Telecommunications China Cultural Sensitivities and Best Practices

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					China: Cultural Sensitivities and Best Practices of Business Conduct in China regarding
   IP Transactions in the Electronics, Telecommunications, and Consumer Products

                               Poh C. Chua, Chief IP Counsel
                                     TTE Corporation

About the Author

     Poh C. Chua is Chief IP Counsel of TTE Corporation, a subsidiary of TCL Multimedia
Technology Holdings Ltd., at which he serves as General Counsel. In these capacities, Poh
is responsible for all legal affairs of the companies, including intellectual property matters in
the United States. TTE Technology, Inc., a subsidiary of TTE Corporation, sells RCA
branded televisions in North America. TTE Corporation was created in 2004 when the
television divisions of Thomson, S.A. and TCL Corporation merged. TTE Corporation
remains one of the top television makers in the world. In addition to “RCA,” TTE
Corporation markets televisions using “Thomson” and “TCL” trademarks. Other products
of TCL Multimedia include DVD players, digital photo frames, and digital cameras.

     Poh has been with TTE for just over two years. He spends a majority of his time in the
company’s headquarters in Shenzhen and Hong Kong. He currently resides in Shenzhen
with his wife and three children. Shenzhen, located just north of the Hong Kong border, is
China’s first New Economic Zone. From a small fishing village, Shenzhen has transformed
itself to become a city of over 10 million people in fewer than 30 years.

    Prior to joining TTE, Poh worked as a patent attorney for an international law firm in the
Washington, D.C. area. During his law firm years, Poh traveled to the Greater China region
regularly to serve clients in Taiwan, Hong Kong, and Mainland China.

    Poh received his undergraduate and law degrees from The George Washington University.
He is licensed in Virginia, New York, and Washington, D.C.

    Poh is grateful to David Li Xinmiao, an in-house counsel of TTE Corporation, and
Elizabeth Yang, an associate of Howrey LLP, who assisted him in the preparation of this

I.   Cultural Aspects of Living and Working in China

     A. Historical Time in China

     I am fortunate to be able to live and work in China during my lifetime, a period of time
that many would consider to be one of the most important periods of China’s history. For
the past 5,000 years, China has seen only a handful of glorious eras, including those during

the Han and Tang dynasties, which existed centuries ago. Over the past few decades,
however, China has quickly transformed herself in many aspects, most notably with
economic, scientific, and political achievements. With her recent performance in the
Beijing 2008 Olympic Games, among other deeds, China has become one of the most
powerful nations in the world. For the next several decades to come, no one could
reasonably deny that China will have a very significant influence on the world.

    B. Roles of Women in Modern China

     In the traditional Chinese family, women were supposed to spend the majority of their
time performing household chores, taking care of their husband and children, rather than
working outside. Especially in the feudal society, women were bound by more traditional
customs like “women should always obey.” They possessed no status either within the
family or within society and they were told to simply be servants for men and be robotic
machinary for producing baby. Women were always busy cooking, sewing and washing all
year round. Furthermore, they could not use their own family names but were named after
their husband’s family’s name. All of these old customs prevented women from using their
creativity in career choices and from having their own independent personalities, so it was
hardly possible for a woman to take on any leadership roles.

     With the People’s Republic of China established in 1949, women and men gradually
became more equal. Women were then able to go out to work and they held jobs in various
fields in the society. Their strong characteristics, including attention to detail, patience,
perseverance and endurance, were brought into play and put to good use in these jobs. From
then on, sharing household chores between husband and wife became more customary.
Among the recent Representatives in National People’s Congress, 20% or more were women,
which were almost doubled in comparison with the First National People’s Congress
conference that was held in 1954, having only 11.9% women.

     Nowadays, there are more than 15 million female political leaders, which comprise
nearly 40% of the nation’s leadership population. Among the female leaders, nine of them
occupy leading positions in the Communist Party. One of them is a Member of the
Politburo of the CPC Central Committee. There is one woman who serves as State
Councilor, and there are three female vice heads of the National People's Congress
Committee. Four women are part of the National Committee of the Chinese People's
Political Consultative Conference (CPPCC) and there are also 25 female leaders in the
Supreme Court of the People's Republic of China, the Supreme People's Procuratorate and
the State Council.

    More than 5,000 female leaders currently reign in the provincial and regional
governments. In the Provincial Four governance groups, there are almost 500 female
mayors and vice-mayors. In the recent five years, the participation rates for female and
male voters are 73.4% and 77.6%, respectively. This indicates that the gender differentia
has dwindled. Initially, women’s sense of participation in politics is strengthened by the

government. The phrase “women and men are equal” was brought forward as China’s
National Policy when the Government of PRC was first established. Women were referred
to as “half of the sky” and their statuses gradually improved. Society also provided a good
environment for women to develop their own careers and women were able to gain the same
education as men. With increased knowledge, women became more illuminated and
became, willing to participate in political affairs. With the development of the economy, the
women who originally resided in the countryside moved to the city, broadened their views,
and influenced their thoughts, which allowed them to become concerned and have an impact
upon social public affairs.

