China's new trademark laws a boon for SA companies

Image courtesy of Keattikorn / FreeDigitalPhotos.net

Africa and China

China and Africa have long been trading partners. In 2009 China overtook the United States of America as Africa's single biggest trading partner. Reports show that by the end of 2012, China's foreign direct investment in Africa, going to sectors such as finance, processing and manufacturing, trade-related services, agriculture transportation and technology was US$100-billion, while China in return imported US$110-billion worth from Africa.

This dramatic increase indicates a rise of approximately 26% during which time China's direct investment in Africa has grown at an annual rate of 20.5%. Of the US$200-billion traded between the continents in 2012, South Africa reached US$45-billion.

So what does Africa do for China? Africa is a source of various resources including energy, minerals and agriculture. This includes China's importation of nearly 40% of Angolan oil during the course of 2012, second only to China's main energy source, Saudi Arabia. China is also the largest importer of Ethiopia's sesame seeds, used to make black sesame seed paste - a popular southern Chinese snack. This trade channel has seen a marked growth in Ethiopia's infrastructure, the railway between Ethiopia and the Negad Port in Djibouti being one such enhancement.

We are all by now familiar with "Made in China" though aforesaid statistics show that China is a primary destination for South African exports with a number of South African corporates taking advantage of the growth and investment opportunities in China. So too is South Africa taking advantage of opportunities in Africa. In an Ernst & Young report released in 2013, South Africa has invested in over 75 projects in Africa, more than any other country resulting in a compound growth of 57%-plus in locally originated investment projects.

These inextricable links between the continents also pose numerous risks to branding and the protection of intellectual property.

Statistics concerning trademark registration activity indicate that China's own citizens are increasingly seeking unauthorised registration of third party trademarks. This trademark "squatting phenomenon" is evident with China representing approximately 30% of all trademarks filed globally.

As a brand holder it is likely that you will by now have received unsolicited mail wherein it is stated that the writer has received instructions to register a domain name and/or trademark - for a large fee. The modus operandi is to advise of a company (which may or may not exist), which purportedly intends to register a range of names incorporating a trademark belonging to another in the main Asian commercial territories. While these approaches are best ignored, to date, without adequate trademark protection in China, attempts to reclaim your brand can be laborious, expensive and sometimes unsuccessful.

Like many other countries, trademark registrations in China are based on a first-filed system which means that the party first to file becomes a holder of the trademark regardless of whether they are authorised to do so.

Therefore, because of the popularity of branded goods being manufactured in China, counterfeiting is also wide-spread and it is not uncommon for foreign brands to be appropriated. More often than not, the encroaching party is a Chinese company and that the rightful owner has appointed a local agent. The likelihood therefore of a local producer in China securing a South African mark cannot be excluded, for example, a trademark for wine. In these instances, the rightful proprietor may have to consider instituting dispute cancellation proceedings against the unauthorised party in order to have the disputed trademark removed from the Chinese Trade Mark Register. Succeeding in dispute cancellation proceedings is however an onerous burden to shift and it can take at least three years for a decision.

China's new trademark law

In our experience, when a trademark is secured by an unauthorised third party the rightful owner may be constrained to provide assurances to its Chinese distributors. In so doing the rightful owner also runs the risk that its goods - albeit legitimate - are prevented from entering the Chinese market on the premise that the trademark belongs to another party.

Bad faith applications

It is for this reason that the introduction of "bad faith applications" - whereby good faith has now been introduced into the application process, prohibiting registration of the legitimate brand owner's mark where it has previously been used on identical or similar goods - is welcomed.

It will however be necessary to demonstrate that the unauthorised applicant had prior knowledge of the trademark as a result of prior dealings such as an agent or distributor.

It is hoped that the introduction of bad faith applications and the recognition of good faith at the outset - as opposed to seeking cancellation of a trademark already registered - will mean that trademark ownership will vest in the rightful owner.

So as to further regulate the principles of honesty and integrity integral to filing applications in good faith, trademark agencies are obliged not to handle matters where it has prior knowledge of the rightful owner and to advise clients at the outset where a trademark is not registrable. Violations can incur fines between RMB10,000 to RMB100,000 (approximately US$16,000).

Well-known marks

The amendment also clarifies what may be recognised as a "well-known" mark restricting unjustified recognition of "well-known" marks and forged cases run on the pretence of securing unjust credit for advertising. An administrative fine of up to RMB100,000 can also be imposed.

Other key changes include:

• New time limits for examination, cancellation and invalidation procedures have been set.
  
• Sound and multiple class trademark applications are available.
  
• Narrow locus standi for oppositions and invalidations.