A hundred years ago the American west, the original “Wild West,” was a land of opportunity with a reputation for lawlessness. The newspapers in the Eastern U.S. were full of stories of horror and adventure in the Wild West, and of men who made their fortune.
Now it is China’s turn. But instead of stories about Billy the Kid and gunfights in the OK Corral we have tales about fake APPLE and IKEA stores, cyberpiracy and the huge new market in China. Is branding in China only for the adventure-seekers? The Western press treatment of the fake APPLE and IKEA stores would have us think so.
China does not have the same degree of “market order” as the developed countries. But it is not a developed country. Although it now is the second largest economy in the world, when ranked on a nominal GDP per head basis it ranks about 98th. Basically it is a lower middle income country, ahead of Albania but behind Angola. And compared to other lower middle income countries, it has a pretty good legal system.
Despite the impression left by the fake APPLE and IKEA stories, China actually has intellectual property laws that meet international standards. The courts do enforce the laws and most Chinese courts in the more advanced regions have separate divisions for intellectual property cases. These divisions also handle Anti-Monopoly Law cases and franchise cases, and are considered the more sophisticated and elite divisions of the courts. The courts have made posting their decisions online a priority and tens of thousands of IP decisions are now available online, albeit in Chinese.
The fake APPLE and IKEA stores discovered in Kunming, the capital of Yunnan Province, were obviously in violation of the law. In the case of the fake APPLE store, although it sold real APPLE products, it used the APPLE trademarks that had been registered in China, which is a breach of the PRC Trademark Law. There have been court decisions in China on how much use a re-seller may make of the name and trademark of the manufacturer of the goods. Two of the more notable ones, involving PORSCHE (åŒ—äº¬æ³°èµ«é›…ç‰¹æ±½è½¦é”€å”®æœåŠ¡æœ‰é™å…¬å¸è¯‰ä¿æ—¶æ·è‚¡ä»½å…¬å¸(Porsche AG), åŒ—äº¬å¸‚é«˜çº§äººæ°‘æ³•é™¢ æ°‘äº‹åˆ¤å†³ä¹¦ ï¼ˆ2008ï¼‰é«˜æ°‘ç»ˆå—ç¬¬326å· (issued December 19, 2008) and available online here and HARLEY-DAVIDSON (H-Då¯†æ‰§å®‰å…¬å¸è¯‰åŒ—äº¬å“ˆé›·å•†è´¸ä¸å¿ƒ, åŒ—äº¬å¸‚ç¬¬äºŒä¸çº§äººæ°‘æ³•é™¢, ï¼ˆ2007ï¼‰äºŒä¸æ°‘åˆå—ç¬¬10758å· – November 25, 2008, available online here were decided in 2008. In the PORSCHE case, the dealer’s unauthorized use of the “PORSCHE” and the logo in its exhibition hall, on the automobiles in the exhibition hall, and in its brochure infringed the German manufacturer’s trade mark rights.
In addition both the fake APPLE store and the fake IKEA store were in breach of the PRC Anti-Unfair Competition Law (åä¸æ£å½“ç«žäº‰æ³• (“Fan Bu Zhengdang Jingzheng Fa”) adopted at the 3rd Session of the Standing Committee of the 8th National People’s Congress on September 2, 1993 and effective as of December 1, 1993, available online here. Article 5 provides that business operators shall not make :
unauthorized use of the name, packaging or trade dress unique to well-known products or use of a name, packaging or trade dress similar to that of well-known products, thereby causing confusion with the well-known products of another party and causing purchasers to mistake the products for such well-known products.
The leading case here is the Ferrero chocolates case that was ultimately decided by the Supreme People’s Court in 2008 (è’™ç‰¹èŽŽï¼ˆå¼ å®¶æ¸¯ï¼‰é£Ÿå“æœ‰é™å…¬å¸è¯‰æ„å¤§åˆ©è´¹åˆ—ç½—å…¬å¸ï¼ˆFERRERO S.p.Aï¼‰ï¼Œä¸åŽäººæ°‘å…±å’Œå›½æœ€é«˜äººæ°‘æ³•é™¢ï¼Œï¼ˆ2006ï¼‰æ°‘ä¸‰æå—ç¬¬3å· , March 24, 2008, available online here. Clear plastic boxes and gold foil are not uncommon elements in the packaging of chocolates but the court held that the Chinese party had copied Ferrero’s packaging. Thus despite the fact that that the Chinese party had been using such packaging for 16 years before Ferrero took action, and had won several awards in China for their products, the Chinese party lost.
Then why were there fake APPLE and IKEA STORES in Kunming?
Kunming is the capital of Yunnan Province, in the far south of China. The province borders on Vietnam, Laos and Myanmar. It is thus far inland and is not one of the richer coastal provinces where foreign retailers first open their stores. But Kunming Prefecture has about 6 ½ million people. In other words there is demand there but no supply.
Intellectual property rights are private rights of the owner, and thus the primary responsibility for enforcement lies with the owner. In China the State Administration for Industry and Commerce (“SAIC”) will assist with enforcement in straightforward cases, and apparently even without the co-operation of Apple the SAIC did close the fake stores. In the U.S. and Canada for example, the U.S. Patent & Trademark Office and the Canadian Intellectual Property Office will provide no such assistance with enforcement.
It is unlikely that the fake stores were causing direct damages to either APPLE or IKEA by taking away sales. Their stores in China were several hours away by air. While their trademark rights were diluted to be sure, some famous international brand-owners choose not to enforce their rights against pirates unless they are actually losing sales. It is in the end an economic issue.
Is branding in China only for adventure-seekers? Not really. Going to China should be an economic question. Because there is still a lack of “market order,” due diligence and enforcement costs will be higher than in markets in the developed world. In part because China is a lower middle income country, prices and margins may need to be lower, despite the higher due diligence costs. But China is a very large market, and a number of retailers are finding that despite the thinner margins, the large volume of sales can make China a good country for their business.