Once a brand has established itself in its home market, it’s only natural to look elsewhere to expand and build on reputation and consumer following. This enables the sort of rapid growth which we see from a wide range of brands when they move beyond their own borders.
What obstacles do brands typically face when expanding overseas?
A rapidly growing brand will have usually learned a lot since its formation, but there can be misperceptions that a company can simply follow the initial IP blue print which was successful since inception. Unfortunately, IP portfolio expansion, especially internationally is not as simple as it may first appear. Despite a loyal consumer base in its home market and IP registrations, a brand’s entry into another country could be halted, as another company or person may already own or have registered a trade mark in the target jurisdiction. This can be a genuine commercial conflict or in the case of copycats, malicious copies known as trade mark squatting. Moving into a new market may sometimes be the first time that a trade mark owner discovers that there are a number of competing or counterfeit products (or services) that have already entered the target jurisdiction (together these are known as trade mark infringements). Even large and experienced brands can be caught out by these two issues.
Trade mark squatting
Trade mark squatting occurs when someone other than the original brand owner registers a trade mark of a particular brand maliciously. This usually occurs when a company has an established a reputation and a recognizable trade mark in their home jurisdiction – for example, the US – but hasn’t registered the mark in an important market such as China. Usually, trade mark squatters are non-practicing entities, i.e., not carrying out a trade or business, and their sole intent is to monetize the trade mark registration by selling it to the highest bidder. There is quite a large industry in some countries of spotting IPOs and coming brands and registering them.
A famous example of this was US electric car maker Tesla Motors. In 2006, many years before Tesla entered China, a Guangdong-based businessman named Zhan Baosheng registered the “Tesla” trade mark. It led to Zhan filing a lawsuit where he demanded Tesla to close its showrooms, stop all marketing activities in China, and pay compensation in the amount of RMB$23.9 million. It took a few years, but eventually Tesla was able to “completely and amicably settle” (per its official statement) the trade mark dispute.
Trade mark squatters are common in several Asian markets. China first and foremost has a huge number of trade marks registered; many of these are blatant copies of international brands, often located online before the products are available in Asia. Ease of internet access allows instantaneous attention of new brand launches, while it helps to communicate the brand awareness, it also facilitates an industry of trade mark squatting. Some squatters use Hong Kong to establish IP holding companies, called ‘shadow companies’ to make it appear that they are the legitimate foreign IP owners. Indonesia is another country where local trade mark squatters frequently copy and register foreign brands. The degree of squatting in Indonesia is followed by Philippines and Thailand.
Trade mark infringement
Trade mark infringement, when compared to trade mark squatting, occurs when someone registers another person or entity’s trade mark to manufacture counterfeit goods and/or by profiting off the goodwill of the original company in a certain jurisdiction without any fear of reprisal.
Korean tech giant Samsung experienced this issue when announcing its collaboration with the famous luxury streetwear brand Supreme in China. Unbeknownst to Samsung, it had been dealing with Supreme Italia, a competitor and alleged counterfeiter of the original New York based Supreme brand founded by James Jebbia. The event immediately caused a stir when people discovered that Samsung had partnered with the wrong entity. It led to the US company Supreme issuing a statement that it was not working with Samsung, and that “the claims are blatantly false and propagated by a counterfeit organization.”
For a brand that is just starting out, it is understandable that the founder’s attention is taken by other key issues like capital raising, launch, marketing and promotional activities, creating different product lines, and hiring more workers. The creation and protection of their intellectual property gets squeezed down the list of priority. However, this lack of scrutiny has long-term consequences, especially if a brand is expanding to countries such as China and Indonesia (with their fair share of trade mark squatters and infringers).Despite the sophisticated and long-standing intellectual property frameworks in both markets, their trade mark offices have become overwhelmed with bad faith applications, but time is needed to review and reject the applications.
Is there anything I can do to start?
While we may appear to be pessimistic for those companies who do not have the money or manpower to tackle these issues, there is a simple and cost-effective way to mitigate these issues, by conducting trade mark searches using the online tools below in the markets which you want to expand into.
Other than the databases listed above, you can visit the trade mark registry of the relevant jurisdiction and see if there is an online database where you can run a search.
Utilizing the information from the trade mark search
Once you have the information from your searches, you can develop a plan with your legal team to protect your trade marks and deal with any similar or identical marks. In those jurisdictions where future expansion is expected, pre-emptive filings can be made to ensure that the marks are protected. Moreover, if there are similar or identical marks spotted during the search, a range of options can be considered such as filing oppositions, cancellations, entering into co-existence agreements or purchasing the marks. Rouse has decades of experience tackling these kinds of issues, using legal and practical strategies to recover IP.
Taking small steps now can ensure that a lot of pain is avoided down the track and your intellectual property remains safe and secure.
Get insight and professional advice on the common issues and concerns businesses need to understand and may be facing when entering into China:
