Out-Law News | 20 Mar 2009 | 12:42 pm | 7 min. read
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.
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.
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.
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:
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.
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.
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.
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.
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.
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.
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.
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: [email protected].
This article first appeared in Admap Magazine.