A Discussion on Trademark & Copyright Infringement cases in Hong Kong

 

A discussion on trademark and copyright infringement CASES in Hong Kong

Cases of Infringement on Burberry, Polo Ralph Lauren and Swarovski

Cases of Intellectual property (IP) infringements of international famous brands have been reported and tracked down by the Hong Kong Customs and Excise Department in the past few years, and the infringers were convicted and sentenced to jail. “Swan” is the most recently reported case. This case, still in investigation, concerns a retailer claiming a low-cost artificial crystal as “Diamond Level Austrian Crystal” in an attempt to defraud customers. The “Swan” brand operated seven branches within the mode of short-term lease bargaining sales and the shops were located in the main tourist spots areas of Hong Kong. The shops charged HKD2,000 for  synthesized crystals whose real cost was  only  HKD20.

A local press media (Ming Pao) reporter called the shop for details of the crystal and the staff informed them that the product they sold was same as the product sold by Swarovski - a famous jewelry brand. However, Swarovski claimed that Swan has no any relationship with them.  It is believed that the Swan staff’s misrepresentation breaches the “Trade Descriptions Ordinance”. Furthermore, it was found that there are some similarities between the interior design of shops, package design and jewelry style of Swan and Swarovski. Swan is therefore suspected to have misled customers by infringing the IP of Swarovski. The Customs and Excise Department of Hong Kong is investigating Swan with regard to the “Trade Descriptions Ordinance”.

The same infringer was also involved in another IP infringement cases. The affected brand was “Polo Ralph Lauren”. The infringer was also found to own 3 shops with names and logos similar to the famous Polo Ralph Lauren. Two of these shops are called “Polo Santa Roberta” and the remaining one is called “Beverly Hills Polo Club”. A reporter also made a call to Beverly Hills Polo Club to enquire about its relationship with Polo Ralph Lauren and the staff claimed that they were selling “another series” from the authentic Polo brand.

Indeed, the brand Polo Santa Roberta was sued by another famous brand, Burberry, for infringing its handbag pattern design in 2009. The former owner of Polo Santa Roberta was charged with 28 items of managing counterfeit product and was sentenced to 8 month imprisonment. Figure 1 shows the products of Burberry and Santa Polo Santa Roberta in 2010. The checked patterns of two bags look very alike. However, the price of an authentic Burberry was HKD5,200 while the price of Polo Santa Roberta was HKD1,680. This checked pattern design (trademarked) was registered by Burberry. Therefore, even if other retailers use the same or similar pattern without copying the name of Burberry, this act is still actionable for IP infringement. Nevertheless, Polo Santa Roberta is still operating with a new owner and logo design in 2013.

Figure 1: Comparison of Burberry and Polo Santa Roberta Product
Source: Ming Pao Daily
How is Intellectual Property Protected in Hong Kong?

The Customs and Excise Department is the only official department (“The Department” hereafter) in charge of investigation and imposing criminal sanctions against trademark and copyright infringements in Hong Kong. The Department takes action on the basis of three sets of ordinances.

1. The Copyright Ordinance, Chapter 528
2. The Trade Descriptions Ordinance, Chapter 362
3. The Prevention of Copyright Piracy Ordinance, Chapter 544

The Department adopts enforcement on both the supply and retail level to work against pirated and counterfeits goods. Therefore, the Department intended to block infringement activities in the areas of import, export, manufacturing, wholesale, distribution and retail.
Aside from enforcement by the Department, intellectual property owners are also partly responsible for the protection of their own IP. The first step to protect IP in Hong Kong is to make a registration of trademarks or prove the subsistence of copyright alleged to have been infringed as advised by the Department. Then, IP owners of copyright or trademarks should report to the Department with the information shown in figure 2.
Figure 2: Information needed for reporting copyright infringing and trademark counterfeiting activities
Copyright infringement and trade descriptions related problems are the two major IP infringements in Hong Kong. However, thanks to the authority’s strict enforcement of the law, IP infringement is not a rampant problem in Hong Kong. This is also the main reason for a large number of Chinese Mainlanders travelling to Hong Kong to purchase luxury items even though the relevant brands operate retail stores in China. According to the Customs and Excise Department, the numbers of case of the two aforementioned problems have dropped drastically since 2010 as illustrated on figure 3 and figure 4.
Figure 3: Enforcement result of copyright cases of the Customs and Excise Department
Figure 4: Enforcement result of trade descriptions cases of the Customs and Excise Department
IP Owners Still Need to be Cautious in Protecting Their Rights

