Dec 2021

China

Introduction

“China” in this chapter refers to Mainland China and does not include Hong Kong SAR, Macau SAR and Taiwan.

China is now a major contributor to the world fashion industry. China has transformed from an inexpensive manufacturer into a place where every area of the fashion industry is represented. Malls in any city of substance have outlets for almost every major fashion brand in the world. This is only part of the story, however. China is now an important source of the resources that support the fashion industry: models, fabrics, design, machinery and equipment and logistical support. 

In 2020 the total revenue from textile and clothes production was approximately US$210 billion; for textiles exported from China it was approximately US$153.8 billion; and for clothes exported from China, approximately US$137.4 billion. (Figures from The White Book on Intellectual Property Protection in China’s Clothing Industry, published on April 25, 2021 by Beijing Intellectual Property Judicial Protection Association in Beijing, China.)

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1 . What are the main intellectual property legal tools available to protect fashion products?

China’s IPR legal framework is similar to that of many countries. However, there are detailed differences that must be taken into account in the case of any cross border transactions involving China. Among these, one of the most important is that China is not a signatory of many bilateral judicial assistance treaties. Practically, this means that decisions of many foreign courts are not enforceable in China and vice versa. Arbitration can provide a partial but not complete solution for this.

Administrative remedies play an important role in IPR protection in China. Administrative bodies, such as the State Administration for Market Regulation and its local delegates, typically carry out raids to seize goods from IPR infringers. They also have powers to impose penalties on IPR infringers. 

Trademark law, patent law, copyright law and anti-unfair competition law and their matching regulations are the key laws in China to protect IPR.

In 2020, China concluded 2,429 court cases involving IPR in the fashion industry, details are as follows. Trademark cases predominate, with copyright and patent rights also playing a significant role.

  • 2,075 trademark cases.
  • 302 copyright cases.
  • 43 patent cases.
  • 9 unfair competition cases. 

(Figures from The White Book.)

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1.1. Trademarks and non-traditional trademarks

In China, distinctive words (including letters and numbers), devices, three-dimensional signs, colour combination, sound and any of these in combination can be registered as a trademark. A trademark registration is valid for 10 years and can be renewed for further 10-year periods. The law requires a registered trademark to be used in commercial activities in an authentic, legitimate and public way. A trademark is subject to cancellation if it has not been properly used for 3 years consecutively after registration.

Non-traditional trademarks that are available in China, with high relevance to the fashion industry, include:

  • Colour marks. In general, only the combination of two or more colours is registrable. The colour name and colour code used in the mark and how the mark is used in business should be specified in the application. Supporting documents on the distinctiveness of the mark are usually required as part of the registration.
  • Shape marks (usually called three-dimensional marks in China). A three-dimensional mark is registrable if the shape: (a) does not result from the nature of the goods concerned; (b) is not essential for technical purposes; or (c) does not give the goods substantive value. A mark lacking inherent distinctiveness is usually not registrable unless distinctiveness is obtained by significant use in China. Drawings clearly setting out the three-dimensional nature of the mark should be provided in the application. Evidence supporting the distinctiveness of the mark is desirable and will be required if and when the examiner challenges its registrability.

Other trademarks in China:

  • Black/White mark. A black and white mark can provide broader protection, however, its colour variation should be registered at the same time if the latter is intended to be used. The law requires a registered trademark to be used in the exact form as registered. Use of the colour variation can maintain the registration of the black and white mark, as long as the colour variation does not change the main and distinctive part of the black and white mark.
  • Pattern marks. A pattern mark is classified as a device mark in China and distinctiveness is required when applying for registration.
  • Unregistered marks. China is a “first to file” jurisdiction. Usually whoever applies first will become the owner of that mark unless bad faith can be proved. Unregistered marks are not protected unless they are recognised as famous or well-known marks in China.

Currently, position marks, “made-in” marks, texture marks and scent marks are not registrable in China but in practice, the Chinese courts may adopt a more flexible approach in a particular case to give protection to international high-profile brands. As an example, in Christian Louboutin vs. Trademark Reviewing and Adjudication Board of the State Administration of Industry and Commerce of the PRC, case no. (2018) Jing Xing Zhong No.2631, Beijing High Court decided that the red sole of Christian Louboutin shoes is a trademark made up of a single color used in a special position and required the China Trademark Office to reconsider the registration of this mark in line with its conclusion.

