The Chinese consumer market is growing faster than that of any other nation, according to the World Economic Forum of Geneva, Switzerland. So with the prospect of exploiting such a huge opportunity, many innovative textiles companies have set their sights firmly on trading in China. However, in doing so, these companies need to be aware of the unique challenges they may face in protecting their designs, processes and trademarks, as well as the increasing competition they will face from domestic rivals, who themselves are transforming from manufacturers of low-cost products into serious innovators.
Jason Teng offers advice and reassurance to companies worried about protecting their innovations while trying to make the most of the opportunities afforded by the Chinese market.Following on from articles explaining why protection is important and how to exploit it, as well as how to achieve it, this third and final in a one examines what companies need to do to maximize the potential of the Chinese market, while protecting their ideas from exploitation.
Intellectual property in China
Contrary to popular perception, China has a modern, comprehensive legal system relating to intellectual property (IP), and is party to relevant international agreements such as the Patent Cooperation Treaty, the Paris Convention, the Madrid Protocol and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). China’s government now takes IPR issues seriously; for instance, in January 2017, the State Council announced a national plan for the protection and application of IPR, which will be implemented during the 13th Five-Year Plan spanning the period 2016–2020.
An important consideration is that protection is territorial and separately registered IPR is needed for each of mainland China, Hong Kong and Macao. Further, a patent or trademark registration granted outside China has no effect in China, although it could be used to prevent a product made in China from being imported into the relevant country. In addition, in common with most countries/territories, China employs a first-to-file system for its patents, which means that it is usually necessary to consider filing at an early stage of the product’s development.
Patents in China
The Beijing-based State Intellectual Property Office (SIPO) of the People’s Republic of China (also known as the Chinese Patent Office) is the authority responsible for administering patents and patent applications, which may be one of three basic types: invention patents; utility model patents; design patents.
Invention patents
An invention patent provides protection for a product or process with practical applicability, such as a new type of fabric or textile machine, or a new weaving or dyeing process.
SIPO subjects each filed invention patent application to substantive examination to determine whether the invention in question meets its requirements. It will grant a patent if the invention is found to be novel and inventive compared with information that was publicly available anywhere in the world before the application was filed, commonly known as “prior art”.
To be novel, the invention must be different from what is disclosed by prior art. To be inventive, it must not have been obvious in the context of the prior art. Owing to the rigorous nature of the examination process, it may take SIPO several years to award an invention patent. If granted, a Chinese invention patent protects the innovation for a maximum of 20 years from the filing date, provided that it is renewed annually.
Utility model patents
A utility model patent provides protection for technical solutions relating to shapes or structures of a product, such as the shape of a fabric, the structure of a laminated fabric, or the shape or structure of a textile machinery component, but not for methods or processes. It has the same legal effect as an invention patent, but protects for a maximum of only 10 years from the filing date, subject to annual renewal. Another difference is that a utility model patent application is not subject to substantive examination by SIPO.
The validity of a utility model patent only needs to be examined when it is to be enforced against other parties and, assuming that the formal requirements are met, the applicant can expect it to be granted within months of filing, providing a fast and cheap way of obtaining protection.
Validity is again dependent on novelty and inventiveness compared with the prior art. However, the inventiveness threshold for a utility model patent is lower than that for an invention patent, not only making this approach useful for protecting incremental developments, but also for providing protection that is difficult to invalidate.
Companies should consider filing a utility model patent if they require quick protection (such as when discovering a competitor is selling an infringing product at a trade fair in China) or if their budget is limited.
They could also think about filing simultaneously for an invention patent and a utility model patent covering the same development, giving them not only the benefits of quick protection via the utility model patent, but also providing the opportunity to obtain longer-term protection if the invention patent is later granted, which would require abandoning the utility model patent.
Design patents
A design patent protects the visual appearance of a product, such as shape, pattern or colour. Free of the requirement for substantive examination until it needs to be enforced, it is a fast and cheap way to protect the design for up to ten years from the filing date, provided it is renewed annually.
