Aggressive strategy meets brand protection challenge

Since leaving the familiarity of the bench to become an intellectual property (IP) lawyer, the author has frequently heard the pessimism and negativity of persons when discussing protection by foreign companies of their brands in China. One can list the reasons as: (1) the uneasiness with the actual situation of China’s legal environment and IP protection; and (2) the constant stream of passing off and copying that occurs, giving a strong feeling of “regardless of how the wildfire has obliterated everything, with the spring wind it all comes back to life”.

According to the White Paper on the State of Judicial Protection of IP by Shanghai Courts in 2015, issued by the Shanghai High Court, Shanghai courts concluded 409 foreign-related civil IP cases that year, accounting for less than 5% of the total number of civil IP cases, and of them, 123 were trademark disputes involving European and American brands, which reflects, to a certain extent, that certain foreign enterprises have adopted a relatively conservative strategy toward brand protection in China.

Although China’s legal environment still requires improvement, China’s law enforcement and judicial authorities have made pronounced progress in their efforts to protect foreign brands. The author, as a former member of the judiciary, feels that the winning percentage of foreign enterprises in IP legal actions is high, an impression that is corroborated by the data made public by Chinese courts. Of the foreign-related IP cases tried by Shanghai courts in 2014, the foreign party prevailed in more than 80% of them, and in more than 90% in Zhejiang. We have reason to be optimistic that there is hope for IP protection in China, even though that will still require some time.

RESPONDING TO INFRINGEMENT

On the surface, it would seem that a conservative brand protection strategy can result in avoiding an unfavourable situation of high costs and low efficiency in safeguarding one’s rights in the short term, but over the longer term this approach is not recommended. Vigorous protection of one’s rights is an important means of enhancing brand value and safeguarding brand goodwill. Accordingly, foreign enterprises should be more active in meeting the challenge of brand protection in China.

First, inferior quality knock-off and counterfeit products progressively erode the image of a brand, lowering, over the long term, the value of the brand accumulated over many years by the enterprise, and resulting in dissipation of the goodwill it has accumulated over many years.

Second, the “Made in China” experience has provided certain Chinese infringers with the ability to gradually shrink the gap between their products and foreign brand products through better design and quality, and precisely because of this the potential harmfulness of this infringement model is greater and more likely to result in confusion and misidentification of the source of the goods. Under such a competition model, the power of brands manifests its importance more acutely.

Finally, the pursuit of profit is the inherent nature of business people, and the deluge of counterfeit and knock-off products is usually related to the reputation of a brand. Actively taking action to safeguard one’s rights not only helps to safeguard goodwill and crack down on bad faith competitors, but can also effectively enhance and confirm brand reputation, which reduces the difficulty of safeguarding one’s rights. Each supplements and promotes the other.

In IP law practice over many years, the author has noticed that although most foreign enterprises have a strong awareness of IP, the effect of protecting IP is not always as one would hope. This cannot be attributed solely to the IP law enforcement environment and social realities in China. The failure by an enterprise to formulate a correct brand protection strategy attuned to Chinese realities is often a more important reason. In brand protection in China, the author would recommend that foreign enterprises focus attention on the following two aspects:

Know oneself and one’s opponents, and erect comprehensive and systematic brand barriers. The strong territoriality of IP protection determines that enterprises cannot completely rely on “international experience” to protect their brands in China, but must comply with Chinese law. It is of utmost importance to profoundly understand Chinese right granting rules relating to brand protection, and the legal procedures for safeguarding one’s rights.

For example, reliance on the “first to use” principle of US trademark law could result in the loss of trademark rights, due to neglecting registration in China and preemptive registration by another. Also, the procedure for the granting of rights for the “proprietary name, packaging and trade dress of a famous good” specified in China’s Law Against Unfair Competition, another keen weapon in brand protection, and the criteria for such recognition, are very different from those for registered trademarks. If a rights holder lacks an awareness of nurturing rights and gathering evidence, it may see such rights slip away. The registration of the Chinese translation of a brand is another easily neglected issue that can result in major problems.

Timely safeguarding of rights to choke off further problems down the road. In contrast to the obstructions put up by passing off in earlier years, trademark infringement has more recently come to be characterized by its greater scale and concealment, with trademark piracy and copycat infringement now the main threats to foreign brands. Some infringers have gradually built up their own IP systems by chipping at the edges or taking advantage of the omissions of rights holders, ultimately even going as far as taking action “to safeguard their rights” against the rights holder.

Chinese law does not encourage “sleeping rights holders”, placing strict restrictions on the timing of the exercise of rights. An effective trademark monitoring system that can quickly react to potential infringement is important to enterprises. Once potential infringement is identified, the enterprise must act immediately to nip the infringement in the bud.

The author highly recommends that a brand protection deployment that includes trademarks be effected quickly upon or even before the entry of a foreign brand into the Chinese market, and that experts well versed in Chinese law be promptly engaged to formulate an overall brand protection plan.

Sun Jinlin is a partner at Jincheng Tongda & Neal