LAWS3123/JURD7323
Chinese Legal System
Time-honoured brands: tradition, time and trademarks and the difficulties of their intellectual property rights protection in the modern Chinese legal system
Bonnie So
z3289665
NB. Chinese names will be written in their traditional format of surname then followed by first name, except for in referencing and the bibliography.
The history of China, like the Yangtze River which spans its heartland, is long and rich. Chinese culture finds expression in its diversity and pluralism, a culture that does not simply exist in the past but lives in the present. Like any other country, China has elements which are distinctively its own, and laozihao, time-honoured brands, businesses with an enduring history, continue to operate in a modern society of consumerism and globalisation. This modernisation has been accompanied by a slow but gradual progression towards a modern Chinese legal system, while internal market competition and deepening relations between China and the rest of the world have pushed intellectual property rights (IPR) into the foreground as a crucial form of protection and enforcement. Despite ongoing efforts to increase the protection of time-honoured brands, the reality is that there remains much to be done due to the unique nature of Chinese culture, the ambivalent legal character of time-honoured brands and the lack of comprehensive and united legislation surrounding them. This essay will examine the characteristics of time-honoured brands, and consider the difficulties they face in receiving protection from the perspective of intellectual property (IP) law, and from the particular aspect of trademark law.
Characteristics and legal formation of laozihao
In law, zihao refers to shanghao, and is the name which a business uses to identify itself, its trade name. In Article 6 of the Provisions on Administration of Enterprise Name Registration, it must not be the same as or similar to any name registered in the same trade within that jurisdiction, while Article 7(2) provides that the name must not be the same as those of enterprises with a long history or famous shop names . The relationship between trade name and trademark is very close, and trade names, like “Tongrentang” and “Quanjude” are often registered as trademarks. It is the trademark that is provided stronger rights protection in the legal system.
“China Time-honoured Brand” or zhonghua laozihao is a distinction conferred by the government on brands or enterprises which have built up goodwill through the passage of time, and have specialty goods or unique concepts, . The official criteria required to be a China time-honoured brand reiterates the importance of historical and cultural significance. To be considered a China time-honoured brand, a Chinese company must 1) own or possess the licensed right of the trademark, 2) have been established in 1956 or before, 3) inherit unique products, skills or service, 4) continue the outstanding, traditional Chinese corporate culture, 5) possess national characteristics and distinctive local flavour, as well as historical and cultural significance, 6) have a good reputation, and social recognition and praise, and 7) held by domestic or regional (Hong Kong, Macau or Taiwan) capital, be in good business operating conditions and have a strong capacity for sustainable development. These have been similarly adopted at provincial level.
China is currently in its greatest period of economic progress in history, with economic growth averaging at around 8% per annum and the living standards of the people reaching a historical high. In this period of rapid growth, the preservation of zhonghua laozihao businesses is considered to be crucial to the Chinese economy, as well as necessary for protecting tradition. At present, the government recognises around 1600 time-honoured brands and the top hundred time-honoured brands are worth a combined 46 billion RMB . For example, Beijing Tongrentang, a company specialising in TCM founded in 1669 during the Qing dynasty, was identified as being worth 2.9 billion RMB. Tongrentang was also the first firm listed as part of the “National Intangible Cultural Heritage” of China by the Central Chinese Government. Wanglaoji, a company famous for its Chinese herbal drink, was worth 2.2 billion RMB in 2006 . On the other hand, of those 1600 or so companies, only 10% are in actuality performing well . As companies that express distinctive elements of an enduring Chinese culture and ethics, the government attempts to protect them in order to maintain continuity. Yet, their ability to perform competitively in the rapidly changing Chinese market is almost entirely dependent on their ability to innovate and meet changing market tastes, while simultaneously retaining their traditional flavour. For example, Tianjin Goubuli Buns developed over 140 new tastes or types of buns in recent years , while Tongrentang has adapted many standard traditional TCM recipes into more convenient forms, like pills or lozenges. In contrast, many time-honoured brands, especially smaller companies, suffer from inertia, unable to adapt to a modern society. There are multiple contributing factors, including technological change, lack of demand and shortage of workers skilled in traditional areas, urbanisation and urban renewal as well as market change. One of the most crucial arises from the development of the modern legal system, and the complicated legal relationship over IPR.
