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Geo-political situation may force trademarks out of China, IP protection is crucial

Protecting intellectual property in China during normal times is difficult. Doing so during challenging circumstances could be much worse. If geo-political tensions cause a mass exodus of companies and their brands out of China, Chinese authorities may choose to disregard trademark rights and ignore illegal brand use.


International conflicts, such as the war in Ukraine, tend to increase risks, which are often underestimated by companies. After Russia’s invasion, many enterprises left the country to later find out that their trademarks were being used without permission, causing a devaluation of the brand.


This situation is a good example of what could also happen in China. Companies should start preparing a strategy to protect their intellectual property (IP) before they make the decision to leave the country.


According to trademark lawyer Riikka Palmos, as international brands fled Russia, their “retailers and former partners continued using trademarks despite ending the cooperation and prohibition of such use.” Brands present in China need to consider the implications for their trademarks in case they are forced to exit the Chinese market.


Possible scenarios


Certain actions by China on the international stage could lead to sanctions (or stronger responses), which would put pressure on brands to cease doing business in the country. A good example are the hostilities against neighboring countries like Taiwan or the Philippines.


Leaving China is probably a much harder decision than exiting Russia. China’s population is ten times larger, with per capita income virtually identical. But for brands that cannot afford to entirely dismiss public opinion in markets such as the United States and Europe, departure may be the least painful choice.


Even if they wanted to stay, surviving in the local environment could be impossible. Western brands might become targets of Chinese fury if their governments are actively supporting a war effort against China.


Chinese authorities could also create a hostile enough scenario, forcing an exit. A large portion of Western businesses currently projects a pro-China stance, but that could change if enough foreign executives are slapped with exit bans, or jailed, or taken hostage by creditors. Affected companies might demand solidarity from others in the industry, and governments might take punitive action.


Geo-politics and Trademark Protection


A China departure could affect a brand’s trademarks similarly to what happened in Russia. Distributors and retailers may find a way to continue selling the brand, relying on gray-market goods and/or counterfeits, possibly with the approval of the Chinese authorities.


These actions could undermine the brand’s exclusivity, hurt customers’ trust, and ruin its reputation. Gray-market goods may not meet the brand’s quality standards, leading to consumers ending up with inferior or even hazardous products under the brand’s name. Over time, the brand could lose its real value.


Intellectual Property (IP) Theft


Former employees or those with less loyalty to the brand might be tempted to sell or share trade secrets, designs, or other intellectual property with competitors. This could further affect the brand’s competitive advantage in the Chinese market and beyond.


Legal Action


Complaints or legal actions initiated by these brands could simply be ignored or slowed down by courts and government agencies responsible for trademark protection. A lack of urgency or complete neglect in enforcing trademark rights could lead to widespread infringement, causing significant financial losses, especially if counterfeit products flood the market.


Lawyers’ Reluctance


Finding legal representation in China may become difficult. Lawyers may decline to represent brands whose actions are deemed hostile by China. Only a few would be willing to represent foreign brands at a very high rate, making it financially impossible for smaller brands to take legal action against counterfeiters.


Customs Restrictions


Foreign companies need China Customs to stop exports that infringe on the trademarks of blacklisted brands. Without the support of China Customs, counterfeit products could make their way to other markets. This not only affects the brand’s image in China but could potentially harm its reputation on a global scale.


Staffing Challenges


Foreign brands may face difficulties retaining their local employees. Under normal circumstances, these professionals provide a powerful insight into cultural nuances, consumer behaviors, and market dynamics. Without them, brands might struggle to identify infringements or understand local consumer sentiment.


Preparation for Uncertain Times


Future actions by China could have a ripple effect. Waiting for something bad to happen before reacting is not the right strategy. Nobody knows if China will encounter the same situation as Russia, however, foreign trademark owners can start acting now to protect their IP and minimize a potential negative impact.


There are two fundamental aspects: securing proper trademark registrations and ensuring documented IP ownership.


Important considerations


Proper trademark registration means securing that a trademark was registered correctly, and that this was done in a comprehensive and timely manner.


A trademark registered in one country doesn’t automatically grant protection in another. Brands must register their trademarks in every country they operate in, especially in jurisdictions like China, which follow a “first-to-file” system.


Brands should consider registering not just their primary logo or brand name, but also any variations, sub-brands, or key product names. This ensures a wider umbrella of protection.


Trademark protection isn’t eternal. Brands must keep track of renewal deadlines to maintain their rights. Lapses can result in a loss of protection, making brands vulnerable to infringement.

Having solid documentation on your intellectual property is just as crucial as the IP itself. This documentation proves ownership, outlines rights and is essential during legal disputes.


For brands operating in partnerships or joint ventures, it’s crucial to have clear documentation on who owns what. This prevents potential disputes and ambiguities in the future.


Brands should maintain a consolidated and updated portfolio of all their intellectual properties. This should include registration certificates, renewal documents, and any correspondence related to IP rights.


If you license your brand or any IP elements to other entities, ensure those agreements are ironclad, with clear terms on usage, duration, territories, and revocation clauses.


Risks can be minimized and sometimes even avoided if they are confronted early and with advanced preparation. Unpredictable political tensions or conflict could suddenly force a company to exit the Chinese market. However, if it has a smart contingency plan, it may face any situation and make the right decisions.


Despite the current uncertainties, China will likely remain an integral part of most brands’ global strategy.

 

Woodburn Accountants & Advisors is one of China’s most trusted business setup advisory firms. Woodburn Accountants & Advisors is specialized in inbound investment to China and Hong Kong. We focus on eliminating the complexities of corporate services and compliance administration. We help clients with services ranging from trademark registration and company incorporation to the full outsourcing solution for accounting, tax, and human resource services. Our advisory services can be tailor-made based on the companies’ objectives, goals and needs which vary depending on the stage they are at on their journey.

 

Can Woodburn help you? We are offering a free 30mins call where we discuss the obstacles you are encountering on your China business journey and how we can help accelerate your success.


 

DISCLAIMER: All information in this article is verified to the best of our ability and is assumed to be correct at time of release; however, Woodburn Accountants & Advisors does not accept responsibility for any losses arising from reliance on the information provided within. The information provided is for general guidance and does not replace specialized advice.

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