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How to Protect your IPR at the Chinese E-commerce

Market

Mr. Daniel Albrecht China IPR SME Helpdesk External Expert

29 March 2017

Welcome to the Webinar

29 March 2017 Copyright © 2017 China IPR SME Helpdesk. All rights reserved.

Helika Jurgenson China IPR SME Helpdesk Project Officer

Webinar Interaction Tools


Snapshot: Helpdesk Services


Today’s Speaker

Name: Daniel Albrecht

Firm: Starke Location: Beijing, ChinaEmail: [email protected] is a German attorney at law and has been running Starke since 2014. Hespecializes in corporate law, commercial law as well as trademark law and laborlaw. He also assists his clients in drafting and negotiating complex contractdocumentations. Further on Daniel advises international businesses on theacquisition or sale of public and private companies. Before founding Starke, Danielpracticed for a well-known law firm in China and the oldest foreign law firm inJapan, where he represented mostly German speaking companies in the field ofcorporate and IP law. He had his first professional encounter with his own law firmin Frankfurt am Main, Germany for more than five years. His first professionalencounter with China was in 2004 as a law clerk and he worked at one of the topChinese law firms in mainland China.

He was also appointed as Guest Professor for civil law at the China University ofPolitical Science and Law (CUPL) 中国政法大学.

Daniel speaks German, English and Japanese.


mailto:[email protected]

Agenda


A. E-commerce worldwide

B. China’s E-commerce Market

C. Key Growth Drivers

D. Barriers to Entry

E. Intellectual Property Rights

A. E-commerce Worldwide


• The internet allows consumers to shop online globally,purchasing products and services that may be unavailable orprohibitively expensive in their own countries from websitesbased in different countries and from marketplaces that hostmultinational merchants

→ This phenomenon is known as cross-border e- commerce

• 2016 global e-commerce sales have now reached 1.5trillion USD per year, seeing an annual increase of about20% compared with an annual growth rate of 6% for globalretail sales

• The sector will continue to grow as advancing technologieshelp reduce problems associated with international payments,long shipping times and language barriers and brands look tosustain communication and engagement with consumers inemerging markets, the key one being China.


• e-commerce in China will hit $85.76 billion in 2016, up from $57.13 billion in 2015 as 40% of China’s online consumers buy foreign goods

• China’s e-commerce market will become larger than those of the US, Britain, Japan, Germany and France combined by 2020

• There are four main drivers of e-commerce growth in China:

e-commerce platforms

social media platforms

digital payments platforms

mobile devices

B. China’s E-commerce Market



I. Platforms

There are two distinct models for Chinese ecommerce:

• Direct Purchase Direct Purchase is where a platform buys your stock either

directly from the brand or through a wholesaler, agent or other intermediary.

Alibaba does not own this business model and the largest platform is JD.com which holds 58.3% of the market share.

• Marketplace The marketplace model is used exclusively by Alibaba with

it's Tmall and Tmall Global channels accounting for 55.7% of the market share

→ If you want, you can operate on both a Direct Purchase

Platform and a Marketplace platform, you are not limited to pick just one.



II. Social Media

• China’s social media platforms have become an important additional driver or facilitator of e-commerce activity.

• WeChat as one of China's key social media platforms can also be manipulated by a business to increase sales.

• The only catch is that your company has to be registered in China.

→ For companies without a China registered office, there are

other ways to access the market but they don't allow for the

same control over presentation and process.



III. Mobile e-commerce (m′commerce) and payment

• China has the world's largest mobile internet population with 527 million users and the number of consumers shopping on mobile devices is growing very quickly

• It is clear that accompany with the rise of e-commerce in China, there is a clear trend towards mobile devices.

→ In 2012, mobile transactions totaled USD 7.8 million,

representing 3.7% of all e-commerce transactions in

China.



IV. Online to Offline

• Just as every retail brand we see in China is pursuing anonline-to-offline (O2O) strategy, brands want to make sure their sales channels reinforce each other, provide a better customer experience and respect the trend of consumers migrating to e-commerce without undermining a profitable store-based business.

1. Stay consistent

2. Cross-sell and cross promotion

3. Follow trends



V. Differences within China

• China's online population is not only incredibly large, it is alsohighly diverse, in terms of consumer behaviour.

• brand loyalty materializes at a markedly higher rate in tier-1 cities than anywhere else in China.

• Despite tier-4 city residents having relatively less discretionary income, they appear to spend similar amounts online as consumers from tier-3 or tier-2 cities.

→ China’s rural population are likely to become a huge market

in the next few years, as more and more people access the internet.

• China's e-commerce market does tend to be skewed heavily towards fashion and accessory purchases.



I. Taxes and Legal aspects

• In April 2016 taxation rates for common cross-border products were greatly modified. Under new laws certain consumer goods and luxury products will be subject to higher taxes

• Taxation loopholes such as the ‘personal parcel’have also been closed irrevocably.

