China: Why Protecting your Trademarks in China is a Top Priority for Doing Business - PART I

When evaluating the opportunities for doing business in China, most entrepreneurs are more or less aware of the fact that the company's intellectual property rights (IPR) will be exposed to a precarious legal environment that undergoes considerable changes to this day. One may find that the level of legal protection offered to IPR in case a dispute arises is different from - and, admittedly, in certain cases not quite on par with - the standard of one's own jurisdiction. The stories where an "innocent" western company had its trademarks infringed upon in China and consequently learned its lesson the hard way, are all too familiar in western news headlines. Hence, brand owners must consider the available legal options available to pre-emptively strengthen positions and therefore optimize the opportunity to defend IPR from would-be competitors and IPR pirates.

Trademarks inherently have a special value for both companies and consumers alike: From the company's perspective, trademarks represent the corporate identity, the achievements of continuous advertisement and marketing efforts, reputation of product and service quality in general as well as a distinction from competitors and their services and products. From the consumer's perspective, trademarks represent familiarity, and often they are a way to express one's lifestyle. However, trademarks also bear a unique function of consumer protectionism: The consumer who intentionally chooses a certain brand may do so with expectations towards the quality of the product. Trademarks promise to fulfil these expectations.

Ultimately, not only does trademark infringement cause financial losses to the owner of the trademark, but the entire reputation of a brand could be severely damaged due to the poor quality of ubiquitous and inferior counterfeits sold in China for a fraction of the genuine product's original retail price, or whenever the infringer engages in competitive business but delivers a poor level of service quality, respectively. As unbelievable as it may sound that a consumer would expect cheap counterfeits to match the original product in terms of quality, there are many examples that prove otherwise. In one case, several enraged Chinese consumers contacted the hotline of a foreign manufacturer of golf clubs to make use of "their" warranty after their product broke after just a few months of use. Unbeknownst to the consumers, however, they had in fact purchased inferior counterfeit products. It is irrelevant if this disappointment goes on account of the consumers' ignorance - the reputation of the brand suffers nonetheless, and the loser is the trademarks' owner. It goes without saying that in an even worse scenario, sub-standard fake products like food, beverages and pharmaceuticals may even be harmful to the consumer's health. Together with the economic growth, middle class Chinese consumers have developed certain expectations in terms of product quality, not to mention a level of brand consciousness which is at least on par with, if not exceeding, their Western counterparts. Consequently, protecting the image of your products and services by registering your trademarks is one of the key aspects to success in the Chinese market.

Registering your Trademarks in China

What can be done to prevent competitors and counterfeiters from illegally using your trademarks? The first step is to identify the trademarks relevant for your business activities and register them in China to secure the exclusive rights. China, as a member of the WTO, is obligated to ensure that applicable Chinese laws comply with the TRIPS agreement. Furthermore, China has signed several treaties on the international protection of IPR with the World Intellectual Property Organization (WIPO). However, trademarks registered in one member state are not recognized by another member state. In fact, China applies a 'first-to-file system': the owner of the trademark shall be the first (legal) person to file its application with the Trademark Office of the State Administration for Industry and Commerce (SAIC). Upon approval, the owner of the trademark enjoys exclusive usage rights in the respective trademark class applied for, and they can enjoin other parties from violation of their rights. In other words, only the owner of a trademark registered in China can institute administrative or legal enforcement actions against the violator.

This system has led to many cases where the 'rightful' owner of the trademark found that their trademark had already been registered by another individual or entity in China. In that case, the trademark's owner in other jurisdictions may be prevented from using this trademark in China! If you find yourself in such a scenario, you should immediately consult your lawyer to discuss whether an appeal with the Trademark Review and Adjudication Board (TRAB) can successfully reclaim your rights.

Besides the registration of the internationally used trademark, an appropriate Chinese translation should be considered and the application must be filed separately. There are basically two different approaches to this task: One possibility is to translate the meaning of the trademark (e.g., Germany's Volkswagen translates directly to the Chinese equivalent of 'Da Zhong Qi Che'), while the other is to make a phonetic transcription, preferably with a positive Chinese connotation (e.g. Coca Cola translates to 'Ke Kou Ke Le', roughly meaning "delicious and joyful"). While this procedure may be uncommon or unheard of in Western countries (as usually the same brand name in roman letters is registered as a trademark), it can help to positively influence the image of the trademark, especially when a smart and elegant translation is created to appeal to the Chinese customer. Moreover, considering that most Chinese consumers (and managers of companies, where the product or service is sold to businesses) do not speak English, it is perhaps not surprising that most foreign brands in China are known by their Chinese names - which therefore should be protected.

Conclusion

Protecting your trademarks in China can be tricky, especially where legal provisions differ from those in your own legal environment, but this does not mean that you should refrain from bringing your trademarks to China. On the contrary, branding becomes increasingly important in the world's biggest consumer market, and it is imperative that one makes use of all available legal means to prevent others from illegal use of your property, the consequences of which could severely damage your brand's reputation. To achieve the best possible degree of protection, trademarks should be registered with the Chinese authorities as early as possible, and ideally BEFORE you intend to enter the Chinese market.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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