Intellectual property in China - what do businesses need to know?

Azhar Sadique from patent and trademark attorneys Keltie provides some valuable guidelines for anyone doing business in China.

The protection of intellectual property in China is probably the hottest topic for anyone doing business in China at the moment, whether this is in the form of distribution or manufacturing.

There are many ‘scare stories’ about business in China that make companies hesitant about doing any business there.

• Should I worry about protecting my IP in China?
• I can’t do anything to stop infringing parties anyway so what’s the point?
• I don’t plan on selling to the Chinese market or doing any business there.

Problems with IP in China are not only faced by UK/EU companies doing business there. Chinese counterfeiters and pirates export to UK/EU markets, they may sell or provide services under your trade mark to your own customers, they may be selling or providing services under your mark in China and may even operate at trade shows under your mark.

There are many instances in which the true owners of trade marks have had to deal with baffling complaints from countries in which they have no presence. The owners then find that Chinese counterfeiters have been distributing inferior quality products in countries where they had not even started doing business. This can be very harmful to the future progression of a brand, particularly if global expansion forms part of the long term business plan.

Does it affect me?

As China is the largest single source of seizures of infringing products by EU customs, counterfeiting and piracy can affect any company. The online presence of mirror sites is also becoming more common. As an example, the market value of counterfeit goods in China is between £12 – £15 billion (International Anti-Counterfeiting Coalition (IACC). Given the speed in which Chinese companies act in obtaining up and coming brands and put them to use, it can have a substantially detrimental effect on your market share, loss of reputation and loss of revenue.

When should I consider protection?

If the answer to any of the questions below is yes, then you should be considering trade mark protection in China.

• Do you plan to market in China?
• Do you plan to serve other markets?
• Do you plan to manufacture in China?
• Do you plan to purchase supplies in China?
• Do you attend large international trade shows? Would you be surprised if a Chinese company set up as your company at a trade show and negotiated distribution agreements in countries in which you currently do not have a presence? (it has happened)
• Is it important to have complete control over the IP of your business?

Trade Mark Filings

China is the most active trade mark office in the world, with over 600,000 trade mark applications per year. Whilst there are provisions for the protection of well-known marks in China (ie globally recognised brands), China is a first to file country and so having a reputation is not always a guarantee that you can stop someone from registering your trade marks.

When considering trade mark protection in China, the following points can be used as a checklist.

• Conduct a search to see if someone else has registered the mark.
• File all elements that appear in your mark separately. This affords the broadest rights.
• Register the mark in English and Chinese. A Chinese registration is very useful as this is how the brand will be known to Chinese consumers.
• Register company names and the basic domain names if required.
• Be prepared for an onslaught of opportunistic emails offering you every Chinese domain available for your trade mark.

If you don’t register, someone else will.

It may come as a bit of a surprise that few British companies actually own Chinese trade marks. For example, Dixons, Sainsbury’s, John Lewis and Waitrose are not owned by the UK owners.

There are now many big Chinese companies that register the trade marks of foreign brands in the hope that they will enter the Chinese market. This practice is known as trade mark squatting. When the unlucky company does enter China and when that company realises the mark has already been registered, they are then in the difficult position of having to buy back the name for a very high fee or take a fight to the opportunistic owner. Winning back a trade mark if it is registered by someone else is very difficult and companies end up simply paying to regain the rights. It is therefore vital to consider protection in China at the very earliest stage.

Enforcement

If you do have an earlier right in China, or a substantial reputation right, there are options available to you in taking action. It is also becoming easier to enforce rights as the Chinese trade mark office is developing its capacity to handle such complaints. For example. 55,000 infringement cases were filed at the Chinese trade mark office last year. In addition to civil enforcement at the trade mark office there are also other options available such as:

• Administrative Enforcement – this is a cheap option where a local enforcement agency in China conduct investigations into the actions of suspected infringers and have the authority to conduct raids, cease goods and issue fines.
• Criminal prosecution – complaints via the Police can be slow and depend on the area of infringement. However, the larger exporting cities have the capacity to handle such complaints.
• Customs applications – these are a very useful tool to control exports from China and is a method of preventing infringing products entering the markets of interest to you. Here, an application is lodged at a particularly customs authority, ie Guangzhou in China or UK Customs with details of the IP rights owned by a particular proprietor in that territory. This may also include details of how to identify genuine goods or lists of authorised manufacturers. If the Customs Officers find anything which suggests the goods are counterfeit or if they have been shipped via an unknown source, they will inform the trade mark owner who can then take action against the shipment.

Ultimately, if China features in any future plans of brand owners, either as a potential market or for manufacturing purposes, it is important to consider obtaining trade mark and copyright protection at the earliest possible stage.

Keltie is a partnership of patent and trade mark attorneys based in the City of London.