The past 30 years have presented a paradox for businesses trying
to protect their brands in China. On the one hand there has been a
rapid development of intellectual property law which now offers
legal protections akin to those found in many Western countries. On
the other, high levels of counterfeiting and piracy activities are
still prevalent and many businesses remain reluctant to face the
potential infringement of IP rights and dilution of their brands by
expanding into China.
History
Intellectual property has long been embraced by capitalist
societies, to protect existing ideas and to encourage future
innovation. In contrast, the traditional state-planned economy of
China denied such private rights and promoted the concept of the
interests of the state before the individual.
China's open door and market reform policy during the late 1970s
required it to reassess its domestic policy in a number of areas,
including IP. China realised the importance of strengthening its IP
protection in order to execute its reform policy and enacted a raft
of domestic legislation and has acceded to numerous international
treaties regarding the protection of IP rights.
Nonetheless, geographical and economic factors continued to
hinder China in its attempts to prevent brand infringement. Whilst
central government appeared to be committed to IP rights
protection, regional and localised authorities were less prepared
to embrace the changes.
Many of the new IP laws were used by and benefited foreign
investors and corporations more than domestic ones. Further,
counterfeiting and piracy activities formed a large part of the
local Chinese economy, providing millions of jobs and an important
revenue stream. A fierce crackdown on counterfeiters could
therefore severely depress local economies.. Local officials were
unwilling to take that risk.
The unusually rapid development of legislation posed further
problems. Whilst the laws themselves were put in place with
relative ease, the judiciary lacked experience to interpret and
enforce new legislation.
IP protection in China today
The IP protections which were established in the 1990s are
starting to herald real change and the recent increase in
litigation is encouraging for foreign brand owners. The Chinese
courts dealt with over 17,000 IP cases in 2007, compared with just
over 400 handled by the UK courts in the same period.
Significantly, foreign litigants are having more success in
asserting their rights in China.
For example, in 2006, Starbucks won a high-profile trade mark
infringement case against Xingbake, a Chinese chain of coffee shops
and a literal translation of 'Starbucks' in Chinese. Whilst the
damages awarded by the court were low by foreign standards
(£35,000) , it was a major victory for companies seeking to protect
their brands in China. It also highlighted the importance of
registering trade marks not only in English but also the Chinese
equivalents.
Recently the Chinese courts have shown their commitment to
protecting IP rights with a number of rulings in which large
amounts of damages have been awarded, and the Shanghai government
has supported an extensive anti-piracy campaign.
In June 2007, Yamaha won an award of £580,000 for trade mark
infringement, the highest sum ever awarded to a foreign company for
such a claim. In November 2008, Diageo won damages of £125,000 in
an unfair competition and passing off action against Blueblood
(Shanghai) Wine Co for the copying of its Johnnie Walker Black
Label bottle and packaging design. The Shanghai court also handed
down verdicts on 13 IP cases on the same day, nine of which
involved international companies, including 3M, Nippon Electric and
Honda.
The commitment of the Chinese courts was acknowledged by
Coca-Cola in 2007. Discussing the challenge of
protecting the Coca-Cola brand in Asia, the company's Pacific
trade mark counsel portrayed China positively. The company had
recently succeeded in registering its iconic contour bottle as a
three dimensional mark in China, the first such registration of its
type.
Steps to protect your brand in China
Some brand owners avoid China due to the risks of piracy. But
even if those that decide not to operate there should consider the
need for a brand protection strategy. Such a strategy should take
the following into account:
1. Register trade marks early
China operates its trade mark registration system on a first to
file basis, not a first to use. Therefore early registration of
business, brand names and logos is essential and should be
considered even if a business has yet to enter the Chinese
market.
Famous or well-known marks owned by non-Chinese companies have
been accorded specific protection in China. However, whether a
foreign mark is deemed to be well-known varies from province to
province.
Conducting comprehensive searches of existing trade marks is
also advisable prior to entering the market. If someone has made a
prior registration for a business' mark, or a similar mark, it may
be easier and less expensive to negotiate the sale of that trade
mark.
A further reason to register early is to prevent extensive use
of a brand which, despite being unauthorised, may result in the
brand name being considered generic and therefore incapable of
registration.
