It is likely that if asked to name the Chinese brands they are familiar with, most people outside China would be able to come up with a handful at most—and they would probably be the brands of major players like Lenovo, Alibaba, Haier and Huawei. That situation, however, is rapidly changing as more and more Chinese companies, including Small and Medium Enterprises (SMEs), which in fact account for the vast majority of Chinese businesses, are looking to expand beyond Chinese borders.
There are various reasons for this, but it is essentially being driven by a combination of government policy and business necessity. On one hand, the recent introduction of the Belt and Road Initiative (BRI), a massive global trade and infrastructure programme sometimes described as a 21 century Silk Road, has given a huge boost to a government ‘going global’ policy that was introduced as long ago as the early 1990s. On the other hand, with China’s economy maturing and labour costs increasing, many businesses are deciding to take the initiative and seek for foreign markets. Overseas expansion is firmly on the agenda.
Both the volume of Chinese brands and the trend towards overseas expansion can easily be seen in recent global trademark filing activities. A Compumark China Trademark Report published last year found that Chinese brands had gone from number ten in the world by filing volume to number two after the United States in just 4 years. By now, they may well be number one. The actual numbers are breathtaking: in 2017, China’s domestic trade mark register was approximately ten times the size of the US register. And, interestingly, in the same year, Chinese trademark owners filed nearly 120,000 foreign applications. If this had been a separate register it would have ranked above the European Intellectual Property Office (EUIPO) as the eighth largest in the world.
There is no doubt that this expansion brings great opportunities for brand owners. But, particularly for those with limited resources and little experience of overseas markets, it also brings great risks. Most of the Chinese brand owners that have successfully established their brands overseas so far are large State Owned Enterprises (SOEs) or multinational companies. SMEs, with fewer resources and less experience working with other countries, are likely to encounter more difficulties along the way.
This article aims to provide some useful information for those companies, indicating first some general practical issues that need to be addressed and then providing some guidance in relation to issues that we see as being particularly important: the need to take proper account of cultural differences and sensitivities; and the possibility of encountering bad faith filings. There are bound to be challenges along the way, but they should usually be able to be overcome. The key is careful preparation and the capacity of adaptation.
‘The devil is in the detail’—some practicalities
Brand owners and in-house counsel are often surprised by the differences in trademark systems that exist from one country to another and by the different methods of working that exist. So, before they venture out, there will be some homework to be done. A proper awareness of the legal and cultural differences that are likely to be encountered is critical. Practicalities are all-important.
Here are some of the most important things brand owners should be considering and implementing very early on.
● Trademark clearance searches in key jurisdictions should be conducted as early as possible to identify existing rights for the same or similar marks in relevant classes.
● Where budget permits, applications to register primary trade marks in key jurisdictions should be filed not only in relation to core goods or services, but also related goods and services that may be of interest for future expansion. This consideration is more important for first-to-file jurisdictions where rights are generally acquired by registration.
● Local help should be sought at an early stage, either directly or via a Chinese agent. Foreign agents should be selected carefully: they should have appropriate specialist experience and, preferably, experience working with foreign companies. A good local agent can help ensure the deadlines of Trade Mark Office, which are variable and can be short, are met, and various pitfalls avoided.
● Consideration should be given to using the International (WIPO–Madrid Protocol) system and claiming the 6-month Paris Convention priority. Both are useful where businesses early on have plans to expand into a number of countries, but later narrow it down to just a few. There are pros and cons to the International system: when a mark or country is of particular importance, it may be more appropriate to go down the national route. But where it is appropriate, both time and money can be saved.
● It is important to make sure, at the outset, that expectations in relation to things like budget, timing and method of communication are fully understood and agreed with the foreign agent. Working with a foreign agent will not be the same as working with a Chinese agent. If time is not taken to establish a proper foundation early on, there are bound to be frustrations.
● There are likely to be basic local requirements that must be taken into account; for example, countries in the Middle East generally have a Friday/Saturday weekend, and during the month of Ramadan, which varies according to the the Islam calendar, the working day is reduced to 6 hours. As the official language is Arabic, translations will be key to successful trademark prosecution and enforcement.
● Care should be taken to check and understand local trademark rules, procedures and statutory deadlines. It should not be assumed that they will be the same as in China. To illustrate the point, here are some examples.
-The length of time it takes to register a trade mark varies greatly from country to country. Straight forward applications usually take 4 – 5 months in Saudi Arabia, but up to 24 months in the Philippines and Indonesia. In Russia, for an additional fee, registration can now take as little as 2 – 3 months if no substantive objections are raised.
