Doing business with China: From trade mark trolls to IP respecters – what China’s IP laws mean for New Zealand

See: NBR Special Feature: Doing business with China

New Zealand exports to China in the past year have been worth more than $8.3 billion.

But in a country which in 2012 had more than one million patents filed, compared with only about 6000 here, intellectual property issues represent a “big barrier” for Kiwi businesses.

A leading patent attorney, however, says despite China still being in “catch-up mode” on IP issues, there are ways around the hurdles.

AJ Park partner Anton Blijlevens says China’s IP laws and enforcement have become similar to the rest of the world.

There are still two main issues for New Zealand companies looking to enter the market, however, one of which he says is easy to avoid.

Much like most of Europe and South America, China has a “first to file” law for trade mark protection, Mr Blijlevens says, which means whoever files for a brand first generally has the rights to it.

This has created a market for “opportunists,” who have realised there is a growing market for foreign products in China, leading to them filing trade mark registrations for those brands.

“In New Zealand, the first to use a brand will have trade mark rights.

“When the original brand owner subsequently starts selling product in China, they are faced with trade mark infringement proceedings along with an offer to sell the trade mark at an exorbitant price.”

Mr Blijlevens says this is known as “trade mark squatting” and is similar to what happened with domain name registrations in the late 1990s.

The practice has caught many New Zealand companies out, he says, meaning they either have to rebrand specifically for the Chinese market or spend a lot of money in court.

But companies can avoid this by filing applications as early as possible, even if exporting to China is not yet on the radar. “It’s cheap and can save a lot of grief later,” Mr Blijlevens says.

How to catch a con
A second issue for New Zealand companies wanting to sell into China is the enforcement of IP law.

James & Wells IP specialist Johnathan Chen says the Chinese government is setting up agencies and specialist courts to help deal with IP infringement.

The country’s subtle “lower-tier” patent system means China has a lower threshold for “inventiveness” for the subject matter of a patent, although overall it is relatively in line with the rest of the world.

“It is cheaper, faster and has teeth for enforcement.

“These do not significantly impact New Zealand businesses unless they are in the niche market of those subject matters that are not patentable subject matter.”

Mr Blijlevens says there are more ways to uphold IP rights in New Zealand than in China but identifying and catching the offenders in the first place can be tough.

“Production tooling used to make counterfeit product is relatively cheap. It’s not uncommon for counterfeiters to abandon tools, run for the hills, so to speak, and be up and running again with new production tools in a different location.”

Related to this, is the fact IP filings are increasing in China.

Mr Chen says China now files “well over” one million trade mark applications each year, with the Chinese now respecters of IP, rather than pirates.

A New Zealand company may be selling a product in New Zealand but this could infringe someone else’s IP rights in China when exported there.

This highlights the importance of a “Chinese equivalent” brand, he says, which Chinese consumers will recognise.

“Chinese consumers speak and read Chinese, so a Chinese equivalent brand is important.

“Businesses often don’t realise that it is just as important for them to own the Chinese equivalent brand, not their Chinese distributors, as this makes switching down the track extremely difficult.”

Time and money
Trade mark “squatters” are proving a major barrier for some New Zealand businesses, Mr Blijlevens says.

It is also expensive to try to win back trade marks, which have already been registered in other parts of the world, and any challenges are usually unsuccessful, which costs more time and money.

But while this is currently impacting businesses, it is also improving, he says.

Many have rebranded especially for the Chinese market, too.

“For some New Zealand product being exported to China, it’s not so much about the specific brand but instead the ‘Brand NZ,’ clean and green story that sits behind the product that is the value driver in the Chinese market. 

“Astute owners of export brands and technology are taking a long term view of any IP issues in China, knowing that in many respects it’s a country still in catch-up mode and ironing out business hurdles as they grow.”

Mr Chen calls the squatters trade mark “trolls,” who ask for “exorbitant” prices from overseas companies looking to buy their marks back.

In one situation, Mr Chen says the Chinese distributor for a New Zealand brand turned into “trolls,” filing custom notices notifying Chinese Customs they were the rightful owners of a certain brand.

“The legitimate New Zealand products were detained on the docks until we negotiated a deal for the New Zealand client,” he says.

Businesses also like to “save a buck,” he says, going for the cheapest options available.

China’s IP examination process is strict, bureaucratic and time consuming, however, taking about one and a half years for a trade mark and up to four for a patent, meaning it is extremely important to get it right the first time.

“We have to try to recoup situations all the time for companies that deal with cheap filing agents who offer a cheap price to file the mark, and do not offer any of the strategy for getting it right first go, and completely drop the ball with how the marks are filed and the like.

“What ends up happening is it costs the New Zealand companies more to fix the mess, and in some extremely bad cases the situation cannot be reversed.”

He says this is a significant barrier for Kiwi businesses because most legitimate distributors will not touch products that do not have all the legal rights attached to them.

“However, most Kiwi companies cannot afford to pay the exorbitant price.”

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