Brand protection in China: the do's and don'ts
E-commerce sales in China have outpaced the US, making it one of the most lucrative markets in the world. Brand protection group Mark Monitor has produced a white paper: Best Practices for Brand Protection and Effective Enforcement in China.
The digital world, the rise of e-commerce and globalisation combine to provide companies with new opportunities for reaching consumers as well as new frontiers for safeguarding brands and revenue. China is particularly noteworthy in this context with enormous buying power and manufacturing capacity. Chinese online shoppers currently number more than 250 million and e-commerce sales in China have outpaced those of the US, the long-time leader in online shopping. Often referred to as “the world’s factory floor,” mainland China was the point of origination for approximately $1.2 billion of the $1.7 billion2 in counterfeit goods confiscated by US law enforcement agencies in 2013.
Tailoring your brand protection strategy to address the problem of Chinese counterfeits can not only help you achieve your business goals in that important region but also help to drive business in other parts of the world. An effective enforcement program is the cornerstone of a successful brand protection strategy and enforcement in China presents some special challenges. This whitepaper summarises best practices to help meet those challenges and highlights why joining forces with experts who understand the complexities of protecting brands in China and across Asia is integral to driving results.
Get Prepared: Trademark Registration
The foundation of a successful brand protection strategy in any market is built on a strong intellectual property portfolio in which trademarks play a crucial role. China presents some specific challenges for trademark owners in several ways. One of the most significant challenges is the unique classification system in China, which differs from that used by the World Intellectual Property Office (WIPO). The China Trademark Office (CTMO) divides each class used in the WIPO system into a distinctive system of subclasses, each of which is treated discretely. Determining which class should be used to register a trademark requires experts who understand the CTMO classification system.
There are also procedural details that must be met so you can enforce your intellectual property rights. Some online marketplaces in China will accept trademark registration documents only if they are in color and affixed with an official local government seal as evidence. Additionally, the name on the trademark registration and the company’s business license must match exactly.This requirement can be problematic when trademarks are registered with local subsidiaries, but enforcement requests are sent through parent companies. For example, if the trademark is registered to brand Y but the business license is issued to a parent company, company X, the enforcement agent will need a letter of authority to clarify the relationship between the companies and confirm the trademark’s ownership. Without a letter of authority, the marketplace may not cooperate with enforcement requests that are sent through the parent company.
We recommend registering trademarks in advance of the launch of new products or services in each region or country in which you wish to conduct business. An important best practice for Asia is to consult local legal counsel to verify the strength of your trademark rights and help you navigate local requirements. This is especially important with the changes to Chinese trademark law which came into effect on May 1, 2014. Without a strong trademark rights foundation, brands can lose significant revenue to local firms that wish to profit from the brand’s global reputation.
Best Practices in Enforcement Strategies
Disrupting the counterfeiters’ business and making it difficult for consumers to find counterfeit versions of your products is a priority. Brands must understand the volume of cases of infringement as well as the number of marketplaces and sites on which the cases are found. Setting realistic goals will yield multiple benefits in terms of revenue erosion, customer satisfaction, lower customer service costs and continued brand health. Successful enforcement depends upon an accurate assessment of the scope of brand infringement, clear priorities for action and scrupulously-prepared documentation.
Understanding the marketplaces that attract the most traffic is the first step in developing your enforcement strategy. Currently, Taobao is the most highly trafficked Asian marketplace with around 136 million daily users. Since counterfeiters follow traffic, it’s logical that the greatest number of enforcements occur on popular marketplaces, whether those marketplaces are B2B or B2C. It’s no surprise, then, that the Chinese marketplaces with high levels of enforcement are Taobao, Aliexpress, Alibaba and Alibaba China, the Chinese language version of Alibaba.
Categorise marketplace listings by region and by type, that is, whether the listing shows suspected counterfeit, grey market or legitimate goods. Becoming a “hard target” by consistent, vigilant enforcement in cases of counterfeit goods can significantly reduce the overall volume of infringement since counterfeiters will shift their focus to other, “softer” targets. Technology can help you identify patterns and similarities in listings, even across marketplaces, to detect high-volume and persistent sellers requiring extra focus. Often, pinpointing these persistent sellers can lead to discovering manufacturing capacity as many high-volume, repeat sellers have close ties to factories that can supply large volumes of counterfeit goods.
As discussed in the previous section, proper market-specific trademark registrations are vital to avoiding problems when conducting enforcement activities for counterfeits with Chinese online marketplaces. Precise enforcement codes are crucial along with careful documentation to justify takedown requests. Ensure that all delisting requests are reviewed by professionals with local language expertise and knowledge of cultural nuances. Delisting requirements may differ among marketplaces so be prepared to adapt your internal processes to accommodate localised requirements and guidelines for each marketplace. In general, Chinese marketplaces are “high touch” and personal relationships with local experts can make a tremendous positive impact on your enforcement programme.
One of the more unique challenges to enforcement in China is that some marketplaces permit the sale of lookalike brands and products. In these cases, counterfeiters make a slight change, such as misspelling the product or brand name or changing your logo. They may “create” products that do not exist in your product line and apply your trademarked terms or logos. These listings may even include images from your official product catalog to add legitimacy.
