The lure and potential of China to food and drink manufacturers is obvious.
China has a burgeoning middle class with an ever-increasing disposable income and Western brands are highly regarded in comparison with local products, from both a health and safety perspective and thanks to their cachet as status symbols.
In whatever field of the food and drink sector you look, there are opportunities for growth, whether you’re a big multinational or a small UK business looking to export. For United Biscuits (UB) China is a primary target because whilst per capita biscuit consumption is less than half the world average, total biscuit consumption in China is now the fourth largest in the world. This has been a contributing factor in UB’s 50% growth in UK exports since 2012.
Likewise, in 2011 Nestle acquired 60% of Hsu Fu Chi (HFC), one of the largest family-owned confectioners in China, to give them access to HFC’s network of sales and distribution channels. They have high hopes for their KitKat bar, having launched in China at the start of the year.
Online sales also offer a significant opportunity as there are more than 21 million online shoppers in China buying British products. This potential has certainly been recognised by US food conglomerate Mondelēz who have entered a strategic partnership with Chinese e-commerce company Alibaba as part of their goal to generate over $1bn of e-commerce revenue by 2020.
When entering the Chinese market, locking down your intellectual property and making sure it supports your business plan is key. There are numerous obstacles to overcome and pitfalls to be avoided. Here are our lucky seven tips for protecting your business and brands in this exciting but risky market.
1. File your trade marks and other rights early to beat the squatters.
In the UK you start building up unregistered rights as soon as you start using a mark. By contrast, China adopts a strict first to file policy so priority usually goes to the person who files first rather than the first user. This system is increasingly exploited by local companies that scour the UK and European trade mark registers and file equivalent Chinese applications in their own name.
In those circumstances the squatter can stop the legitimate owner using their own trade mark in China, including for manufacture and export of products. Squatters have also been known to file utility models that are near exact copies of devices and then enforce them against the legitimate owner when the products are exported from or imported to China.
More often than not the only option for the legitimate owner is to buy the trade mark or utility model from the squatter, often at huge expense. A squatter mark can also cause serious problems when negotiating JVs and other collaborative partnerships with local Chinese companies (which is often the best way to enter the market).
2. Create and protect a Chinese character version of your trade mark.
The majority of the Chinese population won’t recognise Latin characters so choose and file a local version as early as possible to avoid a version you don’t like being adopted by customers, or a squatter applying to register your version. Get local advice to make sure the characters are appropriate and will appeal to consumers; any negative connotations could seriously damage your brand’s growth and sales.
3. Make sure your application covers the right products. Beware of the local system and think ahead.
The Chinese Registry operates under a complex “sub-class” system so what might be considered an all-encompassing broad term in the UK will not necessarily include all of the relevant items in China. There are other local quirks too. For example, retailers should be aware that protection for “retail services” per se is not possible, although there is a combination of terms that provides equivalent protection. Again, getting local advice early on is key.
Also make sure that you cover the specific products of interest to you both now and in the future, as well as additional items that will give you as broad a scope of protection as possible. This will help you prevent third parties encroaching on your territory as your business grows.
4. Make sure your business partners sign robust contracts.
This applies to manufacturers, licensees, distributors and anyone else you’re working with out in China. Contracts should include clauses that acknowledge you as the owner of the IP rights and prevent the other party applying to register your marks or anything similar as a trade mark, domain name, or anything else.
Hopefully you will never need to rely on these clauses but relationships do break down and being smart at the outset can help to protect you against the squatter issues outlined above.
5. Document your use in mainland China.
This can be helpful to show to your business the proactive steps you and your team have been taking to protect your brand, as well as being good copy for press releases. Beyond that it is a useful tool to demonstrate to the authorities that your trade mark has acquired a reputation in China. Where a mark has a reputation it can mean broader protection, so you can take action against third party marks for products that fall in different “sub classes” from your own.
Evidence of sales, invoices, turnover, profit and tax, regions of sale, rankings in the industry, advertisements and advertising expenditure, catalogues, brochures, promotional materials, advertising contracts, awards, positive reports by the media and survey results are all useful.
6. Take care with assignments of intellectual property rights.
Chinese practice differs from UK and European practice in a number of ways, notably in relation to assignments. Assignment documents which relate to IP rights generally and don’t itemise individual trade marks are fine in most countries, but the Chinese Registry will not record an assignment unless the specific trade marks are listed. Ultimately this means the trade marks will remain on the Chinese register in the assignor’s name even though they have been legally transferred. This can cause problems because it is not possible to take action against a third party’s application or use if the trade mark is still in the name of the previous owner.
Furthermore, the old trade mark could block the registration of any new application filed by the assignee.
It is important to take prompt action to record assignments at the Chinese Registry. The recordal of an assignment can take many months to complete so failing to do this early on can lead to big problems in enforcing your rights.
7. Obtain registration certificates.
The Chinese Registry does not automatically issue registration certificates for International trade marks that designate China but they are available on request, at a charge. This is crucial as you will need a certificate to enforce your rights in China. If you wait until you actually need to enforce the mark then this can delay things by several months while waiting for the Registry to issue the certificate. Applying for a certificate as soon as the mark registers is highly recommended.
If you would like to discuss any of the issues raised in this article, then please contact Edward Carstairs via email@example.com.