-In some Middle Eastern countries trademark renewal dates are set in relation to the Islam (lunar) calendar.
Because the lunar year is, generally, 11 days shorter than the Gregorian calendar, but can vary depending on sightings of the new moon, it is important not to leave renewal instructions to the last few weeks.
-Both the period within which an opposition may be filed and the form an opposition takes vary enormously from country to country. In Thailand, for example, a Notice of Opposition must be filed within 60 days of publication and the Registrar makes a decision on the basis of written submissions, whereas in the US, a Notice of Opposition must be filed within 30 days, and the matter is dealt with by a panel of 3 Trademark Trial and Appeal Board judges and subject to a much more complicated and costly procedure.
-In common law countries trademark rights can be acquired on the basis of use, and they can be lost as a result of non-use. It is important both to use the mark and to retain appropriate evidence of use. In the US and the Philippines, it is also necessary to periodically submit a Declaration of Use with Supporting Evidence of Use in relation to the relevant goods or services.
-In Indonesia, cancellation actions must be brought before the court. There is no relevant administrative procedure.
Getting cultural issues right
When western brand owners began moving to China, the difficulties often seemed insurmountable. What worked in their home countries wasn’t working in China anymore. Now Chinese brand owners going abroad are facing many of the same difficulties. Luckily, they can learn from the experience of western companies that have made the reverse journey.
In relation to selecting an appropriate brand, there are two main issues, both of which involve an adequate knowledge and understanding of the culture in the target market. The first is making sure your brand translates accurately into the local language, the second, that it is culturally sensitive and not in breach of any local laws.
In relation to the first issue, Coca- Cola’s well-known branding experience in China provides an excellent example. When local shopkeepers decided on simple transliterations of the words Coca-Cola, without giving any thought to meaning, the results were indeed very strange: ‘female horse fastened with wax’ or ‘bite the wax tadpole’ “ 蝌蝌啃蜡” (Kē Kē Kěn Là). Coca-Cola’s ultimate choice of the phonetically similar “ 可口可乐” (Kě Kǒu Kě Lè), however, which means something like ‘making the mouth happy’, was inspired.
Another interesting example illustrating the importance of translation is Mercedes Benz. Initially, it did not use a Chinese translation at all and the Chinese were referring to it as “ 笨死” (Bèn Sǐ), which sounded similar to Benz, but unfortunately meant stupid or foolish death. Mercedes Benz subsequently chose “奔 驰”. It sounds similar, (Bēn Chí), but means running quickly, which is much more acceptable.
So, the first step for a brand owner planning to expand overseas will often be determining whether to create an entirely new brand, or to translate its existing brand. If the latter path is adopted, giving proper consideration to the translation will be all-important. The company might decide to transliterate the mark, taking account of meaning, as in the Coca-Cola example; or in some cases a simple translation might be appropriate. But whatever it decides to do, it must take proper account of the cultural environment in which the mark will be used.
It is important to understand the cultural significance of words as well as their literal meaning. Words that have a positive connotation in one culture might have quite the reverse in another. For example, there is a brand of lipstick in China “ 芳 芳”(Fangfang). The extended meaning of the character “ 芳” is flower, the perfume of a flower, or something lovely or wonderful. The word “ 芳芳” is often used as a girl’s name in much the same way as Rose might be in English. In English, however, the word ‘fang’ has a quite different meaning: a fang is a large, sharp, pointed tooth, often of dogs or wolves, or the tooth of a venomous snake. It is certainly not a word person would want to use in relation to lipstick.
However, many Chinese companies have already taken their brands abroad successfully and most of them can be learned. Lenovo, for example, one of the country’s leading exported brands, gave very careful consideration to branding before it set out. When it found that its original name ‘Legend’ was already being used by many businesses overseas, it decided to come up with an entirely new and distinctive name that would fit its global aspirations. The company wanted a truly global name, one that will not offend any local cultural sensibilities. In addition, being aware that many buyers in the West still associated ‘Made in China’ with poor quality and cheap goods, it wanted a name that would not indicate an association with any particular country—and it decided that ‘quality’ should be the key brand value. The name it chose is “Lenovo”, combines “Le” from “Legend” with the Latin word novo, which means to make new, refresh or invent. Leading home appliance manufacturer, Haier, has a similar story to tell. It is also one of China’s leading exported brands, and it took great care at the outset to adopt a distinctive global mark that would work well outside China. Like Lenovo, it decided that quality should be the brand’s key value. Another important factor in the success of both these companies is that they have always made a point of tailoring their branding and marketing strategies to the particular requirements of each local market.
In order to ensure that brands take account of cultural sensitivities and are not in breach of local laws, it is necessary to look separately at each target market. By way of example, we refer below to some of the factors that must be taken into account by companies considering entering any Islamic markets, including the Middle East, Malaysia and Indonesia; markets currently considered very attractive for investment.
Although some Islamic countries are much stricter than others, brand owners should have an awareness of cultural characteristics, social customs, and key dates in the religious calendar, in order to avoid offending any local sensibilities. They should also be aware of the following specific legal restrictions:
● Signs deemed to breach public morals are not registrable as trade marks.
● In most Middle Eastern countries, trademarks are not registrable in relation to pork or alcohol products, or in relation to various symbols including the symbols of the Red Crescent or the Red Cross.
● In some countries, the sale of alcohol is banned altogether and its promotion is highly restricted in most, which means that advertisements should not feature alcohol or the consumption of alcohol, even if only incidentally.
● Use should not be made of any material that contains overtly sexual references or images or contains displays of affection; language that could be considered offensive or disrespectful; or images of violent or disorderly behavior.
Each country, however, may have its own specific requirements and restrictions. It will be necessary to check. Thailand, for example, is another country with very specific restrictions, particularly in relation to the use that can be made of references to, or images of, the Royal Family.
Bad faith applications
Chinese brand owners thinking of venturing out of China need to be aware at an early stage that, even with brands they might think are not particularly well-known, they may be vulnerable to trademark pirates. We have recently seen instances of a Chinese party filing a bad faith application abroad on the basis of its knowledge and assessment of the brand in China. In any country they intend to operate, brand owners should, therefore, make sure they have an effective system for monitoring trademark applications and managing oppositions. It could mean the difference between success and failure.
The bad-faith filing scenario is both familiar and widespread, not restricted to any country: a third party applies to register the mark of another party, usually on the assumption, or in the hope, that the trademark owner will be forced to buy the mark. Particularly in first-to-file countries, i.e. countries where the right to a trade mark is, with some exceptions, determined on the basis of the first to register, rather than the first to use, this can create serious problems for a brand owner.
It is common for Chinese companies venturing abroad to find that their marks have been pirated. It happened, for example, to Tong Ren Tang, the wellknown Chinese medicine manufacturer, in Japan, South Korea, America and Europe; and it happened, in Germany, to both Hisense Co., Ltd, the major appliance and electronics manufacturer, and Wangzhihe Food Group, a company famous for its fermented bean curd.
In Indonesia, where Chinese companies are now the top foreign filers, bad faith filing is proving particularly troublesome. Trademark applications are published after a preliminary examination, following which there is a period of two months in which to file oppositions. Because of the relatively poor quality of trademark examination in Indonesia, it is likely that, in the absence of an opposition, a bad faith filing will proceed to registration. Although the new TradeMark Law provides that bad-faith applications should not be registered, in practice, examiners tend to wait for the trademark owner to raise the issue.
This can create serious problems for the brand owner because, whereas in many countries trademark cancellation proceedings are conducted at Trade Mark Office level, in Indonesia they must be litigated in the Commercial Court. The procedure is complex and the cost is high. A cancellation action brought by the leading Chinese CTV manufacturer Skyworth Group Co., Ltd against a local Indonesian company shows just how difficult, time-consuming and costly it can be to recover a trademark once the application has proceeded to registration.
When Skyworth applied to register its word mark:
It found that the local company had already registered a device mark that incorporated the word mark and was similar to Skymark’s own device mark:
Skyworth brought a cancellation action in the Jakarta Commercial Court on the basis that its mark was well-known internationally and the Defendant’s registration had been made in bad faith. It relied on trademark registrations in 12 countries: Australia, the US, Germany, Canada, Sweden, UK, Israel, New- Zealand, Malaysia Philippines, South Africa and Brunei, and on promotional material. Evidence of Actual Use in Indonesia is not required. The Defendant succeeded at first instance, which meant that Skyworth had to appeal to the Supreme Court.
In whatever country they intend to operate, it is important for brand owners to have an effective system in place for monitoring trade mark applications and managing oppositions. In Indonesia, it is particularly important.
Conclusion
So far, most Chinese brands have been successfully established overseas belong to SOEs and multinationals. Even if they experience difficulties along the way, these organisations will generally have the resources and the experience to navigate their way through them. That is not always going to be the case with smaller companies. For them, careful preparation is crucial. They need to be aware from the outset of the kinds of issues that might arise and, as far as possible, make sure they are prepared for them.
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