Ella Cheong of Ella Cheong (Hong Kong & Beijing) explores the benefits of trademark protection in China.

The ongoing economic instability stemming from the financial crisis in 2008 is shifting the economic powers from the West to the East.

Over the past few years, recovery looks distant in many parts of the world and the future seems dismal where more and more governments have to apply austerity measures in view of huge public deficits and in exchange for financial aids. The drop in economic activities was also reflected in the number of applications of international registrations of trademarks under the Madrid system, which has declined since 2008.

Nevertheless, the momentum of growth has now resumed and the number of applications reached a record of 42,270 in 2011. The number of applications originating from China has even increased by one-third when compared with the 2008 figure. This evidences not only the resilient Chinese economy but also the fact that in searching for future growth and prosperity, many businesses, big and small, have shifted their focus to the East, the so-called new engine for the global economy.

This change is one that every business is encountering, thus the market potential in the East has been irresistible. For example, in China, despite the world economic downturn, the foreign direct investment rose to a record high of $105.7 billion in 2010 and further up by 9.7 per cent to $116 billion in 2011. Therefore, as long as there is a prospect of growth, that is the place to be, and the only question is how to adapt to such domestic market, in this particular instance in China.

Luxury products, especially those of with internationally renowned brands, appear to find no barriers at all in the China market. Chinese consumers flock in their stores to buy their products. For example, Prada, which was listed on the Hong Kong Stock Exchange last year, released its results for the first quarter of 2012 revealing that its profits more than doubled year on year thanks to their focus in Asia and retail expansion. Apparently, many other luxury brands have similarly found their trademarks not only overwhelmingly well regarded by Chinese consumers but also highly invaluable to the companies themselves, enabling the companies to enjoy skyrocketing sales.

Apple is another company which shares the same level of success in China, announcing its quarterly results for the first quarter of 2012 that almost doubled, and attributing such spectacular results to the increase in iPhone sales particularly in the Greater China region. However, whilst Apple faces a bright future in China for expansion and growth, it nevertheless also faces a trademark lawsuit which may possibly restrain Apple from selling its latest gadget – the iPad – in China.

The trademark "iPad" was initially owned by the Proview Group in a number of countries including Hong Kong and China. Prior to the launch of the iPad, Apple engaged an agent to negotiate and acquire the "iPad" trademark from the Proview Group, and eventually entered into an agreement with the holding company and its Shenzhen subsidiary of the Proview group in 2009."iPad" was registered instead in China under the name of the Taiwan subsidiary of the Proview Group, and it refused to assign the rights unless fresh consideration was provided, leaving the trademark in China remaining registered under the name of the Taiwan subsidiary, thus leaving Apple to ongoing legal proceedings.

So far, the lawsuit filed by Proview Group against Apple in the US claiming Apple fraudulently obtained the iPad Trademarks from the group has been dismissed by the Superior Court of the State of California in Santa Clara County on the grounds that the parties had agreed to settle any legal disagreements in Hong Kong. Despite the failure of Proview's attempt to halt the sale of iPad in Shanghai, where an Apple store is located, after an injunction application was refused by a Shanghai court, the trademark ownership dispute is still being considered by a Higher People's Court in China's Guangdong province and the court has urged the parties to reach a settlement. In Hong Kong, the legal proceedings continue and the final judgment of the Court remains to be seen, although an interlocutory injunction has been granted in Apple's favour to order the Proview Group not to transfer its "iPad" China trademark to any third party.

Such trademark wars not only disrupt the sale of branded products in China, but also highlight the importance of securing as early as possible trademark rights in China. The best-case scenario is obviously to own the China trademark from the commencement of a business, and thus filing applications for trademarks in China ought to be the first priority in the process of product development, especially if China is likely to be a key market as well.

One may think only big businesses like Prada and Apple need to take early precaution for trademark registrations and this would not affect small or medium-sized companies. But the fact is many companies or individuals regret not having done so once they turn out to be of importance and significance. For example, recently there was a new star – Jeremy Lin – rising rapidly from the basketball circuit. Many compared him to the Chinese professional basketball player, Yao Ming, who played for the Houston Rockets of the National Basketball Association ("NBA") in the US.

Jeremy Lin and his rise in the Chinese community and overseas has been phenomenal, giving rise to the term "Linsanity". He became a celebrity overnight and his performance with the New York Knicks of the NBA has widely enthralled all who will be enthusiastic consumers for any products bearing his name. Needless to say, Jeremy Lin and his name have become what is valued most by the advertising and other companies, as well as the sports world.

However, Jeremy Lin and these other companies have lost out to a Chinese company in the Jiangsu province of China, which has observed Jeremy Lin from the start of his career, and in 2011 proceeded and registered (having filed an application in 2010) the combination of his Chinese and English names. In the event that Jeremy Lin wishes to utilise his own name, in any way, in China, he may then have to pay a huge amount either as a licence fee or to regain the rights of his own name. In fact Jeremy Lin himself later filed trademark applications for "Linsanity" and "Jeremy Lin" in Hong Kong, claiming priority over his US applications.

These stories are not uncommon or unheard of. Many multinational companies have encountered similar experiences since China has a "first-to-file" rule. It should also be noted that although China has adopted the International Classification of Goods, it has its own system of classification, into sub-classes, depending on the similarities of goods or services; thus any applicant should ensure that all relevant sub-classes have been filed for to prevent the surprise of others filing with an identical or extremely similar trademark in the same Class heading but in a different sub-class. This blocks any similar or identical trademarks from being registered for the similar or same goods and services in view of the existence of the prior trademarks. Although some companies may only use China as a manufacturing base for export, registration of the trademark is still essential, otherwise the manufacturing activities and shipment for export abroad can be halted and seized by the registered proprietor of a China trademark.

Insofar as adapting to the domestic market in China is concerned, Chinese consumers perceive trademarks in Chinese to be preferable as they find it easier to pronounce; although there is a "the grass is greener" element for Chinese consumers of luxury products bearing English trademarks, nevertheless it would be prudent to also register the Chinese version so as to preclude potential problems, eg, if the Chinese version is phonetically indistinguishable from the English one. Therefore, when registering trademarks in China, it is important to consider also filing a Chinese-translated or transliterated version.

In addition to ensuring a presence in the China domestic market, it is time to take action and to immediately check the availability for the registration of any trademark of interest, and to then secure registration forthwith. The earlier one files for trademark protection in China, the less risk there is that one's business will find its trademark hijacked. As a practical tip, filing a Chinese version of a trademark can help any business to be recognised and become distinctive in this Chinese-speaking market.

One may even find filing a trademark application for the Chinese version to be not just an advantage but rather a necessity, because trademark infringements – in addition to trademark squattings – may well occur with the Chinese version of a registered trademark.

As an example there is the case of Starbucks, which had registered its Chinese trademark. Starbucks was able to stop such an infringement which occurred in Shanghai, where a coffee shop was using its trademark in Chinese – "Xingbake" ("Xing" is the Chinese translation of "Star" whilst the combination of "ba" and "ke" is the Chinese transliteration of "bucks"). Since Starbucks had registered "Xingbake" prior to the formal establishment of the Shanghai Xingbake, trademark infringement was found in both the trial and the subsequent appeal, and damages of 500,000 renminbi was awarded to Starbucks.

This also clearly shows that there is no merit to the well-touted claim that "foreign companies" are disadvantaged when involved in legal actions in China.

Web link:
http://www.whoswholegal.com/news/features/article/29790/do-not-delay-8211-seek-ip-protection-china/