27 Dec
2019

Everywhere you look: IP rights and other FMCG challenges

Kangxin Partners PC

Fast-moving consumer goods (FMCG) are everywhere, so it comes as no surprise that FMCG brands face challenges across jurisdictions. A closer look at the Chinese regime highlights some of the particular issues that rights holders face in this market.

Fast-moving consumer goods (FMCG) are everywhere you look – billboards, television commercials, social media. It seems as though there are new products and brands emerging almost daily. Consumers are bombarded with a variety of goods in every possible area: food and beverages, tobacco, healthcare and alcohol – the options are almost endless. While it may appear to an individual that they have been specifically targeted by these brands for advertisement purposes, the same sentiment is felt by billions of other people across the world. Pick almost any country at random and you will easily be able to locate the same brand and consumer goods that can be found in your home market.

As convenient and perhaps as comforting as this sounds, there are more moving parts than it is possible to imagine in order to make this system work. Considerations ranging from marketing to distribution and branding to production are at issue. However, one of the most paramount considerations concerns the protection of IP rights and the groundwork that must be laid before products can even be introduced to the global market.

Trademark protection

Filing a trademark is essential to protect the name of a product or brand. Trademarks are generally valid in perpetuity and provided that the mark is in continuous use, challenges to validity are rare. Filing a trademark is the essential first step for any FMCG brand. As a brand is marketed and distributed around the world, various challenges arise in terms of timing and the ability to obtain trademark protection.

FMCG brands must consider a plethora of issues before bringing products to market. While each global jurisdiction has its individual and specific challenges, they all blend together to form a unique worldwide strategy, with timing being crucial. Brand managers must work closely with both business and marketing units to understand the scope and timeframe for market introduction. Once these considerations have been addressed, the next step is to contact outside counsel in the respective markets to discuss the applicable laws in that jurisdiction.

Many countries have a first-to-file system when it comes to registering a trademark – a stark contrast from countries using the common law system. This is a vital step to consider when mapping out an FMCG brand strategy. In many first-to-file jurisdictions, trademark piracy and advance registration have become a major problem for brand owners. The art of attempting to capitalise on the first-to-file system has become an entrepreneurial business for thousands of individuals across the globe. In a typical case, a brand owner may not consider a first-to-file country (eg, China) as a Tier 1 market for its product. As such, filing a trademark application for its FMCG brand may not be imperative, as there may be no immediate market needs. Later, once a company has determined that it wishes to enter the market, it is common for a brand owner to find that another individual has already filed multiple applications for the respective brand. This creates a host of issues, such as a barrier to market entry and lack of ownership and control of the brand in that particular market. In addition, the challenges to regaining ownership or control are expensive, arduous and difficult.

Patent protection

Depending on the type of product, patent protection may be an essential tool in protecting FMCG. Although each jurisdiction is different in the patent protection that it offers, in general, design protection for an FMCG is a prime choice. When it comes to patents, novelty and priority date are the two main considerations. A rights holder may have various options through which to pursue patent protection across the globe; there is a great deal of strategy and timing issues to be considered. This is especially true of FMCG, because the lead time required to pursue and acquire patent protection varies across jurisdictions. 

One of the main challenges that FMCG brands must overcome is a lack of communication between the marketing department and business groups, as well as the IP team. Business groups and their respective marketing departments often create concepts, plan market entry and are ready to move at a moment’s notice. Conflict arises when there is a lack of consultation and communication with the relevant IP group. If a product rolls out before a patent has been filed or granted, there may be limited options available to protect and ultimately enforce the product. Further, based on a jurisdiction’s specific disclosure requirements, premature market entry may create a bar to receiving any design protection.

Counterfeit products

When an FMCG brand reaches the market in a given jurisdiction, there is an expectation that the general public will immediately begin purchasing the brand. While this is often the case, and every company wants sales to spike, there is an often-overlooked underbelly to a brand’s success – counterfeit products. The counterfeit industry is present in every jurisdiction around the world, with no brand seemingly immune to its ill effects. The more popular a brand becomes the greater the instance of counterfeit activity it takes on. This is particularly true with FMCG brands. Companies such as Coca-Cola, Budweiser and Louis Vuitton, among thousands of others, struggle with counterfeit products on a daily basis.

Grey market goods

Grey market goods are legitimate goods that are imported into a relevant jurisdiction without the necessary approval from the brand owner. Many jurisdictions around the world are flooded with legitimate brands, whose source may come from illegitimate means. FMCG brands are often faced with these challenges, whereby genuine products may enter the market illegally. Brand owners may be initially pleased that more products are entering a market due to perceived demand, but there are a host of challenges which come to light when FMCG brands are subject to grey market conditions. 

