China: Fake food: curbing food and beverage counterfeits in China

By Brandy E Baker

Kangxin Partners PC

With the rise of fake food in China and increasing levels of concern from the government and consumers, brand owners should act quickly to protect their IP rights from the fallout of counterfeiting

Fake food in China has been a troublesome issue hitting the headlines in recent years, raising concerns for the public and brand owners alike. As the largest consumer of food and beverage products, and home to the most rampant instances of counterfeiting, China is an important market for the food beverage industry, but brand owners must pay particular attention to securing IP rights and preventing the distribution of damaging fake products.

Register trademarks early

Counterfeit problems often stem from China’s first-to-file trademark system. So-called ‘trademark squatters’ are bad-faith filers that regularly benefit from registering trademarks in relation to well-known brands, only to wait for the owners of such brands to make contact to negotiate a sale of the marks. In some cases, these bad-faith filers may also produce and sell counterfeit products or sell the rights to those interested in doing so.

Under the first-to-file system, trademark squatters can be confident of a win in an infringement action on the ground that they were the first to file the mark with the China Patent and Trademark Office. As such, it is not uncommon for brand owners to pay hundreds of thousands of dollars to obtain their trademark rights from the filer more quickly.

When a local Shanghai party used the Chinese name for Starbucks Coffee and imitated the company’s café design, it was held liable for infringement and ordered to pay damages. However, not all brand owners can expect to secure the same results as Starbucks. The lesson, therefore, is to register trademarks in both English and Chinese characters as soon as possible, before any fake products can be manufactured and sold. Working with experts who are familiar with the Chinese market is the best strategy for this, as a carefully implemented, multi-faceted approach should be taken to tackle bad-faith filers on account of the market’s idiosyncrasies.

Keep an eye out

In addition to the risks involved in being late to file and secure trademark rights, a range of infringement issues and dishonest behaviours are common in China. For example, food delivery service operators have been found to use other food and beverage companies’ trademarks without authorisation. Unaware that their transactions are not with an authentic brand owner, consumers can end up blaming brand owners for bad service or problems arising from transactions with infringers. Moreover, with the widespread use of social media in China – particularly Tencent’s popular platform and WeChat – an increasing number of brand owners are offering digital coupons to reward customer loyalty. In response, third parties have been known to hire online hackers to misappropriate such coupons in an effort to hijack the customer base.

Food scandals also continue to be a significant problem in China. With questionable – sometimes even harmful – ingredients being added to counterfeit foods, safety is of utmost concern to Chinese consumers. The Food and Drug Administration recently raided 50 factories making and selling fake brand seasonings which included unidentified and dangerous ingredients.

With the ease of communicating and sharing information online, brand owners’ goodwill can be damaged in the blink of an eye, resulting in long-term branding problems. As such, infringement and other-related illicit activities should be closely monitored from an early stage.

Use geographical indications

In addition to registered trademarks, geographical indications (GIs) are another tool used to protect consumers, inform them of the true origin of products and prevent unfair competition. A GI comprises a name, sign or word which links the product with the original location of production and informs consumers as to quality, reputation or origin. Consumers are often willing to pay a premium for products that use GIs, due to their assumed high quality.

In China, GIs are examined in two ways:

  • by ensuring that the product is cultivated in the specified geographical region; and
  • by determining whether the product is made with materials produced in – or by techniques associated with – that region.

Organisations can register GIs as a collective or certification mark with the China Patent and Trademark Office, provided that they are already protected in the country of origin. Rights holders can obtain a certification mark on evidence that it meets the required regional standards. Collective and certification marks receive the same protection as all trademarks, including exclusivity. Further, GIs can be registered with the General Administration of Quality Supervision, Inspection and Quarantine to increase protection and indicate production and quality standards. Unlike trademarks, GIs can contain generic terms or geographic locations. For example, ‘Kuerle’ (pears produced in Xinjiang Autonomous region) and ‘Champagne’ (sparkling wines produced in the north of France) are registered GIs in China.

As such, the registration and use of GIs may offer another means for the food and beverage industry to protect itself from counterfeits, by adding another layer of official certification that is recognisable to consumers.

