With the downturn in the US economy well into its fourth year, American and Canadian franchisors are increasingly looking to international markets to secure new franchisees. As the worlds’ second largest economy and with the largest middleclass anywhere, China is generating an increasing amount of attention.
Unfortunately, expanding into China is quite different from expanding into more developed countries. Of course there are linguistic, cultural and other significant difficulties to overcome, but the biggest barrier to entry are the systemic problems regarding IP and Trademark protection. Most prospective franchisers looking at China presume that the legal structure here is the same or similar to those in our home countries and that those laws are simply ignored by the authorities. This view is incorrect.
Although there certainly are enforcement issues here, the situation is being addressed by the central government and organizations currently have reasonable courses of action to protect their brands from clear TM violators.
The real problems occur when international organizations enter the market assuming that their Registered International Trademarks will be honored here in China. International Trademarks are not recognized in China; in fact, in order to legally register a franchise in China one of the mandatory documents required is a copy of the SAIC (State Administration of Industry and Commerce) China Trademark application. Although a lengthy process, trademark registration in China is not difficult nor is it prohibitively expensive, but it must be performed by a state approved trademark agent.
From the SIAC website:
“Article 18 of the foreigner or foreign enterprise in China for trademark registration and handling of other trademark matters, it shall entrust a trademark agency approved by an organization qualified agent.”
What’s more problematic is that according to Chinese law, Trademarks are first come first served. So, no matter if you are looking to expand into China or advertise in China for new franchisees, pretty much any business can register any trademark if there is not a similar claim.
Again, from SAIC:
Article 29
“Where two or more applicants for trademark registration in the same or similar goods on the same or similar trademark applications for registration, application for preliminary approval and announcement earlier trade mark; the same day the application, preliminary approval and prior use of the trademark notice, others rejected the application, not to notice.”
So, does registering your trademark in China guarantee that your organization won’t have imitators or outright trademark violators? Of course not, but at least you will have reasonable recourse if it should happen. On the other hand if your organization does not register its’ trademarks it is possible to try to fight the infringement but more often than not, the foreign entity will not receive compensation from the violator but more likely will have to paid for the right to transfer the trademark rights in addition to paying the legal fees for all parties involved.
In short, if you are considering either expanding into China or advertising in China for investors for your home market, play by the local rules and register all of your trademarks. At the most, it’s a few hundred dollars today, or risk losing your brand in China tomorrow.
Sources:
http://sbj.saic.gov.cn/flfg1/flfg/200501/t20050104_53010.html
http://txjy.syggs.mofcom.gov.cn/manager/news.do?method=view&id=1554328
This has been a guest post by William Gibbons and China Franchise World. Scheduled to launch in October 2011, China Franchise World will be the first American owned and managed, Chinese language website dedicated to matching Chinese Investors to US and Canadian Franchise Organizations. Not only will CFW provide a low cost, traditional web portal but we will also provide tailored, full service solutions to organizations looking to either open shop in China or recruit new franchisees.