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1.2. Design as an alternative or addition to TM registration

A product’s overall shape, or part of it, pattern, colour use, or any combination of these which is fit for industrial application and has a sense of aesthetic feeling can be patented as a design patent. Novelty is required for granting design patent right. In the fashion industry, the appearance of the fashion item is usually registered as a design patent. Examples are fabric weave, the shape or detail of a garment, a handbag or a piece of jewellery. A design patent, once granted, is valid for 15 years from the date of application and is not renewable.

In addition to design patents, techniques applied in the production of fashion items can be registered as an invention or utility patent. Similarly, the production process for the fashion items may also be protected. Novelty, creativity and practical application are required for invention or utility patent rights. Once granted, an invention patent is valid for 20 years from the date of application and a utility patent is valid for 10 years, and neither can be renewed.

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1.3. Copyright as an alternative or addition to TM registration

Copyright protection is granted to original intellectual creations in the domain of literature, art, natural sciences, social sciences, engineering or technology capable of being reproduced in certain tangible form. The term of protection for publication and economic rights is 50 years after the author’s death (or after creation or first publication if the author is a legal entity). Rights of authorship, modification and integrity are perpetual. China is a signatory to the Berne Convention for the Protection of Literary and Artistic Works.

In the fashion industry, patterns, design sketches, effect drawings, structure charts and the overall appearance of the product can be protected by copyright. Usually patterns, design sketches, effect drawings and structure charts are protected as artistic or graphic works but the overall appearance of the clothes is protected as work of applied art, which enjoys protection of 25 years after creation.

Copyright can be registered in China. The registration certificate is prima facie evidence for the ownership of copyright which can be very useful in administrative or court actions.

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1.4. Any other pertinent IP rights?

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1.5. Summary of additional IPRs

IPR

Duration

Time and modalities for grant

Pros and Cons in the fashion sector

Trade secrets

Unlimited unless lawfully disclosed.

 

No requirement for registration but should meet the following requirements for protection:

  • not known to the public;
  • with commercial value; and
  • confidentiality protection measures have been adopted.

Pros: perpetual protection until lawfully disclosed.

Cons: not applicable to all IP and does not protect information from reverse engineering or lawful disclosure.

Domain names

Usually 1 year and can be renewed without limits.

Registration is via purchase at an authorised registry and is completed upon successful purchase.

Pros: easy to obtain and maintain, no requirement on use to maintain registration, can be used to promote the brand or improve the visibility of the brand.

Cons: once registered by others, need to rely on trademark or other rights to get it back.

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2 . Beyond intellectual property: what contractual arrangements are useful in manufacturing, distribution and advertising fashion products?

Chinese law has its subtleties and China-specific agreements, not those drafted for use elsewhere, are essential to deal with these and ensure enforcement.

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2.1. Manufacturing fashion products

Non-Disclosure Agreements (NDAs). A NDA or Non-Disclosure, Non-Compete and Non-Circumvention Agreement (NNNs) is often signed before the parties disclose confidential information to each other. Much has been published about these agreements, mostly outside China, but very little about their limitations and practical effect. Infringements require early intervention by injunction to be practically effective. Unfortunately, an injunction is difficult to get in China. Pre-agreed (liquidated) damages are often proposed as a substitute. If actual losses are disproportionate to the agreed damages, a Chinese court has the power to set aside the agreed amount. At the crucial time, early in the process, there is little actual loss.

Subject to understanding their limitations, these agreements serve a useful purpose, but they are not the panacea they are often touted to be. There is no substitute for knowing in detail who the contract is with and their reputation – due diligence is essential.

Key clauses of an NDA or NNN include:

  • scope of confidential information;
  • permitted disclosure or use of the confidential information;
  • recipient’s obligations;
  • term and termination;
  • governing law; and
  • dispute resolution.

