Protect yourself: how to master trademarks and IP in China5th Dec '16
Early action is needed to avoid piracy and cyber-squatting. As part of the Routes to Growth series on trading in Asia, Andrew Cave looks at the options
They are often the most valuable things a company can own. But how SMEs trading in China protect intellectual property (IP) and trademarks on their products is a big worry.
China has earned a reputation as a nation brilliant at copying. Indeed, the Office of the US Trade Representative found Chinese products accounted for 52 per cent of the value of goods that infringed intellectual property rights and seized at US ports in the 2015-16 financial year. This was down from 63 per cent in 2014-15.
“It doesn’t take long and cost much to register IP in China, but SMEs must plan ahead”
Fortunately, there is good news. China’s legal framework has improved considerably in recent years. Western companies including 3M, Kenwood, BASF Agriculture and electronics group Philips have won patent infringement cases in China, while Starbucks and Yamaha have succeeded with trademark cases.
Morag Macdonald, partner at leading intellectual property law firm Bird & Bird, says she sees China becoming “the new Japan”, which has strong levels of IP protection.
Most SMEs, however, will want to avoid disputes. Happily, it is now possible to enforce intellectual property rights through trademarks, registered designs, copyrights and patents in China – policed through regular raids by trading standards officials.
Ensuring adequate protection from potential Chinese competition does require British companies to take proper action, however.
China operates what is known as a “first to file” system. Jane More O'Ferrall, partner at law firm Haseltine Lake, says it’s vital to plan and register your IP there at an early stage.
“Unfortunately, Chinese companies commonly apply to register trademarks locally before the foreign company has applied,” she warns.
“These local filings in China are often made for marks which have been applied for in the EU or US, so UK businesses should aim to file their trademarks in China within six months of filing a new trademark at home.
“They can then, under an international convention, obtain the same earlier filing date in China. It doesn’t take long and cost much to register IP in China, but SMEs must plan ahead.”
However, if SMEs don’t register their rights in China but do so in other markets, they may not be able to claw back the position in China later.
Kat Maconie, founder of the eponymous British shoe label, admits making the mistake of not filing her IP early enough and having to buy back the trademark rights from a local operator – a phenomenon called cyber-squatting.
Experts say there’s a greater risk of cyber-squatting on online proprietary names in China than in many other markets, presenting the potential nightmare of having your business shut down and goods seized by Customs if a trademark squatter has registered before you.
A good place to find out more is the government’s Intellectual Property Office (UKIPO). It is a plentiful source of information, producing regular newsletters, fact sheets and reports, and using attachés in Beijing and Singapore to support British businesses.
Companies can also obtain help from UK law firms, some of whom now have a presence in China or elsewhere in south-east Asia and work with local Chinese counsel.
While patents last for 20 years, trademarks run forever, as long as the appropriate fees are paid.
It’s important that the IP behind the core technology of an SME is registered or at least applied for in Britain and in China before negotiating a licensing agreement or partnership deal there.
“This applies even when the SME isn’t marketing or selling their products in China, as they may wish to protect their home market by preventing the Chinese company from manufacturing in China and selling back into the UK,” adds More O'Ferrall at Haseltine Lake.
It is also possible to register brands across a broad range of products outside a company’s areas of core interest to protect their position while working to establish a market in China.
However, if a trademark has been registered in China for three years without having been utilised for the registered goods then it is vulnerable to being cancelled.
While some western brands have cachet in China, Chinese consumers often develop their own pronunciation of these; Chinese rivals seek to capitalise by giving themselves similar Western names. Chinese brands with similar names to Western rivals include retailer Wumart and Adidos.
More O’Ferrall therefore advises British businesses to apply for Mandarin versions of their brands and to use them in China so that they can control their evolution there. Thinking and planning ahead is essential.