The complex Chinese position on IP, and ensuring Australian brand owners are adequately protected

China continues to emerge as one of the most important intellectual property (IP) destinations for Australians, having overtaken the US and New Zealand as Australia’s predominant destination market for Australian trade marks filed overseas in 2011. With the China-Australia Free Trade Agreement (ChAFTA) coming into force last year, China is now Australia’s largest trading partner. The importance of Australian companies having adequate brand protection in this crucial market will therefore only increase.

We have seen China, over time, make significant changes to model itself as a strong IP economy.  Australian brand owners should be paying attention to how these changes are playing out, given the importance of the Chinese market. This article considers some of the overarching market and geopolitical background considerations plus the current IP position in China.

The single most important point for Australian brand owners looking at, or active in, China is to file trade mark applications as early as possible, and to protect both their English language and any local Chinese character trade marks through registration.

Since the late 1970s, China has made deliberate attempts to move towards a modernised IP rights system in line with international requirements and best practice, as part of a broader strategy of modernisation and innovation.

To achieve these goals, China became a member of the World International Property Organization (WIPO) in 1980, acceded to a number of key multilateral IP-related treaties and conventions and began to develop its domestic IP rights scheme. In the 1990s, China agreed to implement the Agreement on the Trade-Related Aspects of Intellectual Property (TRIPs) Agreement and amended its domestic IP legislation to align with these requirements. Having done so, in 2001 China joined the World Trade Organisation.  

In 2014, further amendments to the Chinese trade mark laws came into effect, aimed primarily at improving the efficiency and predictability of the trade mark application and registration system. (see http://www.nortonrosefulbright.com/knowledge/publications/115959/changes-now-in-place-to-trade-mark-laws-in-china-that-could-assist-australian-brand-owners)

These changes have been central to China’s ongoing transition from an economy driven primarily by manufacturing goods rooted in foreign IP, to an IP-driven economy focusing on technology and innovation. Contrast this with the recent Harper Review in Australia which considers Australia a net consumer (not producer) of IP, consequently recommending changes to IP rights in Australia aimed at protecting IP users above IP rights owners, and what that could mean for our own economy in contrast to China.

The question is how is the Chinese system working today?

China is working towards establishing a robust legal framework for IP protection. China’s trade mark office is the busiest in the world. According to the latest WIPO statistics, in 2014 the Chinese office received over 2 million new trade mark applications (which increased to over 3 million in 2015/2016 and continues to grow), which is more than four times the next busiest office, the USA, and dwarfs the 64,500 received by the Australian office.  This volume obviously places an enormous burden on the Chinese system, one that is unprecedented in all other countries, but also demonstrates the importance of the IP economy in China.

In good news for applicants, the Chinese Trade Marks Office now boasts that applicants can get a registration certificate within 12 months (less than time taken for the average Madrid system application). However, in order to maintain to such a short turnaround time, examiners have become increasingly rigid in their acceptance of specifications, and less experienced examiners can be more likely to reject ‘borderline' applications where similar marks exist but, if more thoroughly considered, would be unlikely to cause confusion.

As a result, the increased efficiency and predictability gained for many applications as a result of the amendments can make other applications more frustrating and time-consuming.

The ChAFTA includes a specific chapter on IP, and to continuing to work to enhance IP examination, registration and enforcement systems. With a view to eliminating the trade in goods and services infringing IP rights, both countries have introduced criminal procedures and penalties in appropriate circumstances, and border measures in relation to counterfeit trade marks or pirated copyrights.

Importantly, the ChAFTA also contains a ‘national treatment’ provision which guarantees that the nationals of each country will receive treatment no less favourable than that afforded to its own nationals, so Australian businesses should expect that their non-resident trade mark applications will be given the same consideration as a Chinese residents.

In addition, IP Australia has recently appointed a Chinese based IP Counsellor, whose remit is to provide guidance to Australian businesses on how to navigate the Chinese IP system.

At a minimum, Australian businesses should feel some comfort that our two countries are taking steps to align our IP rights systems and processes.

Although protection of trade marks in China has improved, Australian brand owners operating in China know it remains fraught with difficulty and the potential to be caught without protection in a vital market.

To avoid this happening to you, consider the following strategies:

• File your trade mark application/s early, before speaking to any distributors or manufacturers, because unlike Australia, China has a ‘first-to-file’ system, meaning that the first person to file a trade mark application will own the mark, regardless of who developed or first used the mark. Registering your mark before anyone else will help prevent ‘trade mark squatting’, a common problem in China and one that can be extremely time consuming and expensive to resolve. This is better to be avoided.
• In addition to your English language mark, you should also develop and register a Chinese character (or any local dialect) mark for your brand, and you should do this early, for the same reasons as mentioned above.
• Consider carefully the sub-classes in your goods and services specifications. Unlike most Western classification systems, each Chinese class is further divided into ‘sub-classes’ which contain standardised goods and services, and examiners usually only compare applications against marks in identical sub-classes, not across the whole class. This also impacts the scope of protection afforded by your registration and does mean that you might not end up properly protecting your full range of goods and services if this isn’t carefully considered before filing.
• When entering any agreements in China, including non-disclosure agreements and licence agreements, applicable law clauses should be carefully considered, including any alternate dispute resolution clauses, as it is difficult to enforce Australian laws or decisions in China.  
• Do remember you can use the Madrid Protocol for trade mark applications in China, but it is worth first checking the scope of the Chinese specification before filing the Madrid, for the subclass reasons mentioned above.