A Hungarian rosé winemaker decided to internationalise his business and enter China’s market. Over the past seven years his small family business had grown, so the SME now enjoyed a solid presence at various European markets and entering China seemed like a logical next step and an attractive market due to its size and rising appetite for wine. After extensive market research and gaining expertise on how to internationalise sales, the businessman was confident of this next step.
In order to maximize profits, the winemaker decided against opening his own store in China, instead he would focus on selling his wines through supermarket chains. Having a few partners, with great logistical capacity in China’s major cities like Beijing and Shanghai proved to be an effective solution for entering this new market.
Having identified his trade mark as the most important intangible asset, the winemaker contacted his local lawyer, tasking him with protecting his intellectual property (IP). The following would need to be protected by trade marks:
- The name of the company – composed of the winemaker’s family name, it already enjoyed a certain degree of famousness in Europe and beyond, especially amongst the sommeliers.
- The company logo which was composed of several elements including the winemaker´s family crest. This logo is shown on the labels of all products.
- The names of certain wines – the SME divided its products into 3 categories, according to quality, each with a different distinctive name.
The lawyer recommended using the Madrid system filing route to register the SME’s trade mark in China. This filing route was chosen because it had already been used to register the SME’s trade marks in a few non-EU countries, such as Switzerland, which would not have been covered by European Union Trade Mark. Now the SME would simply need to add China as a designated country to expand the geographical scope of protection of an already successful Madrid system registration. This approach had worked in the past and was deemed easier than filing directly with the Trade Mark Office of the China National Intellectual Property Administration.
The trade marks were indeed registered in China without issues. Once the registrations were completed and the partner supermarkets had been contacted, the Hungarian rosé finally entered the Chinese market. The market entry was successful and the SME’s sales were growing at a satisfying rate.
As a result of the initial success, the winemaker decided to travel to China to participate in a wine tasting event held in conjunction with the Embassy of Hungary. The aim of the event was to promote Hungarian wines including the SME’s products and to facilitate networking. Once in China, the businessman was lauded by his compatriots for the success achieved and asked to share his success story and offer recommendations on how to conquer the Chinese market. One question, however, captured the winemaker’s attention: “how has a traditional wine producer managed to adapt and understand the complex world of Chinese e-retailers like Taobao or JD?”
After the event, the winemaker called his lawyer and asked him to inquire about this since their authorised sellers were supermarkets. They soon discovered that there were bad faith sellers in most of the major e-commerce platforms selling a counterfeit version of the SME’s wine. These counterfeit products had a name in Chinese characters that the winemaker was not able to recognize, but he did recognise the logo with his family crest embedded in it, which was indeed identical to the logo on his products. After consulting with their Chinese partners, they were informed that the Chinese characters in the name of the products constitute a phonetic translation of the original name. This translation was made for the supermarkets for the use on store shelves, so their customers can easily read and identify the different wines.
Acting on the recommendations from his Embassy, the winemaker hired a Chinese law firm to eliminate online sales of these counterfeit products using the “notice and takedown” procedures. While notice and takedown procedures are a simple and effective way of removing counterfeit products on e-commerce platforms, the Hungarian SME’s case was more complicated. The SME did not have its trade marks registered in Chinese characters, so it could not prove its rights over the Chinese versions of the trade marks. To make matters worse, the bad faith seller had a voluntary copyright registration certificate for the winemaker’s logo, so the bad faith seller held a valid certificate creating the plausibility of being the rights holder. Thus, the notice and takedown procedures could not be used.
The local law firm then informed the SME that the bad faith online seller had already applied to register the Chinese versions of the trade marks and the SME must now oppose the pending trademark registrations. In addition, the SME must also proceed with invalidating the aforementioned copyright registration certificate to be able to fight the online sale of counterfeits. Invalidation of a voluntary copyright certificate is only possible in the People ´s Courts. A long and costly litigation is thus unfortunately expected for the winemaker.
- SMEs should contact experienced legal professionals who can advise them on IP registration before entering China’s market. Despite the fact that it´s feasible to conclude a trade mark registration through the Madrid system, the practice of trade mark enforcement in China is more complex. Furthermore, while China uses the Nice Classification as in Europe, the Chinese version of the Nice Classification differs. In China, product and services classes are divided into sub-classes which varies from Europe. Extra attention is needed on selecting the goods / services to be covered so it is best to use a Chinese certified trademark agent or ensure that an EU based local trademark agent has a suitable correspondent firm.
- The Hungarian SME should have registered the Chinese translations of his trade marks. The consequences of not doing so included:
- The SME’s products became known by a different name than what the winemaker might have intended.
- The winegrower cannot control now what characters are going to be used to convey its products’ names.
- A third party was able to register the SME’s names as trade mark in bad faith.
- A comprehensive trade mark protection should also include voluntary copyright registration of the logo. Bad faith sellers are registering the copyrights of company logos to get a valid certificate from a public office they can show to e-commerce platforms to prove their “rights” over the logos. The procedure of obtaining copyright registration is rather quick and cheap and there’s no substantial examination involved. Since, invalidation of a copyright registration could take years and involves litigation at the People´s Courts, the winegrower is now in a difficult situation.
 Tools to facilitate the submission of take-down notices requesting the e-commerce platform to remove infringing material from the platform.