In the 17th century, before the Brothers Grimm retold the fairy tale of Little Red Riding Hood with a sanitised, happy ending, the story ended with both Little Red Riding Hood and her Grandma being eaten by the disguise-savvy Big Bad Wolf.
Substitute international brands for Little Red and copycat brands for the wolf, and you have a nice parallel to China today. While the wolves once got away with murder, today they are increasingly facing consequences.
Brands pretending to be something they are not may get some brief stage time in China, but they are also getting slapped with intellectual property lawsuits—and losing them—as the country makes steady progress in the area of trademark protection.
In 2017, Uncle Martian was deemed a trademark infringer selling athletic wear that featured a logo so similar to Under Armour's that people cried foul play. Dan Harris and Matthew Dresden of the popular China Law Blog found the court’s ruling surprising at that time because "Chinese courts are known for being reluctant to issue injunctions because they don’t have the same enforcement power as US courts (China has no equivalent of the US Marshals Service), and issuing an injunction that they know will be ignored just makes them appear weak".
Today, foreign brand owners are even winning legal battles for subtle things. Just this month, Bridgestone Corp claimed victory in a three-year-old infringement lawsuit against Chinese tyre maker Shengtai Group. At issue, Shengtai had used a tread pattern patented by the Japanese firm, according to a ruling from the Beijing Intellectual Property Court on 12 April. Damages amounting to RMB 10 million (US$1.48 million) have been finalised for the disputed design rights.
A more visible forgery garnered only about RMB 4.5 million (US$650,000) in damages, even though the infringements extended beyond trademarks to acts of unfair competition by Lepin, one of the most prolific Chinese cloners of Lego building blocks and miniature toy figures. The fake brand was recently instructed to pay the real Lego that amount in a decision made by the Guangzhou Yuexiu District Court against four defendants (Shantou Meizhi Model Co, et al) during November 2018.
"Brands that copy or imitate are undoubtedly wrong, unacceptable, and lack integrity," said Fanny Yum, the new Publicis Worldwide chief executive for Shanghai, in addition to managing partner of its communications division. "I don’t think we need to spend more words on this, but let’s take a look from the market perspective. Why do Lego counterfeits become so popular? Pricing is unquestionably the main reason."
While the Lepin decision is applauded as a win for Lego, the commercial reality is that only 18 sets were found "protectable" by the court, and that represents just a drop in an ocean of fakery. A visit to the Lepin website this morning showed one of the offending products, directly copying the 10261 Roller Coaster set, still available for sale despite the injunction. Another commercial reality is that the Chinese knockoffs are able to cut licensing fees from their cost of producing replicas of the Danish toymaker's Star Wars, Disney, Harry Potter and Batman lines, making them cheaper for the consumer.
"We need to ask if the original brand's pricing justifies the benefits for consumers? For instance, can better product quality, a better in-store experience, and a better marketing mix help?" Yum asked. While in Lepin's case the knockoffs are vastly inferior to the real thing, according to firsthand experience among Campaign's staff, the quality differences may be less obvious with other products.
Successful enforcement is often satisfying, but there are still cases of fruitless fights against willful trademark counterfeiters. In 2016, for instance, Apple lost the right to use the word 'iPhone' in China (though only on leather goods) after the Beijing Municipal High People’s Court said Xintong Tiandi, a little-known player, applied for the trademark in 2007. In 2002, Apple applied for the same 'iPhone' trademark for computer hardware and software in China, but the problem was, that application was only approved in 2013. This means the Chinese company is free to use the name 'iPhone' on its leather bags, but it cannot touch electronics.
Legal actions such as the above can screech to a halt when subject to the 'first-to-file' principle in China (as opposed to the 'first-to-use' rule in the United States). Foreign brands that do not foresee problems through preemptive registration, or have resources to do so, may be grievanced by infringement.
Earlier this week however, China’s legislature approved amendments to the Trademark Law to crack down heavily on trademark squatters like Xintong Tiandi. After the revised Trademark Law comes into effect on 1 November, those guilty of “bad-faith trademark registrations without intent to use” will be denied outright.
Furthermore, the onus will be on trademark agencies to refuse clients who file such bad-faith applications, or receive a warning or fine, and article 44 of the altered rules will invalidate all trademarks already registered in bad faith. Also, harsher penalties for “malicious” trademark infringements are being ordered by the courts, with the statutory limit for damages payout increased to RMB 5 million (US$741,180) from RMB 3 million (US$444,708).
If China continues to provide meaningful legal recourse and injunctive relief, in a parallel universe Little Red Riding Hood might survive more journeys into new territory unscathed.