Established in China for 65 years, the China Britain Business Council (CBBC) is a membership organisation that helps British companies enter the Chinese market and Chinese companies enter the British market. Having forged long-term relationships with local and central government, as well as with the private sector throughout the country, the CBBC can help businesses expand their market in China and in the UK. From 13 offices in China and 11 in the UK, CBBC also provides services to help protect Intellectual Property (IP), as well as direct access to 11 E-commerce platforms.
With protecting IP in China still a complex issue that needs navigating, The Luxury Conversation spoke to Paulo Lopes, the CBBC’s Chief Representative and Director, Business Environment and IP, to learn more.
IP and China might be a topic that causes some concern for a brand strategising their China entry or expansion. What should businesses first understand about the situation with IP?
With everything that is happening in the global trading environment in 2019, Intellectual Property has become a hot topic. China has come a long way in the last few decades in a number of ways – growing economically, reducing poverty for hundreds of millions of people, and in regulating a stable and navigable business environment. Over the years, China became more integrated with international markets, and this has resulted in many laws being updated to help the economy and attract international investment. In 2018 China ranked 46 in the East of Doing Business, up 32 places from its 2017 position.
It is worth mentioning that IP protection in China has changed substantially in the past few years. China recognises the importance of IP and new laws to protect IP have been published and amended or are in the process of becoming law. These include China’s Copyright Law, Patent Law, Trademark Law, E-commerce Law and Foreign Investment Law. For example, the new E-commerce Law, released in January 2019, makes E-commerce platforms liable if they do not take action to take down counterfeit products. This is a prime example of China taking ever more steps in protecting IP online, therefore enabling Chinese and international companies protect their IP online and increase their trade.
Another key example is the establishment of IP tribunals in 16 cities since 2009; in particular, in January 2019, a new tribunal was founded in Beijing under the Supreme People’s Court, establishing the national-level trial mechanisms for IP appeals.
Although we are seeing clear advances in legislation and government structure, there are still improvements required in the enforcement of these laws. Due to the size of China, it will take several years before enforcement can be managed effectively, so as to reduce IP infringements in China. We expect that such results will be seen in the near future.
At CBBC we find that the sentiment among our members, and from the international business community operating in China more broadly, is increasingly positive and we can see a clear path to a healthy business environment. At the same time, it is important for companies to comply with the laws to protect themselves going forward.
What lies ahead in a business’ journey for registering their brand in China?
China operates a “first-to-file” trademark registration regime, which means that the person or entity who is the first to register a trademark will have all exclusive rights to profit from that IP. Therefore, applying for a trademark as soon as possible is a crucial step for foreign enterprises doing business in China – and indeed we recommend that companies do this long before they consider entering the market.
Many foreign companies enter China and realise they cannot sell their products because a Chinese company has already registered their trademark. This is sometimes a partner of the western company who has registered to protect their own interests, and usually the interests of the rights owner too. However, this problem can also arise in what is known as “bad-faith trademark” applications. Bad-faith trademarking is when a local company registers the trademark from another company with the sole intention of blackmailing that company, and to sell the trademark back to them. To avoid this kind of issue, prevention is certainly easier than the cure – and businesses should hire IP agents to check if the trademark has already been registered in China, and quickly move to register any IP which you are hoping to use in China.
There are two options for foreign applicants applying for a trademark in China: (1) National Registration, where a foreign individual or a foreign company can authorise a Chinese trademark agency to apply to the Trademark Office of the China Intellectual Property Administration (CNIPA TMO); and (2) International Registration: where a foreign applicant can file an international application via the World Intellectual Property Organization (WIPO) under the Madrid Protocol which enables the owners of trademark applications and registrations to extend their rights to many other members, including China.
Typically we advise – as do China-specialist trademark attorneys – that it is better to follow the National Registration Route. A number of issues including alignment of classes, ability to register Chinese text, and the rejection rate of WIPO registrations in China mean it is usually advisable to take the local route.
The process usually takes 12-14 months, depending on how smoothly the registration process goes – and it used to take even longer than this. The Chinese government is committed to continue reducing the processing time – and for example, the average processing time for “substantive examination” of a mark was expedited to 6 months in 2018. According to the Trademark Office, the official registration fee is 300 RMB per category which includes 10 products – but note that your fees to your attorney are more than simply this filing fee.
Aside company, brand and product names, what should be registered as owned by a business? How much does a brand need to do in this regard, for example for their individual products?
