Trademarks in international trade, with particular reference to China

I would like to thank the Asociación de Dirigentes de Empresa and the Chamber of Commerce for China and South-East Asia for inviting me to take part in this seminar, in view of the importance of exports to Argentina at this time.

During the course of the next few minutes I will try to sum up the importance of protecting industrial property rights, with particular reference to trademarks, when performing an export, providing an overview of the systems for protection that exist at international level. I will conclude with the main features of the Chinese market in this regard, highlighting practical situations we have had to deal with in relation to that country.

There can be no doubt that in the case of exports, trademarks represent the springboard for any incursion into another country and a key for the opening up of new business, as they often have greater value than the name of the company itself.

A fairly comprehensive description of a trademark is that it is “the name or emblem that distinguishes one product from another, or one service from another, guaranteeing the origin of the product or service, which in particular serves to distinguish it from the competition.”

A few quotes can give you an idea of the role of trademarks or mark names:

- “A product is something that is made in a factory, a mark is something a customer purchases. A product can be copied by a competitor, a mark is unique. A product can quickly become obsolete, a successful trademark is long-lasting.” Stephen King, WPP Group, London.

- “A good name is worth more than riches.” (Don Quixote) Cervantes.

- “Marks have become barriers to entry, but they also provide a way in.” Edward Tauber

It should be remembered that marks are territorial in nature, so that they must be applied for and registered at national level, with due regard for the systems and culture of the country to which the products are to be dispatched.

In addition to these definitions, marks have functions, which we can classify in five categories: identification, reference, guarantee, personalization and practicality.

It is very important to define the criteria for selection of a mark to identify a product or service. Trademarks should have the following features:

- They should be easy to learn and memorize
- They should be able to be accompanied with a symbol or slogan
- They should suggest desirable associations without being trite or trivial.
- They should not have undesirable associations: they should be authentic, credible and easy and not raise false hopes.
- They should be different. They should not lead to confusion with the marks of the competition.
- They should be able to be protected in law.

In Argentina it is sometimes considered that if a mark is registered locally it is also protected internationally, which is not the case, as protection must be obtained in each country individually. This confusion arises because the nomenclature covering all products and services is known as the International Classification, giving the idea that protection is international, while as we have mentioned, marks are territorial in nature.

We have noted there is a mistaken tendency to wait until a deal is closed before requesting the registration of a trademark. This is something that must be done well in advance, to prevent a third party from applying for or registering the trademark first, blocking the possibility of the product being traded under that name in the country to which it has been exported, even when the exporter is the owner of the mark in the country of origin. This leads to the need to demonstrate that there has been a violation of the law, by bringing legal action, with all the delays and costs that this implies.

Another frequent situation arises when a trademark registration is not applied for by the actual owner but instead by the importer or distributor, with the promise that the mark will later be transferred to its original owner, which often does not happen, leading to the need for the owners to buy back their own marks, or to costly lawsuits lasting several years.

Trademark owners also prefer to register their mark abroad in the same form as in the country of origin, which is obviously the best solution but is not always possible, as frequently others are already the owners of such marks or marks sufficiently similar to cause confusion, thus preventing registration and the trading of any product with such a similar trademark. This is why it is very important to carry out a prior search of records to forestall such a situation and apply for an alternative trademark registration, to be considered as an “export mark”. It is understandable that uniformity is preferable, so that exports can be made under the same mark used locally, but sometimes this is not possible.

At international level there are two registration systems: an attributive system, whereby ownership of a mark is obtained through its registration, and a declarative system, whereby exclusive rights are obtained through use, subsequently giving rise to registration of the mark. This makes it advisable to verify what system prevails in the country to which goods are to be exported, to determine the best way of protecting them.

Although most international legislation has adopted the standard international classification of products and services, we must bear in mind that some countries still operate their own classification and take care to apply for trademark registration in all those categories that are of interest, having analyzed the classification system applied in the corresponding country.

Briefly therefore, the following items must be borne in mind in relation to marks when performing an export:

- Registration with foresight
- Differences in legislation (use of mark, etc.)
- Time taken to register trademark
- Characters or symbols that must be registered as marks. Factors to be considered.
- Globalization of economies, enabling better planning of trademark protection
- FTAA/NAFTA
- Andean Pact
- European Union (Community Marks)
- Central American Convention on Protection of Industrial Property
- OAPI (African Industrial Property Organization)
- MERCOSUR

Trademark protection in China

China has been a member of the World Trade Organization (WTO) since December 2001.

It must therefore adapt its intellectual property legislation to the terms of TRIPS (Trade-Related Aspects of Intellectual Property Rights).

