United States: Protecting U.S. Companies In China's Athleisure Boom

Co-authored by Eric Liu

Athleisure has consistently outshined other apparel categories in the U.S. in recent years, now representing nearly a quarter of total U.S. apparel industry sales. It has also spread in popularity among many millennials in China. The Chinese market is large enough to threaten to change the athleisure industry, and as fitness clothing becomes more popular in there, U.S. brands will face greater competition from emerging Chinese brands and may need to consider seeking increased intellectual property protection and enforcement abroad.

As China’s economy has grown, its consumers have been shifting towards a lifestyle surrounding well-being and sports activities. The overall market is shifting to cater to desires for comfort, convenience, and the trendiness of athleisure fashion.

In addition to the emergence of new Chinese athleisure companies, existing Chinese luxury brands such as Lane Crawford are expanding their offerings to include athleisure fashion lines. These businesses are establishing footholds in the athleisure market. For example, Maia Active, a company that launched in 2016, had more than quadrupled its product sales from the end of 2016 to the beginning of 2017, a span of merely five months. Not only is the athleisure trend in China an opportunity for U.S. companies to grab Chinese market share, but, perhaps more importantly, also a forewarning that rising popularity could make athleisure another industry vulnerable to intellectual property theft that is often associated with doing business in China.

China and the U.S. both offer similar types of IP protection in the form of trademarks, patents, and copyrights. But there are key differences between the laws in each country that are critical to understand when developing a strong IP strategy in China. In a 2017 report, the Commission on the Theft of American Intellectual Property labeled China as “the world’s principal IP infringer” and found the cost of China’s intellectual property theft to the U.S. economy exceeded $225 billion, and potentially even reached $600 billion.

Companies involved in the manufacture of goods—such as those in the athleisure industry—are especially vulnerable given the ability of a Chinese company to reverse engineer a product or merely reproduce a design. This makes U.S. athleisure companies prime candidates to suffer IP theft in China. U.S. companies must become more diligent in understanding Chinese IP laws, especially the differences compared to U.S. laws, and emphasize obtaining IP protection in China early.

Trademarks

Trademarks protect a company’s name or logo, which affects the public’s perception of that company’s brand. In the U.S., a company obtains limited trademark protection through the mere use of an unregistered mark and can obtain stronger rights through registration at the United States Patent & Trademark Office (USPTO). In comparison, China uses a first-to-file system requiring companies to register their mark with the China Trade Mark Office (CTMO) to obtain any Chinese trademark protection. Under that system, non-Chinese companies are vulnerable to being exploited by trademark squatters—persons or companies that obtain trademark rights without any good-faith intent to use the trademark.

The two exceptions in China’s system where registration is not required to acquire protection are well-known and famous trademarks. Any company, Chinese or non-Chinese, can request its registered or unregistered mark be recognized as well-known in China. But there is no legal definition of “well-known” under any Chinese law or regulation and each so request is reviewed on an unpredictable case-by-case basis. For example, Louis Vuitton was unable to have its “LV” mark deemed well-known in China. And only local Chinese companies can request recognition for famous trademarks, and even those are geographically restricted within Chinese provinces. Therefore, the fact that a company’s athleisure products have reached a high level of popularity in the U.S., will be of no benefit to achieving protected status in China.

While many U.S. companies understand the need to register their English language brands in China, the “well-known” status that is granted to many unknown Chinese brands can cause major disruption. For example, Apple was unable to prevent a Chinese company from labeling its handbags and leather goods with the “iPhone” symbol. A Chinese court found that Apple could not prove it was a well-known brand in China before 2007, which was when the Chinese company filed its trademark registration in relation to leather products. (The first iPhone was released in 2007.)

Overall, the best approach for U.S. companies is to file for their trademarks in China early to enforce their rights in the Chinese athleisure market. In addition to the problems discussed above, a trademark application filed with the CTMO requires careful and extensive preparation. U.S. companies should consider language differences when registering their trademarks in China. Registration may be needed for multiple Chinese names as translations and transliterations to cover all grounds for their English language trademark counterparts. Chinese characters can be selected based on meaning, or based on sound, tone, of even the look of the characters themselves. A well-thought out, comprehensive strategy that accounts for all the nuances and issues in Chinese trademark law can prevent a company’s trademark from being used without permission and can bolster that company’s presence in China.

Utility Patents

Utility patents provide companies with exclusivity over their inventions. Although athleisure products might seem to need only design, style, logo, and brand protection, many technological innovations are associated with athleisure, such as Lycra. The Chinese patent system includes both invention patents, which have a 20-year term and are similar to utility patents in the U.S., and utility model patents, which have a 10-year term and do not have an equivalent in the U.S. The State Intellectual Property Office (SIPO) is the governing body in China that reviews patent applications.

Experienced Chinese applicants typically file a utility model patent application before filing an invention patent application because that is a low-cost option and does not require a rigorous substantive review. This allows applicants to obtain some protection in China and still seek greater patent protection through the later invention patent application. If an applicant is successful in the invention patent application, then the applicant merely abandons the utility model patent, as required by Chinese law. Many non-Chinese applicants, unfamiliar with this system, remain reluctant to file utility model applications.

The process of prosecuting Chinese invention patents is similar to that in the U.S. But the differences are key in understanding what strategy to employ while seeking protection in China.

After filing an invention patent application at the SIPO, the applicant must formally request that application be reviewed within three years of filing, otherwise the application is abandoned. Additionally, it is rare for SIPO to allow applicants to submit post-application data that may help persuade an examiner of the patentability of an invention, requiring applicants to fully grasp any weaknesses within their application prior to filing and to submit all beneficial documents and data at the time of filing.

Chinese patent law also does not permit applicants to file a continuation application. In the U.S., that is a tactical decision used in patent prosecution that allows applicants to file a new application based on a previously filed one. The new application may allow for new arguments to be made and the dialogue with the patent examiner to continue.

However, applicants in China can achieve a similar result if the SIPO examiner determines an application has subject matter covering distinct inventions and requires the applicant to divide the application into two separate ones. To achieve that, an applicant would need to file claims in the initial application that cover dissimilar scopes of subject matter, and that would likely prompt the examiner to require a division. Such a strategy requires detailed analysis regarding claim construction.

Design Patents and Copyrights

Design patents can protect athleisure based on an item’s shape, pattern, or combination of shape, pattern, and color. These are often referred to as the non-functional aspects of a work. Both the U.S. and China allow protection of new, original, ornamental design for an article of manufacture.

The starkest difference between the two countries is that China does not perform a substantive review of a design application. Rather, in China, SIPO conducts a cursory evaluation to ensure that the application is complete. For example, Chinese design patent examiners will review design patent drawings for compliance with their rules, including no broken lines or shading—two elements that are typically included in U.S. design applications to indicate non-essential features.

Another difference is that the U.S. permits a grace period for self-disclosure of up to one year prior to a design application, whereas China abides by an absolute novelty standard, revoking design patent protection for any design that was published anywhere in the world before the application filing date. Chinese design patent infringement cases include a deep analysis of the validity of the design patent, including whether this absolute novelty standard was met.

The copyright laws and regulations are similar between the U.S. and China because both are signatories to multiple international treaties that set minimum standards for copyright regulation. In both countries, copyrights are automatically given prior to registration as soon as the work is created, and registration is required before one can sue another for copyright infringement. In both countries, companies should register copyrights because in addition to showing formal proof of ownership, registration grants an owner stronger rights. In the U.S., registration can be made with the U.S. Copyright Office, and, in China, with the Copyright Protection Centre of China (CPCC).

Originally published in SportTechie

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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