New Chinese trademark law

Monday, 19 May, 2014
Richard Cookson
South African wineries will be pleased to note that a new trademark law came into force in China with effect from 1 May 2014.

This may not be much comfort to those South African wineries that have seen their wine labels and wine brands "poached" by unscrupulous parties in China, including the natural Chinese translations of the English versions of the brand names. This has happened notwithstanding that some South African businesses have had exclusivity and confidentiality agreements signed in an attempt to provide adequate intellectual property protection. It will also be seen as too late by the wineries such as European winery, Castel Freres, which was ordered to pay more than $5 million in ‘compensation’ following a fight over the Chinese name, “Ka Si Te,” a Mandarin phonetic equivalent of “Castel”. Following years of selling in China and investing in building a brand in that country, Castel lost rights to intellectual property that should have belonged to Castel. There was also collateral damage in that the Chinese “owner” of “Ka Si Te” started enforcing the registered trademark, thereby preventing the sale of Castel’s wine bearing its Chinese brand name. A different problem faced Maison Chapoutier, a major wine brand distributed in China - a clothing brand started using its name. 

Until 1 May 2014, China operated a strict "first to register" rather than "first to market" system irrespective of the fact that the brand might belong to another rightful owner. This allowed parties in China to register and retain the rights to trademarks and brand names where they had no business connection. Typically, this would arise where wineries entered into preliminary discussions with a variety of prospective Chinese distributors or exhibited at trade shows, only to find that when the wineries decided to enter the Chinese market someone else had poached and registered the rights to the brands and trademarks.

The amended Trademark Law took effect on 1 May 2014 which, in summary, attempts to deter trademark hijacking or ‘trolling’ by imposing an obligation to uphold the principle of “good faith” on new filings, and requiring a similar approach by trademark agencies. The new law also clarifies well-known marks and who can recognise them, while prohibiting the use of well-known marks as an advertising tool. There are several other constructive changes made by the new law but, for South African wineries, the most important provision is that the new law adds an article stating that trademarks shall be registered and used by the "principle of honesty and credibility."

In practice, this should enable bona fide trademark owners to claim against those who have acted in bad faith and hijacked a trademark, something that has led in the past to trademark squatting and often forced wineries either to give up trying to enter the China market or having to buy back one’s own trademarks.

The amended law makes it more difficult for trademark hijacking by business partners or prospective business partners, such as distributors and manufacturers or disgruntled Chinese parties that were by-passed in favour of another business partner or marketing strategy.

An application for trademark registration should now be rejected when the trademark applied for is identical or similar in respect of the same or similar goods of another party's trademark that has been used earlier though not yet registered, if the applicant has a contractual or business relationship or any other relationship with the trademark owner and thereby knows, constructively or otherwise, of the existence of the bona fide trademark owner’s prior mark. (A long sentence, but this is how it is described.)

The amended law prohibits a trademark agent in China from handling a trademark application if it knows or should have known that its client's application is an attempt to usurp or hijack another party's trademark or is made with intent to register preemptively in an unfair manner a trademark that is already in use (but not yet registered) by another party that enjoys a certain reputation. Moreover, trademark agencies are prohibited from registering trademarks in their own names for other services outside intellectual property services.

On the precautionary side, the new law requires that the true trademark owner must oppose any trademark application by hijackers, so there is a burden on trademark owners to keep a watch in China for trademark applications carrying their brands.

Despite the fact that China has enacted intellectual property laws and attempted to abide by international regulations in recent years, enforcement and cultural differences often frustrate the efforts of companies to enforce their intellectual property rights in China. South African wineries therefore are advised to continue to use common sense and adopt precautionary measures with regards to intellectual property in China. This applies to wineries already operating in China that may decide to develop new brands for that market or market spin-off product ranges (such as clothing lines).

There remains no substitute for preventive planning and registering your brands early, including your Chinese brand name. If you do not have a Chinese brand name, you will need to find an attractive, appropriate and available Chinese name.

The protection of intellectual property needs to be at the forefront of every winery’s China marketing planning, especially as these new protective measures are in their ‘early days’. The new measures are also not a substitute for sound intellectual property planning, most of which is not that costly to implement.

Richard Cookson
Cape International Associates (Pty) Limited

[Richard Cookson is admitted as an Advocate in South Africa and an Attorney in Hong Kong and England.

He has advised on China transactions since 1984.]

 

Survey on exporting wine to China

Richard Cookson is conducting an online survey on exporting wine to China. Richard’s research is investigating communication, relationships, and the feasibility of alliances between individual wineries to improve exports of wine to China. 

If you are involved in wine exports to China and have not completed his survey, please could you spare 10 minutes to do so - log on to https://www.surveymonkey.com/s/PZLSQ5L

Your participation could help your winery and other South African winemakers to have enhanced success in exporting wine to China.

As an added incentive, wine.co.za has a copy of Richard's 'Intellectual lProperty in China' report detailing copyright in China and steps to take to protect yours - which we will email to you once you have completed the survey. 

Please email kevin@wine.co.za who will send you the document .