What Brand Owners Need to Know When Conducting and Running an E-Commerce Business in China

Introduction

COVID-19 has completely changed day to day life when it comes to purchasing goods. With online shopping increasingly becoming the “new normal”, it is important for brand owners to conduct full self-reflection on how they do businesses locally and internationally. This includes considering brand protection, brand related risks of running an e-commerce business and any steps that may be taken to mitigate those risks.

E-Commerce and IP Protection in China

China is currently deemed to be the largest and fastest growing e-commerce market in the world with over 632 million internet users.[1] It is estimated that China’s e-commerce sales make up 3.2% of the country’s GDP which is compared to 2.7% in the United States.[2] It is also estimated that China’s e-commerce represents more than 50% of the total global e-commerce spending.[3]

In addition, China has the highest intellectual property applications all over the world with 1.862 million invention patent applications, 25 million trade mark applications between 2007 and 2019 and 481 793 intellectual property dispute cases recorded in 2019 alone.

This indicates that China is a lucrative market for brand owners looking to expand their businesses.

Brand Related Risks in Conducting an E-Commerce Business in China

The latest trends in intellectual property enforcement have shown that the following risks are prevalent in e-commerce business in China –

  1. Intellectual property litigation is on the rise in China as multi-national companies and competitors are becoming more active in enforcing their rights;
  2. Chinese e-commerce platforms adopt strict self-policing policies in accordance with the new e-commerce law to limit their own liability. This means that the e-commerce platform owners take great care in how they deal with e-commerce businesses that are operating on their platforms; and
  3. IP squatters and extortionists are hijacking foreign brands and exploiting new technology to lodge complaints against the legitimate brand owners on e-commerce platforms. This has devastating and costly consequences for affected brands.

Brand Related Risks in Conducting an E-Commerce Business in China

Below are tips that can be adopted to minimise the risks highlighted above –

1. Ensure that all the brands in the business are cleared for use and registration and are registered

China follows a first to file system. This means that the first person or entity that applies for a trade mark will obtain registration regardless whether such person or entity is not the owner of that trade mark. Brand owners are well advised to conduct trade mark searches, file trade mark applications, police use of their brands in China and be quick to take action if any infringements occur. It is possible to register brands without a physical presence in China.

2. Carefully review the IP policy and other bylaws of the e-commerce platform that will host the e-commerce business before entering into binding agreements

On 1 January 2019, the New E-Commerce Law of the Republic of China was promulgated.  The new law is aimed at safeguarding the legitimate rights and interests of e-commerce entities, regulating e-commerce conduct, maintaining market order, and promoting the continuous and sound development of ecommerce.[1] One crucial feature of the new law is that online businesses are now required to register their businesses and acquire all compulsory licenses before actively trading on e-commerce platforms.[2] The framework of the new law is comprehensive. Individual chapters cover: e-contracts and e-payments; guarantees for e-commerce transactions; data protection and promotion of consumer protection, fair competition and mechanisms for dispute resolution; cross-border commerce; and the provision of substantial civil and criminal penalties. [3]

These are all important provisions that a foreign company will have to take into consideration before engaging in an e-commerce business in China.

3. Diversify the business on multiple e-commerce platforms to have back up in the event that the business encounters problems on one platform

In China, there are more than a dozen different cross- border e-commerce platforms covering different products.[1] It is possible, and would be prudent, for a foreign company venturing into the territory to diversify its e-commerce business by conducting its business on more than one platform, depending on its products. If one of the platforms is adversely affected, the company will have flexibility and be able to carry on trading on the other platform under the same brand.

These are some tools a company may use together with other methods to protect and grow its brand in Chinese e-commerce.

References

[1] IP Risks Confronting E-Commerce Business in China Hans SHE Fangda Partners accessed 27 May 2020 PowerPoint slides

[1] Ibid

[2] China’s new e-commerce law: A step in the right direction http://www.china.org.cn/opinion/2019-01/09/content_74355741.htm Eugene Clark accessed 24 May 2020

[3] China’s new e-commerce law: A step in the right direction http://www.china.org.cn/opinion/2019-01/09/content_74355741.htm Eugene Clark accessed 24 May 2020

[1] E-Commerce in China https://asialinkbusiness.com.au/china/sales-and-marketing/e-commerce-in-china?doNothing=1 accessed 30 May 2020

[2] Ibid

[3] General IP advise for doing business in China Tingting Liao Fangda Partners accessed 27 May 2020 PowerPoint slides

Maureen Makoko
Associate | Trade mark Attorney