While passing off is on the rise in China, legal instruments are available to guard against it. A coordinated strategy should use different IP laws to provide comprehensive protection

The way that products are packaged plays an increasingly important role in today’s marketing landscape. A walk down the aisles of any retail store confirms this: original shapes, special colour combinations, bright logos and inventive labels all illustrate the importance that marketers place on the aesthetic appeal of packaging. The aim is to create a strong visual impact to attract potential buyers and lure them away from competing products.

As a consequence, packaging has become a valuable asset for brand owners, both because of the role it plays in product recognition and because of the creativity and substantial financial investment required to develop a unique and distinctive container that will help promote market recognition.

The rise of passing off

Passing off is becoming more common around the world and China is no exception. With a growing middle class and more affluent consumers willing to pay for quality and product integrity, Chinese consumers have developed stronger brand awareness, resulting in increased brand loyalty. At the same time, more and more products – both foreign and local – are entering the market, resulting in more and more purchasing options. The way that companies package their goods can play a crucial part in the purchasing process and in some sectors has become critical to success.

As a result, however, packaging is increasingly being copied by Chinese competitors in a wide variety of sectors, from food and beverages to cosmetics and oil lubricants. This phenomenon is apparent in the growth of blatant copies where brand owners’ rights are clearly infringed, as well as in less obvious forms of copying, where original products are subtly called to mind in a way that still takes unfair advantage of the distinctive character of the original packaging and the reputation of the original goods.

In the West, some sectors are all too familiar with the phenomenon of passing off. Owners of strong and successful brands in the food and beverage sector, for example, have long had to deal with subtle forms of copying by low-cost retailers, which commercialise competing products under their own brands, but with packaging that clearly refers to the original product. By doing this, retailers indirectly communicate comparability with the original product and free ride on the original goods’ reputation to benefit from their power of attraction.

The same thing is now happening in China, forcing brand owners to respond if they do not want to lose market share to poor copies of their products wrapped in clever copies of their packaging.

The good news is that packaging can be protected in China. However, this requires careful planning and the implementation of a well-thought-out strategy. This article examines what the Chinese legal landscape has to offer in this regard. As we shall see, a coordinated strategy incorporating a combination of different IP laws can result in comprehensive protection through the creation of a bundle of IP rights that Chinese courts are increasingly willing to enforce.

Coordinated strategy to create bundles of rights

A variety of laws can be used to protect packaging: the Trademark Law, the Patent Law, the Copyright Law and the Anti-unfair Competition Law can all play a part, each serving different goals. Trademarks protect the origin of the packaged goods, design patents the external aspect of packaging and copyright the interests of the authors in their works, while both invention patents and utility models can be used to protect a container’s technical features. Finally, the Anti-unfair Competition Law can be invoked to protect the overall appearance when packaging is clearly perceived by consumers as identifying a product’s origin.

It is therefore crucial that rights holders understand what elements of packaging can be protected and how to achieve this. Some features need timely registration, while others require continuous use, intense promotion and substantial investment.

Protecting packaging through trademark law

A registered trademark is the first form of protection that comes to mind when considering packaging protection. The most common marks – such as logos and brands in Latin or Chinese characters – can be registered under the Trademark Law. In addition, rights holders can apply to register non-traditional marks such as slogans, three- dimensional (3D) signs (eg, the shape of packaging) and colour combinations (although not single colours, as confirmed by the new Trademark Law of August 30 2013 – even though this was expected by many). Combinations of some of these elements can also be registered.

Trademark law thus offers a broad scope of protection, since almost any sign capable of distinguishing the goods of one provider from those of others can be registered and protection granted to  the most distinctive elements of packaging. The protection afforded by trademark law can be perpetual (the initial 10-year term can be renewed indefinitely for further 10-year periods), and no conditions of novelty and creativity need be met (as is the case for design patents).

However, distinctiveness may be difficult to prove for non- traditional marks and such applications are examined very strictly by the Chinese Trademark Office. Proving that these signs are capable of serving as an indicator of origin – either inherently or through extensive and long-term use (acquired distinctiveness) – remains a challenge. Hence, registration has been granted only to a select few 3D marks. The same applies for colour combination marks, where applicants must usually prove acquired distinctiveness with evidence of extensive and long-term use.

Even though these signs remain difficult to register, recent court decisions suggest a growing willingness to protect packaging-related trademarks, including 3D marks covering the shapes of bottles of alcoholic beverages. On October 8 2013 the Fuzhou Intermediate People’s Court decided in Hennessy v A-shali that trademark rights in the shape of the Hennessy VSOP Cognac bottle had been infringed by a local import company. The court held – on the basis of the 3D trademark application materials (although the notoriety of the HENNESSY and corresponding XUAN NI SHI word marks helped in that regard) – that Hennessy had widely used, advertised and promoted its 3D bottle mark, and that due to the high similarity of the shapes at stake, Hennessy’s mark had been infringed.

