Foreign companies, including fashion brands, have significant issues protecting their intellectual property rights (IPR) in China. Today, it is common to find counterfeit cars, shoes, bags, software, restaurants and even retail stores in China. (Like the one below!) Many in the U.S. view China as a black hole for IPR that is only navigable by those with deep pockets, and that even for those the possibility of an equitable remedy is questionable. However, whether one is a major player in the Chinese market, or is just becoming conscious of the need to protect IPR in China, there are some methods of protection available under the current regulatory framework of China.
IPR Regulatory Framework and Acquisitions of Rights.
Believe it or not, in terms of the legal regulatory framework established to protect IPR, China’s system is comparable to most developed foreign nations. First, China is a member of the World Intellectual Property Organization (WIPO) (for details on its history with WIPO, see this article
) and a signatory to the major international IP related conventions, including the World Trade Agreement, thus obligated to follow the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS
). Under TRIPS, China agrees to uphold the standards, enforcement procedures and dispute settlement agreements between WTO members. In addition, China has implemented national statutes that govern IPR including Patent Law 1979, Trademark Law 1989, Copyright Law 1992, and Unfair Competition Law 1993. (Most of which have been updated as recently as 2010). It is important to remember that China is a “first to file” system, which means rights are not granted on use without registration. Therefore, foreign companies are afforded the best IPR when they submit an individual English and Chinese-language application for each mark with the corresponding administrative agency, withstand the three-month opposition period, and obtain a registered mark. For example, to register a trademark, the applicant should file with the Chinese Trademark Office (CTO), which is part of the State Administration for Industry and Commerce (SAIC).
Enforcement of IPR. Once the mark is registered, foreign companies still struggle to protect their marks from infringement despite the variety of enforcement options available. The IPR enforcement actions available to foreign companies in China include: (1) Warning Letters or Cease and Desist Letters, (2) Administrative Actions, (3) Arbitration and Mediation, (4) Civil Litigation, (5) Provisional Remedies, and, (6) Criminal Action. However, each of these enforcement mechanisms has their own set of difficulties. First, while administrative action is preferred to other forms of enforcement because it is viewed as less costly and more orderly than litigation, administrative agencies operate under a statute of limitations of 2 years and have extremely weak penalties. Second, unknown third-party infringers have the backing of the State, which many discourages foreign IP owners from choosing arbitration or mediation over method with greater discipline. Third, while Chinese courts have the power to order preliminary injunctions or provisional seizures, that power is not frequently exercised; the courts are very conservative with issuing these orders. Finally, litigation, whether civil or criminal, offer longer trials and underutilized punishments, which most commonly include fines.
Problems with IPR Enforcement in China. So, if China has all the proper rules in place to protect IPR and remedies available, why is it so widely believed to be ineffective at enforcing IPR? Well, China does face some unique problems that negatively affect the IPR regulatory framework, such as: (1) Inexperienced judicial system, (2) Under-deterrence of infringing behavior, and, (3) a habit of local protectionism. While improvements are being made, the Chinese judicial system is suffers from a lack of prior case law for IPR, new judges, and a complicated system of remedies that either involves overly harsh criminal punishment that is underutilized or over utilized administrative remedies that are too weak. And overall, one must take into account the tremendous transformation the Chinese economy has undergone and is still undergoing – that from a more pure Communist model, with the State owning everything and few notions of personal property, to a more Capitalist model, which includes individually-owned property, including the ever-elusive concepts of “intellectual property” – concepts which seemingly elude even Westerners who were born and raised with such concepts.
IPR Enforcement in China and IPR. So what does all this mean for the Fashion Industry? Many major players in the Fashion Industry are still struggling to establish their basic IPR in addition to battling the growing threat of counterfeiting. For example, Hermes has been fighting for over 15 years to register its Chinese-language trademark because a Chinese based fashion outlet, Dafeng Garment Factory registered a trademark, “爱玛仕”, which was dangerously similar to the Chinese name of Hermes, “爱马仕”. Hermes has yet to successfully argue for the cancellation of the similar mark. Thus, in practice, trademark issues are still a major threat to the IPR of the Fashion Industry in China, despite the development and progress of Chinese intellectual property laws. As things stand today, it seems that the best way for the Fashion Industry to protect its IPR is to (1) file early and often, (2) utilize three-dimensional mark protection (Address the three linguistic forms of Chinese language: form, sound and meaning), and, (3) protect your mark across all sectors, not just the ones you are active in.
For more information on Intellectual Property Rights in China, look for the extended article on this topic coming soon by the poster or check out Intellectual Property Law of China, a great book on Chinese IP law edited by Michael Moser.