China Trademarks and Global Political Conflicts
Russia’s War and Its Impact on China Brands
Russia’s invasion of Ukraine highlights the brand risks international companies face when geopolitical conflicts force a market exit. Many companies that left Russia found their trademarks being used without their consent, leading to a devaluation of their brand. In particular, the Russia experience serves as a warning for brands operating in China. If political tensions cause a similar mass exodus, Chinese authorities may likewise disregard trademark rights. Companies should start preparing now.
Russia’s invasion of Ukraine “brought about notable changes in the landscape for foreign trademark holders and local entities in Russia,” as noted in a recent cover article by Riikka Palmos in Trademark Lawyer. As international brands fled Russia, their “retailers and former partners have continued using trademarks despite ending the cooperation and prohibition of such use.” Brands present in China need to consider the implications for their trademarks of a scenario in which they are forced to exit the Chinese market.
In my experience advising numerous brands on their China trademark strategies, I’ve seen firsthand the difficulties of protecting intellectual property in China even during stable times. In times of conflict, these difficulties would likely multiply exponentially. Companies often underestimate these risks.
Triggers for Brands Exiting China
One such scenario involves actions by China on the international stage that could lead to sanctions (or stronger responses), with accompanying pressure on brands to cease doing business there. Hostilities against neighboring countries like Taiwan or the Philippines are probably the best example, given the parallels to Russia’s aggression against Ukraine.
Undoubtedly, for most brands, a decision to leave China would be tougher than one to quit Russia: China’s population is ten times larger, with per capita income virtually identical. But for brands that cannot afford to entirely dismiss public opinion in markets like the United States and Europe, departure may be the least painful choice. And even if they wanted to stay, conditions on the ground might force their hand: American (and Australian, British, Japanese, etc.) brands might become targets of Chinese ire if their governments are actively supporting a war effort against China.
Internal actions by Chinese authorities could also present scenarios necessitating an exit. A large portion of Western businesses currently projects a pro-China stance, but that could change if enough of their own start getting slapped with exit bans, or jailed, or taken hostage by creditors. Affected companies might demand solidarity from others in the industry, and in any case governments might take punitive action.
The Interplay of Geopolitics and China Trademark Protection
What could a China departure mean in practice for a brand’s trademarks?
1. Continued Brand Use After Departure
Mirroring what has happened in Russia, distributors and retailers might look for ways to continue selling the brand, relying on gray-market goods and/or counterfeits, possibly with the countenance of the Chinese authorities.
If distributors and retailers persist in using a brand after its departure from China, that usage will likely undermine the brand’s exclusivity and the trust customers place in it. Gray-market goods might not meet the brand’s quality standards, leading to diminished brand reputation. Moreover, counterfeits could further erode trust as consumers might end up with inferior or even hazardous products under the brand’s name. Over time, the brand could lose its value and reputation.
2. Increased Intellectual Property (IP) Theft
Disgruntled former employees or those with less loyalty to the brand might be tempted to sell or share trade secrets, designs, or other intellectual property with competitors. This could further erode the brand’s competitive advantage in the Chinese market and beyond.
3. Delay or Neglect in Legal Action
Courts and government agencies tasked with trademark protection might slow-walk action against those who infringe the trademarks of brands who depart, or simply ignore complaints by these brands. A lack of urgency or complete neglect in enforcing trademark rights could lead to widespread infringements. This dilution can lead to significant financial losses, especially if counterfeit products flood the market.
4. Lawyers’ Reluctance
Lawyers may decline to represent brands whose actions are deemed hostile by China. The scarcity of willing lawyers might lead to increased legal fees for those few who are open to representing foreign brands. This could make legal action against counterfeiters financially no longer viable for some brands.
5. Customs Restrictions
China Customs may not act against exports that infringe on the trademarks of blacklisted brands. Without the support of China Customs to prevent the export of infringing goods, counterfeit products could make their way to other markets globally. This not only affects the brand’s image in China but could potentially harm its reputation on a global scale.