Intellectual propertyi Brand search
Brands of foreign franchisors would usually enjoy protection by operation of their respective trademark registrations in the relevant countries. Such registrations are generally made in the brand's original language and writing. To market products under such a brand to consumers in China, the franchisor would need to create a recognisable Chinese brand based on Chinese language characters and protect the brand locally in China. The selection of Chinese characters for each transliteration is very important as the choice of characters may flatter or detract from the brand image. To avoid future disputes, the franchisor should conduct all necessary trademark searches to ascertain that the selected Chinese name is not already being used by another entity, or if it is being used, that its use can easily be discontinued; for example, by having an intermediary purchase any existing rights on behalf of the franchisor. It is essential, as mentioned, to conduct the requisite market research to ensure that the name appeals to the Chinese general public, taking into account the visual effect of the Chinese characters in both simplified and classical format as well as its auditory effect in various major Chinese dialects. Once the franchisor determines the Chinese name under which it wishes to be officially known to the Chinese public, if it chooses to do so trademark applications to register the Chinese mark in all relevant trademark classes may be filed with the Chinese Trademark Office.
Once the franchisor has determined what marks it plans to use to identify the goods or services that are intended to be offered under the franchise, it should conduct a search of the official database of the Chinese Trademark Office to ensure that there are no records of trademark registrations or pending applications for marks identical or similar to its own in the trademark classes covering the goods or services to be offered. If there are registered trademarks or pending applications for marks similar or identical to the marks that the franchisor intends to use in the Chinese market, the franchisor will need to decide whether to try to acquire the relevant rights from the prior rights holders, or to identify alternative marks for use in the Chinese market.
The Chinese brand name may then be used for Chinese domain names and also as part of the name of any entity to be established in China. For the registration of China domain names, searches should also be conducted to determine whether the desired domain names in the relevant domains (.cn, .com.cn, .net.cn, etc.) are available. The same applies for company names, as regards company name searches with the relevant Administration of Industry and Commerce to ensure that these names are available for use as part of a company name in the jurisdictions where the franchisor intends to establish its affiliates.
If franchisors are to be allowed to use this name in China, the granting of the relevant use rights would need to be made part of the legal franchise documentation. Franchisors, however, are advised not to license the brand to the franchisee for use as part of the franchisee's company name as it will be difficult to reclaim the rights for its use in the event that the franchise relationship terminates.ii Brand protection
A franchisor that wishes to do business in the domestic Chinese market is strongly advised to register its key marks in China. The Chinese registrations can be done as part of an international application under the Madrid Convention or by filing separate applications with the Chinese Trademark Office. Although filing applications under the Madrid system is a simpler process, in-country applications filed with the Chinese Trademark Office will provide the applicant with greater flexibility as it will be able to craft its own specification of goods and services, tailored to accommodate local requirements, and to the needs of the domestic market.
China is a first-to-file jurisdiction and trademarks are protected in China upon registration with the Chinese Trademark Office in accordance with the procedures set out by relevant laws and regulations. That is to say, even though a trademark has been registered in the home country, it is not protected in China until the registration application is approved. Therefore, it is very important for foreign companies to ascertain whether its specific mark is still available in China as it makes plans to enter the Chinese market.
In respect of what can be registered as a trademark, Chinese law recognises three-dimensional symbols and combinations of colours as well as any visual sign if it can be used to distinguish the goods or service of a natural person, legal entity or any other organisation from that of others, including any word, design, letters of an alphabet, numerals, etc. Under the Trademark Law, non-visual trademarks such as sound trademarks are registrable in China.
A trademark registration is valid for 10 years, starting from the date the registration receives approval, and may be renewed for subsequent 10-year terms. Renewal applications should generally be made 12 months prior to the expiration date, although, subject to a related application, the application may still be accepted up to six months before the expiry date.
In China, trademarks are not only categorised in the international trademark classes but are further categorised into subclasses. It is possible that the Chinese Trademark Office may allow a registration for the same mark from another applicant if it covers goods or services that are not in the same subclass as the goods and services listed in the franchisor's registrations.
