Records smashed at every turn – China’s remarkable trademark journey

The development of China’s trademark landscape has been extraordinary, to say the least, since 2012 when President Xi Jinping announced at the 18th National Congress of the Communist Party of China that the country will shift from being a manufacturer of Western products to housing its own world-leading brands (it was even announced last year that China’s State Council had approved an official Chinese Brands Day).

With this shift in China’s brand outlook, coupled with continued demand for Western products, application numbers at the State Administration of Industry and Commerce (SAIC) have broken records year on year. Chinese applicants have also been on a filing spree across the globe, with many of the country’s once-unknown brands on a fast track to becoming leading actors on the international stage.

As noted by Brand Finance in its China 300 2018 report (see http://brandfinance.com/images/upload/brand_finance_china_300_report_2018_website_version.pdf), Chinese brands across virtually all industry sectors have enjoyed an upsurge in brand value – to emphasise this point, China’s share of the global brand value among the 500 most valuable brands in the world has jumped by 888% over the last decade. Although most of these players remain confined to the local market, their strong domestic foundations will serve as a springboard for global expansion over the coming years. As such, there is a strong expectation that Chinese brands will increasingly grow in influence in the West.

Unsurprisingly, China’s nation brand value has also been on the rise. In the 2018 edition of Brand Finance’s Nation Brands report (see http://brandfinance.com/images/upload/bf_nation_brands_2017.pdf), the country’s brand (valued at over $10 trillion) leapt by 44% compared to the previous year – rapidly closing the gap with the United States, the leading nation brand.

In addition, BrandZ has noted in its Chinese Global Brand Builders 2018 report (see http://www.wpp.com/wpp/marketi...) that perceptions of Chinese brands are on the ascendant, especially among younger consumers. However, attitudes vary significantly depending on the country: the United Kingdom has the most positive attitude towards Chinese brands, while Japan has the most negative view. In any case, brand China will only grow stronger with the country’s influential involvement in cutting-edge areas such as artificial intelligence and machine learning. It is likely to be only a matter of time before Chinese brands are known around the world for innovation, rather than the ‘made in China’ label.

Dynamic legal and market developments

It is not just China’s brand profile that is undergoing a dramatic change. A series of legal and administrative developments are set to shake up the playing field for local rights holders and foreign market entrants alike.

Arguably the biggest change came in March with the surprise announcement that as part of a widespread bureaucratic reshuffle, the Chinese government plans to create a single mega IP agency to oversee all responsibilities for patents, trademarks and geographical indications. The planned scope of power of the new agency – the State Market Supervision Administration – is not yet fully known, but for now it appears that there will be no major disruptions to day-to-day trademark activities. Going forward, though, the reorganisation of China’s IP offices could have a profound effect on overall IP policy direction and the distribution of resources.

The legal system is also being readjusted. In early 2018, China’s cabinet issued a policy roadmap that outlined its plans for IP judiciary reform in order to tighten up the IP litigation ecosystem. A number of specialised IP courts have also been set up in Beijing, Shanghai, Guangzhou and, more recently, Changsha and Shenzen.

Moreover, recent court decisions in favour of brand owners with tougher penalties for infringers seem to indicate that China is taking more decisive action against brand transgressors. With this stronger brand protection environment – not to mention the massive rise in application numbers – it should not come as a big shock that IP litigation in China rose by an eye-watering 40% over the last year. In 2017 there were over 200,000 Chinese IP cases; for comparison, the total number of cases for new patent, trademark and copyright cases in US federal courts during the same year was only 11,602, according to Lex Machina.

It is also worth noting that China continues to be a hotspot for counterfeit goods. In the 2017 edition of the Office of the US Trade Representative’s Special 301 Out-of-Cycle Review of Notorious Markets, Chinese marketplaces featured most prevalently. The report contends that China continues to be viewed by many as the primary source of counterfeit goods and that, while policies have been put in place to restrict the availability of fake goods, enforcement remains inconsistent. However, China has hit back by questioning the objectivity and credibility of the report. Although anti-counterfeiting procedures and strategies remain complex in China, the government continues to make inroads on the problem, such as with its recently launched luxury goods appraisal centre.