The “time-honoured” branding of a Chinese company attaches a certain air of distinction or nobility to such companies. The name of such a company is often, in itself, one of the most invaluable assets it owns. As an intangible asset, the name essentially conveys reputation, and it is this reputation which becomes valuable, even tradeable . For example, consider chain stores, such as Tongrentang, Quanjude Roast Duck Restaurant and international brands like Starbucks and McDonald’s. What essentially is being sold, aside from tangible products and service, is an “equilibrium standard”, which creates customer expectation and causes a company to uphold that reputation in order to maintain revenue . Tongrentang remains popular even today, selling TCM based on its reputation of quality and efficacy, while Quanjude has become definitive of Beijing roast duck. The positive reputation dynamics invoked by the name of a time-honoured brand make it invaluable, but at the same time, creates a space for trademark squatting.
Difficulties facing the protection of time-honoured brands
Despite the social recognition of time-honoured brands, there is inertia where the law is concerned over protection of its rights. With the development of the modern Chinese legal system, IPR – as widely recognised by other legal system and internationally – were created to acknowledge and protect those rights in law. Certainly, the legal relationship seems straightforward; if a company has registered its brand as a trademark, then it is afforded rights protection under the legal system. But what happens when a time-honoured brand, with a substantial amount of brand awareness but has not registered a trademark, is faced with another company using its trade name? Most of the time, a trademark dispute will need to be settled in court over who is the legal owner of the trademark. However, determining who is the legal and rightful owner of a brand is complicated and can be time-consuming, as the multiple claimants to the name “Xinyuanzhai” discovered . That is because there is a lacuna in the Chinese legal system concerning the protection of time-honoured brands, which is complicated by the relationship between property right, trade name and trademark. All three are intimately interconnected but have very different purposes and legal meanings, and where time-honoured brands are concerned, not concrete. Furthermore, the scope and extent of protection is respectively narrow and weak .
1) Ambiguity over the legal character of time-honoured brands
The nature of time-honoured brands places them in an ambiguous position in Chinese intellectual property law. Part of the problem is that Chinese IP law has not reached a unanimous legal position on how to treat time-honoured brands. Although these brands have withstood the test of time, the legal system requires a more definite approach in practice in order to sustain their competitiveness. Lu Ningning points out that to protect time-honoured brands often means to protect the rights of their trade names , which is an intangible property right governed mostly by the State Administration for Industry & Commerce. However, due to the intangible nature of the property right, Liu Guanglong believes that it would be better protected directly in intellectual property law . The principle characteristics of time-honoured brands, which make them similar to intellectual property are intangibility, their exclusive or monopolistic nature, and territorial nature . Intangibility means that the rights that exist in a time-honoured brand, while proprietary, do not take a particular form or occupy a defined space . The trade name power of time-honoured does not necessarily come from registration, but rather from brand awareness, built up over decades, even hundreds of years. Intangibility is derived from influence and goodwill built up through the crucible of time – hence, “time-honoured” - making these brands priceless. Time-honoured brands are also monopolistic, because once that distinction is offered, they are given that exclusive right to use it. They are also territorial because that right is only effective within the jurisdiction granting that right. But at the same time, time-honoured brands are “neither exclusively a legal nor an IP subject matter” because of the degree of brand awareness surrounding them . They may be managed within a legal sphere, and given a legal monopoly where applicable, but the distinction of being “time-honoured” is grounded outside of the legal realm. The ambivalent legal status of time-honoured brands thus contributes to a relatively weak system of protection.
b) Incomplete, indirect and fragmented systems of protection
Currently, there does not exist a complete or uniform system of protection for the property rights of time-honoured brands. It may be indirectly done so through the protection of trade names. However, the legislation concerning trade names is fragmentary. These include General Principles of Civil Law, Anti-Unfair Competition Law, Product Quality Law, Law Concerning the Registration of Enterprises as Legal Persons, Provisions on Administration of Enterprise Name Registration . None of these are complete in themselves but cover different parts of trade name protection. For example, Product Quality Law targets the display of trademarks or trade names on products or provision of services, for the purposes of controlling factory quality. It does not however cover all legal aspects of trade names. Both of the laws concerning enterprise name registration are quite concrete in regulating the rights of trade names but only within the jurisdiction that they are registered. Under Article 5 of the Unfair Competition Law, enterprises are prevented from squatting on another’s name, thus inducing customers into mistaking their services and products, and behaving unscrupulously. Additionally, there are also administrative regulations covering time-honoured brands, including, Regulation on the Determination of Time-Honoured Brands, Provisions on the Usage of the “China Time-Honoured Brand” Symbol, and Notice of the Ministry of Commerce and the State Administration of Cultural Heritage on Strengthening the Work on the Cultural Heritage Protection of Time-Honoured Brands. While the four administrative regulations concerning time-honoured brands are fairly concrete, they do not resolve fundamental issues in the complicated relationship between trade names, trademarks and time-honoured brands, especially with respect to the violation of any property rights.
