China’s booming e-commerce market: How to protect your IP
China’s booming e-commerce market and its shift away from manufacturing to more of a consumption economy presents huge opportunities for Kiwi retailers looking to expand into the region - but it is imperative they protect their brands from the outset.
With almost 65% of China's gross domestic product now due to consumption and its e-commerce industry accounting for nearly half of all retail e-commerce sales worldwide, China is a force to be reckoned with – particularly online. At the end of 2017, China’s e-commerce sales topped $1 trillion and is expected to grow to $1.7 trillion by 2020.
The world’s largest e-commerce market is being boosted by an increasingly affluent middle-class looking to part with their cash on Alibaba and other internet shopping behemoths like Taobao. Its growth is an indication of the country’s intense appetite for imported and luxury goods which means the scale of potential opportunities for New Zealand, as a trusted brand, is well positioned to take full advantage.
A number of Kiwi brands already have a strong presence in China’s retail and e-commerce marketplaces and, with New Zealand’s reputation as a trusted source for not only our primary products but also now for quality consumer goods – particularly those that are considered clean, green and pure - demand is only set to continue. For some businesses, marketing their products online is seen as a good option as it removes the necessity, in some cases, and cost of having people on the ground in China.
But with increasing opportunity comes significant risk, so it is imperative Kiwi exporters considering the move in to China, especially online, are vigilant and ensure their brands are fully protected from the outset.
The rise of IP in China
It was only a decade ago that China was considered the place to have products manufactured on the cheap. As a result, counterfeits were rife and it was known as a country where intellectual property went to die.
But this is no longer the case. As Chinese businesses innovate, the country’s IP protection and enforcement has improved. Innovation has been a big focus which has meant there is an increasing understanding by Chinese companies that it is better to have IP on their side.
In 2017, IP filings in China soared with patent applications in China exceeding the combined total of applications received by the US, Japan, the Republic of Korea and the European Patent Office.
Trading in China is complex and operates not only at a faster pace, but very differently to other markets. This has the potential to create major problems for businesses of all sizes – including giants like Apple – who have ended up spending significant time and money to resolve IP issues.
While China has come a long way in helping exporters protect their products online, there are still risks involved.
China’s e-commerce market and IP infringement
Counterfeit products are still a big problem in China, particularly given the popularity and access to e-commerce sites which make it even easier to sell knock-off versions to a wider audience, but the good news is e-commerce giants such as Alibaba and Taobao are taking IP enforcement issues seriously. Both offer take-down actions that are quickly deployed to remove offending listings from their platforms. But you must have registered Chinese IP rights to do this effectively. Software algorithms are also being introduced that can auto-detect infringing brands in the photographs uploaded by sellers.
However, some sellers are becoming quite sophisticated in their methods to avoid infringement online, such as deliberately obscuring brands in photographs of products to avoid detection. With hundreds of thousands of new listings every day, it’s imperative you are vigilant around your own brand and those of competitors to ensure you aren’t being copied – as there is only so much the providers can do.
Chinese regulators are also moving to introduce new e-commerce legislation that covers IP protection, in addition to new security standards.
Sometimes identifying and catching offenders can be tough. It’s common for counterfeit productions, which are relatively cheap to set up in China, to abandon operations when caught and then set up somewhere else relatively quickly.
The cost of registering your rights over a brand or product may seem high, but the cost to a business of having counterfeit products sold, which are sometimes of a very poor standard, can be an even higher risk particularly when it comes to food, beverage or health products. Futhermore, counterfeits also risk compromising New Zealand’s reputation for high quality, clean, green goods and services.
Establishing a successful presence in China starts with properly understanding the market, available channels and ensuring proper trademarks and patents for your brand - otherwise you risk falling victim to a lengthy registration process or falling victim to ’trade mark squatters’ even before getting out of the starting blocks.
Here are our top five tips for protecting your IP in China’s e-commerce market:
- Do your due diligence! Kiwis wanting to do business in China need to first check whether their brand is already in use there – a surprising number leap in without doing this. Having your brand registered in New Zealand doesn’t mean you have rights in other countries. . China has a ‘first to file’ trade mark system which means businesses have no rights to their trade mark in China until they actually register it there. Until then, businesses risk someone else registering it and suing them for infringement, regardless of whether you’ve been using your brand for years or not, including in China
- This happens all too often and while steps are being taken to assist against trademark squatters, there are still substantial evidential obstacles and costs to free your brand for you to use, if it is possible at all. We have seen this happen time and time again and regularly get called in to help. Even if you are manufacturing your product in China but not selling it in the Chinese market yet, you’re still vulnerable until you have properly registered your trade mark there.
- Get good advice upfront. Establish the right partnerships on the ground with those who understand the market well and do everything you can in terms of compliance.
- Make sure your brand fits the Chinese market and consider creating a Chinese-specific brand. What works in New Zealand doesn’t necessarily resonate in China. Many companies find they need to adapt their brand or change it completely to ensure it properly appeals to the Chinese market.
- Do not cut corners - You will quickly get burnt and it will cost you significantly more in the long-run. Ensure your brand is registered from the outset and your products have adequate IP protection.
- While e-commerce is an attractive avenue with lower costs, make sure you review any agreements you have and never make any assumptions, particularly if dealing with people directly. Also make sure you have everything tightened up with distributors with formal agreements.
For more information on how to protect your business in China, download a copy of our free ‘Protecting your IP in China’ ebook.