With its entry into the WTO there will be a surge in trade with China, leading to increases in the violation of trademark rights and piracy in general, so that it is important to be aware of the alternatives that exist so that exporters to China can avoid or at least lessen and manage these threats.

It has been estimated that it will take a further five years before violations begin to decline following China’s entry into the WTO, so that significant violations are going to continue to take place, making it necessary to obtain protection for trademarks well in advance.

The new China Trademark Law came into force on September 15, 2002.

Changes that deserve highlighting include:

- Fines for trademark violations (loss and damages) have been increased to up to 300% of the profit obtained by the violator from the undue use of the trademark. In cases where it is not possible to determine the amount of the fine, the maximum amount of the fine will be US$12,000.

- Registration can be made by foreign companies without the need to have a legal representative in China, which we do not recommend. We consider it vital to be able to count on a local agent we can instruct from Argentina.

- Terms for replying to requests for information and perform procedures, previously very tight, have been extended. All documents submitted in proof require translation into Chinese.

- Trademark licensing contracts must be registered for them to be recognized by third parties.

- Particular recognition is granted to famous marks. The owners of such marks are entitled to apply for the cancellation of a trade name including famous marks that are being used without the consent of the owners.

- It has been made possible for two individuals or legal persons to jointly own a trademark.

- It is no longer required for a certificate to be issued by the Chinese sanitary authorities for application for registration of marks to identify pharmaceutical products included in international class 5.

- It is required for the trademark to be for actual commercial use. A declaration of intent to use is not sufficient.

Now, what exactly can an Argentine business person do in practical terms when exporting to China or entering into an agreement with a Chinese company for the sale of products in that country?

Obviously there is a need to register the trademark in the form it will be used in China following trademark registration procedures, registering either the name alone or including a logo, in Western script or in Chinese.

The registration procedure does not require certification or legalization, a mere letter for authorization signed by the applicant is sufficient.

The first stage is to obtain approval from the Trademark Office, ensuring that formalities have been fulfilled before continuing with the registration process, which, depending on the background to the request to be evaluated by the government agency, could take up to one year to be completed. Protection is then granted for ten years, the international standard, with the possibility of indefinite renewal.

It is therefore very important to carry out a preliminary search to establish whether any difficulties are likely to be encountered during the registration process.

This is the normal way a brand is registered, and if we take the proper precautions it should not represent any difficulty.

What happens if, when performing a search, or even worse, when already trading a product in China, it is discovered that third parties, either the importers or the distributors, have registered the mark in their own name, with the impact this could have on the true owner of the mark?

Alternatives for action include:

- At the Trademark Office:

(a) Filing for revocation of the offending mark, for which it will be necessary to demonstrate bad faith by the party that requested it, evidencing the links or relationship between the parties.

(b) Filing for cancellation of a trademark from lack of use, to which end the applicant must demonstrate that the holder of the offending trademark has not been using it commercially in China uninterruptedly for three years.

Although both procedures tend to take time to be resolved, so that it is not possible to use the trademark owned in the country of origin, the most recommendable step is to file for revocation, as motions to declare the trademark lapsed are generally easily overcome by the holder of the improperly-obtained trademark registration, because some form of evidence of the use of the mark is easy to provide, the Trademark Office is fairly flexible in this regard.

It is possible to regain the unduly registered trademark by means of its transfer, which gives rise to negotiations.

In such cases it is recommended that a filing for revocation be initiated in parallel.

These are steps that can be taken at the Trademark Office, which must be accompanied by a demand that the offending product cease to be traded.

If the marks are in the process of being registered, negotiation is the only alternative available, which sometimes has a positive outcome, as the offender might indicate that they are not the owner of the mark, having acquired the offending product from a third party, whom they identify, or they could undertake to cease using the product within a given term, as a period to exhaust stock is allowed.

It is essential to be able to count on the concession of the marks when making a claim, as, if they are marks that have been granted on concession there is another means through which remedy can be sought, through the Administration for Industry and Commerce (AIC), a national entity with offices throughout China. If the applicant is in a position to clearly demonstrate that the trademark has been improperly registered and the mark is recognized in the market, the local AIC can take immediate steps against the offender, having powers to impose fines and sequester offending merchandise.

Before this step is taken, an investigation should be made to determine the scope of the offense and precisely identify the places where it is occurring.

It is also possible to file for loss and damages, which is only recommended in cases where the trademark violation is significant and a recovery of damages would be justified.

A situation known under industrial property law as passing off could also arise, whereby the mark on the exported products is removed by the offender and replaced by another. Under the new law this is regarded as an offense.

Previously, these cases were resolved through elimination of the offending mark from the products, which were returned to the offender.

Under the new law the AIC must proceed to destroy the offending material, and fines may also be imposed.