By Peng Wei
China is becoming the world’s largest market for the fashion business. Intellectual property capital is one critical soft factor driving this development. This has made protection an important subject and mission. This article gives an overview of the protection and enforcement of intellectual property rights in China’s fashion industry, and the challenges inherent in that.
China[i] is changing from a major manufacturing base for the fashion business to one of the largest consumption markets. For 2020 (January to December), the aggregate revenue from retail of clothing products in the domestic market was RMB882.39 billion, and the sales revenue from exporting clothing products offshore reached US$137.38 billion.[ii]
Development was driven by senior human resources, intellectual property rights capital, culture capital and other soft factors. All these made protection of intellectual property rights an important subject and mission to the booming industry.
Under the current legal system, trademark law, patent law and copyright law lay down the basic rules on intellectual property rights registration and enforcement. The law against unfair competition also plays an important role in the protection of intellectual property rights and keeping the market in good order. Their implementation regulations and judicial interpretations provide detailed guidance on more specific items.
China is not a case law country and, as a result, court precedents do not have binding force. Due to the two-tiered system and the trial supervision mechanism adopted in judicial practice, the position of the superior court in a similar case will be carefully considered and, usually, followed by lower courts. Further, the Chinese Supreme Court and local high courts regularly publish guiding cases pointing out directions for legal practice.
Without a doubt, the trademark is of core value to any fashion business. It is always the brand/trademark that distinguishes one’s products from the others. The brand/trademark is also the reason that consumers are willing to pay a higher price for a product with similar functions.
China does not require use or intent to use in the registration of trademarks. The applicant with the earliest application date can usually get the mark, unless the actual owner challenges successfully. Trademark misappropriation is very common here. A company that does not pay enough attention to trademark registration will probably end up paying a high price for their negligence.
New Balance Case
The Chinese characters “新百伦” were registered by a Chinese national as a Class 25 trademark, covering clothes, shoes, socks, etc. on 7 January 2008. New Balance used
the same Chinese characters as the Chinese name for “New Balance” in the importation and distribution of their shoes in China. Hence the dispute.
This case was first reviewed by the Guangzhou Intermediate Court, which ordered New Balance to pay RMB98 million as compensation (i.e., 50 per cent of the profits of New Balance’s China subsidiary for the years 2011 to 2013).
The Guangzhou High Court reviewed the appeal filed by New Balance and finally determined that the compensation should be reduced to RMB5 million, for the reason that the brand evaluation report confirmed that the Chinese character mark used by New Balance only contributed 0.76 per cent of their overall profits in China in those years.[iii]
In 2020, 3,418 trademark cases involving the apparel industry were concluded in China, including[iv]
- 1,305 administrative cases
- 1,770 civil cases
- 343 criminal cases
These administrative cases mainly relate to trademark ownership disputes, such as the invalidation of, or re-examination of the rejection of, trademarks. Criminal cases are mostly related to the distribution and sale of counterfeits. For civil cases, most concern infringement of trademarks, while a small percentage are disputes over trademark ownership.
In China, distinctive words, devices, letters, numbers, three-dimensional signs, colour combinations, sounds and any of these components in combination may be used and registered as trademarks. Distinctiveness can either be with the mark inherently or be acquired through massive use.
The trademark registration process usually takes 6 to 10 months. Once registered, the term of validity is 10 years from the registration date, which can be renewed for another 10 years.
For patent cases concluded in 2020, 43 cases involved the apparel industry, consisting of 8 administrative cases and 35 civil cases. The administrative cases related to disputes over patent ownership. The civil cases concerned infringement, and most of them (26 cases) involved online infringement.[v] This was probably because it is usually easier and cheaper to collect and fix evidence when the infringement is conducted online.
Although the number of patent cases is small, the number of patent applications filed in the same year reached 3,963, specifically:[vi]
- 2,261 patent applications in the manufacture and supply of raw materials, covering subjects such as the design of fabrics, the production process of fabrics, and functional improvements in complex fibre or fibre materials
- 1,683 patent applications in the design and production of apparel, covering subjects such as cutting devices and components, design of apparel, washing, drying or dyeing devices, and the production process of apparel
- 19 patent applications in the marketing and distribution of apparel, covering subjects such as the design of sales terminals, and ways of exhibiting products.
These patent applications covered all the types of patents that are available for registration in China: invention, utility and design.
|Type of Patent||Content||Term of Validity||Time Required for Registration|
|Invention||· New technical solution for a product, the process, or their improvement||20 years from the application date||3 to 4 years|
|Utility||· New technical solution, that can be applied in practice, to the shape, the structure, or a combination, of a product||10 years from the application date||1 to 1.5 years|
|Design||· New design of the whole or part of the shape, pattern, or a combination, of a product, and the combination of colour, shape and pattern, with a sense of aesthetics and fit for industrial use||15 years from the application date||6 to 12 months|
The importance of copyright to the fashion business is unquestionable. Patterns of fabrics, design sketches, effect drawing, and structure charts are all business assets and key to success.
In China, they are usually protected as art work under copyright law. The copyright becomes effective from the day the work is finished or first published, and is valid until 50 years after the death of the designer, except for certain moral rights, such as the right of authorship, which continues in perpetuity. If the designer is a legal entity, the 50-year period starts from the first publication or creation.
