Selling online is a great idea as it gives companies ready access to untapped consumer markets – especially in China, where the emerging middle class’s demand for foreign goods is hard to service except by the E-commerce platforms. And more especially where those consumers are in more remote areas of China.
The reach of E-commerce is far and wide, at it is expanding at a rapid pace. But beware, the risks that come with it are significantly larger too.
New Balance Athletic Shoe, Inc. the US sportswear and shoe giant, was recently ordered to pay $22m in damages for infringing a trade mark – the largest amount awarded in China’s Guangzhou Court history for a trade mark case.
James & Wells Head of Asia Division, Johnathan Chen, says that with e-commerce growing incredibly fast in China it’s a very tempting avenue for Kiwi companies wanting to increase sales to take, but they need to be careful.
“The New Balance example shows that Chinese courts really mean business and will take action against “blatant infringers”. It gave the benefit of the doubt to the original IP rights owner, even over a huge international company,” he says.
In 2006 New Balance set up a Chinese subsidiary and marketed its products under the Chinese brand ‘Xinbailun’ (which references ‘New (Xin) Balance (Bailun)’). However the brand ‘Bailun’ had already been registered in 1996 by a private businessman in relation to shoes, hats and other clothing.
He subsequently registered a series of related marks, which included ‘Xinbailun’, and was granted trade mark rights in 2008 – quite possibly this was done because he saw the opportunity which New Balance’s blind use of the brand XINBAILUN offered him. He then sued New Balance in 2011, who claimed they were innocent because they did not know of the other trade marks. New Balance also claimed that ‘Xinbailun’ was merely a direct translation of ‘New Balance’.
However, that defence was overruled as New Balance had actually unsuccessfully tried to have both of the trade mark registrations removed by the China Trademark Office. Furthermore, ‘Xinbailun’ was not deemed to be the only Chinese translation for New Balance, as evidence was found that New Balance had numerous Chinese versions of its brand. For example, ‘Niubailun’ and ‘Xinpingheng’.
New Balance was deemed to have misled the general public into associating ‘Xinbailun’ with itself, thereby taking away from the local businessman (i.e. the rightful owner), the opportunity to develop market share.
The huge award of damages was based on the profit New Balance had generated in this market, a large portion of which was through online sales, which is where Kiwi exporters are at increasing risk of getting caught out.
Johnathan Chen says he sees Kiwi companies who haven’t thought about their IP position in the Chinese market reasonably often, and it is increasingly worrying.
“The size of the damages awarded shows that the Chinese courts are now dealing with what they regard as “blatant infringers” very seriously, and is ready to make an example of them as a warning to others. It makes e-commerce platforms more accountable for IP infringement, and there are more agencies to enforce IP rights.”
“While it is easy to feel sorry for New Balance, and slam the opportunistic approach of the smaller player in this instance, it should be noted that New Balance should never have let its Chinese brand catch that much traction, knowing that there were problematically similar marks in the market” he says.
It is common for Kiwi companies to fail to consider their brand position in the market before looking to export overseas, and end up being stung by it. Many Kiwi companies do not know what their Chinese brand means. Some of them do not even know that they have a Chinese brand, let alone have control over it, as a local Mandarin brand can be given to the Kiwi product by distributors, retailers or even the public so that they have a name Chinese consumers can pronounce.
“A lot of Kiwi companies who export to China do not understand the importance of the equivalent Chinese branding. It is even more worrying when they say “our Chinese distributors have that side of things sorted.” You are basically opening door to them holding you hostage, by owning and controlling your Chinese brands in Chinese speaking markets.”
“ The New Balance case should act as a good lesson for Kiwi companies. It shows the value of a Chinese brand, as well as the importance of understanding your IP position, and having a good IP strategy to go along with your portfolio of rights.”
With that in mind, Kiwi exporters need to make sure they’re got the right IP advice and strategy in place, otherwise there is a real risk they too will end up with a hefty fine rather than the profit they expect.
Johnathan Chen heads the James & Wells Asia Division. He was born in China but came to New Zealand from a young age, and has close ties to China and Taiwan through both sides of his family.