Interview: An entrepreneur's guide to licensing

Can you explain what your business does?

I work for China Shanghai Character License Administrative Company and we are the general agent for five Japanese cartoon characters, which means we own the IP of the characters for all kinds of use in China. We can manufacture clothes and goods with the icon on them, print books, introduce films, distribute DVDs, set up theme stores and license convenience stores like 7/11 to make promotional toys. In Japan, there would be a licence owner for book prints, usually the publishing house, one for movie distribution and one for TV series broadcasting. A general deal means we pay royalties and enjoy the profits to the greatest extent. But each kind of item that a licensee produces, must obtain the approval by the license holder in Japan. But luckily, the review and approval process takes one to two days with our partners in Japan.

What administrative steps do you take to protect IP?

We register our characters with the Trademark Office and the Copyright Administration. We also report all royalty transactions with Japan to China's State Administration of Taxation (SAT), which will then be recorded by the State Administration of Foreign Exchange (SAFE). If we generate profits from licensed property in China, then we have to pay tax. But most of the licensees in China I know use offshore companies to avoid tax.

Tell us about your company's legal practice?

We have four in-house lawyers and we work with around 10 local law firms. The in-house lawyers train the firms to distinguish copycats in the market. The firms also conduct investigations and send us reports. Every year, we process around 200 cases, sending infringement notifications, with about 30 of them resulting in lawsuits.

What reactions do you get from infringers?

We are glad that some of the infringing companies become legal producers or sellers after realising they are infringing on our IP. They pay us a reasonable amount in licence fees, which means they can continue to conduct business legally – a win-win situation. But some small companies, even after we tell them to stop, they will halt production or selling our copyrighted goods, then continue under another registered name. For these small companies, we do not sue, but we still like to find them in the market so we can monitor the situation. We will sue big companies, with big revenues, which is worth our time and effort.

What are some noteworthy cases you have worked on?

We sued the owner of one of the leading online video platforms PPTV, for sharing the 52-part series Ulterman Tiga, without permits. PPTV has over 120 million registered users, with great revenue potential from ads. We notified PPTV in June 2011 to delete the series or to pay us licence fees of Rmb104,000 ($16,700) for the online broadcasting rights for two years. We won the case, but the compensation was only Rmb25,000.

Another case concerns a Hangzhou-based food producer bearing the same Chinese name of our cartoon character Chibi Maruko Chan. Nearly all of the packaging for their food products have our licensed icon on it. The company is making about Rmb20 million a year, but they registered the company name before we registered our cartoon character in China. This case deals with the PRC Trademark Law (中华人民共和国商标法), which allows the companies who file trademarks first to profit.

What loopholes are there in licensing?

I would say licence owners are careless when choosing their licensees or do not manage them properly. For example, a licensed factory is permitted to produce 2,000 copies, but actually produce 20,000 copies. This means 18,000 copies infringe the copyright – it is in a widespread practice in China.

I have been safeguarding my business integrity for a long time and I hope China is doing the same. But I understand that the problem is an inevitable stage in most country's development path, and for the most part China is still a developing country. The nationwide practice of producing fakes is fundamentally due to the low cost of production. As you can see, rich countries enjoy the profits from cheap production in poorer countries, but blame copycats in poorer countries. The situation will change when China's labour and production costs rise and the overall industrial model transforms.