     The government also provides good circumstances for women to participate in the
national and public decision-making and administration. The Program for Chinese Women’s
Development (2001-2010) says: “At least one female leader in all level of governance groups
is prerequisite, and female leaders should occupy 50% of the leadership in all working level
departments. The number of female leaders in key position should be greatly
increased.” Villager Committee Organization Law provides that Villager Committees shall
include female members.

    Even with these achievements, the male-dominated tradition continues to influence many
people to prefer men over women. Some business leaders still regard men as being more
capable than women. As a result, men are generally given more opportunities in career
development. For example, when both male and female leaders begin their careers, men
tend to have an easier time getting promoted, furthering their education, and getting more
decisive and important projects. Similarly, female leaders in enterprises or government
roles tend to occupy “weaker” or lesser positions. Accordingly, this shows that more
advances need to be made to improve female participation in higher levels of leadership.
Specifically, more female leaders are needed in the Government Executive and minister-class
leadership roles.

    C. Faux Pas

    I have not personally encountered any unique faux pas beyond the typical, more
commonplace ones, such as those discussed on the Internet. For examples, here are a few
familiar ones that people should be aware of when conducting business in China.

         1. Avoid giving the following items as gifts because in one or more dialects of the
            languages spoken in China, pronunciation of these things or certain history
            could carry a negative connotation: clocks, umbrellas, fans, knives, and green
            hats. For example, “giving someone a clock” sounds almost identical to
            “participating in someone’s funeral.” Similarly, umbrellas and fans have
            sounds that are almost identical to death or splitting up. Knives suggest the
            cutting or destruction of a relationship. “Wearing a green hat” in China is an
            age-old idiom for being cuckolded.

         2. Pay attention to how you hand out your business cards. For example, do not
            flip out your business cards on a conference room table like a Las Vegas poker
            dealer. Instead, one should present his business card with both hands and also
            accept other people’s business cards with both hands. Preferably, a smile and a
            bow should come with the card presentation. Furthermore, it is extremely rude
            to discard a business card or put it away without first reading it. When a
            business card is presented to you, you are expected to study it carefully, perhaps
            even asking a question or two, before putting the card away.

         3. If you are pregnant, you may want to decline an invitation to a funeral.

         4. It is not uncommon to see people competing for the honor of paying for the bill
            after a meal. Allowing others to pay the bill without offering to pay or some
            protest before agreeing can be treated as faux pas.

         5. Avoid any conversation that involves the political situation between China and
            Taiwan as this is still a very sensitive topic.

         6. There is often a “seat of honor” at the dinner table, usually identifiable through a
            specially folded napkin. You should avoid seating yourself until your host or
            someone else invites you to take a certain seat. If offered the seat of honor,
            you should decline and offer that seat to whomever you think is more senior or
            to a VIP guest.

    D. Misconception about Dealing with Others in China

     There are several misconceptions that one may have regarding dealing with others in
China. The most common misconception that I have encountered is related to the title or
position on a person’s business card. In China, a title or position shown on a person’s
business card could be misleading regarding his role in the company or how influential he is
in his organization.

     For example, a “vice president” of a company (even a large one) may carry that title for
the convenience of dealing with outside entities, but may not actually have the same implied
authority within the organization. On the other hand, someone with a humble title such as
“chairman’s assistant” or “assistant to the General Manager” may actually hold very
influential roles and have a significant amount of delegated powers within the company.
Therefore, when dealing with people in China, it is important to remember not to judge a
person based on the title listed on his business card because it could easily lead to a false

    As a practical matter, I find myself corresponding with some of these “assistants” more
frequently than I do with “vice presidents” to get things done.

II. Best Practices

    A. Formalities and Customs

     In regards to transacting business and doing IP transactions with companies in China,
there are many formalities and customs that need to be taken into account. You should
avoid the temptation of dealing with Chinese companies in the same manner as with typical
American companies. If you do so, you may come across as being too aggressive and may
end up fighting the wrong fight. There are several cases where western patentees generated
“public rage” and potential licensees ganged up and collectively turned against them because
of the lack of knowledge of the Chinese business customs.

    As a general rule, Chinese people prefer to avoid confrontation and most transactions can
be closed without adversarial postures. Here is a list of “best practices” that should be
considered when doing business with China:

         1. Do not assume that the Chinese does business the same way Americans do.
            Unlike how Americans are more transaction-oriented, the Chinese is more
            relationship-oriented. It is important to understand that for the Chinese, a
            transaction is not the end of the business, but rather a process in building a
            relationship with someone that they like, trust, and respect.