• Products imported via cross-border e-commerce are considered ‘commercial goods’ and those products imported via the bonded warehouse model must obtain a customs clearance certificate if they are listed in the Catalogue of Commodities subject to entry and exit inspection and quarantine.



I. Taxes and Legal aspects

• Although many approved products are listed without additional notions, it is vital that the List be consulted regularly by companies as it has been confirmed that it will be updated from ‘time to time’

• The following products do contain exclusions and additional guidelines:

FoodInfant

FormulaCosmetics

Medical Devices

Health Foods



II. The Internet

• Currently 668 million citizens are connected to the internet, with 178 million of those are from rural areas.

• Censorship of foreign websites through the so called ‘the Great Firewall’ is increasing.

• This tightening of the Great Firewall has important effects, particularly as Google Search is blocked, so companies will need a second set of search engine optimization strategies as part of their overall China marketing strategy.

→ Current political trends indicate that China will keep it’s internet walled off, so

for the immediate future, it is best to assume that websites that are hosted

abroad will continue to be slower and harder to access for Chinese citizens.


II. The Internet

• A .cn registered Chinese-hosted website circumvents these

problems.

→ The company must submit the following to the registrar:

1 A completed.cn registration form.

2 A copy of the business license.

3 A copy of the signatory’s national ID.

→ An applicant must also satisfy the following criteria:

1 Be an enterprise, legal person or an institution legal person

2 Have registered capital of not less than RMB one million.

3 Hold a business development plan and relevant technical plans.




II. The Internet

• The Chinese government also requires that all websiteshosted in China apply for an Internet ContentProvider license

• If a company does not register in the Chinesemainland, they can register their Chinese languagewebsite in Hong Kong, but the website would still faceslower loading speeds than its mainland hosted peers.



III. Internet service standards

• All internet service providers ( ISPs) are subject to the new provisions under the Supervision of the Market Order of Information Services introduced in December 2011.

• These provisions are in addition to the government’s guidelines, Services Norms for E-commerce Trading Platforms, issued in April 2014.

→ Participants in this sector should be aware that the government will

be increasingly policing and taking action against ISPs and

internet businesses for non-compliant behaviors.



III. Internet service standards

• ISPs would be held jointly liable for copyright infringement when...

→ they have been notified of an infringement but fail to promptly delete,

block or disconnect the infringement.

→ they know or should have known that internet users are using their

network services to infringe copyright but have failed to adopt the

necessary methods to stop the infringement.



IV. Telecommunications

• Foreign participation in a range of internet and e-commerce activities comes under China's far-reaching telecommunications regulation.

• Most non-facilities e-commerce services offered over the interest will be characterized as value added telecoms (VATs).

• The now well-known variable interest entity structure(VIE structure) has been repeatedly used to support foreign participation in PRC e-commerce businesses.




• A telecom company in China must adhere to the Measures for the Administration of Telecom Business Licensing:

specialization in basic telecom business

→ percentage of state-held equity at least 51%

good will and competence for providing long-term services

to users

capital and personnel sufficient for the operation activities

study reports and technical schemes on network building

registered capital with a lower limit of RMB 100,000,000



Written application for operating a basic telecom business

• IV. Telecommunications

• It must also be submitted to MIIT to apply for a basictelecom business permit:

Counterpart and copy of the enterprise legal person permit

Profile of the company

Latest annual financial statement of enterprise legal person




• additionally it must be submitted:

Business development study report

Articles of association, equity structure of the company and information on shareholders

Guarantee measures for network and information safety

Measures for providing long-term services and quality warranty for users



• The 2006 Circular on the strengthening of the Administration ofthe Provision of Value Added Telecommunications ServicesInvolving Foreign Investment, states that ...

→ foreign invested entities must receive foreign investment

approval to participate in VATS

→ VATS licensees are prohibited from lending or making available their

VATS licenses to foreigners.

• A foreign investor cannot use contractual control arrangements( i.e. the VIE structure) to avoid the government’s nationalsecurity review and approval requirements.




• V . Mobile Apps• The rules and regulations surrounding apps in China have become more

stringent → the Rules on the Management of Mobile App Information

Services which came into effect on the 1st August 2016 ...

are aimed primarily at regulating the rapidly growing app market and address corresponding data privacy issues.

impose data privacy, cybersecurity, and content monitoring requirements on app and app store providers

regulate app stores: stricter cybersecurity practices, audit app providers and make certain files with provincial authorities.

→ The Chinese Government trend towards general censorship.

Companies looking forward to thriving in China’s mobile app market are

advised to pay close attention to these new rules, both to ensure

compliance and to remain competitive in the evolving business

environment.



VI. Logistics capability

VI. Logistics capability

There are two options available to get your international products to Chinese consumers:

→ A company could utilize both Direct Shipping and Bonded

Warehousing as means of getting its products to customers.

