IP Challenges: Apparel Businesses in China
Trade mark infringement, design patent complications, copyright enforcement issues, technology transfers, and disclosure of trade secrets are examples of key IP (intellectual property) challenges faced by apparel companies that move their development activities/production to China.
Trade Mark Infringement
- The China Trade Mark Office (CTMO) is responsible for trade mark registration in China. The CTMO does not offer "legal remedies for unregistered trade marks (except for well-known trade marks)." Therefore, a trade mark registration in any foreign jurisdiction will not be considered valid unless the business registers it again with the CTMO.
- Also, China follows a "first-to-file system," which means that the first applicant is granted ownership. This has encouraged "trade mark squatting" where unscrupulous persons or businesses intentionally register the trade marks of foreign companies to sell them back to the rightful owner at a profit. Though it is possible to fight trade mark infringement through legal means, it is usually a hectic and costly affair prompting many companies to instead settle the squatter.
- It is, therefore, recommended that businesses should register their trade marks as early as possible, ideally before conducting any business with or in China. Apart from registering in the original language, it is also crucial for companies to register their trade marks in Chinese characters since the unscrupulous parties may register it for sinister motives. Hermes, a French apparel company, lost a case against a Chinese company that registered a trade mark similar to the Chinese translation of 'Hermes.'
Design Patent Complications
- Unlike most markets, apparel designs in China must be registered under the Chinese Patent Law. It takes between eight and 12 months for design patents to be granted in China. It takes only two working days in Europe. This may be too long for fast-moving seasonal designs.
- China also employs an 'absolute novelty' framework for patents, which means that a design "must not have been published anywhere in the world before the date of application and must be sufficiently distinguishable from other designs." Simply put, an apparel design whose patent is protected under any other jurisdiction cannot be patented in China.
- Apparel businesses are advised to consider alternative methods of protecting their fashion creations, such as copyrights. Design patents are not recommended for fast-moving fashion items. Patents should only be registered for "longer life designs such as distinctive patterns, continuative models for fashion apparels, or classic shapes of handbags or shoes."
- The Berne Convention for the Protection of Literary and Artistic Works, of which China is a member, mandates that all design creations are automatically protected by copyright immediately after they are created. However, China employs a "formal approach when enforcing IP rights and Chinese courts require formal proof of IP rights ownership."
- Thus, the process of proving copyright ownership of an apparel design is complicated as the National Copyright Administration refers cases where the copyright infringement is not literal to the courts, which require substantial evidence.
- Fortunately, voluntary copyright registration is allowed in China under the Copyright Protection Centre of China (CPCC). Copyright registration will provide proof of ownership in case of infringement. This can save the apparel company's money and time. Apart from their designs, apparel companies in China use copyright to protect their brochures, catalogs, and websites.
- Apparel companies that move their development activities or production in China may have to import their manufacturing technology into China and appoint distributors or agents to install, assemble, and service them. In some cases, contracted personnel transfer the technology to competitors.
- To prevent know-how and technology transfers, it is recommended that companies should accompany such contracts with technology transfer contracts. These contracts cover the rights of all involved parties to prevent any 'uncompetitive' or restrictive practices.
Disclosure of Trade Secrets
- Companies in the fashion and design sector might create business partnerships with Chinese OEM accessories and garments manufacturers. Outsourcing their production activities in China means forces companies to disclose their designs to enable the manufacturers to match their quality.
- In many cases, it is the company employees who pass the company's trade secrets to competitors. Some manufacturing partners may use this information to their benefit or sell it off to competitors.
- To protect their trade secrets, apparel companies operating in China should prioritize non-disclosure agreements (NDAs) before revealing any trade secrets such as design concepts. NDAs should complement copyrights and trade marks and should be signed by both company employees and third-party partners.
The research team managed to find an EU-sponsored report detailing the key IP (intellectual property) challenges faced by European apparel companies that move their development activities/production to China. The first report provides information related to the challenges faced by European fashion and design SMEs in the Chinese industry and the second details IP-related issues encountered by European textile companies in the Chinese market. The fashion industry entails the "design, manufacturing, distribution, retailing, marketing and promotion of clothing, footwear, and accessories." The textile industry comprises "textile machinery, specialty fabrics, yarns, brand apparel & accessories, and finished fabrics." A review of both reports showed that they address the IP-related challenges faced by apparel companies. Notably, both reports focused on European companies because they were commissioned by the European union. However, the information provided highlighted the challenges faced by all apparel companies entering the Chinese market. We also found global-focused and U.S.-focused resources that proved that the problems highlighted by the first two reports are encountered by all companies in the apparel business, regardless of country of origin.