How technology is transforming IP protection in China

The rise of e-commerce and social media platforms has transformed how companies reach Chinese consumers. This has profoundly changed how companies should protect their intellectual property (IP) assets and prevent copycats. New technologies such as AI have also changed marketing strategies tremendously. This article discusses how companies should adjust their brand protection strategy in view of such changes.

As more and more sales go from offline to online, companies have increasingly created stores on their websites or set up stores/accounts on major e-commerce and/or social media platforms. Foreign companies entering the Chinese market often first establish accounts on major e-commerce platforms, either by themselves or through licensees.

The most common ways companies reach consumers in China include:

• Setting up stores on traditional e-commerce platforms such as Alibaba or JD.com;

• Setting up official accounts on social media platforms with shop and purchase functions, the most popular social media apps including WeChat, Red Note, and Douyin; and

• Working with influencers to promote products by livestreaming or through posts, with links to the products.

To operate an online store on a platform under a brand, most platforms require the account holder to show its trademark rights and to provide proof of authorisation from the trademark owner. Hence, it is important to register your core brand to meet the platform’s requirements.

Given such requirements, some local licensees may purport to register your brands first on your behalf to overcome the hurdle posed by the platforms. However, this is not advisable. If the local licensee is not cooperative and refuses to assign the brand to you, you, as the rightful owner, would need to expend a great deal of effort in taking back your brands, such as by opposition or invalidation. You would then need to show evidence of a prior business relationship and that the mark was a pre-emptive filing by a related party. While the Trademark Law and Chinese practice have stepped up to combat pre-emptive filings, it would take months before the rightful owner could remove the pre-emptive filing.

Many e-commerce and social media platforms have different types of accounts depending on the level of brand authorisation documents provided.

For e-commerce platforms such as Alibaba, the company can operate various types of stores, including “enterprise store”, “exclusive store” (multiple brands), “exclusive store” (single brand), “flagship store”, and “official flagship store”.

For social media platforms, companies can set up verified accounts, in which the platform would authenticate that the account holder is the rightful owner of the account name. Given the large number of accounts and information on the platforms, having such an authenticated or verified account would give consumers more trust on the authenticity of the products on such accounts.

Hence, many rightful owners would wish to set up an official flagship store, for example, or verified accounts to signify that they are the official channel, instead of the shops or channels of resellers, licensees, or unauthorised sellers. Trademark rights and authorisation documents are essential to register such accounts.

Social media is an equally important channel for companies to reach their consumers. Influencers and consumers take an active part in the discussion of products. Given the importance of catching attention among the vast amount of information online, many influencers and consumers give catchy nicknames to brands and products. It is very important to devise and register a Chinese brand name even if you are a foreign brand. Otherwise, consumers could give one to you and you would lose control over what your brand and products are called in China.

For products, such names may take inspiration from the look and feel of the product and be unrelated to the product’s name. It is important for companies to conduct searches concerning their products and see if nicknames have been used by consumers. Registering any such nicknames prevents other companies from using them and causing confusion. You may begin by checking and registering the nicknames of your bestsellers in China.

As sales move online, so do counterfeiters and copycats. Most of the popular e-commerce and social platforms have established IP protection platforms to meet their legal responsibilities and police the online market. The platforms may leverage AI and big data to proactively identify infringements and problematic content. Many of these platforms have also established campaigns to collaborate with brand owners in combating counterfeits. It is important for companies to know and utilise the policies and procedures of these complaint platforms.

Companies that do not yet have a presence in China, in particular, may find accounts on social media platforms that claim to be the rightful owner. Problematic account names seek to impersonate the rightful owner and have subtle differences from the true account or true brand name. It is important for rightful owners to check major platforms regularly and pursue action to take down such copycat accounts.

Brand owners can file complaints against sellers that offer counterfeits on online platforms. The right owner needs to submit proof of rights, such as a trademark registration certificate, and establish its case. The platform would then review if the ground is preliminarily established. If so, the complaint would be forwarded to the seller for comments. If the seller does not respond or its response is not founded, the infringing link would be taken down.

The platform would also impose penalties on the seller. Depending on the number of cumulative infringements and the severity, the penalties could include a warning, account suspension, account termination, and/or the blocking of access to links for consumers for a certain period.

