Daniel Chew and Kirwin Lee of intellectual property firm, Haseltine Lake LLP, argue that operating in China isn’t a risk as long as your intellectual property (IP) is protected.
When starting out, much of an entrepreneur’s focus is dedicated to the product: Does it work as designed? What will people pay for it? Alongside product development, testing, market research and customer acquisition, founders also have to keep an eye on cash flow, which may mean constant fundraising.
With so many tasks to manage, branding can fall by the wayside – but creating an easily recognisable and trustworthy brand may well be the most important factor of all. Besides cultivating an image that’s both recognisable and well-liked, businesses also need to protect their brands. With companies rarely operating in only one country, due consideration must be given as to how to protect brands globally.
For many years, China was perceived by many businesses as a territory where brand protection was pointless, due to a seemingly unpredictable legal system that appeared openly to favour domestic companies. However, recent cases illustrate that whilst there are still challenges facing Western companies when enforcing their brands in China, the improving Chinese IP system is helping UK businesses be more confident about internationalising.
The decision-making process from the Chinese IP courts is increasingly rational and robust, with favouritism of Chinese companies rarely playing a discernible role. Western companies are now succeeding in a large proportion of cases they bring before the Chinese courts. One example is a recent trade mark victory in China by US sports apparel company Under Armour against its Chinese copycat Uncle Martian.
The story began when Uncle Martian debuted in June 2015 by Chinese sportswear manufacturer Tingfei Long Sporting Goods, who have a long history of manufacturing off-brand trainers. Tingfei Long, who are based in Fujian, made an aggressive move in April 2016 to capitalise on its better-known competitor’s success by releasing a number of photos of their goods on Weibo (think China’s own version of Twitter) bearing a “UM” logo looking eerily similar to Under Armour’s “UA” logo. Tingfei Long initially denied allegations that its logo bears an uncanny resemblance to that of Under Armour, but later made brazen insinuations to a connection with the Baltimore-based sportswear company by posting crudely doctored photos of Uncle Armour’s products.
Under Armour filed a massive trade mark infringement lawsuit against Tingfei Long in June 2016 seeking 100M RMB (over £11million) in damages, and obtained a preliminary injunction in its favour in November 2016. Subsequently, the Fujian People’s Higher Court issued a permanent injunction on 19 June 2017, ordering Tingfei Long to stop using the “Uncle Martian” trade mark, destroying all their infringing products, to pay approximately £230,000 in damages, and publish a statement to “eliminate the adverse effect” of its infringement.
When it comes to internationalising a business, the importance of obtaining trade mark protection in China at the earliest possible stage cannot be overstated. In general, failure to engage with China’s intellectual property system at an early enough stage is what most often lands foreign companies in hot water, as it is still common practice for Chinese companies to try to register foreign brands in their own name. With the Chinese legal system offering increasingly robust protection of rights no matter who owns them, it is all the more important to seek advice and obtain brand registrations at the outset. If you do not have registered IP rights in China, then you cannot claim the improving protection that the regime offers.
Although the Under Armour case decided in favour of the Western brand and demonstrates the Chinese courts are increasingly prepared to take a rational, commercially realistic approach to enforcement of intellectual property rights akin to that adopted by the European courts, this was only made possible thanks to Under Armour’s existing IP rights in China. Furthermore, in this case the outcome was influenced by the strong reputation of Under Armour’s brand.
To avoid lengthy legal proceedings and in cases where the Western brand does not have a prior reputation in China, it remains critical to apply to protect your brand as a Chinese trade mark at the earliest possible stage. Trade mark registrations are fundamentally important to conducting business in China, and it is common practice for local companies to search the internet for upcoming Western businesses and register their brands as their own. If you wait until you have an established brand in Europe before you enter the Chinese market, you may find that a third party has already registered your brand in China. Under China’s first-to-register brand protection system, and despite some recent legal changes to improve the position against bad faith applicants, it can be extremely difficult to dislodge such a registration.
Once a brand registration has been obtained, the case above testifies to the significant improvements in the Chinese IP system since it was first established more than 30 years ago. The Under Armour case also demonstrates that Chinese courts outside the IP centres of Beijing, Shanghai and Shenzhen are starting to hand down rulings that are consistent with their top-tier counterparts. This is reassuring and encouraging for many foreign companies who wish to enforce their IP rights against defendants based in less well-known jurisdictions in the country, such as Fujian.