Regarding colour (combination) trademarks, John Deere successfully enforced its yellow and green trademark, which was registered for agricultural machines, against Chinese competitors selling harvesters with green bodies and yellow rims. In its decision of December 24 2013 the Beijing Number 2 Intermediate People’s Court found that infringement had taken place, referring to the trademark application materials, which illustrated the colour combination arrangement that the defendants had reproduced on their own machines (green for the machine body and yellow for  the rims). Damages were awarded (around €55,000), although the decision is now under appeal. It remains to be seen whether the higher court will confirm the infringement.

Registering and enforcing less conventional signs is thus possible and can be critical to protect packaging in China. However, it remains a difficult exercise, which largely depends on the renown of the signs and related products at stake. Therefore, rights holders should carefully document the use of their trademarks in China  and collect information pertaining to market share, sales volumes, the importance and scale of marketing and promotional campaigns and any other facts that might help establish the renown of their brands. This can considerably improve their chances of successfully registering and enforcing such marks and benefiting from their investments, as well as from the substantial growth of brand awareness in the Chinese market.

Protecting packaging through patent law

Chinese patent law recognises three types of patent, all of which can be used to protect packaging.

Invention patents and utility models

These can be used to protect the technical features of packaging. For example, a new and inventive cap for a salt container incorporating a special spout could be protected, provided that the patentability requirements are met (ie, novelty, inventiveness and industrial applicability).

Design patents

These can be used to protect the visual characteristics of packaging, such as shapes or other visible attributes (eg, patterns or colours) or a combination thereof. To enjoy protection in China, designs must be new compared to previous designs (ie, not identical) and meet the creativity requirement (ie, they must be substantially different from prior designs or a combination of features of prior designs). Registration is relatively inexpensive and straightforward (there is no substantive examination of patentability, unless the examiner has good reason to believe that the design lacks novelty), and can be completed within six to 12 months. Once granted, the term of protection is 10 years from the filing date (its European counterpart, the Community design, enjoys protection for up to 25 years).

Chinese law prohibits the registration of two-dimensional (2D) design patents that mainly serve as indicators of origin. However, a pattern that helps consumers to distinguish the goods while also having a strong ornamental effect is patentable. Therefore, packaging containing trademarks can be registered as a design patent, provided that it cannot be considered to be mainly an indicator of origin.

The novelty of designs must be absolute, and the use or publication of a design anywhere in the world will destroy its patentability in China. As a consequence, it is imperative to plan ahead and take this into account from the beginning of the filing strategy. This is underlined by the absence of a grace period in the Chinese design patent regime (China has only a limited six-month grace period for statutory defined non-prejudicial disclosures), and differs from the registered Community design regime, where an application can be validly filed within a 12-month period starting from the first marketing of the product.

As such, 2D (patterns) and 3D (shapes, or shapes and patterns) elements of packaging may thus be protected by Chinese design patents. In a March 25 2013 decision, Beauty Cosmetics v Mr Niu, the Shanghai Number 2 Intermediate Court found that containers of facial masks were similar to a patented design owned by Beauty Cosmetics. After assessing the overall visual effects of the packaging at stake, the court decided that the front view of the packaging (ie, that presented to potential consumers) bore a high similarity to that of the design patented package and fell within its scope. The court concluded that the design patent had been infringed and granted injunctive relief and (limited) damages.

This case confirms that Chinese design patents can be a useful addition to trademarks when it comes to protecting packaging. Since protection for 3D trademarks can be difficult to obtain, a workable strategy can register the 3D packaging shape as a design patent (which is easy, quick and cheap) first in order to obtain exclusive rights for 10 years, during which trademark distinctiveness can be acquired. If successful, this allows the rights holder to obtain exclusive rights from the start, followed by potential perpetual protection once trademark rights take over upon the expiration of the design right.

Protecting packaging through copyright law

Copyright is an interesting tool for protecting exclusive rights in packaging. The object of protection is broad and can cover several features, such as drawings, photographs, original shapes, logos, labels, ornamental features or works of applied art or fine art (ie,  2 or 3D visual works that communicate a certain aesthetic effect). The term of protection is lengthy (generally 50 years from the date of creation), confusion need not be demonstrated to prove infringement and protection is automatic and not limited by territory. Indeed, as China is a signatory to the Berne Convention, any original feature of packaging will be protected upon its creation, even if it is created outside China.

China has established a voluntary registration mechanism through the National Copyright Administration, which grants prima facie evidence of ownership and the date of creation. A registration certificate is required by courts or administrative agencies if they are asked to enforce copyright, so registration is recommended and proactivity is a prerequisite.