Packaging rights and responsibilities

With more than 1.3 billion people, China is one of the largest markets for consumer goods. As such, it is flush with food and beverage products vying to grab consumers’ attention. Packaging plays an important role in the industry because shapes, colours, patterns, logos, labels and designs not only appeal to consumers, but also enable them to determine quickly whether a product is part of a popular brand. As with any market, China hosts a number of packaging and product trends. Consumers will often enjoy designs that include cartoon characters or have special-shaped packaging, and will pay more for products that they recognise as being healthier, organic or even foreign. Recent successful packaging campaigns include those of Coca-Cola, which allowed customers to nickname their Coke bottles, and Pepsi, which sold limited edition emoji cans for customers to express emotions to one another. The success of these campaigns demonstrates that it is important for brand owners to obtain and enforce related rights to safeguard their efforts and investments in developing attractive and recognisable packaging.

Brand owners seeking more creative and innovative packaging designs must also ensure that they comply with China’s stringent national regulations. In 2016 China implemented hundreds of rigorous revisions to its food and safety standards in response to ongoing concerns. At local level, some government offices even added further requirements. The new regulations focus mainly on ensuring safety, quality and accountability in the market through:

  • easily degradable and recyclable packaging that is safe and suitable for use; and
  • labels in Chinese which provide information on the country of origin, an ingredients list, the Chinese distributer’s address and the production and expiration dates.

Packaging designs which do not comply with these requirements may need redesigning. Brand owners must also perform safety assessment tests of their packaging materials, with higher risk foods being tested more often.

While many packaging requirements are intended to protect consumers, brand owners must obtain packaging rights to protect their own business interests, either through registering designs as trademarks, obtaining design patents or copyrights, or applying unfair competition laws. Trademark protection can be sought for colours, shapes or a combination thereof. Although trademark rights cannot be extended to common packaging or shapes, distinctive package designs can still be registered. For example, Hennessy’s distinctive VSOP Cognac bottle is a registered three-dimensional trademark in China.

Overall, a variety of options for protection are available to brand owners, depending on their specific packaging. Despite Chinese consumers becoming increasingly market savvy and investing more value in quality and brand reputation (often preferring foreign brands over local products due to safety concerns), third parties capable of creating high-level counterfeits – usually through infringement of packaging rights – can fool even the most discerning users. In these cases, brand owners can easily lose market share or suffer reputational damage. As such, they should register protection over their products properly, monitor the market and utilise the administrative offices and the courts to prosecute counterfeiters.

Conclusion

Over the years, the Chinese government has been more attentive to the issue of counterfeits, introducing more regulations and implementing better enforcement practices. With two routes for enforcement of IP rights in China, food and beverage brand owners can, on the one hand, appeal to administrative offices to raid counterfeit-producing factories, mediate settlements, issue injunctions, destroy infringing products and equipment used by counterfeiters, and levy fines quickly. On the other hand, they can appeal to the courts which – although more expensive and time consuming – can award damages, deal with complex cases and even bring criminal charges.

Changes are regularly being made along both of the roads to enforcement. The newly established IP courts have judges with experience in a variety of IP matters and have been working tirelessly to review a large number of cases and issue important decisions since their establishment. The administrative offices frequently train their officers and invite companies to assist in training to recognise infringing goods. One vital and active example of such is Customs, which blocks infringing goods not only from entering China, but also from exiting it. Customs will detain and even destroy fake products when appropriate.

Understanding that a counterfeit-free environment enables progress in technology, business and society in general seems to be growing across China. Strong protection against counterfeits results in a thriving economy, and this continues to drive the government and the consumer market towards higher international standards for IP protection, enabling food and beverage brand owners to provide Chinese consumers with the goods that they desire.

Brandy E Baker
Of foreign counsel

brandy.baker@kangxin.com

Brandy E Baker advises foreign and domestic clients on corporate, commercial and IP-related matters in China and Southeast Asia. Ms Baker assists Kangxin’s international clients on a wide-range of IP issues, focusing on establishing ideal IP and business strategies for both large and small entities in the Chinese market, as well as providing enforcement advice for foreign brand and IP owners facing infringement issues.

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