         2. Do not strictly bind yourself to the initial terms of a contract. When
            circumstances change during the course of a business relationship, the Chinese
            expect you to go back and informally renegotiate the terms. Failure to do so
            not only could cause the Chinese to lose respect for you and destroy the
            relationship, but also in the end, they might still not abide by the terms of the

         3. If you want to do business in China, you must first earn the respect of your
            Chinese couterparts. Rather than being too professional and rigid, you should
            be more open, flexible, and have a sense of humor. The Chinese prefer their
            business partners to be easygoing human beings that they can learn to trust
            rather than emotionless corporate entities. They want to develop a relationship
            with you and not just work with the mercenary of a transaction.

         4. The idea of “saving face” is also extremely important within the Chinese culture.
            It is important not to cause someone to lose face because in Chinese society,
            face is connected to how a person is viewed. Therefore, even if a Chinese
            businessman makes a mistake, you must not criticize him or make him feel
            humiliated, especially in front of his peers. Try to put words of criticism as
            lightly as possible and they will reciprocate the favor.

         5. In the western culture, rapid decision-making and processing information

            quickly are traits of an aggressive and highly competent business person. In
            the Chinese culture, however, such hasty decisions demonstrate idiocy. The
            Chinese prefer to deliberate longer and take their time in making an important
            business decision. Therefore, it is important to know never to rush a business
            deal and give the Chinese as much time as they need to make a decision that
            they won’t later regret.

    B. Interpreters

     Having an interpreter is important if you do not speak Chinese fluently. In many
instances, I have encountered situations in which Chinese people who are fluent in English
may choose to speak Chinese only. Also, even if you are using a translator, you should still
learn one or two phrases in Chinese and show them off at the beginning of the meeting.
This is a smooth ice-breaker and a way to lighten the mood and easily impress your Chinese
audience. It is also a quick and easy way for you to gain immediate respect from your
Chinese counterparts because they will feel like you are in tune with their culture.

    C. Face to Face Meeting

     Face-to-face meetings are effective and should be held over telephone conferences
whenever possible. As a general rule, if you want their CEO to attend the meeting, you
better mention that your own CEO will be attending as well. Otherwise, the Chinese
company will only send a person of about the same rank or position as the most senior person
whom they think will be attending the meeting. Also, if you know that their CEO is
attending the meeting, it would be extremely rude not to have someone of the same authority
represent your own company. Such behavior would lead them to believe that you either do
not think highly about their company or that you are not serious about doing business with

III. Intellectual Property Management and Enforcement

    A. Legal and IP Professionals

     Different companies handle transactions differently. Since the legal and IP systems are
relatively new in China, most companies in China do not have IP or legal professionals with
extensive experience. For more significant matters or transactions, these companies
typically hire law firms or consulting firms to assist them. Many of these firms are either
U.S. or European-based firms that have branch offices in Hong Kong, Shanghai, or Beijing.

     At TTE Corporation, our IP attorneys and other IP professionals were trained in the U.S.
or Europe. Most of them were practitioners in the West prior to taking their current
positions at TTE Corporation. Nonetheless, high caliber law firms are frequently engaged
to assist us when needed.

    B. IP Management

     Companies in China are becoming more savvy about management of intellectual
property. Some of these companies learned their lessons through expensive patent litigation
in the United States. Others are encouraged by national, provincial, or city governments
through various programs. Accordingly, most, if not all, technology companies in China are
doing one or more of the following:

         1.   Recruiting IP professionals: Professionals with IP background are in high
              demand, especially those with experience from multi-nationals or those who
              have worked in the United States or other IP-advanced countries.

         2.   Establishing an IP department: The IP department interacts with research and
              development departments to determine which innovations could be further
              processed into patent applications. The IP department also has full time
              engineers capable of performing non-infringement analysis.

         3.   Applying for grants and incentives from all levels of governments: In some
              jurisdictions in China, a qualified company (must own at least one patent) could
              enjoy benefits by paying less income tax, e.g., reducing from 25% to 15%.
              Also, when a foreign patent, e.g., U.S. patent issues, the patentee company
              could receive cash awards from the government.

         4.   Being trained by Experts: Technology companies in Shenzhen frequently send
              their IP professions to seminars and courses, both within the city and sometimes

         5.   Creating patent pools: Companies in China have begun to meet regarding
              establishing industry standards for certain technologies and creating patent

    C. Intellectual Property Laws in China

    China has a number of intellectual property related statutes. The Chinese and English
names of these statutes, as well as websites through which more information about these laws
could be found, are summarized below.

