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Learning to dance with the Dragon: Preparing businesses for trade with China

Date: 15 March 2016
Author: Mary Turonek
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Despite the slow-down in demand for resources, Australian non-resource exports to China have experienced strong growth as the Chinese economy generates greater demand for consumer goods, high end manufacturing and services. Chinese consumers particularly value clean foods, high value manufactured goods, tourism and education.

So it is hardly surprising that the 2014 China Trade Report, published by the Australian China Business Council (ACBC), reported that almost 90% of Australian businesses trading with China are optimistic about future prospects and see China as key to their plans for global expansion.

Pirates and guarantee of supply

An essential component of any business plan to engage Chinese markets is a trade mark protection strategy. Although the Chinese government is tightening legislation around trade mark rights so as to protect foreign trade mark owners, trade mark protection in China has never been more important, not only to counteract piracy and counterfeiting but to ensure the continued ability of Australian businesses to export their manufactured goods from China.

China is one of the few countries in the world where goods can be seized at Customs as potentially infringing products as they leave the country. If Australian businesses fail to register their trade marks in China, the trade marks can be at risk of being appropriated and registered in China by third parties. The appropriation of foreign trade marks is a growing business in China from which local people are even now making a living. What Australian businesses would consider as ‘legitimate goods’ can then be stopped at Customs by the local registered trade mark owner, preventing the goods from leaving the country until payment of ‘licence fees’.

Authorisations or Licences

Chinese manufacturers also recognise the importance of a robust trade mark protection strategy to avoid getting caught up in trade mark infringement suits from local Chinese trade mark owners. Failing to register trade marks in China also leaves your Chinese partners liable to trade mark infringement. So it is not surprising that Chinese manufacturers are adopting the practice of requiring signed authorisations or licenses from the foreign trade mark owners and for these to be registered at Chinese Customs.

This authorisation prevents the products being seized at Customs as potentially infringing products. The rights granted by the authorisations or licences need to be clearly defined. For example there should be no right to sub-license without prior approval, the rights do not extend beyond the manufacture period, and the trade marks and how they are to be used should be specified.

A trade mark checklist before manufacturing or selling in China

Australian companies manufacturing and selling in China need to be proactive in enhancing their trade mark protection, and a prudent company will search the availability of its trade mark and register before manufacturing or selling in China. The preliminary steps are:

  1. Conduct searches to ensure the availability of your trade mark for use. For example, placing your brand on goods that are manufactured in China is considered use in China even if the goods are only intended for export. So “use” of a registered mark in this way could result in your products being seized by customs or infringement proceedings.
  2. Register your trade mark at the earliest opportunity after searching. Securing registration in China, where there is a huge backlog at the Chinese Trade Marks Office, can take a number of years (although once registered, your rights are in most cases effective from the original date of filing).
  3. Consider filing your trade mark for all products or services for which you intend to use the mark.
  4. If the mark is intended to be used in a logo form, also file an application for the logo.
  5. Consider creating and registering other versions of your trade mark to gain added protection. You may consider registering your brand as your word mark, and logo, together with a Chinese literal and/or phonetic translation (in Roman characters) and a Chinese transliteration (in Chinese characters). This bundle of registrations offers broad protection against piracy.

The reasons for seeking registration of your marks earlier rather than later

Chinese law generally does not protect a trade mark unless it is registered in China. China is a first to register country which means that unless your trade mark is well-known (and that is a difficult exercise to prove) whoever registers a mark first in China is the trade mark owner.

Litigation to displace registered rights is a costly and often ineffective exercise. Therefore, it is always cheaper for a company to register its trade mark than to litigate.

The “take home” message

To get the broadest possible protection, it is useful to secure registration of your trade marks as early as possible and in as many forms and variations as is commercially affordable. Of course, this means additional work and cost when applying for registration, but can provide very effective trade mark protection. To meet the challenges of Chinese law and practice, it is necessary to be armed with a strong portfolio of trade mark rights.

For further information, please contact Mary Turonek.

This article originally appeared in Family Business Australia on 28 January 2016.

Tags:  China, Business, Mary Turonek, ACBC, Trade Marks
 
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