Understanding how trademark protection works in China is vital to prevent damage to your corporate reputation and brand. The country’s intellectual property (IP) rights are notoriously difficult to navigate, and the incredible scope of China’s IP violations are well known around the world.

The International AntiCounterfeiting Coalition (IACC) identified China as the “global hub of counterfeiting” in its 2016 Special 301 Review. Customs seizure statistics in the United States and the European Union have consistently identified China as the primary source of counterfeit and pirated goods intercepted at their respective borders. From the rampant ripping off of luxury goods to DVDs and computer software; Chinese counterfeiting reportedly costs foreign firms an estimated $20 billion a year in lost profits.

Despite this proliferation of knock-offs originating from the country, China itself ranks as the fifth most difficult jurisdiction for multinationals to stay compliant with corporate regulation and legislation. This is according to TMF Group’s Global Benchmark Complexity Index 2015. Alongside issues of trademark protection is the country’s complex structure with numerous provinces; each with separate regulatory regimes. A range of dialects also make it difficult for foreign companies to do business in China.

“A common oversight by multinationals entering the Chinese market is to assume the rights of their trademarks registered in some common law countries could also be protected in China. However, their trademarks can only be protected only if they have been registered in China itself.” says Thun Lee, Head of TMF China.

“We had one such company in the electronics industry, that experienced various challenges when they decided to establish their partner and distribution network in China. Having never manufactured or sold their products in Asia before, our client found out that an array of their electronic components with proprietary design were already available and distributed widely in the local market through non-authorised distributors, who in turn bought these components from errant Chinese manufacturers. Not only were there serious infringement considerations, our client also faced reputation and brand risk in case such counterfeits had safety concerns."

Lee adds that “Companies entering the Chinese market also frequently underestimate the complexities and costs that arise to which IP infringements are contested and enforced. Therefore, protecting all forms of intellectual property is critical when establishing operations in China, regardless of business models and market focus."

While China is a challenging jurisdiction for a multinational company looking to establish, steps are being taken to address this. Wandy Chan, Head of East China at TMF Group says “Last year, China simplified the procedure for company registrations, expatriate work visas and annual compliance to encourage investment and commercial businesses. As these rule changes take effect, we expect to see an improvement in the number of foreign investors looking to set up operations in the country.”

And companies outside China are cracking down – where they can – to protect their brands’ reputations and claw back sales, with many pursuing legal action.

Whether you want to set up in China or just streamline your Chinese operations, understanding local regulations and trademark protection can help mitigate the risk of noncompliance, and protect your corporate reputation and brand.