China is not only the source of cheap labor and the manufacturer of various goods, which are being sold in every corner of the world. It is also the home of emerging middle class, and the big potential market for every Western company willing to take the risk. If you have a good product, you may try to enter the Chinese market, but without the proper legal protection of your trademark, implications for your business may be huge.
About ten years ago Starbucks, the American global coffee company, decided to enter the Chinese market and open their coffee houses there. “Starbucks” was translated to Chinese as Xingbake (星巴克), but the corporation realized that this particular trademark is already registered by an entity known as Shanghai Xingbake Co. Ltd. And if that’s not enough, the Shanghai company started to open its own coffee houses, which very much resembled the original ones, with the close copy of its world-renowned logo. Finally, the case was settled by the Shanghai court after two years of proceedings – Shanghai Xingbake was ruled to stop copyright infringement practices and pay the compensation of 500 000 RMB. This case is the important lesson in China’s copyright protection situation – the whole dispute might have never take place, if only Starbucks had taken certain necessary steps before entering the Chinese market.
Your trademark in China
The very idea of intellectual property seems to be something new in China. Although trademark is protected by law (Trademark law of the People’s Republic of China, 26 August 1982), the law enforcement is not effective enough, the counterfeit products are omnipresent and their manufacturers are getting more and more proficient, typical consumer is no longer able to tell the original from the fake one. On the other hand, counterfeiting means that our product has sublime quality and the people are willing to buy it (not necessary a bad piece of information). And still, probably the biggest risk is the trademark hijacking.
Big companies, such as Starbucks, enjoy better level of protection than small and medium enterprises (SME). Even if they neglect the necessary formalities, they may try to prove that the trademark is world-renowned. For SME, the proper registration is a must. First, we shall find the Chinese equivalent of our brand name. It should sound good in Chinese and the characters should bear some features, which comply with our products’ characteristics. The best examples include 可口可乐 for Coca-Cola, which literally means “delicious and amusing” or 宝马 for BMW, which means “precious horse”. We should bear in mind that in order to fully protect our rights, the names which sound similar to our brand name should be also registered. Applicants must register their trademarks in Trademark Bureau which is a subsidiary of the State Administration of Industry and Commerce of China (located in Beijing). The whole process takes 1.5 to 2 years, the registration is valid for ten years and may be renewed. China’s trademark registration system is divided into classes, therefore the infringers may register identical or similar trademark under a different subclass of products. Thus the defensive protection is advised – it is better to register the trademark of the products that are not yet planned for export, the earlier the better.
A common mistake is outsourcing the production to China without registering the trademark. When the Western company has an idea of selling this product in China it usually turns up that its trademark was already registered. And if the Chinese contractor sells bad quality products on its own market under our brand, our reputation may be seriously damaged
Another danger is the so-called cybersquatting. When we are about to start our operations in China, we may as well find out that our internet domain name is already occupied. How to deal with this situation? Obviously, our trademark should be registered in China, but it is not the end. In order to win the court case, several conditions should be met: for example the defendant is malicious in his actions, he has no justifiable reason of registering the domain, he causes confusion among relevant public. Otherwise, there is no chance of winning the case and the only course of action would be to pay for domain to its owner.
But what if in spite of all precautions, our rights have been infringed? In China, trademark owners have two ways of enforcing their rights – we already mentioned court actions, which may be effective, but are costly and long. Another way is to leave the case up to administrative organs. Over 90% trademark infringement cases are handled by the Administration for Industry and Commerce (AIC). Administration actions are fast enough and a way cheaper than court actions. But AIC cannot order compensation, so in more complex cases of infringement, court actions are more recommended.
Chinese authorities are often blamed for the lack of sufficient copyright protection and law enforcement. Surely, there are a lot of purely criminal activities going on, and dozens of fake Louis Vuitton bags or iPhones can be bought just a few crossroads from the Tian’anmen Square, but meanwhile many actions were taken to create more friendly environment for foreign investors. We should prepare ourselves well for all the dangers, but with the help of local law firms and trademark agencies we can protect our trademarks, make them recognizable and successful.