2. Territorial registration
As with other jurisdictions, trade marks in China are
territorial and in order to gain registered protection, a company
must apply for trade mark rights in China. Separate registrations
are required for trade mark protection in Hong Kong, Macau and
Taiwan.
A registered trade mark can be valuable evidence to prove that
third party goods are infringing your brand. Registered trade marks
assist customs officials as they provide evidence of brand
ownership and thereby enable infringing goods to be seized by
customs as they leave Chinese ports – a powerful tool in the fight
against counterfeit goods.
3. Register trade marks in English and Chinese
It is advisable to develop a Chinese language mark in China. The
Starbucks/Xingbake case highlights the importance of registering
both the English name and the equivalent Chinese symbols as trade
marks in order to avoid wasting time and money on litigation
proceedings.
Most of the Chinese population can only speak and write in
Chinese and may find it difficult to pronounce or recognise
non-Chinese marks. Often Chinese consumers will develop their own
version of a foreign mark, which may not be flattering to the
product or the company's marketing image.
Taking local legal advice can prove invaluable in this respect,
as Chinese speaking lawyers can convert a foreign word mark into
Chinese either through the 'transliteration' or 'phonetic' method
or through the 'conceptual' method which is based on the inherent
meaning of the foreign word mark.
4. Mitigate risks through vigilance
One of the keys for protecting a brand in China is to be on the
alert for instances of brand infringement. Smaller businesses might
check once a month for cybersquatters; larger ones might employ a
brand monitoring team or use a third party service to monitor trade
mark and domain name registrations and scour the internet for
unauthorised brand usage.
Monitoring does not have to involve huge expense. Online access
to national trade mark registries is free, as are various internet
tools that complement search engines in helping to identify
cybersquatters or other brand transgressors promptly.
5. Educate employees
Awareness of brand value and its infringement among Chinese
people remains quite low. If a business uses a Chinese workforce,
the value of IP protection should be explained to employees. The
workforce should recognise the brand as a valuable business asset
that is worthy of protection.
6. Consider the applicable jurisdiction in disputes
If you are providing licences for third parties to use your
product or brand in China it is advisable to include a clause in
the licence agreement that provides for disputes to be dealt with
in an alternative jurisdiction.
Hong Kong might be the best choice: its court process is
(currently) faster and more efficient than China's. Thought also
needs to be given to in-country enforcement measures.
7. Utilise available enforcement procedures
If a brand infringement is found in China, there are efficient
means available for a business to enforce its IP rights. There are
two principal routes for enforcement: administrative and
judicial.
The administrative route will normally be the first port of call
as brand owners can enforce their rights without the need to go to
court. As such it is cheaper and quicker. If found guilty, the
infringer can be fined and any money earned from the infringement
can be seized. The disadvantage of this process is that damages are
not available for the brand owner.
The judicial route is more akin to a Western system where the
brand owner sues the infringing party in court and remedies include
damages and injunctions. Given the flexibility, speed and reduced
risk of adverse publicity, the administrative route is generally
preferred.
Acting upon infringement, rather than just accepting it, will
hopefully act as a deterrent to other potential infringers, and as
more brand owners use China's legal system to enforce their rights,
the more streamlined and effective it will become. China has
recently announced its intention to expand and co-ordinate the IP
tribunal system, particularly outside the main centres of Shanghai
and Beijing, and this will only serve to benefit brand owners
further as they seek to enforce their rights in China.
Conclusion
The main issue for foreign businesses is that, despite its
complexities, China presents a multitude of market opportunities.
Its sheer size coupled with an economy that is continuing to grow,
notwithstanding current global economic conditions, means that it
would be imprudent to ignore China altogether.
For brand protection in China, a pro-active approach is
essential. Despite the challenges to doing business in China, with
research and careful preparation it is possible to lay effective
foundations for a business' intellectual property – foundations
that will protect IP rights as well as allow for their effective
exploitation in an expanding Chinese market.
This article was written by Alison Ross, an intellectual
property lawyer in the Hong Kong office of Pinsent Masons, the law
firm behind OUT-LAW.COM.
Contact: Alison.Ross@pinsentmasons.com.
This article first appeared in Admap
Magazine.
