Recently, the news regarding a high-profile fight over the sale and consumption of a counterfeit version of a popular snack, called the “Shaxian Snacks” or “Sha County Snacks,” in Wuxi, Jangsu Province, has raised concerns from various circles in China for the issue of collective marks. As a famous brand of Sha County (or Shaxian), Fujian province, the “Shaxian Snacks” is in nature of a collective mark. Compared with ordinary marks, collective marks have their own requirements in registration and administration, and there also exist certain difficulties in safeguarding the reputation and rights of collective marks and cracking down on counterfeiting.
Between High Profile and low Profile
According to relevant media reports, in July 2011, a complaint was filed with the local industrial and commercial administration against fifty Shaxian Snacks restaurants in Wuxi for trademark infringement, which triggered heated discussions among industry figures.
When the China IP reporter called the person in charge of Shaxian Snacks Trade Association (SSTA) inquiring about the high profile fight against counterfeits in Wuxi, the person in charge responded that it was merely a small scale rights safeguarding campaign launched by the SSTA Liaison Office in Wuxi and the SSTA had no intention to publicize it nationwide. The low-profile attitude held by the SSTA was a sharp contrast to the previous high-profile battle against fake Shaxian Snacks bars, which somewhat confused the reporter. The person in charge gave no further explanation for this.
Just before the telephone interview, Luo Xu, Secretary-general of SSTA, expressed during a separate interview that their filing of an infringement complaint with Wuxi Industrial and Commercial Administration was intended to regulate the use of the trademark “Shaxian Snacks” and prevent it from being misused in order to protect the brand image of this famous trademark. “We require that the trademark users join the SSTA, to become a member and accept its constitution. On this basis, we grant them rights to use the trademark by issuing them member certificates and collective mark license.” Mr. Luo claimed that maintaining the image of the trademark was to ultimately guarantee the interests of the trademark users.
The China IP reporter subsequently researched the site www.ctmo.gov.cn and discovered that early in 1998 the SSTA had registered the service mark “Shaxian Snacks” with China Trademark Office. In 2006 it registered the collective mark “Shaxian Snack Trade Association and Graphics.” The mark covers services in class 43 for restaurants, snack bars, hotels, moving for food supply, cafes, cocktail lounge services, etc.
Under the applicable Chinese laws, all registered trademarks are under the protection of the country and no one may use a registered trademark without authorization from the trade mark owner. It can be seen that the Shaxian Snacks’ rights protection campaign in Wuxi is based on law.
It is also reported that presently 63 varieties of Shaxian Snacks have been recognized as “Fujian famous snacks,” and 39 “China famous snacks.” The service mark “Shaxian Snacks” was certified as a famous trademark in Fujian in 2005. As of 2010, an estimated 19,000 households have been engaged in the business surrounding the “Shaxian Snacks,” involving more than 55,000 persons, and annual business revenue has reached nearly 4 billion Yuan.
Just as with “Lanzhou hand-pulled noodles,” “Chengdu Snacks” and “Chongqing Hot Pot,” with the increasingly expanded influence of Shaxian Snacks, currently a variety of Shaxian Snack bars have begun popping up all around the country, although the vast majority of them are not authorized by the trademark owner. In spite of a lack of further explanation from the SSTA, we still have enough information to get a glimpse into how relevant laws and regulations as well as local practices are creating the dilemma that is confronting collective marks.
The Distinction Between Ordinary and Special
Under China’s Trademark Law, collective marks are defined as “the marks that are registered in the name of groups, associations or other organizations and that are provided to the members of the said organizations for business activity use, thus to indicate the membership of the users in the said organizations.” Collective marks belong to public organizations consisting of multiple natural persons, legal persons or other organizations and indicate that the goods or services are from a collective organization. For example, “Zhangqiu Scallion,” “Ningxia Medlar,” “Nanjing Salted Duck,” “Zhenjiang Vinegar” and “Foshan Ceramics” are all typical collective marks.
It can be seen from the Trademark Law and the Measures for the Registration and Administration of Collective Marks and Certification Marks that in comparison with ordinary marks, the specialties of collective marks are embodied in the following characteristics:
First, the law provided for special requirements with respect to the applicants of the registration of collective marks and the written application. Unlike ordinary trademarks that may be applied for registration by any natural person, legal person or other organization, collective marks can only be applied for by collective organizations. A collective organization shall, in applying for registration of a collective mark, make a statement in its application documents and submit documents supporting its qualifications, furnish documents certifying the subject and the rules for administration qualify them for exclusive use of the collective mark. If there are any amendments to the rules, the trademark office must be provided notice.
Second, the registrant and the user of a collective mark are separated. The registrant of a collective mark is a collective organization and its members are the users of the collective mark. The collective organization itself does not use the collective mark.