Trademarks in China
A trademark allows consumers to distinguish the goods or services of one supplier from those of another, and may take the form of words, letters, numerals, shapes, colours and combinations thereof, and can be registered in China through the national system or the International (Madrid Protocol) Registration system.
An application must identify the goods and services in relation to the trademark. In this respect, the Chinese Trade Marks Office (CTMO) based in Shanghai has specific rules relating to the classification of goods and services, which should be considered before seeking protection.
Unlike most countries, China adopts a first-to-file approach and it is therefore advisable to register a trademark as soon as possible. Failure to act promptly risks the trademark being ineligible or its registration being rejected, owing to the existence of an earlier conflicting trademark, as well as the prospect of it being highjacked by a rival. The expense and difficulty of trying to overturn such outcomes is readily avoided by early registration.
Before using a trademark in China and before filing for a Chinese application, it is generally recommended that appropriate searches are conducted for existing registrations (and applications).
Generally, any subsequent applications should register word marks in both English and Chinese characters, not only to allow for better connection with Chinese consumers, but also to maximize any rights granted.
Careful consideration should also be given to the particular mark to adopt, especially with respect to its translation into Chinese. A Chinese-language trademark could turn out to be damaging to a brand’s reputation if its meaning, sound, tone or even the appearance of the Chinese characters used convey a different sense to that intended by its English equivalent.
Initially, trademark protection is valid for ten years, but can be renewed indefinitely.
Enforcement of rights
Having spent time and money securing the rights, it is important companies are proactive in their enforcement by taking such steps as:
- monitoring the Chinese market for third parties exploiting the innovation without a licence;
- taking legal action if any infringement is suspected;
- making sure that trademarks are used to avoid losing their registrations, and used correctly to avoid confusion about the origin of the goods or services provided.
Further, as is the case in other territories, a number of bodies can offer help. IPR recorded with the Chinese customs authorities, for instance, helps them to monitor exports and imports for infringing goods and notify rights’ holders accordingly.
Filing a complaint with the local authorities, meanwhile, enables them to take action, such as carrying out a raid on the infringer’s premises, and electronic commerce websites will usually have mechanisms for the removal of listings concerned with infringing goods.
Third-party rights
Regardless of whether or not a company applies for IPR in China, it is crucial it checks if its commercial activity (such as the use of a brand name or the sale of a product) is likely to infringe that of a third party, typically by asking IP specialists to carry out clearance searches. Failure to do so could result in wasted time and money spent on research and development (R&D) and commercialization of a product that has to be withdrawn when challenged successfully, in addition to any legal costs and compensation owed to the holder of the infringed IPR.
Working with local partners
It is important to keep details of any innovation confidential until an application has been filed, or at least until a decision is made not to pursue registered IP protection. In some cases, it may even be appropriate to keep the innovation confidential permanently. If it is necessary to disclose technical or design details of an innovation to a third party – in order to secure a deal with a local partner, for instance – a Non-Disclosure Agreement (NDA) should first be agreed.
In the event of innovations resulting from a partnership, it is important to understand prior to application who is responsible for the development and who will own the IPR. For instance, was an employee, a commissioned third party or a Chinese collaborator involved in the innovation? Was the innovation developed in China (for instance by local employees or in collaboration with a local company)? In some cases, it is necessary to file the first patent application in China or to obtain clearance from the Chinese Patent Office to file abroad.
Maximizing the market opportunity
Given the scale of the domestic market, time spent understanding the details of the Chinese IPR system is well spent. Many textile and apparel businesses (such as Invista, Louis Vuitton, Gucci and New Balance) have done so and are now reaping the rewards of this rapidly growing opportunity. Further, as Chinese businesses continue their transformation (turning from suppliers of price-sensitive to added-value products) competition will intensify.
Now is the time to act.