Figure 1: Number of filings at the State Administration of Industry and Commerce

Source: Compumark

Domestic filings reach new heights yet again

According to data from trademark searching and watching platform CompuMark, trademark filings in China have grown exponentially since 2012 (see Figure 1).

Commenting on this development, CompuMark’s director of custom and managed solutions, Robert Reading, states: “In 2016, the Chinese register saw over 3.6 million applications; in 2017 it was over 5 million applications. The growth rate is remarkable, but just as remarkable is the fact that the Chinese register saw more applications in 2017 than all the other registers in the world combined.” China was also the most frequently designated register at the World Intellectual Property Organisation in 2017.

Indeed, the rate of filing growth in China vastly exceeds that of all other countries, having increased by almost 50% between 2016 and 2017. This has partially been driven by the SAIC’s decision to cut official fees by half in April last year. This move led to a perceptible uptick in applications at the office with a 74% increase in filings after the fee change compared to the previous quarter (see Figure 2).

Figure 2: Number of applications at the State Administration of Industry and Commerce

Source: Compumark

That the SAIC is dealing with such jaw-dropping numbers raises questions about the quality of registered trademarks. He Jing, senior consultant at Anjie Law Firm, notes that the reduction in fees was prompted by the government’s aim of reducing the burden on small and medium-sized enterprises (SMEs); but this has led to the unwanted consequence of a further rise in application numbers. He believes that the phenomenon will likely go on until the government comes up with measures to rein in filings, such as with an increase in application fees, and that until then this “will lead to even more pressure on the government and its promise to shorten examination times”.

However, Ming Zhu and Na Lin of Chang Tsi & Partners claim there are no intentions to slow down the rapid rise of filings: “The SAIC has stated the trademark registration period will be significantly shortened from April this year as examination times are reduced, which will strengthen the confidence of rights holders and further stimulate the number of applications.” They point out that the liberalisation of the trademark agency industry will also add to the escalating number of applications, as some agencies operate on a ‘free of charge’ model, while others use e-commerce platforms, making it more convenient for applicants. However, they note that the shift to e-filings will improve the efficiency of trademark registrations overall.

That China’s trademark office may struggle to cope with continually growing application numbers is demonstrated by its position in World Trademark Review’s IP office innovation rankings. China comes out low on the table with the 41st most innovative IP office. Its low ranking was the result of a failure to offer adequate services in a multitude of areas across all three categories analysed, including online metrics, value-added propositions and public outreach (see Table 1).

Table 1: IP office innovation rankings

In terms of the types of mark that applicants are filing, Figure 3 shows the spread of filings across all 45 Nice Classes in China compared with the global average for each class.

Figure 3: Percentage of filings by trademark class – 2017

Source: Compumark

Filings in Class 25 (clothing) are noticeably higher in China than the global average. In its Trademark Industry Report 2017, trademark management platform TrademarkNow points out that China’s prolific activity in the clothing, apparel and luxury goods sector has been a growing trend for several years now. Recent data from TrademarkNow also shows that the top products in terms of trademark filings continue to come from Class 25, with marks for products such as clothing, gloves, footwear, hosiery and hats each making up a significant portion of filings. From a branding perspective, more importance is also placed on the food and drinks industry in China. Classes 29 to 33 (covering meats and processed foods, staple foods, natural agricultural products, light beverages, wines and spirits) are all higher than the global average.

Conversely, filings in Class 41 (education, entertainment and sports) and 42 (scientific and technological services) are much lower compared to the global average. Filings in Class 16 (paper goods and printed materials) are also relatively low. In general, there is a greater emphasis on trademarks for goods rather than services among local applicants.

Figure 4: Number of applications globally by Chinese applicants

Source: Compumark

A flurry of filing activity in the West

As has been shown, filing activity has been prolific within Chinese borders; however, the data is equally striking when looking at the activity of Chinese applicants abroad. Total filings by local applicants into foreign registers have seen similar exponential growth and the total number of applications in 2017 cleared the 100,000 barrier with ease. Notably, close to half of all these applications were destined for the US Patent and Trademark Office (USPTO).

While these figures may initially seem promising for US prosecution firms hoping to capitalise on the situation, this development has been accompanied by a dramatic increase in illegitimate Chinese filings, featuring fraudulent specimens, at the USPTO. The office has since launched a programme to help combat the rise of fake specimens that have been “digitally created, altered or fabricated”.

