Protect Your Brand In China — How To Navigate The World’s Most Challenging Intellectual Property Landscape

Wednesday, May 21, 2014 - 13:36

Have you seen the new Budweiser® shoes? How about the Mercedes-Benz® toaster oven? While neither company likely plans to enter the footwear or home appliance markets anytime soon, some enterprising trademark squatters have secured rights to use these brand names in these categories.

How is this possible? China has 45 different trademark classes, each of which has several sub-classes, and if Budweiser and Mercedes-Benz wanted to protect their brands in every class, they’d need to file across them all. If not, they’re exposed to opportunistic filing by trademark squatters who secure trademark protection in the hopes of benefitting at the company’s expense or being bought off for a monetary sum.

This is just a sampling of what can happen when you combine the irresistible lure of China’s 1.3 billion consumers with a complex intellectual property infrastructure that requires detailed local knowledge and constant vigilance to navigate successfully. Despite these hurdles, the market opportunity in this region is just too big to ignore for today’s multinational companies.

How can today’s multinationals develop successful brand strategies in China without falling victim to the kinds of pitfalls that can shrink profitability, dilute brand value and erode competitive advantages? And what’s at stake if they fail?

To find out, we tracked trends in trademark activity in China, sought input from leading trademark attorneys, and analyzed trademark strategies of the world’s leading brands.

By The Numbers

The footwear and toaster examples offer insight into the complexity of the Chinese trademark landscape. The challenges are amplified by the staggering volume of trademark activity currently taking place in the region. Between 2007 and 2013, more than five million trademarks were published in China. Since 2007, the number of marks published has increased by 213 percent.

Source: Thomson CompuMark SAEGIS on SERION

Note: Trademark publications in China experienced significant growth in 2009 and 2010, a result of the Chinese Patent and Trademark Office taking on an enormous effort to publish trademarks from a four-year backlog in applications. Due to delays in data retrieval from the Chinese trademark office, full-year data for 2013 is not shown. Actual numbers will be higher.

In 2013, the number of published trademarks in China far outpaced other nations. As indicated, the trademark office of China was the largest publisher of trademark applications in 2013 with 860,935, followed by the United States: 242,418; Brazil: 178,761; South Korea: 106,274; and Turkey: 102,310.

Source: Thomson CompuMark SAEGIS on SERION
(Trademarks were not divided per class, but summed by year and counted as one record.)

Single Class vs. Multi-Class Trademark Applications

Much of the sky-high trademark registration activity occurring in China is driven by its first-to-file system for trademark registration. This differs from much of the Western world, which relies on use-based trademarks.

Once a trademark is approved and registered, the registrant is entitled to the exclusive rights to use the trademark and prohibit anyone from using identical or similar trademarks without permission. But the only way to be fully protected is to repeat this process dozens of times for China’s 45 trademark categories and sub-categories.

This was the case with Budweiser and Mercedes. A Chinese manufacturer trademarked the Budweiser brand for shoes and is still selling them today, despite the best efforts of Anheuser-Busch to stop them. Likewise, there are currently about 80 different trademark registrations for Ben Chi, the Chinese equivalent of Mercedes-Benz, in categories ranging from apparel to housewares.

“The World’s Most Difficult Language”

Adding to the complexity is the Chinese alphabet. The Chinese language comprises 48,000 characters, of which approximately 8,000 are regularly used. There are three different forms of Chinese characters and at least four different tones, depending on the dialect, all of which may change the meaning of a word.

A frequent method trademark squatters use is to manipulate the form, sound or meaning of the marks in the Chinese language. For that reason, trademarks that work best in China often convey the unique meaning of the brand without describing it literally or copying it phonetically.

Best Practices

Although there is no one-size-fits-all approach to branding in China, Thomson Reuters has established a clear set of best practices for trademark filing and maintenance that greatly improve the odds of success.

Based on our analysis of the industry’s current thinking on the matter, the following are five key steps to successful brand expansion in China:

  • File Early: China’s first-to-file system for trademark registration, combined with the trademark office’s new push to speed up processing times, makes it essential for brand owners to file a mark well in advance of a Chinese brand introduction.
  • File Often: Due to China’s unique single-class filing system, filing in only one category can leave brands vulnerable to squatters looking to claim marks in other categories.
    Companies need to protect their brands across all sectors, not just those in which they are active. This means increased paper work but it also limits the potential for a trademark squatter to scoop up trademarks associated with non-traditional products.
  • Think Three-Dimensionally: Successful Chinese trademarks need to address the country’s three linguistic elements of form, sound and meaning. The literal translation of a Western brand doesn’t always work. When it comes to creating a great Chinese trademark, it is essential to focus on what the brand means, how it looks, and how it sounds; this often requires a combination of translation and transliteration.
  • Invest in Rigorous Anti-Counterfeiting Measures: The best way to fight counterfeiting is to implement a systematic approach to identifying the source of the problem. The time spent pursuing the leaders of counterfeiting practices will vastly outweigh the cost of systematically going after each individual infringer.
  • Communicate with Customs: The front lines in the war against counterfeiting may lie in the customs offices. Educating agents about what to look for in copycat products makes their job spotting counterfeit goods easier.

Viji Krishnan is the General Manager and Global Head of Thomson CompuMark, a trademark business of Thomson Reuters.