Courts get creative and changes coming to WeChat: practical takeaways from Brand Strategy China 2017

  • Brand Strategy China 2017 focused on value creation and protection
  • Attendees told that courts are getting creative in efforts to protect rights
  • WeChat reveals plans to share infringement profiling info using big data

Last week in Shanghai World Trademark Review hosted our latest event, Brand Strategy China 2017, a high-level, industry-led exploration of brand protection and value creation strategies for businesses operating in China. The day was packed with critical insights and practical takeaways for those tasked with creating, protecting and managing brands in the region. A selection is presented here.

Expanding your business intelligence network

In his opening keynote, Steven Wang, vice chair of the Quality Brands Protection Committee of China Association of Enterprises with Foreign Investment (QBPC), recalled a question asked at a recent conference. ‘Which business is the best business in the world?” he asked, and jokingly responded: “The answer was that the counterfeiting business is the best – after all, profitability is high, while the risk is low.”  

For brand protection professionals, the goal is to make the trade of fakes a high risk activity, and to achieve that you have to regard infringing activity as a business enterprise and attack it strategically. Alvin Yung, manager of internet brand protection, Asia-Pacific, at Chanel, stressed: “It is important to learn and be flexible. You need to learn the counterfeiters’ behaviour – how they act, how they sell, how they expand their business.”

This analysis will also help you identify how they are reacting to your policing activities, to ensure that their evasion tactics do not succeed, Yung adding: “Infringers are adapting – for instance, they now keep stock low so the authorities can’t easily find them or aren’t interested in finding them. Some are only active during the night time and out of office hours, when brands may not be monitoring. They also open many accounts online so they can’t be recognised as big sellers and then appear as low priority targets.” Business intelligence, then, is crucial to anti-counterfeiting success.

“Management sees me as a dollar sign”

As part of this intelligence operation, brand professionals also need to be fully plugged into the company’s plans and objectives – such as upcoming products and the marketing pipeline – in a bid to stay ahead of infringers. Attaining that business-level view is easier if senior management buys in to the brand protection function. While developing that relationship is not easy, it is far from an impossible task.

The key message for senior leadership is that brand protection represents value to the organisation. One way to illustrate that is through soft recovery calculations, Angela Chen, manager, brand protection, Asia-Pacific, at Ford, explaining: “A clear way to evidence value is if you take away one piece of infringing product from the market and assign that a value. You can go in and tell your CEO that you seized hundreds of filters but if you can say you removed $2m dollars in counterfeits that is more understandable. That will make a different impression on leadership”.

A second way is to run civil litigation alongside criminal actions in a bid to return real dollars. While Chen notes that “many companies have still not opened their civil litigation channel”, the hard cash that is obtained grabs the attention of senior management: “When I speak to company leaders, they now see me as a dollar sign.”

As to other messaging that senior management will respond to, Jun Chen, director, IP management, Greater China, at Schaeffler, suggested that brand protection professionals target specific pain points in business operations: “Some targets will naturally arouse the interest of management; for example, cases that hurt the value of distribution networks. If you can remove the pain points from company operations, you will get business buy-in.”

Establish a local presence – and lose the arrogance

In terms of that investment, one point that many of the day’s panellists agreed on was that local presence is a must when policing the Chinese market. Schaeffler’ Chen observed: “You need local IP professionals – a team or department here. And they should be fully trusted and authorised to make decisions.” Importantly, he advised that companies that want to do “better job protecting brands” must “resort to locally sourced talent”.

Jeffrey Lindsay, head of intellectual property at Asia Pulp and Paper, concurred that “having experts that understand China is critical” – both for brand protection and wider business success. He warned: “Many foreign companies are too arrogant or anxious to learn about Chinese culture and markets. We probably need more time to solve that problem but many companies think they know what to do and will look to do it quickly, using Western management approaches. They don’t understand the market, the people or the culture, and use marketing strategies that don’t work. You need to use specific skills and understanding to build your market. If you don’t, you will be defeated.”

How to investigate your investigators

Even the most well-funded legal team cannot be do everything alone. In terms of external resources, a key anti-counterfeiting ally that can be recruited is an investigation firm. However, as Conan Chen, director of brand protection at L Brands, noted, finding trusted partners can be a challenge and, at the end of the day, there is disconnect between the commercial objectives of such companies and rights holders: “There is a fundamental paradox when using investigation agencies. They are commercial entities. They are for-profit. We need to address and remove infringement but agencies want to maximise profit. Their motivation is not to eradicate counterfeits from the market once and for all. We have different priorities.”

