By Glenn Baker.
For a country the size of China, it’s often staggering how quickly things can change once central Government decides to deal with an issue.
For many years, IP, trademark and patent infringements were almost the norm; but a major shake-up in trademark legislation in 2014, aimed at shortening the time for obtaining trademark rights and recognising differing forms of offences, such as contributory infringement (where others assist or facilitate the production of infringing goods), has forever changed China’s IP culture.
Johnathan Chen, head of division-Asia at James & Wells, summed up the new regime nicely in a recent client case study.
The locally-based client was about to enter a partnership with a large Chinese company, and asked Chen to sort out their IP portfolio.
“The Chinese company actually requested the information, and would only proceed if they could see this,” he says. “In this particular instance, the New Zealand company was significantly underprepared and realised how little they knew about IP compared to their Chinese counterparts – which made them somewhat embarrassed and in a weaker position throughout the negotiation process.”
With new laws and greater emphasis on IP, Chen is seeing a lot more Chinese companies becoming wary of the importance of IP. “Ironically to the point where it is almost overdone,” he says. “It means Kiwi companies that want to do business with China, especially with well reputed companies, need to be prepared to answer hard questions around whether they have certain IP rights and/or freedom to operate certain products in the respective markets.”
So, what are some of the emerging trends within China’s new, improved IP landscape?
Sue Ironside, a partner at Baldwins specialising in trademarks, is seeing more companies looking to seek protection for the Chinese character equivalent on their trade marks. “More emphasis is also placed on getting into China first and seeking protection early – especially before distributors try to do this,” she says.
“It is becoming increasingly important to file defensively in China and include items from all the sub-classes within a class in order to prevent third parties from filing for similar or identical trademarks in the same class.
“As China is a first-to-file country, it’s also important to file for all variations of a trademark to ensure that logo elements, stylisations and Chinese character versions are protected.”
The availability and use of registered copyright protection is a relatively recent legislative development in China, and is a new registered right available for IP rights owners, says Ironside. “Copyright registrations can be obtained for creative works, such as photographs or art works, as well as software programs. Copyright in China subsists for life, plus 50 years, for most works created by individual authors, and 50 years from first publication for film, photographs and works created by companies,” she adds.
“Finally, we’re also seeing an increase in companies opting to undertake clearance searches before commencing use of brands in China, even where trademarks are being affixed for export from China. This is in part due to border protection measures tightening up – or at least a perception that they are!
“Searching of the register for similar marks prior to filing, enables steps to be taken prior to filing an application to save on costs and ensure that an application will not be refused and/or require re-filing,” explains Ironside. “Likewise, ensuring that trademark owners in China are using their trademarks to avoid non-use cancellation actions in the event their marks are cited against someone else’s applications, is equally important.”
The new order
With the large amount of IP being created in China by Chinese companies, an increasing number of New Zealand companies are running into IP infringement situations.
Anton Blijlevens, a partner at AJ Park and head of its China desk, says China was an IP desert 15 plus years ago, but now receives the most number of patent and trademark filings in the world.
“Infringement risks go up hand in hand with the number of IP registrations,” he explains. “New Zealand ranks at about number 20 in the world as to where companies file patents. Australia ranks number ten; China, US, Europe rank one, two and three respectively.
“With 100 times more patents in existence in the US, the IP risks are hypothetically 100 times greater. Double that for China.”
Chinese IP owners are not afraid to litigate, so don’t believe that it doesn’t or won’t happen, says Blijlevens. He also likes to remind people that Chinese consumers are patriotic. “Like Kiwis they like to support Chinese industry and prefer to buy ‘Made in China’. The Chinese consumer is also getting wealthier and if they don’t trust the quality of China-made product, they can now afford to buy foreign product.
“However, China’s producers are realising this and vast improvements in product quality are being seen from manufacturers across multiple categories. A case in point is Xiaomi, the Chinese mobile phone manufacturer which is now the world’s largest.
“For some foreign brands wanting to make it in the China market it may be now or never – or too late – to have the ‘quality’ competitive advantage.”
