Chinese counterfeit products now account for two-thirds of goods seized by US and UK customs. And China remains the largest manufacturer and exporter of counterfeit products worldwide. It’s a no-brainer, therefore, to say that the China market presents one of the most challenging environments for brand owners.
| Many factories are fly by night operations
that are hard to prosecute.
In general, trademark laws in China are similar to other countries, requiring registration and renewal, according to a number of legal experts. The danger is that a trademark applicant can be anyone who files for registration first. This obviously creates problems for companies that may have long use and a significant reputation outside China, but have yet to enter the China market. The current law has enabled some famous trademarks to be first registered in China by a third party, requiring the real trademark owner to then buy back the Chinese trademark or go through costly lawsuits. A version of this “hijacking” scenario played out when Apple Inc. paid US$60 million in 2012 to a company that had a pre-existing registration for the name “iPad.” What this means is that foreign companies need to file applications as soon as feasible, regardless of whether they have started trading in China.Experts say that the best way to enforce Chinese laws against counterfeits is to ensure you posses registered intellectual property (IP) rights through trademarks, patents, or copyrights. In cases of infringement, you then need to choose the right legal tools for enforcing them.
Similarly, patent protection requires registration and lasts for a maximum of 20 years. Like trademarks, patents operate strictly on a first-come-first-served basis. And since the scope of protection depends on the drafting of the patent specifications, foreign companies need to prepare the most accurate translation, as the Chinese patent registry only accepts Chinese language specifications.
Copyright, on the other hand, is automatic and does not require registration to be enforced. But since Chinese law offers registration, it has become common practice to register copyright-protected works to facilitate enforcement. For example, logos, stylized words, and artistic work, including patterns (e.g., Burberry’s tartans), can and should be registered. Copyright registration is a useful alternative to trademark protection and can also be used as evidence in infringement cases. Experts say that no fashion brand thinking about the Chinese market should do so without registering its copyright.
One piece of good news is that last August China passed a series of amendments to its IP laws that will go into effect on May 1 this year. While their effect remains to be seen, experts say the changes are a mark of progress. Some of the highlights include: allowing one application to cover different classes of goods, rather than having to file separate applications; increased electronic filing; erecting obstacles against “hijacking” or malicious registrations; and stricter fines for infringements.
But not everyone is convinced the amendments will change much. A former White House IP enforcement official remained skeptical that the new statutes would translate into real results. Others voice the concern that, while there are new laws on the books, the main problem lies in enforcement by the courts and China’s administrative agencies. They see the changes as positive, but regard them as small and incremental.
| The jury is out on whether the
May 1 amendments to China’s
IP laws will have teeth.
If enforcement is therefore going to be key to the success of the new amendments, foreign companies facing brand infringement will need to decide which enforcement tools to employ. Under China’s dual system, IP rights can be enforced before a civil court or a specialized administrative organ. Damages can only be claimed before a civil court. But using civil court procedures also gives time for the counterfeiters to disappear, since their operations are normally underground with few real assets. This is why counterfeit trademarks are normally enforced through administrative raids rather than civil judicial process. Administrative organs also have the power to order destruction of counterfeit manufacturing tools. Criminal law can also be used, but this requires the target be a large facility and that statutory thresholds be met in terms of quantity and illegal revenue.
A final piece of advice is to prepare early, even before you have decided to enter the Chinese market. Typical trademark applications in China take 4-5 times longer than in advanced countries, and care should be taken in translating your marketing materials and your brand name. This is important because if the Chinese name lacks “distinctiveness,” it can easily be rejected, as many foreign companies have learned.