As such it is important to only work with partners that are driven to act in the brand owners’ interests. Therefore, before signing up to an extended contract, the selection and screening process needs to be rigorous. Amongst the key elements to consider – in addition to price - are the providers’ track record, experience in case management, relationship with enforcement authorities and informant network.

Additionally, references are an important research tool, Chen noting: “Sometimes trademark owners are conservative and won’t say anything bad about investigative agencies, but you can create clever questionnaires and also get information from competitors to the agency you are about to hire. And ask the agency to share their success stories.”

The next step should be to provide the investigator with trial cases, asking for a sighting report. The latter would ideally include the name and address of the target, products and brands involved, estimates on stock, and distribution prices. Optional, but useful, elements would include information on the equipment and technology used, details of suppliers and customers, and figures related to product output.

Based on this experience, it may be appropriate to award them an annual contract. Such a document should set out the rights and obligations of each party, outline case scope and handling processes, address fee structures and payment procedures, confidentiality clauses and business conduct clauses.

Of course, annual review and benchmarking then needs to be as rigorous as the initial selection process – and the timing involved in that should also be considered.

Courts are getting creative 

A common theme during the day’s proceedings was that the legislative and anti-counterfeiting environment in China is truly improving. For instance, 3M’s Lv argued: “Some lawyers exaggerate local protectionism – I am against this notion as there have been significant improvements. If we study the law carefully, and can present strong evidence, we will get a good decision. We don’t have to fear local protectionism. We just need to go through the precedents of the courts.”

Angela Shi, manager, brand protection, at New Balance, was in board agreement with that point, with her presentation concluding: “Many foreign brand owners are quick to criticise China for failing to adequately protect their IP rights. But, while the system is certainly not perfect, it has improved greatly in recent years. The number of court cases now exceeds that in the US, meaning judges are becoming more experienced in IP cases. There is plenty of evidence that foreign companies can succeed in court. With the right strategy, and the right local advice, there is no reason why overseas IP owners should fear investing in China.”

She also noted that courts are getting creative in their efforts to help rights holders, recounting an enforcement effort her company was involved in. Having received a preliminary injunction against copycat shoes, she explained: “We tried to enforce the injunction through local AICs in different provinces and the response we received was that it wasn’t a court verdict and they therefore couldn’t enforce it. We were frustrated and approached the court, explaining that we had experienced difficulties in implementing the injunction. An intermediary court then thought of a creative measure and issued a court penalty against the four AICs for not implementing the order.”

This increased willingness to defend brands is having a tangible payback for rights holders, with damages levels rising and burdens of proof lowering. Gloria Wu, partner at Kangxin Partners, reflected: “China is sending the message that you will get into trouble for infringement and that is a positive message to send. The current trend is that damages are increasing and I expect to see more cases with high damages.”  

Of course, there is still room for improvement, QBPC’s Wang noting: “Chinese law does sometimes lag behind that of its international counterparts, so it is necessary to take affirmative action to improve legislations. For instance, at QBPC we are carefully reviewing internet IP laws. To fight online counterfeiting we need to address the source – you can remove a webpage, yes, but at the same time we need to address the root cause and there should be a robust regulatory environment for such activities.”

Change is coming to WeChat

WeChat has been cited as a representing a growing challenge for brand protection professionals, with its private messaging system proving almost impossible to police. However, Maurice He, senior legal counsel, WeChat, at Tencent, was at pains to stress that the platform is seeking to up its game and provide tools that help brand owners to fight infringement.

He expanded: “The information you post is often only accessible by your friends and contacts. To address this issue we set up unified platforms to fight against counterfeits via the ‘WeChat brand protection platform’. If a user identifies infringement, you can submit a claim to us." Looking ahead, he revealed that the company intends to integrate the complaints filing process into the system, so that complaints can be made with one click: “That way we will speed up the complaint handling process.”

From next year, the company is also planning to share intelligence from big data analysis, offering infringer demographics analysis and insight into the location of illicit activity. The term big data is thrown around a lot. If one application is the creation of comprehensive infringement profiling and intelligence, brands will soon receive some practical benefit rather than ‘big data’ remaining an industry buzzword.

Celebrate and share success stories

Where success is achieved, strategically sharing the news can have a positive payback. Kathy Yang, IP counsel, intellectual property and standards at Philips, noted: “AICs have their own priorities and agendas, so sometimes out actions are delayed or different AICs take different approaches. When working with authorities, then, once we launch a successful campaign we will use that to promote activity amongst other AICs.”

The notion that success breeds success also underpins the activities of QBPC, which presents an annual list of the best cases and uses this to praise the efforts of the government agencies involved. Wang explained that this is designed “to set up good examples and encourage others to catch up”. After all, everyone wants to be cited as a success story – the key is finding the most effective tools to reach that goal.

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