Such conditions often result in confusion and concern when goods appear in markets that brand owners may not have been anticipating. Distribution channels may be disrupted and markets may become saturated with genuine products. Further time and expense are taken to determine the authenticity of the goods and their origin. Although the product may be genuine, when it shows up unexpectedly it still causes concern for FMCG brands. Different products may not be intended for certain markets, which may create issues and ultimately damage the brand. In addition, the quality or distribution of grey market imports cannot be controlled.

Different jurisdictions have a variety of laws that pertain to grey market goods. While several countries allow their import and sale, others require consent from the trademark owner before approving entry into the market.

Enforcement

One of the biggest challenges for FMCG brands lies squarely in enforcement. There is such significant notoriety in FMCG brands that counterfeiting and infringing activity is generally to be expected. When it is time to enforce the trademark or patent, certain criteria must be considered before attempting any enforcement action. 

In certain jurisdictions, such as China, where counterfeiting and infringement are rampant, a defined and well-designed strategy is imperative. In China, there are large, organised and sophisticated counterfeiting networks that span the entire country. These networks have defined production, sales and distribution networks, and are always on guard when it comes to protecting their interests. Before pursuing any enforcement action in China, it is imperative to acquire notarised evidence of the infringement. To accomplish this, it is advisable to visit the point of sale or production and purchase sample goods under the company of a public notary. Notarisation of the counterfeit goods creates an evidence chain, detailing where the product was sold and by whom. Once this has been accomplished, FMCG brands have two years to file suit or take a variety of other actions against the potential infringer.

The real challenge comes when an FMCG brand attempts to enforce in multiple jurisdictions in a short time. The counterfeiting industry is seemingly interconnected and there are open lines of communication between various producers and sellers of the counterfeit or infringing goods. When an FMCG brand decides to enforce in a given jurisdiction, notice may be sent to other producers and sellers, making it harder to obtain the notarised evidence required to proceed with an enforcement action. When one producer is sued, other counterfeit product producers may up their guard and be suspicious of any unsolicited buyer or request for a visit. When this happens, it may become nearly impossible to successfully enforce in a given jurisdiction.

As is often the case when FMCG brands and their relevant products experience counterfeit activities, the production and distribution is spread across an entire country. Taking one localised action against one small producer or seller may stop the illegal activity at that one place, but it does little to eliminate the problem in its entirety. When studying the counterfeiting industry as it applies to FMCG brands, the roadmap is often compared to that of a bicycle wheel. The main hub is at the centre, focusing solely on production and manufacturing, and the points of sale are further out. Although the points of sale are not directly connected to each other, there is an indirect relationship through the manufacturer.

In such situations, when one small shop or point of sale is raided or sued for the sale of counterfeit FMCG, the rest of the network takes notice and puts up its guard.

A much better approach is to reflect and act with ingenuity rather than on impulse. When an FMCG brand is notified of any counterfeits in the marketplace, the usual reaction is to act and do all that is necessary to eliminate the problem. Instead of trying to act immediately, it is more prudent to attempt to understand the full situation – consider the counterfeit’s scope, location, distribution, market and any actors involved. Once this has been considered, a detailed enforcement plan can be implemented. In complex and large-scale situations, it is best practice to take time to investigate in order to find the manufacturing hub. Once this has been discovered and all necessary evidence has been obtained and notarised, points of sale and manufacturing hubs can be sued or raided within a short timeframe.

Comment

FMCG and their relevant brands and products face a host of challenges and issues when it comes to market entry. Add to this the fact that most FMCG brands enter a number of jurisdictions simultaneously, it is clear that a variety of concerns must be addressed. If there is seamless communication with each business sector, many issues can be resolved at the outset before they become an expensive, stressful and time-consuming legal matter.

Aaron D Hurvitz

Senior foreign counsel

[email protected]

Aaron Hurvitz obtained his BA in political science from the University of Arizona in 2003 and his JD from the University of Tulsa College of Law in 2007. He also received his LLM in international business and trade law from the John Marshall Law School in Chicago in 2008. Mr Hurvitz currently advises Kangxin’s foreign clients on different aspects of Chinese IP law, focusing specifically on how best to introduce technology into China and to effectuate positive enforcement of IP rights. Mr Hurvitz travels frequently, lecturing and speaking at conferences about infringement and enforcement measures in China.