(For more information about the effectiveness of an NNN in China, see www.liuminginternational.com/nnn-china-firing-silver-bullets-just-blanks/.)

Manufacturing agreements / in-house manufacturing. A manufacturing agreement is used to engage a third party to manufacture products. The fashion brand owner owns the designs, trademarks and other IPR to be applied and used in manufacture and grants use to the manufacturer. A licence arrangement is usually included in a manufacturing agreement. Clauses relating to the ownership of IPR and improvements, modifications, derivations, permitted use of IPR, restrictions in the use of IPR, protection and enforcement of IPR are essential.

Other clauses relating to the specifications, quality and quantity of ordered products, packaging, delivery and inspection and acceptance, price and payment terms, representations and warranties of both parties, especially the legal and technical capabilities of the manufacturer, term and termination, governing law and dispute resolution, are also essential.

If manufacture is done in-house, internal policies and rules should be adopted to ensure proper protection of IPR.

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2.2. Distributing fashion products

Agency agreement. In an agency agreement, the principal engages an agent to handle business arrangements such as marketing and sales on its behalf. The agent acts in the best interest of the principal and the principal is usually required to assume all legal and financial consequences of the activities of its agent. The agent's remuneration can be a percentage of the revenue generated by the agent, a fixed fee, or in other forms.

Key clauses of an agency agreement include:

  • rights and obligations of the principal and the agent;
  • payment terms;
  • term of engagement and termination;
  • governing law; and
  • dispute resolution.

Distribution Agreement. Under this arrangement, the fashion brand owner grants exclusive or non-exclusive right to a distributor allowing it to distribute its fashion products within a specified area on agreed terms and remuneration. The fashion brand owner may allow the distributor to use sub-distributors. Exclusive distribution rights should be granted with caution.

Guidance on decoration of physical or on-line shops and preparation of marketing and promotional materials are usually a part of the distribution agreement. 

Minimum order and forecast volume, delivery, inspection and acceptance, product warranty, price and payment terms, term and termination, governing law and dispute resolution are also important clauses.

On-line Distribution. On-line distribution in China can be through the distributor’s own website, through third party e-commerce platforms (e.g. Taobao and JD), through mobile phone Apps (e.g. little red book), or through a social media platform (e.g. wechat).

Requirements may differ for operating through these channels. In some cases, foreign companies may be required to set up a subsidiary in China or engage a Chinese company to operate on its behalf.

Co-branding and co-marketing. Co-branding and co-marketing means collaboration between brand owners to achieve a mutually beneficial outcome. Co-branding is where the brands are used jointly in sales and promotion. Co-marketing is where brand owners join together to share marketing opportunities to promote their individual brands. Both arrangements allow the brand owners to reach a wider public and leverage the influence of their brands

Key clauses of a co-branding and co-marketing agreement include: the scope, implementation and term of the collaboration, methods of profit distribution, actions for protecting the brands, exiting or terminating the collaboration, damages, governing law and dispute resolution.

 

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2.3. Advertising fashion products

Employing fashion models. The scope of work of the models, subsequent use of the materials produced during their engagement, and use of their images are the most important issues to be addressed. Another important issue is how to handle unexpected events such as illness or accidents.

The brand owner should ensure that it owns all IPR arising from the use of models. Individual releases for use of images and names are very important.

Other key clauses include: term and termination, payment terms, services and assistance to be provided by the organiser such as photography, transportation, accommodation, insurance, dresses and make-up.

Social media, influencers and brand ambassadors/celebrities. Brand ambassadors are commonly used by fashion brands to reach out to their target customers. China’s Advertisement Law sets out the minimum requirements for the qualification of brand ambassadors:

  • brand ambassadors should recommend or endorse products and services based on the truth and according to law;
  • brand ambassadors should not recommend or endorse products or services that they have not used;
  • those under the age of 10, as well as those who have been penalised in the past three years for being involved in any false advertisement, should not be hired as brand ambassadors. 

Agreements with brand ambassadors should clearly define the term and the scope of work, including: the products and services covered by the engagement, term, extension and termination of the engagement and the wind-down period, copyright of the promotional materials and their use during and after the term and in the wind-down period and the code of conduct of the brand ambassadors.