Blijlevens thinks there are two myths around IP in China that need to be shattered once and for all. The first is that China does not respect IP rights.
“IP enforcement in the main centres is better than in much of the rest of the world,” he says. “IP enforcement can also be a lot cheaper than in New Zealand.”
The second myth is that it’s expensive to protect your IP in China.
“It’s about the same as in the US and elsewhere. With a rapidly growing consumer market the cost of protection per consumer capita is coming down rapidly.”
A heads up from the experts
No strategy, no due diligence, and diving in with a ‘she’ll be right’ attitude costs Kiwi exporters big-time, believes Johnathan Chen. And that applies to any overseas market.
He says it’s typical for an exporter to come up with an export brand (with a view of exporting to China, or other markets), because the local market is so small.
“But it is not so typical for them to check whether the brand can be used in those countries.
“I’ve recently dealt with a brand owner who chose a brand; then spent a lot of resource developing the marketing collateral and packaging, etc, for that brand – only to discover that there is already an existing identical brand in China. Not only can they not register their trademark in China, they cannot actually sell their branded products there as it would be considered IP infringement.
“The exporter is in the process of rebranding at the moment, which means previous money spent goes down the drain, and costs are doubled.
“All they had to do was check whether their brand is likely to be registered in the respective markets they were targeting.”
Chen’s advice is to use your IP as a marketing tool. “With the government pushing the idea of IP in China, consumers and distributors now only want to touch products that come from brand owners – especially if it’s premium products.
“Having IP registration is a great marketing tool to show consumers that they can be confident in your products – which generates more sales.”
Sue Ironside at Baldwins highlights another emerging issue in the China market – and that’s the ability, or inability, to correctly classify services there.
“For example, trying to protect services for providing food and drink isn’t possible in China, yet protecting advertising of a product is possible. As an example, the generic terms of ‘wholesale and distribution of xxx’ have not been accepted. However, terms such as ‘Presentation of xxx on communication media, for retail purposes; sales promotion for others in respect of xxx; organisation of exhibitions for commercial or advertising purposes; advertising’ is acceptable.”
Exporters need to discuss their specifications carefully with an agent to ensure they can be accepted, she says.
There is an increasingly regimented approach by the CTMO (China Trademark Office) to specifications in requiring the use of standard descriptions, adds Ironside, and exporters should seek assistance from reputable attorneys familiar with the CTMO practice well prior to filing any trademark applications.
“The specifications of goods need to be carefully crafted to comply with CTMO requirements. This will help minimise the number of objections raised by the CTMO, as each objection is a cost to the exporter.
Ironside points out that the unauthorised use of trademarks in social media and the Internet generally is another issue for exporters to deal with when trading with China.
“Taobao, AliExpress and other Chinese trading websites still have a woeful approach to IP infringement,” she says. “We are aware of instances of TaoBao refusing to recognise utility models or registered designs and take appropriate action to take down infringements.
“Exporters should therefore ensure they have sufficient protection for all aspects of their valuable IP in China, including trademark and copyright protection, rather than relying on a single right of action.”
Things will get even better
Clearly China has made significant progress in its management of IP. AJ Park’s Anton Blijlevens believes it will be world class, and that IP registration already is.
“Enforcement is world class in some parts of the country, but not yet consistent across the country. This will improve,” he says.
“The biggest impact I believe, is that Chinese companies will increase their IP footprint worldwide. Now, most Chinese IP owners are only filing in China. But many are exporting and realise that IP protection abroad is
vital to business success.”
Johnathan Chen agrees that with increased recognition of the importance of IP, companies and individuals in China are now very keen to establish new ideas and new IP.
“I’m seeing a wave of companies and capital coming out of China, looking for IP and collaboration opportunities with companies with valuable IP in New Zealand, in combination with their existing market and distribution channels. A few funds have been set up looking specifically for these type of projects, which we are actively working together with.
“So these are exciting times for New Zealand companies, providing that they have everything in order.”