Fake bank and drugstore highlight importance of registering marks for foreign companies

China

The recent media reports concerning the ‘fake’ Goldman Sachs in China have sparked another series of stories about counterfeits in China - but have they sparked a call to action? The bogus Apple stores and IKEA shops, both found in Kunming in 2011, come to mind. While foreign companies are amazed, or even amused, by such stories, the question is whether they have really considered how they can best protect themselves from such fakes in the future, and whether they have considered the necessary next steps.

The story of the fake Goldman Sachs was first covered by Bloomberg in late August 2015. A company called Goldman Sachs (Shenzhen) Financial Leasing Co was said to be operating in Shenzhen, a city in the south of China. The company also used the Chinese trade name of the real Goldman Sachs, 高盛 (pronounced 'Gao Sheng' in Putonghua), and claimed to provide financial leasing services. It had a website, which was allegedly no longer available when the reporters tried to access it. The company did not claim to be related to the real US-based Goldman Sachs, but did not explain how its name was adopted. The bogus Goldman Sachs was alleged to be related to triads and gambling activities in Macau, and came to light after a US-based casino workers' union - which monitors the gambling industry in Macau - requested that China investigate the company. 

The foreign media described the spurious Goldman Sachs as another 'pinnacle of fakes' in China. However, the incident of the fictitious Apple stores in China demonstrated that this is not a new phenomenon. In fact, shortly before the fake Goldman Sachs was revealed by the media, a fake branch of the China Construction Bank, which is said to be the second largest bank in the world by assets, was established by an individual (who spent only Rmb4,000 to set it up) in Shandong province in July this year. The bogus branch supposedly looked like a real China Construction Bank branch. In addition to replicating the name China Construction Bank, the bogus branch had also adopted the logo of the bank. The scam was discovered when a person who had deposited Rmb40,000 could not withdraw the money from a real branch. The culprit was arrested by the police in August.  

Another more recent case involves dm-drogerie markt. According to Wikipedia, it is a chain of retail stores that sells cosmetics, healthcare and household products, as well as health food, and is Germany's largest retailer by revenue. In September 2015 it was reported that a dm drugstore was replicated in the city of Shenyang, in Liaoning province. The sham drugstore copied the decor of a genuine dm store, and used dm-drogerie's trademark and advertisements in German. The drugstore had not yet opened for business when the report came out. According to the CEO of dm-drogerie, Erich Harsch, the real company does not have any stores in China, and the company had not authorised anyone in China to use its trademark or slogan. The company has not yet decided what action will be taken, if any. According to media content analysis, the baby food scare in China led Chinese tourists to purchase milk powder from the original dm-drogerie in Germany, so the name is now synonymous with premium milk powder and other domestic goods. Accordingly, the counterfeiter assumed that the dm name would lend credibility to its products.        

The takeaway from these incidents is that respect for IP rights is still lacking in many quarters and that active monitoring and enforcement of IP rights is fundamentally important in order for businesses to thrive in China. A risk-management and pragmatic approach must be taken to minimise the damage, and to protect, monitor and enforce IP rights in China.

It appears from media reports that a significant majority of commentators are rather pessimistic about Goldman Sachs’ prospects of succeeding against the counterfeiter in court, given that it is difficult for a foreign plaintiff to convince the courts that there has been trademark infringement, and that it is still customary that the first party to register a name will prevail. However, Goldman Sachs' position is not as bleak as that portrayed by the media. According to the Chinese Trademark Office's online database, Goldman Sachs registered the name Goldman Sachs and its Chinese equivalent as trademarks in China in respect of financial services in Class 36 many years ago. The fake company, by contrast, does not have any registered trademarks in China. Given that the marks and the services in question are directly in conflict, it should not be too difficult to convince the Chinese courts that there has been trademark infringement.   

If Goldman Sachs had not registered its trademark, and the fake company had, the real Goldman Sachs could have been sued for trademark infringement and may have been precluded from operating in China under its name. 

This brings to mind the New Balance case, which took place in April 2015. US company New Balance had not registered its Chinese name as a trademark, but a Chinese company had registered it and used it on shoes. The Chinese company sued. The original New Balance was ordered by the Guangzhou Intermediate People's Court to pay a record amount of Rmb98million as damages for trademark infringement. It is reported that New Balance has filed an appeal. 

Unlike the fake Goldman Sachs story, the bogus dm drugstore did not seem to attract the same amount of attention from the English media. However, the dm case illustrates the types of difficulties and obstacles that lesser-known multinational corporations can face in China. Companies that have not yet entered the Chinese market or registered their trademarks in China are walking a slippery slope and face major problems if counterfeiters adopt their name, logo and brand for monetary gain.    

The most crucial lesson is that, because China is a first-to-file country, foreign companies should register their trademarks in China before somebody else does, or they may well face massive financial penalties. Even if a foreign company has not taken the necessary steps to enforce its rights in China, the fact that it has registered its trademark will be sufficient to protect it from infringement claims, and it will be able to carry on with its activities in China without the risk of a lawsuit and/or penalties.

Ai-Leen Lim and Rhonda Tin, AWA Asia, Beijing

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