Business in China can be a mix of good news and bad news—and its e-commerce market is no exception. The good news: Foreign brands can do extremely well. China is the largest and fastest growing e-commerce market in the world (see Five Reasons Why China Leads the World in E-Commerce). The bad news: It’s not always easy. China e-commerce can be intimidating and even off-putting to foreign brands, particularly to those with limited China familiarity. Chief among the concerns might be intellectual property rights.
Over the past several years, foreign companies have voiced concerns about counterfeits in the China market. A single fake Prada factory can produce over 3,000 counterfeit bags each month. According to Fortune magazine, fake goods comprise approximately 20 percent of the cosmetics market. In July 2015, Beijing police shut down a company that produced 41,000 fake iPhones this year alone. So how can companies looking to enter China e-commerce protect their intellectual property rights? Here are five key steps:
1) Do Your Homework
Businesses that plan to enter China should register trademarks with the China Trademark Office as soon as possible. According to Maarten Roos, a leading international IP attorney in Shanghai, “This is the very first step to ensure that one’s IP rights are actually protected under Chinese law.” Because China has a “first-to-file” system for trademarks and patents, the registration of such products and marks is open to third parties. Michael Jordan, for example, owns the trademark to his name and accompanying brands in the U.S., but does not have full ownership in China. Therefore the third party that owns his Chinese translation, “Qiaodan,” is within its full rights to market basketball shoes and athletic apparel in Jordan’s Chinese name.
2) Get in the Game
The best defense is a strong offense. This means you need to start actively selling in the market. The easier it is for consumers to find authentic products, the more difficult it is for pirates to sell counterfeit goods. Pirates are opportunistic and will take advantage of slower-moving firms. We have found that upwards of 50% of pirated goods disappear when the product is made legally available.
3) Keep Your Guard Up
Brands cannot be completely passive when it comes to IP issues. Firms that have been active only in Western markets may be unaccustomed to the additional work of IP protection, but cost/benefit analysis presents a strong argument for allocating some resources against this problem. Some steps your company might think about include:
• Onoing monitoring of online sales to ensure that all products being sold are legitimate.
• Engaging in a mystery shopper program to confirm the quality of your products and services.
• Adding anti-counterfeiting codes to products so consumers can confirm authenticity (a measure currently used by Elizabeth Arden and Shiseisdo).
• Make full use of loyalty and affinity programs to increase the value of the genuine product.
4) Hit Back
There are various legal and administrative steps companies can take if their IP rights have been infringed, among them:
• Working with an attorney to send a Cease & Desist letter to the infringer.
• Filing a complaint with administrative authorities (typically China’s Administration for Industry and Commerce or the Intellectual Property Office).
• Filing a civil lawsuit. Filing a complaint with the local Public Security Bureau (trademark infringements only).
• Registering trademarks with Customs (officers can note IP infringements during routine inspections and notify IP owners).
While the legal infrastructure for IP infringements is improving, Roos stresses the importance of having a strategy in place to minimize the damage that infringements do to a brand name.
5) Work with Your Partners
You need friends. Brands can enhance their effectiveness in combating IP issues by working with like-minded institutions, such as trade associations, chambers of commerce, embassies, domestic and international law firms, as well as e-commerce service providers. It is important to recognize that many other brands face similar challenges and have different areas of expertise. Your company may need to reach outside its internal corporate capabilities to expand its situational awareness and better address IP issues.
Similarly, e-commerce platforms such as Alibaba Group’s Tmall.com andTaobao Marketplace are already engineered with takedown procedures. Alibaba recently introduced an English complaints option to the company’s online IP protection mechanism. This new option better allows foreign brands to report counterfeit activity, thus facilitating the takedown procedure.
At Export Now, we usually use a mix of the above tactics, customized for the challenge at hand. Businesses that are accustomed to mature market conditions might be frustrated by the imperfections in China’s market. In our experience, however, we have found that almost all imperfections have solutions. It is ok to complain, but we have to do more than only complain.
Frank Lavin is the chairman of Export Now, which launches and operates e-commerce stores in China for foreign brands.