Direct ShippingBonded

Warehousing

F. Intellectual Property Rights


• Currently, Chinese law dictates that e-commerce platforms must take down links to infringing products on their websites if they are notified by the products IPR holder and a take-down action is requested by them.

• If they fail to do this then the platform would be liable for infringement under Chinese law.

→ Aliprotect

→ Taoprotect

• China’s State Administration for Industry and Commerce (AIC) does not recognize trademark registration overseasand instead has a ‘first to flie’ system.

• The problem of ‘trademark squatting’ is very common in China and companies should register under a Chinese domain name instead


A trademark is a sign capable of distinguishing the goods orservices of one from another.

Trademark in China is:

- Any sign capable of distinguishing the goods or service of anatural person, a legal person, or any other organization fromthose of others, including but not limited to word, design, letter,numeral, three-dimensional symbol, combination of colors, sound,as well as a combination of the above.

- The trademark for registration shall be distinctive for easyidentification, and may not be in conflict with any prior legalrights acquired by others.

What is a Trademark?


• Protecting your trademarks earlier than later

• China has the 'first-to-file' system, that is to say you may loselegal protection if a similar or identical mark has already beenor will be registered by another party

• Foreign individuals or entities should register their marks by

Chinese registered Trademark Agent

Registering your Mark in China as Soon as Possible


Translation: if the trademark as a distinctive meaning.

e.g. volkswagenwerk=大众汽车(meaning:auto for everyone)

Phonetic translation (transliteration): just reproducing the sound, with no particular meaning (but choose “positive“ character)

e.g. Audi=奥迪(Chinese pronunciation: ao di)

Combine literal meaning and sound.

e.g. LEGO=乐高(Chinese pronunciation: le gao)(meaning: happy)

Chinese Version of Trademark


Trademark registration in China:

The official fees are CNY 600 (EUR 90)/one trademark /one class (withmaximum of 10 mini-class)

More than 10 mini-class has an extra fee of CNY 60 (EUR 9)

It takes about at least 1 year (normally one or one and a half years) fora trademark to be registered, if nobody starts an opposition procedureor if your trademark is not refused for other reasons.

Official Fee and Timing


China uses the Nice Classification (45 Classes) but with strictsub-class division

and a great of mini classses under the sub class.

The assistance of a professional is very important : they will beable to guide you

through the peculiarity of the system.

The Chinese Cassification is Different from other Countries


For example: An IP company who applies for trademark for itself

Its application falls in Classe 45, sub–class 4506

Class 45

Legal service; Service for protecting the property and personalsafety; Private or

social service provided by others to meet the individual needs

Sub-class of Nice Classification in China

Sub-class of Class 45


Sub-class 4501 Security service (11 mini-class)

私人保镖450001，侦探公司450003，夜间护卫服务450006，寻人调查450053，护卫队服务450099，安全保卫咨询450117，安全及防盗警报系统的监控450194，为安全目的进行的行李检查450196，个人背景调查450199，工厂安全检查450202，追踪被盗财产450222

Sub-class 4502 Personnel service (5 mini-class)

社交陪伴450002，社交护送（陪伴）450002，临时照看婴孩450195，临时看管房子450197，临时照料宠物450198

Sub-class 4503 Costumes service (2 mini-class)

晚礼服出租450046，服装出租450081

Sub-class of Class 45


Sub-class 4504 Funeral service (4 mini-class)

火葬450047，丧葬450056，殡仪450057，尸体防腐服务450220

Sub-class 4505 Specific service (14 mini-class)

开保险锁450033，交友服务450005，婚姻介绍450112，在线社交网络服务450218，消防450179，火警报警器出租450203，灭火器出租450204，组织宗教集会450184，领养代理450193，失物招领450200，保险箱出租450215，宗谱研究450216，计划和安排婚礼服务450217，为特殊场合释放鸽子450219

Sub-class 4506 Legal service (13 mini-class)

调解450201，仲裁450205，知识产权咨询450206，版权管理450207，知识产权许可450208，为法律咨询目的监控知识产权450209，法律研究450210，诉讼服务450211，计算机软件许可（法律服务）450212，域名注册（法律服务）450213，替代性纠纷解决服务450214，法律文件准备服务450221，许可的法律管理450223


enjoys expanded legal protection and commercial benefits.

The criteria are stated in Article 14 Trademark Law

awareness of the relevant public of that mark, the duration of its usage, the duration, extent and geographical scope area of its

advertisement records which can prove that it has been protected as a

well-known trademark in other countries or regions. other proofs like production, sales amount, sales revenue

of the goods using this trademark.

The first foreign well-known trademark was “Pizza Hut” in 1987.

