- Posted by DLA Piper Retail Thera-IP Team
- On 30 October 2018
As one of the largest retail markets in the world, China has become a highly desirable destination for businesses to advertise and sell their products. Over the past few years, test marketing through “Daigou” (“代购”) has become a popular way for Australian businesses to measure potential demand in the Chinese market and decide whether to commit to full entry. However, this can be highly risky for brand owners that have not developed a Chinese brand and/or secured their IP position in China.
Below, we set out a number of risks that brand owners should consider prior to using “Daigou” marketing, and generally for selling their products in China.
What is a “Daigou”?
A “Daigou” is a person outside of China that purchases products on behalf of, or to sell to, customers in China. The use of “Daigou” to source products from countries such as Australia has arisen out of taxes imposed on luxury goods imported into China, as well as the perceived high quality of certain foreign goods. As a result, Chinese customers are willing to purchase these products for a premium price by Australian standards. The benefit of the “Daigou” retail model is that it allows businesses to immediately test the market before making a significant investment of time and money to export their products directly.
Securing Brand IP
First and foremost, brand owners should strongly consider filing their trade marks with the Chinese Trademarks Office at the earliest stage possible. China operates a first-to-file trade mark system, meaning that, as a general rule, the first party to file a trade mark has priority against other parties. Further, unlike Australia, rights in unregistered trade marks are relatively weak.
When an unregistered brand enters the Chinese market, there is real risk that it could be filed as a trade mark by a local trader or rogue “Daigou” and misused, such as being held for ransom or applied to lower quality goods. As a result, brand owners would be unable to take action against inferior counterfeit products, unauthorised vendors and imitation social media accounts, and might suffer harmful brand dilution.
For brand owners cooperating with a Chinese partner for marketing and distribution of their products (including through “Daigou”), it is not uncommon to find that the Chinese partner has filed the brand owner’s trade mark without their knowledge or permission. Brand owners should be aware of this risk, and any formal agreements with the Chinese partners or “Daigou” should prohibit such conduct and provide that all trade marks in China remain the property of the brand owner.
Similar to Australia, copyright in China arises automatically in respect of literary and artistic works upon their creation. Such works include product images, original and distinctive logos, brochures and product designs. However, to licence or enforce copyright in China, it is strongly recommended that brand owners apply to register their copyright with the National Copyright Administration, as doing so provides robust documentary evidence of the copyright.
Having a copyright registration in a logo also acts as an additional layer of protection for any trade marks in that logo. In the event of any hostile or pirate use of the logo or an attempt to file it as a trade mark, having the copyright registration provides strong grounds to take defensive action.
Developing a Chinese Brand
Brand owners are reminded of the importance of having a Chinese language trade mark in China. Chinese consumers commonly refer to overseas brands by a Chinese name, which the brand owner should seek to file as a trade mark (or face the risk that a third party will do so first). Where no Chinese name exists, the brand owner should devise and file one, and should ensure that it is consistently used by all local partners.
There are a variety of different options for devising Chinese character marks, such as a meaning-based translation, a sound-based translation (transliteration), a combination of both, or even something entirely unrelated to the English. Local advice is recommended to avoid risks, such as selecting Chinese characters with an unsuitable or inappropriate meaning for the brand, which can be a source of embarrassment or diminish market perception.
By considering the perception of their brand in the Chinese market via an adequate Chinese translation, brand owners will ensure that they retain control over their brand narrative and prevent damage or dilution caused by unfavourable “Daigou” activity.
Finally, it is important to supplement “Daigou” activities with direct marketing in China, such as establishing a Chinese language website and/or accounts on appropriate social media platforms, such as WeChat, Weibo, Xiaohongshu, Meipai and Bilibili.
This post was co-authored by Alexandra de Zwart, Valiant Warzecha, Jessie Buchan, Melinda Upton and guest editors from the Hong Kong Intellectual Property and Technology Team, Liam Blackford and Edward Chatterton.