Protecting your brand in China
Your brand is one of your company’s most valuable assets. Your
company’s reputation and image stand behind the name that
identifies who you are and what you do. But when entering China,
your brand may be exposed to unexpected risks and dangers.
It is in your company’s best interest to have a solid strategy and follow
the correct steps to protect your brand in China. The local trademark
regime follows a first-to-file system and does not recognize
international trademarks if they are not registered in the mainland,
even if they are famous abroad. If the brand is well known around the
world, it will most likely become the victim of trademark squatters, counterfeiters,
or grey market suppliers.
Having your brand registered in Chinese characters is crucial as well to avoid copycat goods. This process is complicated and requires a combination of choosing characters that will communicate the right message and establish a specific image associated with the brand that is culturally acceptable.
Some companies choose to operate in China without a registered trademark in the region, but can easily lose their infringement claims, regardless of whether they legitimately sell products in other countries under that brand or even if they manufacture in China to sell elsewhere.
Interestingly, such companies also risk being sued for infringement by trademark squatters themselves. Finally, having a Chinese trademark protects businesses from grey market suppliers and knock-off sellers online and enables the seizure of copycat goods by Chinese customs.
China respects the International Classification of Goods and Services under the 1957 Nice Agreement, but it has its own set of classes and sub-classes. For this reason, it is vital for foreign companies to register their products under the correct classes and sub-classes.
A trademark is a sign that identifies a particular product or service, allowing consumers to differentiate between goods or services of different companies. It can include words, devices, letters, numbers, and color combinations. In China, when registering a trademark, a series of conditions must be met.
The mark must be legal. It cannot be identical or similar to the name or flag of a state or an international organization. It cannot discriminate against a nationality or indulge in exaggerated or fraudulent advertising.
The mark must be distinctive. It must be easily distinguishable from the producer of other goods and services.
The mark cannot be functional. China does not accept marks that refer to the nature or model of the good or service itself – a company selling apples will not be able to register an apple or an image of an apple as generic names are free to be used by all. The mark also cannot sabotage competitors by referring to a technical effect, thereby confusing consumers when choosing a product or service selling the same or similar technical effect.
The mark must be available for registration. The China Trade Mark Office )CTMO’s) official trademark database is available online and can be used to search existing trademarks. The database covers preliminary approvals, final approvals, renewals, and modifications of all trademarks and is available in Chinese and in English.
Foreign companies should follow these steps when registering their brand in China:
1. Filing the application
The company must either directly file an application with the CTMO or file the application through the World Intellectual Property Organization (WIPO). If choosing the latter, the trademark application must be based in the country where the mark is currently registered.
2. Choosing the product and service sub-classes
It is imperative that the applicant’s trademark covers all the relevant products and services – in each of the sub-classes – when filing for registration. Footwear and boots belong to two different sub-classes, which means that the brand can be registered by different companies in each sub-class.
From January 1, the 2019 version of the Nice Classification table has come into effect. Those with trademark rights in China should make sure that their initial filings are in accordance with the most recent classification table.
Finally, foreign investors should note that while the 2019 version in China incorporates the goods and service specifications of the Nice system – a significant gap still exists when compared with the 11th Edition of the Nice Classification table. (The 11th edition of the Nice Classification was published in 2016; since 2013 a new version of each edition is published annually.)
3. Registering the trademark in Chinese characters
Chinese culture plays a big role when choosing characters that will identify your brand in this country. If you register your trademark only in Roman characters, you will not be protected against infringement. Other business can register similar brands in Chinese characters impacting your trademark and image in China.
Assuming that your brand is protected because it is famous internationally will not guarantee that the Chinese consumers will know it and recognize it, since they don’t use the same social media channels. An example of this is the case of Coca Cola, which chose not to use a literal translation but the Chinese word for ‘delicious happiness’. Another example is the case of Toyota and Mercedes-Benz in the auto market. In Chinese, Toyota could be translated as ‘thriving’ (丰田); but Mercedes-Benz entered the local market with the name ‘Bensi’, which was translated as ‘rush to die’.
It is preferable that foreign companies without a residency or place of business in China submit their trademark applications with the CTMO through a registered agent. This will give them control over the registration process and the selection of classes and sub-classes. If the registration is presented to the WIPO, the decision on the sub-classes will be made by an examiner.
To avoid any kind of miscommunication, foreign applicants should register the Chinese version or a direct translation of their trademark. Companies may choose between a literal translation, a phonetic translation or a combination of both. When possible, this last option could be the most effective because it references the sound of the Roman characters, but it’s associated to a positive Chinese cultural reference.
Though markets move fast in China, the process to register a trademark can be slow. It can take up to 15 months from the date of filing for the preliminary approval and publication, depending on the industry and product. This period excludes the time invested in gathering the necessary documents and preparing the application. Additional delays can be expected.
The new policy effective since January 1, 2019, cuts the formal examination period from two to one month, while the substantive examination period has also been shortened – from eight months to six. This examination decides whether the trademark is substantively registerable, upon which the authorities will announce the preliminary registration or send a notice of rejection.
To be able to cut the examination times, the CTMO has established several trademark examination assistance centers in cities outside Beijing, including in Guangzhou, Shanghai, Chongqing, Jinan, and Zhengzhou.
In addition, there are trademark application receiving counters in Ya’an of Sichuan province, Taizhou of Zhejiang province, and Harbin of Heilongjiang province.
Despite establishing additional assistance centers and application receiving counters, the CTMO is known to be short-staffed overall, and if you add the shortened times and complex examination procedures, this could result in poor decision-making exposing trademarks in foreign languages to litigation or infringement in the future.
As important as safeguarding your trademark, is filing for intellectual property (IP) protection in China. In 2018, China-based inventors filed the second-highest number of Patent Cooperation Treaty (PCT) patent applications, a 9% increase on the year before. It is easily expected to surpass the US in two years.
Growth in patent applications filed in China have rocketed since 2010, yet of the 432,000 that were granted last year, just 25% were foreign.
Innovations like AI, blockchain and the Internet of Things are disrupting established markets and moving corporate value from tangible assets to the intangible. IP is set to play a central role in this new-look, future global economy. For this reason, it is important to recognize China's extraordinary transformation from manufacturer to innovator.
Thanks to China’s highly efficient customs procedures, which help brands by seizing fakes at the border, companies can initiate civil litigation and even prosecute criminal charges against counterfeiters. But some of the old problems remain, and foreign companies are still at risk from IP 'hijackers' - for example, Chinese suppliers that file their foreign client's IP without their permission.
It is crucial to file your IP, or you will run the risk of other people filing it.
For any questions on developing your trademark strategy contact us by completing the online inquiry here below.
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.