China Trademarks and The Real Life Meaning of First to File*

When talking about the China market one of the first things China experts often mention is that China is a first-to-file country. In short, this means (with very few exceptions whoever files first for a trademark owns it. The policy can cause countless headaches for brands interested in China, and even for those who are not. Below are a few examples of why trademarking is important regardless of your intentions to enter China.

China Sales through grey markets may already be happening. China’s grey markets are huge and even if you are not officially selling your product in China, your product is likely available in China.

Daigou, meaning “buy on behalf of” are sending many hard-to-get products to China. They also specialize in products that are costlier in Mainland China due to regulations and taxes. The daigou market was estimated to be worth $6.5 billion in 2015 and is driven largely by students and young professionals living and traveling abroad.

329,000 Chinese students studied in America in the 2015/2016 year, with five-fold growth in the past decade. The number of Chinese students in the US is double the next largest source of students, India, according to the Institute of International Education. Starting a daigou business often begins by fulfilling friendly requests from friends and family back in China and sometimes expands into a business with tens of millions of dollars in revenue.

Daigou will not only increase your domestic sales, but often increase awareness of your brand in China should you wish to enter the market later. One of the first things we do for our clients looking to take their products into China is a Chinese language Internet search to determine existing brand recognition there. Not infrequently, our clients are surprised by how well-known and even in demand their brand already is in China. If daigou are already selling your product into China and you haven’t registered your trademark there, someone else may already have done so or is likely to do so.

Someone else registering your trademark in China will at best be just squatting on it, hoping to sell it to you for a handsome profit should you ever wish to enter the China market. A worse scenario for you is when someone registers one or more of your key trademarks in China and actually uses the trademark to sell their own products with your brand in China, such as what the large sports brand Qiaodan did with the Michael Jordan trademark. This sort of thing is not only frustrating, but it can harm your brand’s reputation among those Chinese shoppers who buy your brand from daigou or while traveling outside China, and make it can make it more difficult for you to enter the market in the future. We have had clients who have chosen not to enter China because someone has already registered and is using their brand name there.

Chinese manufacturers producing products with your branding for China oftentimes will also export “your” products to other foreign markets. With 12% of China’s exports estimated to be counterfeits, this is a real risk and this means that not only might you be blocked from selling your product in China (and having your reputation damaged there), these risks can extend well beyond China as well.

China’s Connected Travelers may already know your brand. With the rise of outbound tourism, the army of selfie-taking Chinese visiting your land could also be buying your brand and building awareness for it back in China. In 2015, 2.6 million Chinese visited the U.S., growing 73% from 1.5 million in 2012 according to US Customs data. Shopping remains the most popular activity for traveling Chinese and Chinese travelers are also the highest spending travel group in the U.S., averaging over $10,000 per tourist per trip according to Xinhua.

Damage to your brand in China could harm the attractiveness of your products to Chinese tourists. Even if you don’t think your product appeals to Chinese tourists, you may be surprised. Chinese tourists are going further afield and looking for authentic local products such as one man’s retirement project in Tasmania found out with Bobby the Bear.

No interest in China? Failing to trademark can still get you! Even if your company has no interest in doing business in China, you still might have good reason to file your trademarks and protect your IP in the Middle Kingdom. Take for example the famous California fast food establishment, In-N-Out Burger, which had no immediate plans to enter China. Four California-educated law graduates trademarked the chain’s legendary menu items throughout Asia and Europe. Opening their restaurant Caliburger in Shanghai, they promised many of the well-known In-N-Out staples such as Double-Double, Animal Style, and Protein Style burgers and fries, and even included an iteration of the iconic palm tree on their branding. See Trademark Registration for Companies That WON’T Be Doing Business In China. Do You Want Some Fries With That?

In-N-Out saw this as a risk to their brand, given how connected America’s West has become with Chinese tourists, students and migrants, and also with Americans visiting and living in Shanghai.  A confidential settlement followed – rumored to involve a significant sum of money – and Caliburger changed its burger names and décor then closed up shop in Shanghai and has now expanded to the States.

It’s not only competitors in China against which you must be on guard, but also your own partners. It’s much better to protect your brand upfront no matter what your China ambitions. Though my company has had clients who’ve won back their trademark from squatters in China who weren’t actively using the trademarks they had registered in China, doing so has always been significantly more expensive, time-consuming and stressful than if they had just simply trademarked their brands in China earlier. Save yourself the troubles; whether you are currently selling overseas or simply open to the possibility of doing so (and maybe even if you are not) covering your bases ahead of time by filing for a trademark in China is essential.

* This post was written by Ann Bierbower of China Skinny. China Skinny is a marketing, research and online agency based in Shanghai with offices in North America and Europe. I asked Ann to write this post because we are always emphasizing the need to register your brands and logos as trademarks in China from a legal perspective and I thought it would be good to have someone set out the branding case from a marketing perspective as well. I am a big fan of China Skinny’s newsletter; it is one of the few to which I subscribe. Earlier this month, Ann wrote another post for us, entitled, China Trademarking that Resonates and I urge you to read that one as well.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.