When it comes to protecting their IP in China, brand owners often face an all too familiar dilemma. Should they make a significant investment to protect their IP despite knowing that it can be difficult to enforce?
The Chinese government is making a concerted effort to try to change the IP landscape for global brand owners. As well as working with the judiciary to enhance the legal framework in order to protect IP rights, it has recently announced plans to reform the IP system. This includes a structural reorganisation of the State Intellectual Property Office (SIPO) and a focus on more robust protection for IP rights by establishing IP centres outside well-known jurisdictions such as Beijing, Shenzhen and Shanghai, as well as registering/granting rights and supervising law enforcement over those rights.
However, whilst the situation may be improving and recent decisions indicate willingness on the part of the judiciary, brand owners continue to face significant issues in enforcing their rights in China. With China being a key market in a number of sectors, investors are increasingly looking to see that a business has devised a strategy to protect its IP rights in China from an early stage.
Whilst it might appear to be a significant investment, particularly at the brand creation stage, the implications of not protecting IP in China can often be catastrophic, both from a cost and a reputational stand point. Brand owners regularly face issues of misuse and abuse of their IP, through counterfeit goods and bad faith filings for their house words, phrases, logos or Chinese translations/transliterations of their brand name. China operates a first-to-file system. This can leave brand owners in a challenging position when they try to enter the Chinese market or choose to register their IP rights once they have already established themselves outside the territory, only to find out their mark has already been registered by a third party.
Brand owners have found themselves in protracted legal proceedings, which have historically tended to favour Chinese companies and individuals, leaving global brands to pay significant fees to acquire marks filed in bad faith. The threshold for proving that an application has been filed in bad faith is very high, although a few recent decisions indicate there may be a slight shift in the judiciary's approach in such cases. In 2010, the IP landscape seemed bleak for rights holders with unfavourable decisions being made regularly against global brands such as Adidas, Lacoste and Sony Ericsson. Since then, things seem to have brightened, with favourable decisions for trade mark owners such as Michelin Tyres, Victoria's Secret and 3M. More recently, Under Armour successfully sued sportswear manufacturer, Uncle Martian, for trade mark infringement and New Balance won a damages award of US$1.5 million in an infringement action in which the defendants were selling trainers which infringed its 'N' logo.
It is clear that early protection remains of central importance if China is a territory that is likely to be of interest now or in the future. As well as legal advice, rights owners should seek advice from local business partners as to how their brand is known in Chinese. They should also register their brands at the earliest stage and monitor the register and online space carefully through a watching service.