Trademarking or copyrighting of a brand, or individual products are the most straightforward approaches to protecting IP in China. With a trademark, it is possible to request that online platforms such as Alibaba, JD.com, and Tencent remove counterfeit products quickly and effectively. It is also possible to cooperate with the authorities to destroy counterfeit products if required. It is important also to consider the ‘classes’ in which to register IP, and also if ‘sub-brands’ are also important IP – non-core product lines might not seem like a priority now, but rights to the marks can easily be lost without sufficient forward planning.
Some business face challenges in registering all trademarks or copyright because it simply isn’t possible – rules around registering vague names, place names, some politically sensitive words, and more can cause issues. In such situations, the companies will need to have deeper discussions with e-commerce platforms and convince them to take action to remove products online. Other types of evidence could be provided but it would be up to the platform to decide if the evidence provided is sufficient.
Fashion and lifestyle brands often ask us about design rights for specific garments or top sellers – in reality this is something that is currently difficult to protect under Chinese law unless you have a very unique design (for instance, brands like Dyson benefit from Design Right protection). It is more important to monitor for trademark infringement – and in the constantly evolving and innovative world of fashion to let your design innovation and brand strength speak for themselves.
Several of our members at CBBC face this situation. To solve this problem, we provide direct access to 11 E-commerce platforms for face-to-face discussions through IP roundtables. This enables businesses to explain their situation and discuss solutions in a straightforward and open environment.
Away from just IP, if a brand is looking at such a stage of ‘China entry’ then what are the other key legal matters that they might not be aware of, and need to focus on first?
Like entering into any new market, it is important to start by conducting research on the market in China to understand the different regulations and investigate if the products can be sold in China or not, or if there are considerable regulatory hurdles to overcome.
For example, in the cosmetics industry, there is currently still a mandate for animal testing of products which applies to all imported brands. For products like toys, car seats and prams, and consumer electronics there are requirements to apply for certification from the relevant authorities.
If entering the market with a partner, it is also vital to conduct thorough due diligence to ensure they are the best one to help your business grow in China. Often best advice is to start with simple partnerships, building trust over time, increase your own knowledge and experience of the market and allowing you and the partner to continually work to make sure the partnership is profitable for both sides. It is also really common for western companies to partner with large Chinese partners with a range of different business interests, but not necessarily relevant experience in the sector. Luxury can be a victim of this – a jewel in the crown of an eclectic portfolio. It’s worth taking a step back and considering – if this were in Germany, or the USA, or Japan – would I be considering this offer? The scale, numbers, and potential of China can be blinding, and perspective is vital.
If going in alone, then many foreign entities set up a WFOE – pronounced ‘woofy’ and standing for Wholly Foreign-Owned Enterprise. It is much easier to do this than it used to be – but having an experienced, trusted legal and accountancy firm to work with on this is key to success. More challenging than opening a business is closing one down – and for UK businesses who are unsure they wish to take on the risk of having a permanent entity in market, CBBC offers a service which facilitates UK companies to take on staff without a WFOE, with CBBC acting on your behalf and providing desk and local support throughout China. Many large international companies have started their businesses in China by using our Launchpad service to give them time to assess the market and develop the right strategy and then decide where to open the office and expand in China.
What stands out in recent China entry or expansions that can serve as a good lesson for others?
Any successful business in their home market understands their Value Proposition. What is it about your product or service that makes consumers loyal, and gives you a great brand reputation? The first thing to ask before going to China is – does my Value Proposition make sense for China, and does it still apply?
For example, if you pride yourself on customer service, can you guarantee the same level of service, in Mandarin, in China, delivered by a local team in line with your brand values? If you are agile and deliver new products to market quicker than anyone else, is there really not a local competitor already doing it faster than you?
The biggest challenges and mistakes we have seen from international brands entering the Chinese market are usually from those that have been very successful in the west and believe that their products are the best – no matter what. Some brands have tried to rely on ‘British design’ or a perceived brand value among their target consumer group – and just assume that this will be a license to print money in China.
The road is strewn with examples of those who’ve got it wrong – looking at the PR disasters of D&G, Pizza Hut, and others in recent years, or the complete lack of product and brand adaptation from brands like Marks & Spencer. The Chinese consumer is likely to be your most important global consumer over the next few decades – it’s important not to take them for granted.
From a company set-up perspective I think choosing the correct sales channel is key, and this should inform how you go about your market entry. Selling cosmetics cross-border to China for instance doesn’t necessarily require an in-market structure, but for luxury brands, the offline experience is absolutely vital and means investment in personnel or a trusted agency in China.
There is no one-size fits all solution – and CBBC regularly organises seminar in London on all manner of topics related to doing business in China – including a large number specific to the retail and e-commerce sectors. For more information please contact us – or visit our website.