Another method of protection for time-honoured brands is to register them as trademarks, so that they are protected under Trademark Law. Trademarks, as delineated in Article 8 of Trademark Law, includes any combination of writing, images, letters, numbers, three-dimensional signs, and colour combinations. The visual requirement for a time-honoured brand is any combination of images and writing; thus, time-honoured brands may be registered at trademarks and receive protection through the trademark law system. However, not all brand owners understand modern IP protection, believing that brand awareness of their trade names, especially that of time-honoured brands, to be sufficient in protecting their rights and thus, not registering the trade name as a trademark. On the surface, trade name and trademarks perform the same function; they are labels to identify one business from another. Often, they are used interchangeably, and many businesses register their trade name as their trademark. But the subtle difference between the two translates into a dangerous situation when it comes to IPR protection. Trademarks are managed by the State Administration for Industry & Commerce and under the national Trademark Law, whereas trade names are administered by the local government of the region where it is registered. Trademarks are therefore protected across the nation, whereas the rights of trade names only have effect within the region of business registration. Furthermore, a trademark applies to product and service, whereas a trade name is used to differentiate between the entities providing the product or service. Since a trademark only differentiates products and services and not an entity, even if a trademark is unregistered, it can still legally be used . On the other hand, trade names, being the primary indicator of a business, can only be used within the jurisdiction of its registration. It is the former which is afforded greater rights protection in IP law because, so long as a trademark is registered properly, there is no reason at law why it should not be protected. What further complicates the issue is the ambiguity between trade name and time-honoured brands . Time-honoured brands are also only applicable within the jurisdiction they are registered. This means that a company in Shanghai may use the same tradename as a Beijing time-honoured brand, and this may influence the reputation and sales of the time-honoured brand, while allowing the other company to “squat” on an established name and reap benefits. These multiple tiered systems of registration make the management and protection of trade names disorderly and incoherent, and limit the ability of a company to litigate and defend themselves in brand conflicts.
c) Priority of registered trademarks over prior use
The lack of independent and comprehensive legislation regulating the property rights of time-honoured brands means that brands often have to rely on piecemeal protection of trade names. Yet this is often ineffective in light of, and against a unified trademark system. Due to the regional administration of trade names, same or similar trade names may coexist in different administrative regions, and give rise to infringement of prior proprietary rights. On the other hand, the national trademark system prevents the same or a similar trademark from being registered twice. Article 4 of the Trademark Law specifies that any natural person, legal person or other organisation needing to acquire the exclusive right to use a trademark for goods produced, manufactured, processed, selected or distributed by him or her, ought to register the trademark at the trademark office . Through registration, one is able to acquire, at law, the exclusive right to a trademark, and which is legally enforceable across the nation. Compared to the trademark system, the regional system in place for trade names is inefficient, and easily allows for disputes over the right to use a trade name. Furthermore, unlike Australia, China uses a “first to file” system, which means that whoever is the first to register the trademark, is usually considered its legal owner. This grants that company priority over any prior, but unregistered, usage of the trademark.
However, in certain circumstances, the legislation recognises prior rights in opposition to a registered trademark. Article 13 provides that where a trademark is a reproduction, imitation or translation of an unregistered famous chiming trademark, for usage on same or similar goods, and likely to cause confusion then it will be rejected and disallowed from use. Additionally, Article 31 states that an application for a registered trademark must not prejudice the prior right of another, nor use unfair means to pre-emptively register another person’s pre-existing and influential trademark. Prior rights include copyright, patents, design, and trade name. In both provisions, the key element is that the unregistered trademark whose prior rights are being infringed upon must be famous or hold influence, and this restricts the type of trademarks that can claim prior rights under the law. The definition of whether a time-honoured brand can be considered a famous trademark or be of certain influence is very narrow.
