Branding in the “Wild East”

China beguiles.  If it’s not one thing with those guys, it’s another.  If it’s not fake Apple stores, it’s fake IKEA stores:

It seems that Kunming in the southwest corner of China is the world capital of knock-off shops.

Apple recently found five counterfeit versions of its stores there after blogger BirdAbroad posted photos of one online – and now a fake Ikea has surfaced.

It’s called 11 Furniture and is a 10,000 square metre, four-storey replica that’s virtually identical to the Swedish-made version.

It copies Ikea’s blue-and-yellow colour scheme, mock-up rooms, miniature pencils, signage and even its rocking chair designs. Its cafeteria-style restaurant, complete with minimalist wooden tables, has a familiar look, although the menu features Chinese-style braised minced pork and eggs instead of Ikea’s Swedish meatballs and salmon.  

Attorney Paul Jones

Paul Jones

With all this fakery, you might well say that rather than solve the endemic counterfeiting problem, China periodically merely … fakes reform.  I was inclined to say just that this time around, too.

Earlier this week, however, I received this insightful article from Paul Jones, who argues, as his original subtitle urges, that “the fake Apple and IKEA stores in Kunming do not tell the whole story.”  Paul’s law firm, Jones & Co. specializes in advising businesses about the protection and distribution of their goods and services in Canada and in the international marketplace.

This piece was originally published in Singapore’s Asiawide Franchise magazine, which is why it includes Chinese characters — which Paul requested that I retain.  Because they are cool, I am happy to do so, and very happy that he allowed me to reprint his unique and insightful perspective on this issue.

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 (北京泰赫雅特汽车销售服务有限公司诉保时捷股份公司(Porsche AG), 北京市高级人民法院 民事判决书 (2008)高民终字第326号 (issued December 19, 2008) and available online here and HARLEY-DAVIDSON (H-D密执安公司诉北京哈雷商贸中心, 北京市第二中级人民法院, (2007)二中民初字第10758号 – 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 (反不正当竞争法 (“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 (蒙特莎(张家港)食品有限公司诉意大利费列罗公司(FERRERO S.p.A),中华人民共和国最高人民法院,(2006)民三提字第3号 , 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.

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6 Responses to “Branding in the “Wild East””

  1. August 17, 2011 at 5:10 am #

    From a purely consumerist perspective and on behalf of the Chinese gov. these stores may be beneficial. As reported, the Apple stores were selling genuine Apple products. Putting aside secondary issues, the folks in Kunming got to buy computers otherwise unavailable.

    As noted the fake IKEA stores did not carry the IKEA brand though they did more or less have the look and feel of an IKEA shop. Though the goods were not genuine, if they were not misbranded should we really care that more than one mfr. can offer cheap Scandinavian furniture? The genuine IKEA stores were all located in more wealthy areas of China.
    I had to chuckle at the comments of one customer. She considered having IKEA branded products shipped to her but she decided she liked the 11 branded products better. And the 11 store was organized more efficiently.

    For the Chinese government, trying to promote consumerism, such stores apparently fill a void.

Trackbacks/Pingbacks

  1. Chelsea E. Callanan - August 16, 2011

    Guest post by attorney Paul Jones: Branding in the "Wild East" – China's "fake stores" http://t.co/WJVAATJ | LIKELIHOOD OF CONFUSION® #IP

  2. Kevin Thompson - August 16, 2011

    Guest post by attorney Paul Jones: Branding in the "Wild East" – China's "fake stores" http://t.co/WJVAATJ | LIKELIHOOD OF CONFUSION® #IP

  3. Randall Hull - August 17, 2011

    RT @roncoleman: Branding in the "Wild East" – http://t.co/TuaozJj

  4. The Br@nd Ranch - August 17, 2011

    Guest post by attorney Paul Jones: Branding in the "Wild East" – China's "fake stores" http://t.co/WJVAATJ | LIKELIHOOD OF CONFUSION® #IP

  5. IP_Watch - August 21, 2011

    RT @roncoleman: Branding in the "Wild East" http://t.co/tjxLde2

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