Marketing through social media and collaboration with influencers are becoming popular in China.  Issues listed in the above paragraph should also be considered and addressed in the engagement terms with influencers.

Advertising standards, relevant authorities and advertising practice. The State Administration for Market Supervision and their local delegates are responsible for advertising compliance and have the power to take administrative action where necessary, including ordering rectification or imposing fines.

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3 . What regulations govern online marketing and how are the rules enforced?

China adopted the Interim Measures for Internet Advertisement in 2016 which regulate all advertising activities on the Internet. General legal requirements on Internet advertisements include:

  • Internet advertisements should be identified as “advertisements”;
  • paid search advertisement should be clearly distinguished from natural search results;
  • Internet advertisement should not affect the normal use of the Internet; and
  • Internet advertisement should not contain any deceptive links.

Search Key Words. Users can buy search key words from the search engine service provider to improve their visibility on the Internet. The search key words are usually their brand name or business related. Service providers screen the chosen key words and remove any restricted words or words that obviously infringe the IPR of others. Legal consequences resulted from the use of key words remain with the user.

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3.1. Consumer protection regulations

Major laws in China regulating on-line trading and granting protection to consumers are:

  • E-commerce Law.
  • Law of Protection of Consumer Rights and Interests.

Consumers are entitled to compensation if they suffer personal injury or property damage as a result of purchasing or using commodities or receiving services.

If their legitimate rights and interests are affected from the use of an on-line trading platform, they can claim compensation from the vendor or service provider, or from the on-line trading platform if the platform fails to provide the real name and address and effective contacts of the vendor or service provider.

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3.2. Physical store and online store layout

Physical store layout is usually protected by anti-unfair competition law in China. To be protected, the requirement of “an overall business image with a unique style” must be met. According to the Interpretation of the Supreme People’s Court, the appearance of the business place, the style of business accessories, staff uniforms and other factors may constitute the “overall business image with a unique style”, which should be protected under China’s Anti-unfair Competition Law.

Online store layout is usually protected by copyright law in China. To get protection, the owner needs to prove that the design is their original creation.

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4 . What are the most relevant unfair competition rules for fashion businesses and how do the Courts interpret and enforce these rules?

The Chinese Anti-Unfair Competition Law aims to prevent acts of unfair competition in business and protect the legitimate rights and interests of both business operators and consumers.

It has expressly defined the following acts of unfair competition:

  • making people mistake their products/services for other’s products or services or believe that a connection exists between their products or services and those of others;
  • obtaining a transaction opportunity or competitive advantage by bribery;
  • making false, misleading or deceptive statements about the attributes or sales volume of products, etc.;
  • infringing other’s trade secrets or being involved in such infringement;
  • inducing sales by falsely offering prizes, or offering a prize exceeding RMB 50,000 if the prize will be given by a lucky draw;
  • disseminating false or misleading information about competitors; or
  • unlawfully impeding or disrupting the normal operation of competitors.

Business operators may file a complaint at the local market regulation authority. This authority will investigate and once confirmed, impose administrative penalties on those involved in unfair competition activities.

Business operators need to take court action if they want to obtain compensation for the damages caused by unfair competition activities. When making the claim, business operators should at least prove:

  • existence of a competitive relationship;
  • conduct of unfair competition activities; and
  • negative impact or influence of such unfair competition activities.

Once the unfair competition is established, the current Anti-Unfair Competition Law provides for statutory compensation of up to RMB 5 million.

Business operators can also apply for an injunction before or after the court action is initiated but this is a separate action and the need for this remedy will have to be proved.

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5 . Is there any regulation specifically addressing sustainability or ESG (Environmental, Social and Governance) in the fashion industry?

China Green Products. Since 2016, the Chinese government has emphasised ecological soundness. Various products, including textile products, can be identified as China Green Products. The standards and rules applied in the recognition of textile products are: CNCA-CGP-10: 2020 and GB / T 35611-2017.