Therefore, as a defensive measure to prevent others from registering a certain mark for other related goods, the franchisor may also consider whether it wishes to include additional goods or services in each subclass or register its mark in other classes. As a matter of first priority, the franchisor should register any and all marks in the relevant classes of goods and services that it will be using in China or to promote its products to Chinese customers.iii Enforcement
The franchisor should monitor, whether on its own or through a designated intermediary, the domestic market on an ongoing basis so that possible problems may be addressed as they arise or as early as possible; for example, any unauthorised use of its trademarks and trade dress in China. This may entail working with law firms, investigation firms and agents as necessary to monitor use of any intellectual property (IP) of the franchisor, identify infringers and collect evidence. If the franchisor is considering sending cease-and-desist letters to infringers, it must be prepared to follow through on any threats made therein, if only to maintain its credibility as a company that is serious about protecting and enforcing its intellectual property. Pursuit of an aggressive enforcement strategy is key to discouraging potential infringers.
In addition to IP litigation in Chinese courts, companies may also file for administrative protection with the State Administration for Industry and Commerce (SAIC) or its local counterparts for trademark infringement matters. However, the SAIC's authority is limited: it can issue an order to halt the infringement, impose fines, conduct raids or seize counterfeit goods, materials or equipment, but it cannot award compensation.iv Data protection, cybercrime, social media and e-commerce
The laws and regulations relating to cybercrime, e-commerce and other internet-related activities that are applicable to general commercial transactions under Chinese law would also apply to franchising activities in China. Though there are no e-commerce provisions specifically applicable to franchising, the increasing regulatory trend to protect personal data is noteworthy. In particular, the Chinese Consumer Protection Law, amended in October 2013 and effective from 15 March 2014, newly included provisions on personal data protection with a specific focus on consumer rights; the State Council and the Ministry of Industry and Information Technology, one by one, enacted new rules between 2012 and 2013 protecting online personal data or personal data related to other means of telecommunication. The revised Chinese Consumer Protection Law came into effect in March 2014, provisions of which re-emphasised the protection of consumers' personal data, online and offline. The Cybersecurity Law, issued by the Standing Committee of the National People's Congress (SCNPC), entered into effect on 1 June 2017 and has had a profound influence on personal data protection. This new Law regulates, for the first time at national level, how information is collected, stored, transmitted, exchanged and processed. 'Operators' will bear additional security protection responsibilities, such as formulating internal security management systems, adopting technological measures to prevent computer viruses, and monitoring and recording the operational status of networks. However, whether these obligations will apply to all enterprises, or only to e-commerce companies, is not clearly stipulated.
The Chinese E-Commerce Law, effective as of 1 January 2019, is the first fundamental law addressing e-commerce in China, and it is likely to have a significant impact on prevailing e-commerce practice. The E-Commerce Law stipulates specific requirements for platform operators' liability, the protection of intellectual property rights, and data protection. Following the rules for protection of personal information mentioned above, the E-Commerce Law provides clear details about the use, collection and processing of customer information, enquiry, correction and requests. The Law also covers rules on how to disclose information about goods or services in a comprehensive, truthful and accurate manner. As regards the protection of intellectual property rights, the E-Commerce Law stipulates that the platform operator should bear joint and several liability with the online retailer if it fails to adopt necessary measures when the platform operator knows or should have known that the online retailer is infringing a third party's intellectual property rights. The platform operator should adopt appropriate measures for deleting, screening, disconnecting and ending transactions and services in cases where there is a potential intellectual property claim.v Advertising Law
The most recent amendment to the Advertising Law, issued by the Standing Committee of the National People's Congress, entered into effect on 1 September 2015, and the Interim Measures for the Administration of Internet Advertising issued by the State Administration of Industry and Commerce entered into effect on 1 September 2016. Changes introduced by these amendments included: (1) more restrictions on advertising-related matters, with explicit penalties for non-compliance; (2) claims containing superlative words or the advertising of off-limits products or services are generally restricted; (3) the use of 'technical/digital methods' to fabricate or 'improve' the real effect of the product or service in advertisements is punishable as false advertising; (4) further regulation of electronic advertising by defining internet advertising; (5) tighter regulation of endorsements; and (6) changes regarding the advertising of specific products and services. The franchisors, by making advertisements to promote their brands, are subject to the amended Advertising Law.