In the authors’ experience, while online complaints are effective for clear-cut counterfeit cases, they may be less effective for copycat cases or where the parties have a contractual dispute. In those situations, the IP protection staff would often be reluctant to find infringement and impose penalties. Instead, the platform could encourage the parties to settle the dispute in court before they would take further action on the platform.

Some platforms (such as Taobao) require the complainant to provide test purchase results and issue an authenticity report comparing the suspected infringing product with the genuine product. This requirement significantly increases the time and costs in taking down counterfeits. Such requirements would also pose difficulties in taking down copycat products. Also, as infringers become more sophisticated, they may pre-emptively register marks to justify their use online. In those cases, parallel actions need to be taken against the pre-emptively filed marks.

As sales online are made via social media accounts and online platforms, many counterfeiters use several companies to register different accounts on different platforms. It is not uncommon to see more than 20 or 30 shops from related parties on each platform. The infringers would see which account and keywords catch traffic and further promote those accounts, while abandoning the accounts that have little sales. However, such a mode of operation by counterfeiters often means anti-counterfeiting becomes a ‘whack-a-mole’ exercise. Rightful owners often find that the cost to monitor the platform and file complaints against the numerous listings is high, and the infringing links often reappear in new accounts soon after.

It is important to act strategically in such cases. The rightful owner should review the links and see if the same counterfeit products are sold through different stores, and then conduct an investigation to locate the master licensor/supplier/manufacturer. If the master licensor/supplier/manufacturer can be located, the source could be targeted by filing an administrative complaint against it. After receiving a favourable administrative decision, the decision could be relied on to file online complaints against the online stores.

Many brands now work with influencers to market their products. Influencers quickly attract a large following through social media platforms, helping brands to increase their visibility. The blend of commentary, knowledge, or experience sharing and advertising is often effective and enhances consumer trust in the brand. Brands often engage nano- or micro-influencers who have a highly engaged audience and fan base.

The following actions are advisable when working with an influencer:

• Entering into a written advertisement contract with the influencer to stipulate the rights of the parties and to ensure that the influencer’s content is compliant with branding guidelines, local laws, and rules;

• - Educating the relevant marketing and business teams and the influencer on what is regarded as false advertising;

• Asking the influencer to guarantee that their content will not infringe others’ IP rights;

• Clearly stating the ownership of the IP created in the project;

• Stating whether the content can be reused or further adopted by the brand owner, which should retain the right to pre-approve, edit, or delete contents.

• Adding a morality clause to mitigate any potentially negative effects based on reactions to the influencer’s behaviour, especially given that an influencer represents a brand, but the company often has little control over their actions.

Furthermore, the promotion of certain products (such as medical products) requires prior approval by certain relevant authorities and may therefore not be suitable for influencer promotion.

Companies should be reminded that they must comply with the Advertising Law in China, which takes the general position that advertisements need to be readily identifiable. Under the Measures on the Administration of Internet Advertising, knowledge- or experience-sharing posts with shopping links must be labelled as advertisements.

As AI tools become more sophisticated, businesses, employees, and contractors are keen to utilise such technologies in their marketing materials to enhance competitiveness and efficiency. Companies need to be aware of the risks and safeguards in using AI tools.

It is important to set out IP guidelines regarding the use of AI tools by your employees and contractors (such as influencers), including forbidding the use of infringing materials or prompts. Where the AI tool allows for the input of training data, care should be taken to ensure the legality of the training data. You should also use plagiarism detection tools to ensure AI-generated content does not closely resemble any existing works. The content should be evaluated in terms of potential biases, inaccuracies, and harmful information, and users should ensure that it aligns with ethical standards and the relevant business’s values.

Even when AI tools are utilised, human labour and creativity are often involved, and companies would like to claim exclusive ownership and the right to use such AI-generated content. The latest case law in China has recognised that AI-generated work is copyrightable. The involvement of human intervention, choice, and judgement in relation to the outcome of AI-generated work is vital. Copyright ownership would also depend on the copyright clause in the user agreement with the AI service provider.

To claim copyright ownership on AI-generated content, it is advisable to keep evidence of inputs, prompts, and modifications. For important works, you may even consider filing a copyright recordal in China to retain as evidence.

Technology is profoundly changing how companies reach consumers in China. With technological developments, however, new challenges arise. Companies need to keep up with the latest legal regime and protection tools available, and continuously explore innovative solutions to meet the increasingly complex demands of IP protection.