8th May 2018 - Sam Gilbert

For many Australian companies, China represents a substantial market share or at least the potential to increase the size of a company’s business. Integration into the Chinese market, however, can be a significant challenge for businesses and can come at a risk to any existing or future IP Rights of that business.

This article offers a summary of how to meet some of the challenges and risks that you may encounter when your business is breaking into the Chinese market.

Do your research – A lesson learned

It is important to understand that the Chinese market is unique to China. In other words, the needs of the domestic market in China may be different to the needs of the international market, or the domestic market in Australia. As such, you should be well informed of the merchantability and attractiveness of your product or service to any potential customers before attempting to enter the market. Due diligence and understanding your market is paramount.

For example, the well-known US company Home Depot failed to win over the Chinese market with its DIY brand image and related products. In comparison, IKEA has been a success in China, where it already operates 24 stores with store expansion plans for Guangzhou in Guangdong province, Tianjin municipality and Xuzhou in Jiangsu province in the wake of strong revenue results.

Expert analysts observe that the key to IKEA’s success in China was due to adapting to the Chinese market, understanding local needs, providing a Western shopping experience in displaying items by room and obtaining the attention of the local market through digital marketing.

“To say that a company cannot afford to plan an entry strategy is to say that it cannot afford to think systematically about its future in world markets.”

Root (1994)

IP Rights in China

Intellectual Property (“IP”) Rights are important to every successful business. Securing and protecting your IP can help differentiate your business from others, maximise a company’s profits, create marketing opportunities, and help secure IP protection for your inventions and designs.

In this regard, it is fundamental to your business to ensure that your IP rights are enforceable, valid, and are broad enough to protect your business’s interests. For a business entering the Chinese market, it is essential to understand that IP Rights are different from those in your home country.

This means that you need to consider in China how to legally register, assign, licence, enforce, and commercialise the IP associated with your business. Failure to do so may be costly to your business, and unfavourable to the success of your business entering the Chinese market.

It is also not uncommon in China to find counterfeiters that appropriate well-known logos, pictures, packaging, business plans, and even entire designs. In this regard, some foreign firms argue that enforcement is difficult in China, as there are strong protectionist values instilled in local courts, challenges in obtaining evidence of infringement, and a perceived bias against foreign companies. While it may be difficult to avoid copying and infringement, it is important to be aware of these practices and take all appropriate measures to ensure that your IP Rights are afforded all the protections offered by local and international laws.

Importantly, China is a Member of the World Trade Organisation (WTO), and as such it has requirements that relate to minimum IP protection and enforcement measures that it must comply with, such as the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and the World Intellectual Property Organisation (WIPO) Convention.

In closing, it should be mentioned that China has made efforts to protect intellectual property rights and has recently reformed their IP laws as part of a wider transformation of China’s IP regime. This comes in part from the recognition that competition is the driving force of adaption where markets are quickly allocating resources to promising markets. A promising market requires a set of rules and norms that provides a stable framework and measures of certainty to incentivise businesses to innovate and expand.

“Economic globalization refers to the increasing interdependence of world economies as a result of the growing scale of cross-border trade of commodities and services, flow of international capital and wide and rapid spread of technologies.”

Gao Shangquan (2000)

Take away points:

• Do your research and make sure your product or service is of value to potential Chinese consumers;
• Take note of the various strategies employed by companies that have successfully entered and stayed in the Chinese market;
• Be aware that China may treat your IP Rights differently;
• Be IP conscious – make sure your business has taken all the necessary and relevant steps to protect their IP Rights in any overseas jurisdiction;
• Consider that globalisation is driving markets to adopt laws and norms of what is acceptable in international trade.

Sam Gilbert, IP and Technology Consultant, B.A., LL.B  University of Technology, Sydney

For any more information on how to protect your brand, or to make an inquiry about a trade mark, please do not hesitate to get in contact with the team at W3IP Law on 1300 776 614 or 0451 951 528.

 
Disclaimer. The material in this post represents general information only and should not be taken to be legal advice.