         1.   中华人民共和国专利法
              Patent Law of the People’s Republic of China

2.   中华人民共和国专利法实施细则
     Implementing Regulations of the Patent Law of the People’s Republic of China

3.   中华人民共和国商标法
     Trademark Law of the People's Republic of China

4.   中华人民共和国商标法实施条例
     Implementing Regulations of the Trademark Law of the People's Republic of

5.   中华人民共和国著作权法
     Copyright Law of the People's Republic of China

6.   中华人民共和国著作权实施条例
     Implementing Regulations of The Copyright Law of the People's Republic of

7.   中国人民共和国软件保护条例
     Protection of Computer Software Regulations

8.   中华人民共和国植物新品种保护条例
     Regulations of the People’s Republic of China on the Protection of New
     Varieties of Plants

9.   中华人民共和国反不正当竞争法
     Law of the People's Republic of China Against Unfair Competition

              10. 中华人民共和国刑法
                  Criminal Law of the People's Republic of China Contents

              11. 中华人民共和国对外贸易法
                  Foreign Trade Law of the People’s Republic of China

              12. 中华人民共和国海关法
                  Customs Law of the People's Republic of China

              13. 奥林匹克保护条例
                  Regulations on the Protection of Olympics symbols

              14. 集成电路布图设计保护条例
                  Regulations on the Protection of Layout-Designs of Integrated Circuits

       D. Trend of Recent Cases 1

        Chinese courts have lately been showing more willingness in ruling in favor of IP holders
    (foreign and domestic) and granting them a larger amount of damages. In addition to
    strengthened regulations and increased patent filings, these changes show that China is
    moving towards an improvement in enforcing IP rights and harmonizing its patent system
    with international regulations.

    China did not pass its first patent law until just over two decades ago in 1984. In 2001,
China was admitted to the World Trade Organization (WTO) and joined the Agreement on
Trade-Related Aspects of Intellectual Property Rights or "TRIPs," where it then amended its
patent laws. Although China's laws were created quickly and efficiently, failures to enforce
these laws have caused international criticism until just recently, judicial decisions created a
new trend.

    For more details about these cases, please read Motorola vs. Guangzhou Weierwei: China Court Swiftly Enforces U.S.
Company’s IP Rights Against a Chinese Company, by Esther Lim and Brandon Rash, which can be found in 律商中国法律
透视,Volume 2, 2007, pp. 17-18.

     In 2004, for example, the Guangzhou Intermediate People's Court ruled in favor of
foreigner Sony against Guangzhou Top Power Electronics Co. Ltd. for infringing camcorder
batteries. The court granted Sony's request for preliminary injunction and ultimately
compensated Sony with damages. The Beijing High People's Court in October 2007 also
ruled in favor of foreigner Pfizer, upholding the validity of its Viagra patent. The Ningbo
International People's Court further ruled in a lighting technology case that German-based
Osram Ltd.'s patent rights had been infringed by Ningbo Hongfei Electric Appliance Co.
Osram was awarded RMB 150,000 and Hongfei was enjoined from continuing the
manufacture and sell its infringing product. The Beijing Second Intermediate People's
Court also ruled against China-based defendants for selling infringing faucets and awarded
damages to U.S.-based Kohler Co.

    In September 2007, the Intermediate People's Court of Wenzhou awarded Chinese
plaintiff Clint RMB 334.8 million (approximately USD $45 million), the largest IP verdict
ever awarded in China, at least up until that time. They ruled against defendant Leqing
Branch of Star Electric Equipment Co. Ltd., a distributor of French-based Schneider Electric.
Schneider had obtained a patent in France but failed to obtain one in China, which
significantly cost the company in this case. Although this ruling was made in favor of a
Chinese company, the large amount of damages awarded shows that China is now taking IP
rights more seriously and recognizing the importance of IP enforcement.

     The most recent case in this series of trend-setting decisions is the 2008 case of Motorola
v. Guangzhou Weierwei. In this case, the First Intermediate People's Court of Beijing ruled
in favor of Motorola, awarding Motorola with damages and enjoining Weierwei from
continuing to manufacture and sell its infringing products. Unlike Schneider, Motorola
applied for worldwide IP protection and obtained a design patent in China. Design patents
are especially useful in protecting against knock-offs because they prevent another company
from making a similar-looking product. When Motorola decided to enforce its Chinese
design patents against Weierwei in 2007 for infringing its portable two-way radios, they not
only got a favorable judgment but also one that was extremely quick and given in less than a
year. This decision shows that China court systems are not only increasing IP enforcement
activity but also making it more effective. They do not simply give favoritism to local
companies but have been fair and also awarded damages to deserving foreign companies. In
the future, this trend will attract foreign investors and increase business in China that revolves
around IP rights.


    Given the unique time in history and its rapid transformation, China is one of the most
exciting places to practice intellectual property law today.