ANALYSIS: Brand IDs under attack in China

Last month, Toyota Motor Corporation lost an infringement lawsuit it filed in China against a domestic competitor, a setback that provided a salient reminder of the difficulties that continue to bedevil brand protection in the country.

Toyota had brought the lawsuit against Zhejiang-based Geely Group, claiming that the local carmaker used a logo on the hood, hubcaps, steering column and boot of its Merrie cars that looks like Toyota's stylised 'T' marque.

Sources at Toyota claimed the company had registered its logo in 1990 - six years before Geely registered the Merry trademark with Chinese characters and logo with the State Trademark Association.

In handing down the decision, the court ordered Toyota - whose trademark registration runs until 2010 - to pay costs, a move that highlights the unpredictable nature of intellectual property enforcement in the country.

Brand expert Henry Steiner, of Steiner & Co, believes that the judgment raises some serious questions about the protection of foreign brands in the mainland.

"In my considered professional opinion, the Geely mark is clearly derived from Toyota's visual identity," says Steiner. "By its denial of the obvious, this ruling sends a strong signal to foreign companies that similar legal suits will be decided on ethnicity and nationality, rather than merit."

Neal Stender, an intellectual property specialist at international law firm Coudert Brothers, believes that foreign companies may be feeling the brunt of a post-WTO backlash. "This ruling reconfirms that brand protection is still not easy, and will not be easy anytime soon," says Stender. "Moreover, many interest groups in China feel that foreign companies have benefited sufficiently from China's WTO-related undertakings so that there is no need for special efforts to assist foreign firms in brand protection, in an environment in which PRC brand owners are also having difficulties."

Toyota's case against Geely was closely watched by other overseas automakers seeking to protect their trademarks and designs in China, the world's fastest-growing auto market. Many commentators believe that Toyota took the correct approach in going to the courts, and doubt that this will deter other foreign companies from doing the same.

Immediately after Toyota filed its lawsuit, Nissan Beijing alleged that the SUV design of another local car manufacturer, Great Wall's Sai Ying model, was similar to its Frontier special utility vehicle, which it had launched in the US earlier. Great Wall refuted the charge, countering that it was applying for a patent to protect Sai Ying's design in China.

General Motors Corporation is meanwhile investigating whether Chery Automobile Co's QQ minicar has breached copyright rules, by resembling GM's Chevrolet Spark. In addition, Honda recently launched a legal action against two Chinese motorcycle manufacturers for trademark infringement. The red-hot auto sector isn't the only category facing threats to its intellectual property rights as a result of China's ambiguous policy on patent protection.

In China, companies are required to apply for patents to protect their trademark - a rule that ironically tripped up the Beijing Olympic Organising Committee, which failed to register the running man logo for the 2008 games. If others succeed in registering the Olympic logo, the organising committee could find itself forking out a fee each time it uses the logo.

But a patent doesn't necessarily afford protection as China's thriving trade in counterfeit luxury goods, sports apparel and even pharmaceuticals prove.

Anina Ho, managing director of cosmetics brand Mario Badescu decries the Chinese Government's failure to tackle the growing counterfeit problem."The only way for imported brands is to educate customers to differentiate fake goods from the real product because it is useless to go to the court," says Ho.

But Joseph Simone, an intellectual property partner at law firm Baker & McKenzie, does not share Ho's view. The judicial route, Simone insists, is undeniably attractive, particularly when compared to administrative solutions.

"Foreign companies - including the Japanese - are now using the civil courts more aggressively to assert their rights. This reflects an increasing confidence in the quality of judges. It also reflects a growing dissatisfaction with administrative enforcement - which is politically more porous and less reliable," notes Simone.

"At the same time, foreign companies feel they have no alternative but to test the waters in Chinese courts. Failing to take action is an invitation to more infringements.

"These kinds of actions push the Chinese companies to think twice about infringing, now they know there is a risk of embarrassment through court proceedings. In due course, one will see a shift in mentality among Chinese infringers.

"Many have enjoyed the publicity generated from litigations. Eventually, they will acquire a greater respect for IP generally, and in the absence of that, a healthy disdain for the costs and reputational costs of litigation."

Stender agrees, adding that the judicial battle must be commenced as soon as realistically possible.

"In previous years, foreign companies often hesitated to confront PRC imitators, but it is now clear that this confrontation should be initiated as early as possible, in order to deter investment in the imitation brand," says Stender. "This ruling is not likely to deter other major brand owners from filing suit against imitators. These companies already knew that enforcement is not easy, but IP is often one of their 'crown jewels', and infringement lawsuits are often a necessary part of IP protection strategy, despite their unpredictable results."

Other strategies that foreign brand owners should consider implementing include better market monitoring, better education of consumers and a more proactive use of customs remedies to minimise the flow of imitation products between different markets.

"A more proactive approach and higher budgets need to be allocated in cases where the chances of copying are higher, such as in the auto industry," adds Simone.

Intellectual property piracy is, of course, a major issue in China, with Simone terming counterfeiting as a "horrendous problem in the PRC". Steiner points out that "the loss is China's", and many believe that the country's consumers themselves are being shortchanged by trademark 'dilution'. "For example, if one brand is recognised by customers as indicating quality, but another confusingly similar brand is allowed to be marketed to the same customers, then customers will not obtain the quality they expect, and brand owners will have less incentive to maintain quality," says Stender.

Ultimately, any brand protection strategy will depend on the ability of the courts to enforce the relevant legislation. As Stender points out, "this ruling appears to reconfirm that enforcement will remain an unpredictable and lengthy process, where progress continues to lag behind legislation."

Toyota is expected to appeal the decision.

Additional reporting by Christy Liu.

AUTO PLAYERS FIND CHINA ROUTE FILLED WITH POTHOLES

Toyota registers its logo in 1990, with the registration set to expire in 2010. Geely registers its trademark six years after Toyota, but fails in later attempt to register another trademark.

Nissan alleges local carmaker Great Wall has copied the design for its Frontier SUV, which the Japanese auto manufacturer had launched earlier in the US. Nissan claims Great Wall's Sai Ying SUV design looks similar to Frontier's, a charge Great Wall refutes, saying it will apply for patent for the Sai Ying design.

General Motors Corporation investigates whether Chery Automobile Co's QQ minicar has breached copyright rules, by resembling GM's Chevrolet Spark.

Honda launches legal action against two Chinese motorcycle manufacturers for trademark infringement.