as background, I found that the one slide that seemed to make the biggest impression was one I included as my extra two cents at the end (and not related to privacy at all):

If you've read most of the posts I've written before for this blog, first many thanks for your attention! But if so, then some of this may be review. For everyone else:

1. Local courts - I am a firm believer that courts in China (and I believe other countries which have become significantly more developed over the years) are really where you want to go to try to actually enforce contracts on the ground. For tech companies especially, where the damage is not always easy to quantify monetarily but where you want to get a (relatively) quick injunction in place to stop bad behavior with someone misusing your IP. Some in the audience were surprised to know that a US judgment against a Chinese company was going to be impossible to enforce against that company in China and in the US as well if there were no assets there. Arbitration has its advantages but again you still need the award recognized to by a local court (easier said than done and not quick).
2. Due diligence - there is still some very basic diligence you can do quickly and affordably with the help of local counsel to have a better sense of who your business partners in China are, how much they've invested into their business, who owns the company, etc. This kind of information is available in most other Asian countries as well.
3. NDA - Its difficult to prove actual breach of a NDA. Many NDAs are drafted to only preclude disclosure of information to third parties but don't explicitly prohibit use of the information you've disclosed. And NDAs speak nothing to the accrual of ownership for any development work done with the information shared. I've seen many clients come in and say we started working on development since we now have a NDA signed up...and then forget to put anything further in place before its much too late and IP ownership becomes a sticking point.
4. Local language - see enforcement in courts above. Courts work best when you assume the judge is going to strongly prefer seeing a Chinese (local) version of a contract, so better you provide one you've blessed in advance to capture the parties intent (even if its not going to be binding compared to the English version). This again should be true for other countries in Asia.
5. Too good to be true contracts - not much to add here. Generally its a very good sign when your counterpart is negotiating over terms throughout the agreement. This is a sign they take the endeavor seriously and are a responsible partner.
6. Trademarks - China is first to file (like the rest of Asia) and not first to use like the US, and while you can apply to cancel a squatter's registration for non-use, the bar for the squatter proving use is very low. Register your TM before someone else does for you.
7. Independent contractors - make sure you capture the IP they create for you, otherwise by default it accrues to them.
8. In-line with priorities - China's laws (like many others in the region) are filled with regulatory ambiguity. In case of any doubt (which there will be), err on the side of what other companies similar to yours are doing and make sure what you are doing is something that is likely encouraged by the government. For example, this is something I often talk about with enteprise SaaS companies. The rules on ICP licenses are vague, but in general business software development is encouraged and so foreign companies should feel better about operating in a gray area here.

That's it for this edition, thanks for reading, subscribing, and all the encouragement. See you next edition!