Finished products, garments for example, are usually protected as applied art in China, which enjoy 25 years’ protection after creation. Copyright protection to applied art will be granted only to the part of a product with creativeness and a sense of aesthetics, and such a part is separable from the functional part for copyright-protection purposes.
There were 302 copyright cases concluded in China in 2020 that involved the apparel industry. All these were civil cases concerning copyright infringement.[vii]
Copyright registration is available in China but is not mandatory for the effectiveness of copyright. The registration certificate is usually accepted as evidence of copyright ownership but evidence in other forms, such as design contracts, drawings, and records of publication, can be used for the same purpose.
Even so, it is highly recommended to complete copyright registration in China, especially for foreign companies, as it will save time and resources that may be otherwise incurred in the notarisation, legalisation and translation of the supporting evidence in other forms for admission by a Chinese court.
Intellectual Property Rights and Contractual Arrangements
In this section, we discuss the usual contractual arrangements with respect to intellectual property rights in the design, production and distribution process of fashion products.
• Co-design/Co-development Agreement
A co-design/co-development agreement refers to an agreement under which two or more parties work together to create or develop a new design, product, material, production process or other technique.
The co-design/co-development agreement specifies the investments and contributions that should be made by each party, the joint ownership of the work product, how the work product can be used, and how to distribute profits derived from the work product.
In cases where the work product can be patented, unless otherwise provided for in the agreement, the parties need to file the patent application in joint names. If any party is reluctant to apply, the other party/parties are not allowed to file.
• Engagement Agreement
An engagement agreement refers to an agreement under which one party engages the other party to complete the design or development for the benefit of the engaging party.
The engaging party is usually responsible for the costs of the design or development activities and has to pay remuneration to the engaged party for their work. The engaged party must complete the tasks set by the engaging party and submit the work product on time. Training and technical support may be included as part of the submission, where necessary.
Unless otherwise provided for in the agreement, the engaged party has the right to apply for a patent for the work product but the engaging party has the right to use the patent with no additional approval required.
• Employment Agreement
Design or development accomplished as part of the duty of the employee, or mainly by using the materials or conditions provided by the employer, will be regarded as the design/development of the employer. Therefore, the employment agreement must specify the duty of the employee if his/her role involves new product design or development.
• Manufacture Agreement
A manufacture agreement refers to the agreement under which the designer appoints a manufacturer to manufacture and produce fashion products for them.
Details on how the manufacturer can use the intellectual property of the designer in the production process should be included in the agreement, as this can protect the designer’s intellectual property from improper use or misuse.
A confidentiality clause is also important in the manufacture agreement, especially in cases where technical know-how is provided to the manufacturer for production purposes.
• Purchase and Sales Agreement
A purchase and sales agreement refers to an agreement between a manufacturer and a distributor, or between distributors, for the sale of fashion products.
A purchase and sales agreement seems to be less relevant to intellectual property rights protection, but it is recommended to consider and include in the agreement the necessary restrictions on the sales area and sales channel, on competitive brands and products, and/or other mechanisms to maintain the brand image.
• Distribution Rights Agreement
A distribution rights agreement refers to the agreement under which a distributor is authorised by the brand owner to distribute their fashion products within a certain geographical area, on an exclusive or non-exclusive basis.
This agreement is most relevant to intellectual property rights protection. It sets out the dos and don’ts for the distributor; for example, how to use the trademark, how to decorate online or physical stores, how to prepare and print the marketing materials, etc.
Enforcement of Intellectual Property Rights, and the Challenges
Actions that could be taken to stop the infringement of intellectual property rights include:
- sending a “cease and desist” letter to the infringer
- filing a complaint to the owner or operator of the venue where the infringement is taking place, such as a shopping centre, expos or exhibitions, e-commerce platforms
- filing a complaint to the local market regulation authority
- filing a case with a court
If the rights owner wants to claim for damages, they will have to take court action to get compensation. If the main purpose is to stop infringement, other actions should be considered, as they provide a quicker resolution.
Injunctions are available in China but, in practice, they are not easy to get. The court usually reviews the case in depth to determine whether or not to grant an injunction.
Other challenges may arise as a result of new business models. For example, infringements in livestream sales are hard to stop because of the difficulty in identifying the infringements and collecting and fixing evidence of the infringements.
About the Author
Peng Wei is a partner in a Chinese law firm. She has more than 10 years experience in cross-border transactions and helped many foreign brands to set up their operations in China. She handled a lot of projects covering M&A, supply or distribution, utilization or enforcement of intellectual property rights.
Cell Phone: (86) 132 4143 1018. Email: [email protected]
[i] China in this article refers to mainland China and does not include Hong Kong SAR, Macau SAR and Taiwan.
[ii] Figures from The White Book on Intellectual Property Protection in China’s Apparel Industry, published on 25 April 2021 by the Beijing Intellectual Property Judicial Protection Association in Beijing, China (the Book).
[iii] Civil judgment of the Guangzhou Intermediate Court (2013) Hui Zhong Fa Zhi Min Chu Zi No. 574; court judgment of the Guangzhou High Court (2015) Yue Gao Fa Min San Zhong Zi No. 444.
[iv] Figures and information from the Book.