“Well-known Trademark”


IP rights are territorial rights, they are only protected in the territory or jurisdiction where they are registered. Your trademark registered in China is only valid in Mainland China, except Hong Kong,Taiwan and Macao

Protection starts from the registration date in China

10 years protection

The registered trademark can be cancelled if it is not used forsuccessive 3 years without proper reasons

Trademarks shall be used exactly in the way they have beenregistered

In order to well protect your foreign trademarks, Chinese characterversion of the trademark shall be registered as well

Other Important Aspects to Consider in China


An international applicant needs an official agent as a

representative to file a trademark application in China according to Article 18 Trademark Law.

Once the application has been accepted, the authority will examine the China trademark application thoroughly.

These examinations include a formality examination, a distinctiveness examination and a search for prior registered China trademark.

Official Examination:


not a legal requirement but a practical one: though China Customs officials have discretion to check every outgoing shipment for trademark infringement against the Trademark Office database, in reality they only check against the Customs database.

Registration generally takes three to five months and can only be done after China’s Trademark Office has issued a trademark certificate.

If you register your mark with Customs, they will contact you any time when they discover a shipment of possible infringing goods. At that point you have three working days to request seizure of the goods. Assuming that you have requested seizure (and post a bond), Customs will inspect the goods.

Trademark Registration with China Customs?


original product

fake product

Monitor the Market-place


Oppositions : China Trade Mark Office (CTMO) - for not yetregistered marks

Invalidation actions - Trademark Review and Adjudication Board-TRAB(absolute and relative grounds)

Cancellation Actions (CTMO)

- Non-use- Generic wording

What can I Do if Someone Has Applied or Registered a Similar or Identical Trademark?


What can I do

if someone is

infringing my

trademark

(registered in

China) ?

administrative

enforcement

civil

lawsuits

criminal

lawsuits


the most common way to deal with IP infringements

generally the burden of proof lies on the plaintiff according to Article 64 Civil Procedure Law. So, collect as much evidence as possible to ensure successful litigation!

Besides lawsuits based on Trademark Law, you can also use China’s Anti-Unfair Competition Law.

Beijing IP Court has exclusive jurisdiction over cases in which TRAB is the defendant (because it is located in Beijing city).

Civil Litigation:


According to Articles 213 to 215 of China’s Criminal Law (中华人民共和国刑法) the following acts can be criminalised in severe cases:1. the unauthorized usage of a registered trademark ;2. the sale of goods containing the registered trademark;3. illegally producing registered trademarks or selling them.

the legal criminal punishment ranges from monetary penalty, detention to set terms of imprisonment under 3 years or in especially severe cases between 3 to 7 years.

So, if you suspect the loss of your trade marks to be a crime, you should also inform the local Public Security Bureau.

Criminal Lawsuit:

Case Study I

• An American Associasion had registered its name and logo as Trademarks in China, and later in 2011, found them infringed by another Chinese Company who sold similiar products on a very famous Chinese B2C Platform.Authorized lawyers of the Association issued a lawyer letter to the e-commerce Platform, solemnly asked it to fulfill the obligations and responsibilities as ISP and stop the Company continue to provide sales of allegedly infringing products. But the Platform has not taken any measures to stop the infringement, hence the Associasion sued the Platform and the Company both.

• As the Associasion submitted enough evidents of the infrigement, the Company was ruled to pay the compensation and stop selling relevant products.

• However, because the Associasion did not inform the Platform the infrigement link, which even was requested twice by the Platform, the court deemed that the Platform couldn't, and had no obligation as well, to find the specific link itself, and the Associasion should be responsible for the expanded loss caused by slacking to send link to the Platform. The Platform was not responsible for this infrigement.


Case Study II

• A famous German sportswear company sued against a C2C online platformand a online seller in 2006. The company found that there were thousands of personal seller selling fake products of their brand in low price and bad quality, which was strongly harmful to its goodwill and profit. Hence, the company sued the platform for not censoring the trademark legality of the goods sold by online sellers beforehand, and sued the seller for selling goods which infringed its registered trademark.

• However, both claims were dismissed. The court deemed that to censor the trandemark legality exceeds the capability of ISP. Meanwhile, the infringement was lack of evidence, the seller had already stop selling allegedly infringing goods as well, so that compensation request was dismissed either.

Latest developments:

E-commerce plaforms now set stricter rules on IPR protection. Taobao.com opened the IPR complaint access, if enough evidences are submitted to the platform which show the possibility of IP infringement of that store(seller), the store(seller) must provide enough proof to show the sale is authored or the store will be force to close down.


Take-away Messages

Bringing a trademark into China---take local culture into

consideration

Protecting your rights early: Always register yourtrademark as soon as possible in China

Use professionals who know the local law and E-Commerce market


Q&A

Name: Daniel Albrecht

Firm: StarkeLocation: Beijing, ChinaEmail: [email protected]


mailto:[email protected]

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