Third, different from ordinary trademarks, collective marks have their special functions. The basic function of ordinary trademarks is to endow the goods or services of a particular enterprise with distinctiveness so as to distinguish from the goods or services of its competitors, whereas the basic function of collective marks is to invest the goods or services of the members of the collective organization with common features, indicating that those enterprises are members of a collective organization so as to distinguish from non-collective members. To become a member of a collective organization, the quality of the goods or services of the enterprise should meet a certain standard. As to the enterprises that are nonmembers of the collective organization, their goods or services usually cannot meet that standard. Thus, what the collective marks demonstrate are not unique, but instead common characteristics shared by all members using the mark.
Fourth, with respect to the constituents, collective marks indicating the origin of goods or services are different from ordinary marks. Under paragraph 2, Article 10 of the Trademark Law, the place names of the administrative districts at the level of county or above may not be used as trademarks. However, those used as part of a collective mark are exceptional.
Fifth, collective marks are prohibited from being licensed to others for use. As a sign of membership, collective marks are not allowed to be used by nonmembers. The transfer of collective marks is also subject to certain restrictions. Non-collective organizations cannot be transferees of collective marks. The laws in some countries even explicitly prohibit the transfer of collective marks.
Between a Warm Welcome and a Cold Welcome
The merits of collective marks are obvious. According to Zhu Hongtao, trademark agent in Anhui Xinda Trademark Institute, the advantage of a collective mark is that it can effectively combine the production management capacity of all individual members through joint use of the same trademark without changing the identity of individual members, thus forming quantity advantage, saving cost, achieving size effect and protecting the industry.
Once a collective mark is registered, the resources of the numerous decentralized small businesses can be pooled together and managed uniformly, which is beneficial to the establishment of a collective reputation and expansion of influence and the overall promotion of industrial competitiveness. Moreover, the use of a collective mark has an advertising effect and can expand market influence. In the international market, the joint use of a collective mark can also add a bargaining chip to the negotiating table in event of trade friction.
Industry insiders point out that collective marks are an important factor that drives the industry forward. A collective mark with a good reputation can not only enhance the overall brand image of a region but also become a brilliant business card of a city. “Nanjing Salted Duck” and “Zhenjiang Vinegar” are good examples.
It is reported that in Shunde, the “Capital of Chinese Home Appliances,” there are over 3000 enterprises manufacturing home appliances, thereby Shunde Section of 105 National Road has become a world-famous industrial belt for home appliances, in which Midea, Galanz, Macro, Vanward and other Chinese home appliance giants are located. Led by the brand “Shunde Home Appliance,” 300 member enterprises of the Shunde Home Appliance Chamber of Commerce maintained growth against the trend in 2009. The annual output value of Shunde home appliances reached 160 billion Yuan and the total export value 10 billion Yuan, accounting for nearly one fifth in the country. As with “Shunde Home Appliance,” Foshan registered successively some collective marks such as “Nanhai Jinsha Hardware” and “Zhangcha Knitting,” which injected new vigor for the upgrading of the relevant industries.
The example of Shunde is not unique in Guangdong. Against the background of the upgrading and reformation of the traditional industries and outside transfer of the production links of enterprises, some places have taken the opportunity to create their regional brands and develop a “headquarter economy,” striving to transform the advantage of an industrial cluster into the advantage of region-linked brands. Therefore, the registration and use of collective marks are deemed one of the important measures for that purpose because the brand effect of collective marks may attract the corporate headquarters to stay in the region.
The persons in charge in some trade associations, such as Foshan Ceramics Industry Association and Foshan Stainless Steel Industry Association, stated that an enterprise, as long as its headquarter was located in Foshan and its product quality met the industry standard set by a collective mark, may use the collective mark irrespective of the manufacture place of the product.
According to earlier media reports, there had emerged a wave of applications for the registration of collective marks in the specialized towns of the Pearl River Delta region. For example, some of the nationwide famous regional brands such as “Guzhen Lighting Decoration,” “Humen Clothing” and “Houjie Furniture,” had all applied for collective marks. However, there still remains considerable doubt as to how collective marks should be used and what the effect of the use is.
Collective marks are not only beneficial to the development of enter prises themselves but also play a unique role in creating regional brands and promoting the overall brand image of the industry. For some places with a long history, collective marks are also brilliant business cards of the cities. In view of this, the enthusiasm for applying for collective marks consistently continued to rise.
Many local governments also spare no effort in promoting and using collective marks. Particularly in recent years, some places with industrial advantages have in succession put forward their brand development strategies. As an important carrier in the development of regional brands, collective marks have been attached great importance and cultivated by the relevant departments.
However, in practice, contrary to the earnest expectation of the governments, many enterprises show no interest in collective marks. For example, in Wenzhou, the capital of brands, some collective marks, which were registered with great difficulty, receive a cold welcome collectively.
It is learned that the enterprises may refuse to use collective marks mainly for fear that their reputation might be affected. The use of collective marks is a “big pot” model. That is, the collective marks are used by many enterprises, which carries with it considerable credit risk. Once an individual enterprise fails to meet the good production practice resulting in serious quality problems and damage the market reputation, all enterprises using the same marks shall pay the price jointly. Such incidents happened in recent years, with the “Jinhua ham incident” and “Longkou cellophane noodles incident” as good examples.
