An IP protection plan is critical

China has traditionally been seen as a country where you would go to have “stuff” made cheap. It was also known as a country where intellectual property (IP) went to die.

Over the past 10 years though, China has made huge changes that have created big opportunities for New Zealand companies.

The change in attitude towards IP is helping move China from a country where businesses can get cheap manufacturing to a country where indigenous research and development is rapidly rising, where the largest number of patents are being filed, and where most IP litigation is now between Chinese companies.

With its increasing wealth, China is now a country with a growing domestic market.

The growing middle class in China presents a huge opportunity for New Zealand exports, particularly in the food and beverage and technology industries.

This market has a thirst for international, high quality goods and New Zealand products have a perception of being clean, green and pure.

The first key thing to understand is that China is no longer a country with no respect for IP. Its IP protection and enforcement is as good as, if not better than, many other parts of the world. So there’s no excuses for getting it wrong.

More and more Chinese companies are innovating and they’ve realised that it’s best to have IP on their side. In 2015, more than one million patents were filed in China, and most of these were by Chinese companies. That’s twice as many as in the United States.

This rapidly increasing number of registrations means infringement risks in China are also increasing for exporters to China.

So if you’re looking to do business in or with China, there are some important dos and don’ts and IP plays an important role in this.

With trademarks, registering early is the safest strategy, even if you’re just thinking of selling your branded products or services in China.

China has a first-to-file priority for trademarks and plenty of opportunists have used this to register international trademarks in China before the original brand owner.

When the brand owner turns to the China market, they are faced with trademark infringement litigation over their own brand and there is usually nothing they can do to stop this. The only options they’re left with is buying the trademark from the trademark squatter, usually for an inflated price.

Many New Zealand wine labels have had to rebrand products destined for China because they could not afford the asking price for their trademarks. We’ve heard some squatters have been known to sit on a trademarks portfolio of more than 600 international brands. Even Tesla was not immune from Chinese trademark squatters.

A Chinese trademark should be registered in the English language, Chinese characters, and Pinyin. Many brand owners only register the Eng- lish version of their mark, and then find it difficult to stop others registering and using the same mark in Chinese characters or Pinyin.

If you fail to devise a Chinese translation for your mark, then Chinese consumers will do this for you. In some cases, the meaning adopted by Chinese consumers can do more harm than good.

When Coca-Cola was first sold in China some shopkeepers produced signs calling the product “bite the wax tadpole” because it sounded like Coca-Cola when pronounced. Some quick research was done and a combination of Chinese characters meaning “to permit mouth to be able to rejoice” were selected.

Counterfeit products are still a big problem in China so Kiwi businesses need to be vigilant with identifying sales of counterfeit products on e-commerce sites such as Taobao and Alibaba.

Many of these service providers offer easy to deploy takedown actions where the offending listings can be quickly removed from these platforms. The product must have registered Chinese IP rights to do this effectively.

The cost of registering these rights may seem high but the cost to a business of having counterfeit products sold, sometimes of very poor or dangerous quality, can be even higher, especially for food, beverage and health supplement products.

There’s also some real value in registering copyright in China. It’s one of the few countries that offers copyright registration and it should form part of your brand protection strategy.

To register copyright in China, businesses must show that they’re the creator of the copyright work such as a logo, or have legally acquired ownership.

It can be a very useful tool in trademark oppositions when it can be argued that a squatter’s trademark application breaches the registered copyright.

Registering your trademark and copyright with the customs service can also be a useful tool to stop counterfeit product entering and exiting the Chinese market.

Don’t forget to align your IP protection in Hong Kong at the same time, as Hong Kong can also be an avenue for counterfeiters to move counterfeit product to and from China.

Relying on IP protection in New Zealand is a common mistake made by businesses when they first enter the Chinese market. IP rights in New Zealand or other countries carry no weight in China.

Also trusting a Chinese agent or distributor to register Chinese IP rights can be a big ‘ no no’. If you’re the brand owner or technology owner, then you need to take control and own your IP in China.

For many products trade secrets can be a very weak form of IP protection as they can be easily stolen. It’s estimated that trade secret theft cost the United States economy $300 billion in 2012 .

Reverse engineering of trade secret products can happen in a matter of days, even for complex technology. If a business is manufacturing a product in China that they want to keep as a trade secret, it’s a good idea to get different parts of the product built by different manufacturers, or the critical parts should be built here in New Zealand.

As with every country, the culture and ways of doing business in China is different to New Zealand. It’s not difficult to learn this and respecting the culture can go a long way in building strong and long term relationships. But don’t let the culture get in the way of negotiating hard but fair, as the Chinese will respect this.

Know your IP position. Too many New Zealand businesses have given away their IP as a loss leader to secure a low price for manufacturing in China. IP can be the most valuable part of a business. According to Forbes, intangible assets can attribute to 80 per cent of a business’ value.

The Chinese market offers the potential for huge rewards for New Zealand businesses and plenty have got it right with hard work, persistence and an understanding of the Chinese IP landscape.

Careful planning and a wellconsidered strategy for IP protection in China can help ensure Kiwi businesses reap the rewards and minimise the risks of finding their brand belongs to someone else, or their technology or products exploited.

Anton Blijlevens is a partner with AJ Park