By Chris Devonshire-Ellis, Founder & Senior Partner, Dezan Shira & Associates
As regular readers will know, I’m currently in the United States on tour speaking at engagements with a host of U.S. businesses, venture capitalists and the like, working with the U.S. Department of Commerce, with whom we wrote the highly successful “China Business Handbook” (downloadable for free). A lot of the events have concentrated equally on China and India, such as the “Dueling Tigers” program I’ve just spoken at in Boise. However, one of the issues that always crops up at the Q&A session is China’s IP and brand protection. It’s cropped up so often that here I’ll explain the differences between United States and China and the issues over filing in China for both English and Chinese characters.
Firstly, let's define "trademark" as is applicable in the United States. It can be anything used to distinguish and identify the source of good s or services as follows:
However, China differs in that it does not recognize the categories of sound and fragrances, and further places additional criteria on other aspects as follows:
China importantly also differs from the United States in that both English brands and their Chinese equivalent will be marked. This can be done in one of two ways:
Transliteration – characters in Chinese that sound similar to the English brand. This can be dangerous – famously, Coca Cola years ago did just this, but the characters they originally used were nonsensical; they actually sounded like "Bite the wax tadpole" in Chinese (they've changed it now). The lesson is that transliterations need to be handled with the utmost care and by someone completely fluent in the language.
Translation – characters in Chinese that exactly translate the English name. Microsoft is a good example of this, their brand characters in Chinese mean micro, and soft.
If you don't mark your English brand in Chinese, Chinese consumers will choose one for you. The wording they choose may not reflect the international standing of your product. For example, Google did not register a Chinese version of their name, and the Chinese consumers instead began calling it something akin to the characters that sound rather like "dog dog." Once that habit gets into the Chinese system, it's very hard to break. While they have gone back and registered a more appropriate Chinese name, the consumers still refer to them as "dog dog." Google would have been much better off imposing their desired Chinese characters from the start.
U.S.-China registration comparisons
China and the United States also differ slightly in the trademark registration process. While both employ the "first to use" system, in the United States, trademark registration is not actually necessary to establish rights as common law rights arise from use of a mark. This is not the case in China, and "first to use" is strictly upheld. It is this has been the cause of many problems with companies finding their brand has been registered already in China. Such cases can be notoriously difficult and expensive to solve. The issue for China then is file early, and file broad.
File early is obvious, whereas what I mean by "file broad" is to file under as many categories as possible for usage of your mark. China, like the United States is signatory to the Paris Convention and Madrid Protocol and they employ the same category standards. Registrations in China should include categories for products you use, products you might use, and for products you may wish to block someone else from using your brand. For the latter, use is not a requirement for registration in China, although if it can be shown the mark has not been used for three consecutive years in China, it can be subject to cancelation. As in the United States, marks in China are valid for 10 years.
Impounding pirated goods at China Customs
There are other benefits of registering a mark in China, and much to do with preventing shipments of pirated goods. Registration gives the exclusive right to use, assign, or license the mark, provides the ability to initiate proceedings for trademark infringement and damages, and also gives the ability to record the registration with China Customs and request they impound goods suspected of infringing your mark. There are procedural issues that need to be followed through quickly, and usually Customs will request the provision of a bond to do so (this is to protect the other guy in case you are being predatory). As a registrant, you have three days to request customs impound goods, with the bond being an amount equal to the value of the goods. A general bond of RMB200,000 (about US$30,000), or a bank guarantee letter may also suffice. Customs will then investigate for 30 days, following which if they cannot determine the infringement, the registrant has a further 20 days to obtain a court order for further detention. .
Be aware that this device can also be worked against you. A Chinese company that has registered your brand under the "first filing" route can cause similar problems for you. Expensive litigation is then required – which is why the "file early" advice is so important, especially if your brand is new to China. Put simply, if you don't mark it and somebody else does – you could enter a whole world of hurt.
Should infringement be proven, then you're back on solid ground. Concerning enforcement, China has been improving, and over the past ten years, infringement cases investigated and solved by customs have increased by 30 percent per annum. In 2009, over 200,000 cases of the making and selling of counterfeited goods, involving product worth US$490 million, were investigated General Administration of Quality Supervision, Inspection and Quarantine. Counterfeiting is also a criminal offense in China. Offenders can be jailed and this acts as a major deterrent should you wish to pursue criminal actions. So while China has been improving, it still remains the "top trading partner" to the United States for IP violations. For new-to-China businesses, it is important to arrange for your marks to be registered. The check list is as follows:
While China remains problematic for IP infringements, the good news is that it is relatively straight forward to register a mark in China, and inexpensive. "File early and file broad" are the watchwords to abide by, and all international businesses looking to sell product into China or manufacture there should take this aspect very seriously into account as part of their corporate best practice, and to avoid expensive problems later on.