It is widely held by the enterprises that having the reputation of an enterprise’s name at risk based on the conduct of other members of the collective is the weak spot of adopting collective marks. Therefore, the rules for trademark use and industry standards with binding force have become the key to the success of collective marks.
People within the industry state that one precondition that comes with the use of a collective mark is that the industry association must have the power to establish quality standards. This guarantees that the products of the enterprises using the collective marks all reach a higher quality level, which in turn raises the product quality and reputation of the overall industry. Otherwise, the individual quality of those sharing the mark will differ greatly within the entire industry, which will affect its reputation.
But those in charge in some industry associations also cast doubt on the implementation of the “industry standard.” “Presently, quality testing of all products is undertaken by a governmental department. The industry associations have no power and capability to conduct the testing. Therefore, the implementation efficiency of the standard is waiting to be tested.” Aside from the efforts of the associations, the support and cooperation of the relevant departments of the government are critical factors in deciding what role collective marks will ultimately play.
Some people believe that the market’s trust in collective marks comes from strict industry standards and thus the solution to the credit crisis faced by collective marks is to set forth a rigorous industry standard and raise the threshold for accessing membership to an industry. The quality standard in some industries should be detailed and adjusted constantly to keep up with the development of society and meet the demands of consumers instead of remaining unchanged for too many years. The registration of a collective mark is not the final step for every product and the industry associations should formulate strict systems for the use of collective marks. Once a collective mark is registered, no enterprise can use it unless authorized by the industry association. Furthermore, the quality standard set forth by the industry association must be complied with rigidly. Besides, collective marks should be administered in a dynamic way. Those failing to pass the annul test should be delisted and their removal should be made known to the public. Only by this way can a credibility crisis be prevented. Those who use the registered marks without authorization shall be removed.
The Dilemma Between Collective Interests and Individual Interests
In the eyes of many enterprises, collective marks are more like a vase; fabulous but not practical. Many enterprises think that collective marks will ultimately belong to collective organizations because they must be registered by collective organizations and used collectively by member enterprises.
Therefore, they feel more liberated should they choose to cultivate their own brands. What’s more, the power to use and administer collective marks is in the hands of the relevant industry associations, which may cause the enterprises feel somewhat concerned. Hence, it is not difficult to understand why large enterprises turn a blind eye to collective marks and many small and medium sized enterprises are busy in creating their own brands out of their own independent abilities.
Creating a brand is a long-term investment. Restricted by funds, most small enterprises are unable to create their own brands. Thus, collective marks become a short cut for many small and medium enterprises to step on the road to becoming a brand. They want to have a seat in this “collective dining room.” However, enterprises with some strength generally have their own brand strategies. Registering their own marks and creating their own brands are their priorities. Their main focus is on the development of their own brands. Though most express that they do use collective marks on their own products, they generally have their own way of doing things. The common practice is to place their own marks on their brand name as well as the collective marks on newly introduced products.
With regard to this, the persons in charge in the relevant industry associations explained that collective marks and the enterprises’ own marks are not contradictory. Generally, competent enterprises are members of the industry associations and they can use collective marks and their own marks at the same time.
Li Tao, director of brand management department of Guangdong Macro Gas Appliance Co., Ltd., is of the view that for the minority of large powerful enterprises, they may register their own marks and create their own brands, but for the multiple small and medium sized enterprises, collective marks are obviously the best choice for them to increase their popularity, reputation and market influence. Especially in the international competition, the use of collective marks is more helpful for domestic enterprises to make up for their deficiency in size and influence and is beneficial to the achievement of scale economic efficiency.
Some experts express the opinion that for those industries that consist of large and medium sized enterprises or grow well, it is not necessarily helpful to register collective marks. The joint use of collective marks may, on the contrary, block the emergence of independent excellent brands.
Other experts believe that it is fundamentally a matter between collective and individual interests. The emphasis of collective interests may sometimes sacrifice the interests of individuals. If the collective mark of “Quanzhou Shoes” had been successfully registered, would private enterprises of a certain scale as Xtep and Peak have emerged? The reason for the failure of Quanzhou’s collective mark being registered is that many businessmen did not believe in this development model. The biggest drawback of collective marks is that though they can meet the temporary development demands of small businesses, it may not be appropriate for ever y business to consider them a permanently reliable source of recognition to rely on. In fact, at some point they may even throttle back small businesses’ future development opportunities.
Therefore, it is not difficult to see that the object to which collective marks are applied must be competitive industries but not competitive enterprises. For example, shortly after the promulgation of the Measures for the Registration and Administration of Collective Marks and Certification Marks there were people suggesting the registration of “Sinopec” as a collective mark, which is evidently infeasible.
Experts in the field suggest that the relationship between collective marks and the enterprises’ own marks should be mutually beneficial and complementary. On the one hand, collective marks can promote famous brands to a higher level, and on the other hand, famous brands can drive the value of collective marks to dramatically increase. While fully exerting the “collective” role of collective marks, we cannot ignore the basic attribute of intellectual property as a “private right” and thus discover a more realistic and effective path to the administration and protection of collective marks.
(Translated by Zhang Meichang)
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