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China’s intellectual property landscape is maturing

At first glance, Manolo Blahnik’s recent intellectual property victory in a Chinese court signified a maturing landscape for foreign companies in China.

The shoemaker was a victim of China’s infamous “first to file” trademark system, where local businesspeople beat major labels to the punch, often with farcical results. For example, Zhan Baosheng, a Chinese businessman, registered the Tesla name before Elon Musk entered the Chinese market. Baosheng then tried to take the carmaker to court to defend his claim. The suit was eventually resolved amicably.

The win announced in July by the iconic Spanish shoe designer came after a series of cases in which the country’s courts finally began to rule in favour of international brands. New Balance was awarded damages in a lawsuit against two local companies that imitated its “N” logo last year and in late 2020 former NBA star Michael Jordan was able to stop Chinese sportswear manufacturer Qiaodan Sports using his trademarks.

“It kind of shows the evolution of the Chinese judicial system over the last 20 years. And how it has evolved . . . [to be] more favourable than it has been in the past and it’s a country where brand owners can succeed,” says Edward Chatterton, a partner at DLA Piper who worked on the Manolo Blahnik case.

The change is in line with a host of other efforts to boost investor confidence in China’s commercial legal system. Last year, China allowed some of its courts to start to recognise Hong Kong insolvency judgments, theoretically permitting international companies to chase Chinese debtors into the mainland.

Analysts say the slew of recent wins by foreign fashion brands is in part because of a revision of China’s trademark law in 2019, which was amended to prohibit bad-faith filings. The recent case against businessman Fang Yuzhou, who had registered the Manolo Blahnik name, was won in large part because the brand’s lawyers used archival research from Beijing’s national library to establish that Manolo Blahnik was already a name in China when Fang trademarked it. Manolo Blahnik’s lawyers also sent a team to buy shoes from Fang’s store and presented their findings to the court. “He was a person who routinely took advantage of third-party brands and was . . . selling counterfeit products,” says Chatterton. Fang’s lawyers declined to comment.

For many brands, however, it remains to be seen if these are pyrrhic victories after the hassle of litigation. One of Chatterton’s cases involved a US security camera company that switched factories in China, only to find the previous factory had registered trademarks for some of their products. As a result, the factory owner was able to stop a big shipment of their goods from Chinese ports before the company eventually won their IP case. By that stage, however, the company had had enough.

“The brand in that case actually switched large amounts of their production out of China. So actually, these kinds of cases are potentially damaging to the Chinese economy,” says Chatterton.

It is not a good time for China’s factory owners. The country’s zero-Covid border controls are keeping out foreign executives and slowing new investment. “China is falling from grace,” says Lena Sellgren, chief economist of Business Sweden, the country’s semi-government trade body, referring to a June survey published last week. “Swedish manufacturers . . . are scaling back purchasing of intermediate goods in China to increase purchases elsewhere.” Of those surveyed, 41 per cent said they would scale back purchases from Chinese suppliers in the next three years.

At the same time, brands are now assessing how sustainable their golden run in China will be after the country’s market kept high fashion afloat during the start of the pandemic. In January, Bain & Co predicted that by 2025 Chinese consumers’ share of global luxury goods would be the world’s largest. Since then, however, the country’s economy has been shaken by Covid-19 lockdowns and a property crisis, depressing consumer spending.

There is also the question of whether litigation is worth the effort in a market famous for its shanzhai, or counterfeit culture. New Balance won just Rmb25mn ($3.6mn) in their case. Reflecting on the cost of Manolo Blahnik’s litigation, which took 22 years to resolve, Kristina Blahnik, the founder’s niece and the company’s chief executive, previously told the Financial Times: “I would have a heart attack if I really had to add it all up.”

primrose.riordan@ft.com

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