China is now the second largest economy after the USA, currently the world’s largest exporter and the largest market for passenger vehicles. China’s 1.3 billion consumers present a market opportunity that many firms just can’t ignore. As South African trade with China grows, so does the risk that South African brands sold in the country could be appropriated by unauthorised Chinese companies or third parties.
Statistics concerning trade mark registration activity indicate that China’s own citizens are increasingly seeking the unauthorised registration of third party trade marks. This trade mark “squatting phenomenon” is evident in the trade mark registration figures which have increased by more than 450% since the year 2000. The vast majority of trade mark applications in China are filed by Chinese organisations. In 2008, non-residents accounted for approximately 30% of total trade mark applications. China represents approximately 13% of all trade marks filed globally. Much of this registration is driven by the single-class filing system. China is one of the few countries that uses a single-class filing system which requires brand owners to file separate applications for each class in which they seek trade mark protection.
Without adequate trade mark protection in China, attempts to reclaim your brand can be laborious, expensive and sometimes unsuccessful. Like many other countries, trade mark registrations in China are based on a first to file system which means that the party first to file becomes the holder of the trade mark regardless of whether or not they are authorised to do so.
Because of the popularity of branded goods being manufactured in China, counterfeiting is also widespread and it is not uncommon for foreign brands to be appropriated. More often than not, the encroaching party is a Chinese company that the rightful owner has appointed as its local agent. The likelihood therefore of a local producer in China securing a South African mark cannot be excluded, for example a trade mark for wine. In these instances, the rightful proprietor may have to consider instituting dispute cancellation proceedings against the unauthorised party in order to have the disputed trade mark removed from the Chinese trade mark register. Succeeding in dispute cancellation proceedings is however an onerous burden to shift and it can take at least three years for a decision. Brand owners are therefore best advised to adopt the following practices in China:
Registering your trade mark
China adopts the World Intellectual Property Organisation (WIPO) international classification of goods and services. Taking into account China’s single class system and first to file policy, consideration should be given to the 45 different trade mark classes (each of which has several sub-classes) so as to avoid loopholes in trade mark protection. In China it takes approximately two to three years to secure trade mark registration assuming no obstacles are encountered. A prior search of the Trade Mark Register is recommended and if the mark is available a trade mark application should immediately be filed.
Consider registering your trade mark in three forms
Intrinsic to China’s market is the need to address the country’s three linguistic elements of form, sound and meaning. Trade mark registration in both English and Mandarin in the relevant class is therefore essential. Furthermore, a focus on your brand’s meaning, its look and sound may result in a third form of your trade mark, its transliteration. This will convey the unique meaning of the brand with no literal description.
Understanding the complex linguistic rules and taking into account the appropriate culture should ensure the brand’s meaning is not lost once translated. In order for a trade mark to succeed in China, the form, sound and meaning of the mark should also be protected.
Anti counterfeiting measures
Over time it has transpired that the best way for companies looking to protect their brands in China is by both education and due diligence.
Customs operating procedures have evolved and Customs will work with companies on educational programmes to help identify counterfeit goods. It is possible to record your registered IPR rights (designs, patents, copyrights and trade marks) with Customs, whereby infringing goods will be monitored and seized by Customs, whereas the goods from your authorised distributors recorded with Customs will not be affected.
China’s expanding consumer market and ongoing IP revolution present opportunities, but these opportunities do not come without risk. However, with the right cultural knowledge, time and resource investment and navigation of a complex regulatory framework, brand owners can build a consumer base and protect their assets.
Written by Donvay Wegierski, Director at Werksmans Attorneys