Escalate outside normal standard processes
Unfortunately, many Chinese marketplaces see this as an instance of fair use or entrepreneurship and will not carry out delisting requests on the basis of “counterfeit” against these sellers. These types of situations need to be escalated outside of the standard processes so they do not distract the marketplace from your other delisting requests. Having a reference library of images covered by copyright can be very useful in these cases, and, of course, your patent portfolio is crucial. This is another instance where local experts with well-established relationships within the marketplaces can play a critical role.
These situations will take extra time and effort, but the brand that perseveres can usually reduce the volume of infringing listings significantly.Most Chinese marketplaces will not carry out enforcement measures for distribution problems such as grey market goods, referring the brand to their partner agreements for resolution. However, an examination of grey market listings can reveal useful intelligence about traffic patterns and product movements that can help brands identify the source of grey market goods.The most successful brands work hard with regional marketplaces to build trust, and this shared level of trust results in higher compliance rates for enforcement efforts. By paying special attention to each marketplace’s enforcement guidelines and procedures, brands are able to build a track record for accuracy, which in turn, buildsa sense of partnership. If brands are too aggressive with delisting requests, such as submitting requests without the proper justification, they can face additional scrutiny and removal time for all delisting requests.
Local expertise, including local language skills, is animportant factor in building a successful enforcement component for your brand protection strategy in China. Working with local experts, whether in-house staff, a partnership, or a vendor relationship, lets you benefit from cultural knowledge and long-standing relationships while allowing you to adapt quickly to local policy changes as they occur. By following these guidelines, our customers have experienced compliance rates of 85 percent or more for enforcement requests on counterfeit goods on Chinese marketplaces. As in other markets, a strong, dedicated enforcement strategy will result in higher compliance rates over time.
Gather Intelligence and Measure Results: Combating Counterfeiters Yields Consumer Insight
Your brand protection strategy in China can yield valuable insights that can help you optimize marketing, pricing and product strategies across the region. Intelligence gleaned from combating counterfeiters is a valuable tool to help brands understand consumer behaviour as well as digital marketing trends.
Counterfeiters are adept at identifying and capitalizing on market gaps, serving a market need with fake versions of your branded products. Evaluating geographic purchase patterns for counterfeit products can deepen your understanding of consumer buying patterns at global, regional and local levels. For example, when one denim company experienced slow sales in Asia, it began studying activity on sites selling counterfeit versions of their products. Analysis of site visit patterns,sizes in inventory and items frequently added to shopping carts revealed a market gap: Customers were looking for smaller waist sizes and shorter inseams. The company used that intelligence to make more informed manufacturing and merchandising decisions for the Asian market, generating more revenue and attracting new customers.
Enforcement: The Cornerstone of a Successful Brand Protection Strategy
With the continued growth of digital channels and China’s role as the world’s “factory floor,” the success of your brand protection strategy in China and throughout the world is tied to your ability to target counterfeit goods sold on leading Chinese online marketplaces. Strong intellectual property rights are the key to effective enforcement and Chinese IP law presents some unique requirements that must be met in order to enforce your rights successfully.
Consulting legal experts with specific knowledge of Chinese trademark law is crucial to verify the strength of your IP rights and is even more important with recent legal changes. Brand protection experts with a local presence in China can make a major impact on the success of your enforcement program, too, as you benefit from their expertise and their long-standing relationships with online marketplaces.A strong enforcement program will result in higher compliance rates and will deter counterfeiters who will target brands with weaker defenses. Our clients have experienced compliance rates of 85 percent and more in China byfollowing the best practices outlined in this whitepaper.
• Consult local legal counsel to verify the strength of your trademark rights and help you navigate local requirements.
• Become a “hard target” by requesting delistings for counterfeit goods on a regular basis to significantly reduce the overall volume of infringement.
• Use technology to help you identify patterns and similarities in listings, even across marketplaces, to detect high-volume and persistent sellers who require extra focus.
• Review all delisting requests with brand protection professionals who have local language expertise and strong knowledge of cultural nuances.
• Be prepared to adapt your internal procedures to accommodate localized requirements andguidelines for each marketplace.
• Join forces with local experts with cultural knowledge and long-standing relationships to allow you to adapt quickly to local policy changes as they occur.
• Examine marketplace coverage models and compliance rate history in China before selecting a brand protection partner.
• Use the intelligence you glean from combating counterfeiters to gain consumer insights into market gaps and unmet customer needs.
MarkMonitor is a world leader in enterprise brand protection and a Thomson Reuters Intellectual Property & Science business. It provides advanced technology and expertise to protect the revenues and reputations of the world’s leading brands.
For further information on Effective Enforcement Programme in Asian Marketplaces, MarkMonitor will be hosting a bespoke roundtable at the Luxury Law Summit on the specific best practices around protecting your brand in Asia. The session will focus on how you can tailor your online brand strategy to address the associated problems of counterfeits and grey goods in this region, whilst highlighting the effective intelligence gathering processes and how you can measure success. To find out how you can safeguard your brand online and understand more about the Asian E-commerce landscape, book your place today by contacting email@example.com.