Although the Hong Kong Customs and Excise Department have successfully lowered the number of cases against copyright and trademark infringement, the problem will never be completely eliminated. This is because the profit margin of counterfeit and pirated products is attractive. Based on the Customs & Excise Department’s statistics, the numbers of cases and arrested persons have decreased while the total value of counterfeit products seized increased, in the past two years. Moreover, even though the law endows the protection on the original registered copyright or trademark, it can only prohibit the selling of the corresponding counterfeit product - it is unable to stop the business operation of the infringer. The Polo Santa Roberta is still in operation today, even though Burberry successfully claimed against them for infringing its pattern design in 2009. Therefore, IP owners should register all their copyright, patents and trademarks to the regional IP departments, where their product or service is available. It is advisable to consult a legal adviser or IP management consulting expert on this issue.

 

Feature Article

  • The Changing Face Of IP In China

    Western executives have spent the last decade worrying about the threat of competition from China due to its access to cheap labour. Having been the home to manufacturing factories for companies like Apple, China’s competitive strategy up to now has been to compete on price. The current trend is leaning towards the next Apple being born in China due to the rapid increase in innovation and China’s desire to move up in the value chain – going from being a manufacturer of products to the inventor of the products.

    Patent application has been an indicator heavily used to track innovation. It is no hidden secret that Chinese patent applications have now surpassed both Japan and the US due to its impressive 30% annual growth rate (vs Japan’s 4% growth rate).

    The problem however with using patent application numbers as an indicator of innovation is misleading due to these three factors:

    1. Commercialization of patents is lower than e.g Japan and Korea by 40%.
    2. Number of patents actually granted and cited by other patents is also lower reflecting lower quality patents than e.g Japan which is cited more frequently and has a higher success rate in granted applications.
    3. Patents that fulfill the above, fail to reach the market due to lack of an ecosystem built around the patent (e.g. bad licensing agreements and lack of framework to collect royalties among Chinese firms due to lack of expertise).

    However it is dangerous to dismiss the idea of China potentially becoming a legitimate patent powerhouse; there are early signs of a rapidly maturing market for IP. The high application number reflects Chinese firms starting to respect international IP regulations and the commitment it entails.

    An example supporting this hypothesis is the ongoing international IP litigation between two Chinese companies; ZTE and Huawei, two companies with headquarters close to Shenzen. They are also a prime indicator of firms driving the heavy growth in patent application coming from China given their increase in R&D spending by 30-50% during the recession vs their Japanese counterparts who cut spending by more than 10-20%.

    The growth in patent application is greatly encouraged by the Chinese government due to the $10 billion annual spending on foreign royalty and licensing agreements.

    As a part of the five year plan the Chinese government wants to achieve two goals:

    1. Decrease the dependence on foreign firms IP.
    2. Increase Chinese patent holdings to improve negotiation & deal terms with foreign companies.

    These factors will change the Chinese IP market and its current dependence on foreign IP. Combined with its enormous potential for becoming the worlds biggest consumer market, every executive nowadays is asking themselves if they can afford not being in China? The trend has lead to a explosive growth of foreign owned R&D centres in China.

    When contemplating ways of implementing an IP/R&D strategy for China several pathways can be considered: ranging from a fully owned Chinese subsidiary, commissioning of a research institute on a project basis, JV with a Chinese company, or partner with Chinese Academia. Whichever option chosen requires several considerations in terms of financing, technical research and due diligence.

    In essence understanding China requires and understanding of where China has come from, where it is now and where it intends on being 20 years from now in order to interpret the future challenges and changing policies in China.

    Contact Censere for in-depth analysis regarding IP in China.

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