Whereas great opportunities exist for retailers selling into China, there remain several difficulties in the protection of intellectual property rights.
Once again the spotlight is on China’s approach to the protection of intellectual property (IP) rights. In August 2017, the Trump administration authorised an inquiry into whether the laws and practices of China that require joint venture foreign partners to transfer technology are unfair. To this inquiry, the American Apparel & Footwear Association has submitted that the sale of counterfeit goods on Chinese websites is widespread and that frequently parasite marks that imitate well known foreign brands are allowed by the Chinese Trade Marks Office (the CTMO).
There are many instances supporting an assumption that China is not doing enough to protect the IP of foreign businesses. For example, in 2006 Louis Vuitton failed in an attempt to cancel a Chinese design patent which closely resembled its iconic LV style. In addition, the patentee had also successfully registered as marks LOUYIVEITEN and 路易威登 (LOUYIVEITEN in Chinese).
Another example involved Hermès, which early doors had registered in China its name and logo — but not the Chinese characters for its name. In 1995 a garment company filed for these characters but the attempt by Hermès to invalidate this registration was rejected by the CTMO. In consequence, Hermès abandoned the dispute and opted to register the Chinese characters for another homophonic transliteration of its name.
Nevertheless, despite such frustrations, it needs to be remembered that only in the 1980s did China join the global IP legal system, which by then had already been in existence for over a century. China has made great strides since then both in substantive law and procedures.
The USA sportswear brand UNDER ARMOUR has been a beneficiary of these legal developments. Launched as recently as 2010 and growing mainly through local retail partners, its annual sales in China now gross over US$200 million. This rapid growth attracted imitators - most notably Tingfeilong, a Chinese sportswear manufacturer that in 2016 launched UNCLE MARTIAN with a colour scheme, device, image and marketing style that blatantly ripped off both the UNDER ARMOUR brand and its store experience (see below).
Very rapidly in June 2017 the Fujian courts issued an injunction requiring Tingfeilong to cease use of the disputed mark and destroy all products which bore such. In addition, the defendant was ordered to pay US$250,000 by way of compensation.
Some pointers for establishing an IP counter infringement and protection strategy are:
- Register early. China offers little protection for unregistered rights and regrettably, it is still the case that applications for brands filed by squatters who clearly are not entitled to them are too often accepted by the CTMO. In the absence of registration, it remains difficult to oppose such mimic applications. Even if there is no immediate intention to sell or manufacture in China, it is generally worthwhile trying to secure registrations as a defensive measure to prevent or block any conflicting applications. Trade mark registrations are not vulnerable to non-use cancellation provisions until after three years.
- Do not focus solely on trade marks. Adopt a full spectrum filing policy seeking out opportunities for other rights such as: design patents for the aesthetic features of products; invention patents; and utility models, a relatively inexpensive quasi patent right covering less inventive technical contributions.
- Engage with local AICs. In parallel with the court system, spread across China there are over 3,000 administrative and industrial councils that have the power to seize infringements. Forming good relations with the AICs in those areas where the foreign owner operates and/or infringers are based can counter any tendency towards local favouritism and provide an additional weapon in the IP owner’s arsenal.
- File national applications. Although China is a member of the Madrid Protocol international filing system, experience suggests that the CTMO and courts prefer to handle only national registrations.
- Choose the right Chinese name. The foreign company should ensure that it registers the Latin and Chinese versions of all names by which their brands and products are colloquially known in China.
- Gather evidence correctly. All evidence to be used in proceedings must be in Chinese and correctly notarized.
- Contracts. Often disputes arise with former partners or manufacturers. As such, the Chinese version of the contract – the only version which will concern the PRC courts – must be a faithful representation of what was agreed. Moreover, the contracts should contain arbitration clauses that are enforceable in China as the PRC has few, if any, reciprocal arrangements with other jurisdictions.
Retailers should not simply graft onto China business models and products from elsewhere. China is a populous, diffuse country with huge disparities between its higher tier cities and lower tier cities in terms of personal wealth, infrastructure and personal disposable income. IKEA succeeded in China by eschewing premium products and concentrating instead on reaching as many people as possible with good quality products.
In contrast, in 2014 Best Buy pulled out of China having found that Chinese consumers were only interested in a bargain and were not prepared to pay higher prices for warranties and in store specialist advice. As Kal Patel, the former Asian head for Best Buy, commented “… You have to work at the pace of the Chinese consumer…”.