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China Distribution and Reseller and Licensing Agreements: An Almost Completely Made Up Story Because Your Name is Everything
With China shifting from “factory to the world” to “market to the world,” our China lawyers have been getting a ton of new clients seeking our firm’s help in drafting agreements with distributers and resellers and licensees in China. Many of these clients are worried about some vague (usually almost non-existent) threat of “violating Chinese law.” They virtually never are concerned with the biggest threat of all: having their name and reputation trashed beyond recognition.
Let me explain as briefly as I can, which isn’t all that briefly at all.
Many many years ago, there was a really really big company (easily a Fortune 100) that was (and still is) involved in the maritime industry. This company got sued on some sort of personal injury lawsuit by a really good Seattle lawyer. I have to confess that I do not remember the core facts of this case very well at all because it was so long ago and because other lawyers in my firm worked on it, not me. Anyway, this prominent company got sued and as part of its settlement, it assigned over to the client of this really good Seattle lawyer, the right to pursue a fairly large and very well-respected international fishing company.
The Seattle lawyer sued the international fishing company on behalf of the really really big company and our firm was called on to represent this fishing company. In the lawsuit, the Seattle lawyer argued that because it had a mortgage on our client’s vessel, it was entitled to seize our client’s vessel AND our client’s fishing rights because those rights were a part of the vessel. I do not remember how it is that this really really big company thought it was entitled to seize our client’s vessel but what is relevant here is that this was pretty much (I think) the first time anyone had claimed fishing rights are part of a vessel, and it was this really really big company making this new claim. And remember, this really really big company had assigned all of its rights in this lawsuit over to essentially this one Seattle lawyer (who was representing someone, but essentially free to do whatever he wanted).
Now if you know fishing you may know where I am going with this. Fishing rights are a fishing company’s lifeblood and if you are going to go after fishing rights, you are in for a tough fight and there was no way my law firm was going to curl up and die on this one. So what we immediately did was to call our friends in the maritime press and publicize the hell out of this case, but in a certain way of course. We pitched the story as a family fishing company. As I recall, the face of our client — at least the person we made the face of the company for these stories — had started fishing at age 16. And now, we have this really really big company trying to crush his company and extinguish his livelihood. Our theme in every story was the following: this really really big company claims to be a friend of the fishing industry, but look at what it is doing here. Obviously, this really really big company cannot be trusted. So, hint, hint, fellow fishing industry people, do not buy from this company and certainly do not borrow from it either.
Remember, this Seattle lawyer was suing my firm’s client in the name of the really really big company, but the really really big company had zero control over this lawsuit and would garner zero reward from any result. So why then were we trying to embarrass this really really big company? Because we figured that eventually the marketing and sales people at this really really big company would start screaming so loudly about the damage this lawsuit and its resulting publicity was causing that the company would step in and buy the lawsuit back from the really good Seattle lawyer. The Seattle lawyer didn’t really care where his and his client’s money would come from, so long as it would come. And our plan worked. The really really big company stepped in and ended the lawsuit before we expanded our publicity blitz.
Why did I tell this story in a post on China distribution and reseller agreements? Because what this really really big company did was what my mentor when I started out practicing law said that you absolutely never never never do: it gave a third party essentially unlimited use of its name. Yes it was within the confines of a lawsuit, but you get the picture. Anyway, my mentor’s advice was spot on and it applies to distribution, and reseller and licensing agreements with equal force.
If you are going to let someone in China use your name as part of a reseller or licensing or distribution arrangement, you must put limits on that.
Time for another factually questionable story, and this one both because I do not remember all of the facts and also because I need to twist them so nobody can recognize the company, including the company itself.
So many years ago, a Canadian company called us (I actually do not remember in what country this company was based) because it had licensed its restaurant name (it wasn’t really a restaurant) to a company in China but had set no limits on the use of its name. Anyway, this Chinese company had gone out and used the name to make food and that food had poisoned people and all of this made the news under the name of this Canadian company (this part is also not what happened, but it is close and the problems did make the news worldwide). Anyway, this Canadian company called us to see what it could do to end its relationship with this horrible Chinese company and our answer was exactly what it did not want to hear: you entered into a ten year licensing relationship and your agreement does not really limit what this Chinese company can do with your name, nor does it have any provisions that would allow you to terminate the licensing agreement due to what just happened. But hey, if it makes you feel any better, your licensing agreement does not include North America and it will end in nine years.
We then talked about other options for this company, ranging from it changing its name to seeking to pay the Chinese company to go away. I think this company chose just to ride it out and since I cannot remember its name I cannot research what it ended up doing.
Anyway, there is a bottom line here and that is that you must must must always be sure to protect your name, because it is probably the most valuable thing you have.
The post China Distribution and Reseller and Licensing Agreements: An Almost Completely Made Up Story Because Your Name is Everything appeared first on China Law Blog.
We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.
Source: http://www.chinalawblog.com/2016/05/china-distribution-and-reseller-agreements-an-almost-completely-made-up-story.html
