In 2011 China surpassed the US as the world’s largest consumer market for the food and beverage (F&B) industry with the Chinese National Bureau of Statistics reporting an annual growth rate of around 15% in F&B imports for the previous 5 years, totalling around $98 billion by 2012.
Chinese demand for imported F&B products, fuelled by food safety concerns involving domestically produced products such as the ‘tainted milk scandal’ has since continued to rise, with around 60% of Chinese consumers preferring foreign brands.
This increased demand serves as a boon to potential F&B producers looking to break into the China, however there are many pitfalls to avoid, and it is important for importers and producers to make sure their brand, and their products are protected before entering the Chinese market. This week we’ll be discussing the essential steps for F&B importers and producers considering taking the plunge into China’s F&B market.
The food and beverage industry is a highly regulated sector in Chinese law, with numerous proverbial hoops for foreign companies to jump through before they are able to introduce their products into the Chinese marketplace. Whilst compliance with these legal requirements is mandatory for entry to the market, it is perhaps just as important to ensure comprehensive IP protection in order to protect brand and product reputation amongst Chinese consumers.
Protecting your brand: Reputation is key
Brand trust and reputation are perhaps the most crucial elements to success in the Chinese F&B market. High profile food safety scandals and the proliferation of counterfeit products in China have resulted in a heavy reliance on trusted brands as quality indicators, with consumers particularly favouring foreign goods.
Brand protection is most commonly achieved through Trade Mark (TM) registration. China operates a ‘first to file’ system for trademarks so it is essential for brand owners to register early, before entering the Chinese market. Once registered, Chinese IP law grants TM owners hefty protective rights and registered marks can be renewed indefinitely as long as they are still in use.
Brand reputation can be further enhanced by simultaneously registering a Chinese language trade-mark which suits the product and conveys the intended message of the brand. Translating word for word can be disastrous, as can transliteration or failing to register a Chinese version altogether so careful consideration is recommended, ideally with the help of Chinese PR experts to ensure a positive consumer response. For more information on choosing a trade mark in China, check out our blog post on trade mark protection.
Also, Geographic Indicators (GIs) provide another effective indicator of product quality for certain products. Don’t miss our comprehensive guide to GIs.
Protecting your Packaging: Supermarket Eye Candy
Perhaps the next most important assets to F&B producers are the physical shape and appearance of packaging and products. Distinctive packaging and appearance immediately identifies products to customers, for example the unique shape of a Coca-Cola or Evian water bottle. These features are most commonly protectable in Chinese IP law through Design Patents, but can also be protected as 3D Trade Marks, Copyright as well as through Competition law provisions.
Again, it is essential to apply early for IPR protection, as China’s first to file system can leave brand owners packaging open to registration by competitors if products are released before applications are made, leading to loss of market share and even legal sanctions if their own design is used in breach of patent.
Trade Secrets: Restrict your Recipe
Finally, and particularly important for producers is the protection of recipes and production techniques. These ‘trade secrets’ are automatically protected in Chinese IPR law, provided the owner has taken appropriate steps to prevent them from becoming public knowledge. This can be achieved in a number of ways, including contractual terms prohibiting employees from disclosing protected information, Non-Disclosure Agreements (NDAs) with licensed manufacturers and distributors, separation of production of individual elements and the limitation of availability of sensitive documents.
Remember, once a secret becomes public knowledge it is impossible to recapture it so early measures are essential for protection. The Coca Cola Company provides a great example of trade secret protection, with the exact recipe of their signature beverage remaining a secret from its first production in 1886!
Hennessy Case Study: Counterfeit Cognac
In the Shandong Hézé Intermediate court 2012 Hennessy successfully sued a Chinese infringer for selling bottles that were identical or similar to its bottle which had been registered as a 3D trade mark.
The court found that the Chinese company infringed Hennessy’s rights by publically showing on its company’s website bottles that were identical or similar to Hennessy’s registered 3d trade mark. The infringers were ordered by the court to cease infringement activities and awarded damages to Hennessy of 50,000 RMB
This case provides an excellent example of the benefits of registering packaging IPR and actively enforcing rights in Chinese courts. Hennessy’s proactive approach to finding, gathering evidence online, and reporting infringement to the courts shows how effective IPR protection in China can be.
The take away message here is to register your IP, enforce your rights and don’t be afraid to seek legal aid in the event of an infringement. With appropriate registrations, certificates and evidence preparation Chinese courts will more than likely offer a favourable result.
Supermarket Self-Defence: Pre-Emptive Action in the F&B Industry
As always, it’s best to know before you go and remember:
- Product and label registration procedures are required by law for market entry, but IP registration is essential to protect your brand and products and safeguard your chances of success on the Chinese market.
- Early registration is the only way to ensure protection of your IP in China. There is no automatic registration resulting from applications in other jurisdictions and China operates a ‘first to file’ system so be sure to apply before making the move to China.
- Brand reputation is key to successfully engaging Chinese consumers, be proactive in registering and enforcing protection of your brand, products and packaging.
- Registration is essential for the enforcement of most IPR in China, even on a limited budget it is possible to obtain a wide spectrum of IP rights through trade mark and copyright registrations, so make sure to protect at least your core IP.
- Choose your brand trade mark wisely, ideally with the help of local PR experts.
- Design patents are the most common and comprehensive way to protect product packaging.
- Trade secrets are only protected as long as they remain secrets. Regulate access to information with physical, technical and contractual barriers.
 Ipsos 2012