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CHINA : A land of opportunities : how to leverage your Intellectual Property to success

Background

We know that China is a big market. The estimated population of China in 2013 was 1.3 Billion. This is approximately 19% of the world's population. There are 8 cities in China with more than 4 million people and 59 with more than 1 million. China now has the second-largest economy in the world.

In 2008, New Zealand was the first OECD country to conclude a Free Trade Agreement (FTA) with China. China is now New Zealand's second-largest trading partner (NZ$11.6 billion in 2010). Dairy products account for over a third of all New Zealand's exports to China. Other key products are wood, wool, seafood and meat but the market is diversifying with wine, plastics and high tech products (especially telecommunications) growing significantly.

China offers significant business opportunities for New Zealand companies, particularly in the sectors where New Zealand has a competitive value proposition.

Trade mark protection

With the ever expanding demand for Western goods and services in China, the number of exporters of goods and services to China is increasing. If you are included in this number, it is important that you give consideration to registering your trade marks in China to protect your valuable intellectual property rights.

It is better to act early and secure protection using a well researched strategy with a realistic budget to obtain, protect, commercialise and enforce your rights. Support on the ground in China is an important part of the strategy. A local partner can greatly assist with distribution and local issues. Another important member of your team is an experienced IP attorney who knows about the process.

Current Process

It does take some time and resources to register a trade mark in China but the alternative – exporting to China without a registered trade mark – would leave your brand unprotected and open to considerable risk.

China is a first-to-file country meaning that, all else being equal, whoever applies to register a trade mark first will obtain the registration. As the trade mark owner you want to make sure that it is you who is first to file, so consideration needs to be given to registration of your trade mark before, or as soon as, you start discussions with potential partners in China.

As with all proposed marks no matter where they are to be filed, time and costs can be saved if the chances of success of registering the proposed mark are assessed before substantial branding costs are incurred. To make this assessment, we recommend that a pre-filing search is undertaken to identify any earlier registered trade marks or other issues that may hinder or prevent registration of your trade mark. The results of the search may lead to selection of a different trade mark or amendment of the specification of goods/services to avoid difficulties.

Special regard needs to be given to the sub-class classification system in China which can lead to formality objections requiring further detailed specification of the goods or services.

Currently, the Trade Mark Office can only raise issues regarding the descriptions of the goods or services. Substantive issues such as similarity with earlier marks result in a rejection of the application and the need to file a review to the Trademark Review and Adjudication Board. Such a review can delay the application process significantly.

Even with all theses initial checks having been carried out, there is still the possibility that the application will be objected to during the examination process. In China the issue of the first examination report can take upwards of 12 months from the filing date. Any appeal of a decision to appeal can take up to a further 24 months to be finalised.

Given the high number of trade marks registered in China, it is our experience that it is not uncommon for the Chinese Trade Marks Office to consider that the proposed trade mark is too similar to an earlier trade mark and to reject the application on the basis of such earlier marks. Unlike in New Zealand, this objection may only be raised after the applicant has resolved “formality” issues. To have such a substantial objection raised after the minor objections regarding the wording of the specifications of goods or services can come as a shock to the applicant to then have to go to round two when they have already spent time and money to get passed round one!

Other issues

There are a number of aspects of filing a trade mark application in China that require consideration before you start the application process.

In particular, you need to decide whether to register your trade mark in English or to localize the brand. If there is not a standard translation of the trade mark then you may find that the Chinese market will create a translation and identity for your brand. There is a risk that this translation or identity may not accord with your company’s values or identity and therefore you may want to localize the brand yourself or adopt a new brand or sub-brand for the Chinese market.

Translation and transliteration of your English language brand will not be an easy task. The meaning of the characters used will be important and should communicate attributes of your product. Chinese languages have a large number of homonyms and it is possible that a spoken name has a homonym with a negative meaning and the Chinese market responds well to words with appropriate meanings.

In translating your brand you might choose a transliteration that sounds similar to your brand but has no meaning; a transliteration that sounds similar and the characters provide a relevant meaning; or an interpretive translation which sounds different but the meaning is close to the English meaning of your brand.

If your trade mark includes the name of a State, such as NEW ZEALAND as part of the trade mark, the Chinese Trade Mark Office will require evidence that the government of that State has approved use of the name. A notarised and legalised copy of the home certificate of registration will need to be filed to overcome the objection.

Proposed Changes – May 2014

There will be significant changes to China's trade mark laws soon which will provide, on the whole, a more positive process for businesses intending to register their trade mark in China. Some of the changes are:-

Quicker examination of Applications

The Chinese Trade Mark Office will be quicker in examining applications. The timeframes for examination will be codified in law. The new timeframe for examination of an application will be 9 months. Compared to other markets this is still a long wait for the first examination report but this does provide some certainty on how long the process will take.

The new law proposes to deal with more substantive issues at the examination stage. This should not only shorten the time frame to registration but also the costs, as all objections can be addressed in a single response.

Multi-Class applications

Currently if the applicant wants to protect their mark in more than one class they have to file separate applications. Under the new law, multiple classes can be covered in the one application. This should result in some cost savings.

Better protection against trade mark squatting

Applications made in bad faith are frustrating for the genuine trade mark owner. The amended law should assist in preventing these bad faith applications.

Prior use rights

Presently, prior use rights are not recognised and a trade mark registration will overrule any long standing use in China. The amended law will allow the owner of a mark that has been in use to continue to use their mark, notwithstanding registration by a third party, with some restrictions.

Conclusion

While it can be frustrating at times and costly to protect your rights in China, registration is recommended and the anticipated changes to the law are welcome.

Make sure you have done your research before going too far down the track in selecting your trade mark for the Chinese market. Be patient and budget for issues and allow a contingency in case any of the above issues arise.

The potential benefits are huge for exporters to China and the chances of securing these benefits is great if the exporter has a positive and well planned IP strategy.

Russell Law / Elena Szentivanyi – March 2014