Copyright protection for packaging delivers results, as evidenced by a January 18 2011 decision of the Nanning Qingqiu District People’s Court. The court decided that the copyright covering moon cake packaging owned by Wise-plan Co Ltd – a company specialising in the creation of food packaging – was infringed by Wharton Restaurant Co Ltd (to which Wise-plan had sent some samples). Wharton had commercialised moon cakes wrapped in similar containers and was sued for copyright infringement. After carefully analysing both the similarities and differences, the court found that many similar elements were present in the packaging of both products, and that the few differences were minor and  not discernable to a normal observer. Hence, the packaging was considered substantially similar and Wise-plan’s copyright was found to have been infringed. Injunctive relief and monetary damages were awarded.

Protecting packaging through the Anti-unfair Competition Law

The Chinese regulations on unfair competition define ‘packaging’ as “an auxiliary object or a container for a commodity making the commodity easy to identify, carried about, stored and transported”. The fact that the identification function is specified is significant.

The Anti-unfair Competition Law can be invoked to protect the appearance of the packaging taken as a whole (trade dress). Article 5.2 expressly forbids the use of packaging that is identical or similar to the packaging of a well-known product, if the similarity will create confusion or cause consumers to mistake the source or make a wrongful association with the well-known product.

According to the Supreme People’s Court in Case 16/2010, protection will be granted only when proof is given that the packaging’s appearance has distinctive features, a reputation of its                                                     own and acquired distinctiveness through market use with evidence of secondary meaning. The packaging must thus be clearly perceived as identifying the source of the product (mere reputation of the product is insufficient), and trade dress protection will be available only after intensive use, extensive advertising and market success.

In its December 15 2011 decision in Sunstone v Shengde – which involved two local pharmaceutical companies using similar boxes to commercialise a specific children’s medicine – the Guizhou Higher People’s Court held that Shengde’s imitation of the original box constituted an act of unfair competition and violated Article 5.2 of the Anti-unfair Competition Law. The court held that the original product was famous and that Sunstone’s box was unique due to its distinguishing characteristics (ie, yellow background, a well-known word mark, a representation of six dolls in Chinese traditional clothing and a distinctive selection and combination of all these elements). Confusion would arise when consumers encountered both boxes because of their configurations, arrangements, colour schemes and similar distinctive features. Hence, the defendant’s box violated Article 5.2.

Another provision of the law can play a role in protecting packaging when the confusion requirement is difficult to prove. Article 2 prohibits activities by business operators that damage others’ legal rights and interests, disturb the socio-economic order and violate the law’s provisions. In view of the intrinsic value of packaging and the substantial financial investment required to develop unique and distinctive packaging – as well as to advertise sufficiently for the packaging to enjoy market recognition – it may be argued that copying the overall appearance of packaging violates the principle embodied in Article 2 if the copier unfairly takes advantage of such investments. Though not easy to prove, the general principle embodied in this provision may therefore be invoked.

Long-term, multi-step strategies

While different laws can be used in combination to create a bundle  of rights that can effectively protect the way that goods are packaged in China, careful planning and a sound understanding of the Chinese legal landscape are crucial. The specific grounds to invoke will depend on what feature is copied (eg, the shape of the packaging, overall appearance, unique composition, label, logo, word mark or technical feature) – all have different requirements to secure protection and establish infringement.

The definition of such a strategy requires involving a variety of talents and will include the legal team, as well as the marketing and creative teams responsible for designing the packaging. Rebranding might be necessary to adapt to the local market, but a packaging redesign might also be required to meet the Chinese protection criteria (eg, adding specific logos or distinctive features, or redesigning the shape to meet the design patentability requirements).

It is recommended that all documents related to the creation of the packaging be kept for evidence purposes (eg, the design agreement, the designer’s explanation of the creative process, initial sketches, draft versions and other records), as well as evidence of first use or disclosure (eg, printing agreement, first advertisement  or first invoice). In addition, during the whole Chinese lifecycle of the product, detailed records should be kept of advertising, sales volumes, market share and use of the related IP rights, as evidence of reputation may be critical to secure registration and enforcement (generally, this helps in all enforcement efforts).

Of course, many challenges remain, including the sophistication of copied packaging. While the cost of securing protection may discourage smaller players, results can be achieved in China for limited expense. Registering the most distinctive trademarks, recording copyright in part or in the overall packaging and registering a new container shape as a design patent can all lead to positive outcomes for a reasonable price. Such a portfolio can then be supplemented later, if this is deemed worthwhile from a business perspective. WTR

This article first appeared in World Trademark Review. For further information please visit www.worldtrademarkreview.com

Valentin de le Court