Ecological Textiles. Ecological Textiles is the China version of Oeko-Tex100, referring to textiles made of materials which are of no or very little harm to the environment and no harm to humans. The standards and rules applied in the recognition of Ecological Textiles are: CQC22-026780-2010 and GB / T 18885-2009.

China Low-Carbon Products. Fabrics made of silk, cotton and chemical fiber can apply for China Low-Carbon Product status, based on effective use of an effective low-carbon management system in their production. The standards and rules applied in the recognition of China Low-Carbon Products for fabrics include CNCA-LC-0106 2016 and other technical rules.

Green Fibre. The China Chemical Fibres Association can recognise yarns, fabrics, textiles and clothes as Green Fibre products. This confirms that:

  • the raw materials are from biological or recyclable materials;
  • the production process used is low-carbon and environmentally friendly; and
  • the recognised products are of no harm to the environment in their use and disposal.

The standards and rules applied in the recognition of Green Fibre are Certification Rules on Green Fibre Products (Trial Version) and Technical Requirements on the Assessment of Green Fibre Products.

China National Standards. China has mandatory requirements for products sold there, including imported products. Many are applicable to fashion products, mostly but not always related to safety and quality.

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6 . Customs monitoring: do any special import and export rules apply to fashion products?

The General Administration of Customs of China (China Customs) takes action to protect IPR itself or upon application.

China Customs introduced an initiative called “Long Teng Action 2021” for nationwide IPR protection (continuing until December 2021). Customs at all ports will monitor and investigate IPR infringements and impose penalties.

In addition to this initiative, holders of IPR can record their rights at China Customs. The formal recordal is effective until the earlier of either (a) 10 years after the recordal or (b) the recorded IPR expires. At the end of 10 years and if the recorded IPR is still effective it can be renewed.

China Customs now accepts recordal for:

  • registered trademarks;
  • registered patent rights of all types; and
  • registered copyrights.

After the recordal, China Customs will monitor the goods entering or departing China which may infringe the recorded IPR. If the officers identify a possible infringement, they will notify the IPR owner who may request detainment of the infringing goods. The IPR owner must provide a guarantee against loss by the other party.

After the infringing goods are detained, China Customs will investigate and determine within 30 working days of the detainment date whether they have actually infringed the IPR of the owner.

If China Customs cannot conclude that the detained goods have infringed the owner’s IPR within the prescribed period, the IPR owner needs to start court action and obtain a court order within 50 working days from the detainment date to continue the detainment. Otherwise, China Customs will release the goods upon expiry of the 50-working-day period.

The owner of the detained goods can provide a counter-guarantee at the value of the goods for the goods to be released before the conclusion of the China Customs’ investigation or the court action.

Recordal of IPR is not mandatory for the China Customs to take action for IPR infringement but without recordal, IPR owners will have to identify the infringement in the import or export process on their own, which can be very difficult in practice.

Disposal of infringing goods in China includes donating them for use in public welfare, assigning them to the IPR owner, selling them by auction after the infringing characteristics are removed, or destroying them.

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7 . Frequently Asked Questions

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EXPERT ANALYSIS

Chapters

Australia

Juliet Evans
Nicola Scheepers
Jennifer Wyndham-Wheeler

Brazil

Flavia M. Murad-Schaal
Isadora Schumacher Jeong

Finland

Hilma-Karoliina Markkanen

France

Floriane Codevelle
Karina Dimidjian-Lecomte

Germany

Ariane Hettenkofer
Gina Maria Ziaja

Greece

Maria G. Sinanidou
Alexandra Varla

Hong Kong

Hank Leung
Harry Wong

India

Rajeshwari Hariharan

Ireland

Patricia McGovern

Israel

Moran Katz
Avi Ordo

Italy

Julia Holden
Nicolò Mosiello
Martina Olivieri
Giuseppe Verrecchia

Singapore

Penelope Ng
Lorraine Tay

Spain

David Fuentes Lahoz
José Miguel Lissén

Thailand

Piyawat Kayasit
Michelle Ray-Jones

United Kingdom

Gary Assim

United States

Megan K. Bannigan

Vietnam

Chi Lan Dang
Tu Ngoc Trinh
Diep Thi Bich Le
Hien Thi Thu Vu