Not even 40 years have slipped past since the death of the father of China’s revolution and the founder of the country’s communist party. And yet a society and movement that swallowed Marxist-Leninism whole -- and gave rise to the Cultural Revolution to stamp out any last vestiges of capitalism -- is now addicted to the consumption of luxury brands. Regardless of what Mao Zedong would have thought – and it doesn’t take too much imagination to speculate – 21st century China is good news for up-market retailers, whether they are selling high-performance cars, haute couture or wrist watches that mere mortals would have to negotiate a mortgage to afford.

Chinese shoppers

Over the last few years, China has been responsible for some 30 per cent of global luxury goods sales. Against the backdrop of what was the worst economic climate in the west since the Great Depression of the 1930s, there are a fair few luxury brands that might not have survived if China had not jettisoned the Zhongshan suit in favour of Savile Row. 

But China’s embrace of luxury has not come without problems for high profile and exclusive western brands and their legal departments. Protecting brand integrity in east Asia against copyright, trademark and general intellectual property pirates is arguably the biggest task facing luxury brand in-house legal teams today.

Lux in flux

Nonetheless, generally there are reasons for luxury brands to be cheerful. ‘The last 12 months have been pretty good for the luxury industry,’ says Jonathan Russell, co-founder of debt management business Spire Partners. ‘Demand for high fashion has remained strong despite difficult conditions in some areas and general global strife. And that position is not likely to change soon.’ Russell was chairing the annual Luxury Law Summit, organised by the Global Legal Post in London. But while his overall optimism is widely shared, there are voices of caution. 

‘Lux is in flux,’ says William Hutchings, the executive director of global investment research in relation to luxury goods and global brands at the London office of US investment banking giant Goldman Sachs. He agrees that broadly speaking the industry is strong, considering the difficult conditions it has faced during the global financial crisis. ‘We estimate the global industry to be worth about $450 billion,’ says Hutchings, ‘and we expect that Chinese consumers will be the primary driver of the market in the future.’

Indeed, China is both a blessing and a potential curse to the luxury sector. ‘China will slow down,’ warns Hitchings. ‘We expect the market to grow by 8 to 9 per cent annually, rather than the 30 to 40 per cent annual growth we have seen in the recent past.’ However, while growth is likely to taper off signficantly, the customer base in China is forecast to expand. Explains Hutchings: ‘We expect to see a transition in China from a very concentrated group of luxury consumers to a much wider group. It is the same pattern that we saw years ago in Japan.’ 

IP infringements

But that wider customer base in what is the world’s most populous country presents problems for luxury brand legal departments. Specialist lawyers at the summit advise that 90 per cent of the fake luxury brand products in southeast Asia originate in China. Moreover, it is estimated that 80 per cent of copyright infringements in China are committed by professional thieves, with commercial competitors responsible for the remainder. 

‘The tendency in the west is to blame all the intellectual property problems in China on the government and the Chinese legal system,’ says Paolo Beconcini, a consultant lawyer with the Beijing office of San Francisco-based law firm Carroll Burdick & McDonough. But, maintains Mr Beconcini, copyright and trademark infringement in China ‘is not as bad as many make out, intellectual property in China is a game and there are rules to play by’. 

Helping establish and monitor those rules are three new Chinese intellectual property courts – in Beijing, Shanghai and Guangzhou. ‘They know what they are doing,’ says Mr Beconcini, ‘but they are woefully understaffed and over worked.’

There are also operational law enforcement hiccups in China. For example, Mr Beconcini says that in relation to anti-counterfeiting, too much energy is concentrated on administrative raids rather than pursuing criminals through the courts. ‘The problem,’ says the lawyer, ‘ is that while the police might shut down a counterfeiting shop one day, it will only open next door the next day.’

The wider issue, argues Beconcini, is that western luxury brands have in the past made basic errors when operating in the jurisdiction. ‘Trademarks are often stolen in China because western companies simply forget to file them with the appropriate local authorities. Indeed, even the big multi-national corporations are not immune from making mistakes in China.’

More fundamentally, western companies are not sufficiently knowledgeable of Chinese laws. For example, China’s first-to-file intellectual property rule means that luxury brand owners are well advised to consider a strategy for China when launching products. 

Also, advises Beconcini, ‘once you have a registered Chinese trademark, use it. And don’t use the English name – Chinese consumers want to see Chinese names.’

Brand intent

Indeed, words and language are seen as crucial ingredients for cross-border luxury brand success. ‘Speaking in the native language rather than in a second or third language means that brands will translate a much stronger emotion,’ maintains Elliot Polak, founder and chief executive of London-based global copywriting business Text Appeal. ‘Translate aspiration, not words,’ counsels Mr Polak. ‘Translate the intent of the brand; translate the relevance to local audiences; translate emotion. In the luxury sector, words are very important – they are part of the brand. So the copy must be crafted with the same quality as the product.’

While that might seem like a creative rather than a legal message, Polak says luxury brand in-house lawyers should also pay attention. He points out that cultural mistakes can have legal ramifications. For example, Puma once put the UAE flag on its training shoes. But exhibiting the soles of one’s feet is hugely insulting in the Gulf region, with physical insults actually legislated against. The lesson being that in the land of luxury, law and creativity must work hand in fur-lined glove.