In addition, it would appear that law firms are failing to take a slice of the pie. CompuMark’s Robert Reading believes that “entirely new routes to access foreign trademark markets are being forged, with traditional firms being completely bypassed”. Instead, eager Chinese applicants are predominantly using small firms and individuals for their foreign filing needs, either directly from China or by using a US-based Chinese national, with price being the determining factor in their choice.

Chinese filers also set new records abroad in 2017: last year, Chinese applicants overtook their US contemporaries in EU trademark filings, marking the first time that the United States was not the number one applicant on the EU Intellectual Property Office register. In a similar vein, Chinese individuals and entities filed more trademarks than US applicants at the UK register for the first time last year.

Figure 5: Percentage of applications by goods and services – 2017

Source: Compumark

As mentioned previously, the majority of filings in China relate to goods rather than services. This is even more pronounced when looking at foreign applications from Chinese filers (see Figure 5). Approximately 84% of filings are related to the export of physical products.

Figure 6: Percentage of filings by trademark class

Source: Compumark

A detailed breakdown of which trademark categories are most frequently used for exports can be seen in Figure 6, with a comparison between 2010 and 2017. Class 9 (computer software) was the most popular class for foreign filers in 2010, making up 12% of all foreign trademark applications by Chinese filers. This figure increased to almost 20% by 2017, with Class 9 being by far the most used class over the last year. Class 25 is also used frequently but has experienced little change over the last seven years.

Figure 7: Total brand value of Chinese brands by sector – 2018

Source: Brand Finance

An explosion in brand value across all sectors

Chinese applicants have clearly been leading the way in filings across most industries, even in sectors where trademark filings as a whole are slowing, such as banking and insurance. As the number of filings have increased, so too have Chinese brands continued to improve overall in brand value. Figure 7 shows the spread of brand value by sector among the 300 most valuable Chinese brands in the world.

Although banking brands lead the way – with ICBC and China Construction Bank being the two most valuable bank brands in the world – their total share of brand value has actually decreased, down from 29% in the previous year.

On the other hand, technology is on track to become the most prized sector for Chinese brands, having grown by almost 4% in total brand value share compared to last year. Technology is the fastest rising brand sector in general: this year, for the first time, tech brands took up the top five positions of Brand Finance’s most valuable brands list. Although there are no Chinese names among these five companies, Chinese tech brands are catching up quickly. The likes of Tencent and Huawei have seen explosive growth in brand value, leaping by 83% and 51% respectively over the last year (see Figure 8).

Figure 8: Top 10 Chinese brands by value

Source: Brand Finance * Data unavailable for 2015, 2016 and 2017

What is especially striking is that not only have all the brands listed here jumped in value, but they have done so by double-figure percentages over the last year. The phenomenal growth of Chinese brands is not limited by industry either. For example, we saw in our analysis of the automotive sector that Chinese car brands have increased in worth by 80% over the last decade (in comparison, total US and Japan car brand values have decreased).

Meanwhile, spirits brand Wuliangye was the fastest grower among the 500 most valuable brands in the world, having rocketed by 161% to $14.6 billion. China also sets the standard in the retail space with Alibaba blazing ahead of its competitors with further plans for expansion, having recently launched a $15 billion project to build overseas research hubs. While ICBC became the most valuable bank brand in the world not too long ago, Ping An recently became the world’s most valuable insurance brand.

Another top story is that the State Grid Corporation of China, more commonly known as State Grid, comfortably broke into the top 300 Chinese brands list for the first time as the most valuable utility brand in the world. As noted by Brand Finance, its success has been driven by innovative technology, strategic investment and responsible operations with a focus on cleaner and more efficient transmission of electricity.

China’s growth in the branding space has been unprecedented. With a whole host of thriving brands shored by rapidly developing markets and legal systems, it is plain to see why many foreign rights holders are keen to get their foot in the door. The rate of applications from Chinese filers into other jurisdictions has also been astonishing, but it may be difficult for traditional foreign law firms to benefit from this development. At this point, quality remains the key concern both within and beyond Chinese borders: it will be worth keeping an eye on how China’s trademark office plans to effectively maintain high-quality trademark registrations as applications continue to develop; meanwhile, foreign offices must now deal with a surge in often questionable Chinese applications, although steps are already being taken to counter this.