[Jian Xu] The Five Most Important Branding Considerations for Overseas Companies Planning to Expand into China

1.      Trademarks - Registration

China is a first to register country rather than a first use country like the United Kingdom.  Therefore, a business must register its mark in China if it intends to do business there, regardless of any international conventions, and should do so before the business actually enters the Chinese market, in order to avoid any risk of losing the trade mark in China.  If the mark is not registered, there is no mark.  An application must state the class of goods, and a separate application is required for separate classes of goods on which the mark appears.  Like with contracts in China, the key will be specificity.  After you have registered your mark with China’s Trademark Office, register it again with China Customs.  Without this separate registration you will not be able to obtain enforcement from China Customs.  Your trademark strategy should be centered around enforcement in case of infringement.

2.      Trademark Enforcement: Brand Dilution and Enforcement Procedures

If you do not enforce your trademark rights and other companies are selling your goods, you risk not only a loss in market share, but also brand dilution through the presence of potentially inferior products bearing your mark. 
Chinese law first calls for “negotiation”, a common requirement in Chinese statutes.  Should that fail, you may bring an action in the courts or an administrative action in the Administrative Department of Industry and Commerce.  A People’s Court will have the authority to enforce the decision.  Enforcement is usually limited to damages and the destruction of the infringing goods.  Once a decision is rendered, you will also be able to enforce your mark through Customs, assuming it has been registered there.  Finally, there is no substitute for constantly monitoring your mark.

3.      Licensing Your Mark

Licensing agreements are fraught with danger and opportunity.  Like any contract in China, your agreement must be very specific.  A common negative outcome is when the licensee begins to make its own goods bearing your mark and sells them to your customers, which it has learned through looking at shipping manifests.  During preliminary negotiations a business should draft a combination of non-disclosure, non-circumvention, and non-compete clauses.  After negotiations are complete, these agreements must be explicitly incorporated into the final agreement.  It is also important to carefully manage trade secrets, such as customer lists, to limit the business’s exposure to damage in case of breach and infringement.  Finally, because damages in these cases are hard to calculate, a foreign party should include both a liquidated damages clause and specific performance allowing for the destruction of the infringing goods in their licensing agreements.

4.      Adapting the Mark to the Chinese Market

If you are selling to the Chinese market, it is important to weigh the pros and cons of adapting your mark to the Chinese market.  Whether or not you wish to change the mark’s appearance or translate it to adapt it to the Chinese market depends on why Chinese customers are choosing your product over domestic ones.  In some cases, maintaining the “foreignness” of the brand is a distinct advantage.  Other companies have translated their mark with great success, with Coca Cola being a prime example.  The Chinese translation is not only a transliteration of the original English, but also carries an excellent meaning in Chinese.  A foreign business which translates its mark should consider whether the characters used are positive, whether there is any associated meaning with a transliteration, and remember to still register its original foreign mark.

5.      Trademark Squatters

Sometimes a business simply cannot beat a squatter to the mark.  There are two recourses.  Because China is a first to register country, there are limited grounds to challenge the infringer.  A foreign party may rely on either a “well-known mark” ground or a “bad faith in registration” ground.  Obtaining a favorable decision on either ground is both difficult and expensive.  An alternative solution is to negotiate an assignment from the squatter. The original owner might purchase the mark directly, or via a cover. Again, it will be very helpful to use experienced trade mark agents which can formulate the best negotiation strategy depending on the nature of the case.