Famous trademarks are a category of trademarks with particularly high reputation, and which are able to claim prior rights protection for unregistered trademarks under both the Paris Convention and the TRIPS Agreement . Of the over 1600 famous trademarks , only 10% are also considered time-honoured brands. In Beijing, in the food & drink industry, only the trademarks of Donglaishun and Quanjude are considered “famous”. That is because, while time-honoured brands do enjoy a certain level of brand awareness, a famous trademark must not only be high profile, but additionally, enjoy a leading market share and media coverage . For many time-honoured brands, while they do have a particular level of brand awareness, many of them are only small business and are thus unable to meet the criteria. Hence, most of them do not meet the criteria to acquire protection in this way.
In 2001, Article 31 of Trademark Law was amended to include “use unfair means to pre-emptively register another person’s pre-existing and influential trademark”. The two important parts to that clause are “use unfair means” and “influential trademark”. Influence is hard to interpret: within what scope should influence be considered? If we use regions as the standard, due to the regional divisional of registration, some trade names may already have an established reputation in one area, but in another, be relatively unknown. The Chinese penchant for auspicious names means that the same characters are often used, and it is not unlikely that a person will inadvertently infringe on another. The law allows the earlier user of the unregistered trademark three months to claim prior rights, after which, if the latter user is not found to have obtained it through “unfair means” they are deemed the legal owner of the exclusive rights to use the trademark. However, in most circumstances, earlier users do not check the publications released by the trademark office to see whether their trademarks are pending registration. Furthermore, those who do check would most likely have taken the precautions to register their trademark, thus pre-empting infringement. On the other hand, if we use the industry to set the standard, then it would be more in line with the function of trademarks as differentiating symbols of products and services. Zhao Fengmei points out that the proprietary right represented by trademarks, reflects the reputation of the good or service, and is used to distinguish one company’s products from another. She further notes that its value is dependent on the reputation of that company and the quality of its products, reiterating its intangible intellectual property nature. With both perspectives in consideration, Zhao believes that it would be more reasonable to use the industrial standard of influence and awareness to interpret Article 31. Yet, if Article 31 is interpreted from an industrial standard of brand awareness, many time-honoured brands will still fail to achieve adequate protection of their rights. That is because smaller brands, while reputable within their own rights, their usage of the trademark may not necessarily be considered influential enough to warrant protection, especially if they dispute another’s usage outside of the legislative grace period.
Conclusion: The Road to Protection
This essay has mostly considered the general difficulties of protection of time-honoured brands with respect to trademark law, and only within China. The issues facing time-honoured brands are complex and extend beyond national borders. Their ambivalent position in the legal system, as neither entirely a legal nor an IP matter, means that the law often has difficulties in determining the best way of protection. This is compounded by the absence of independent legislation, specifically delineating their legal character and stating the methods of protection. Currently, time-honoured brands must rely on indirect protection of their trade names, which in itself is arbitrary and fragmentary, or through intellectual property rights, usually under Trademark Law. Although not discussed, time-honoured brands also receive some form of protection through cultural heritage preservation laws and the Unfair Competition Law. However, all these methods are not entirely effective because they do not take into account the unique position of time-honoured brands in the current Chinese legal system.
In order to develop a more efficient and effective system of protection, independent legislation should be enacted to articulate and meet the needs of time-honoured brands. Such legislation should, in recognising the attributes of time-honoured brands, combine IP law, unfair competition and anti-unfairness laws, and cultural heritage laws into one cohesive system. Both Wang and Lu believe specialised legislation should recognise the proprietary rights of trade names as being intellectual in nature, and thus, include them within the scope of IP law . Only through this would the legal character of time-honoured brands crystallise into a concrete and legally enforceable property right. Furthermore, it would recognise trade names, independent of other parts of the legal system. Secondly, both also recognise that the multi-level system of registration easily allows the occurrences of infringements. This issue would best be managed by a national database of time-honoured brands and trademarks which would resolve the dispute surrounding unregistered trademarks. However, with regards to the different levels of administration, Wang believes that the State should adopt a national system which makes IPR legally enforceable across the country. Yet Lu believes that a two-tiered state and provincial system should be kept, and time-honoured brands registered depending on their scope and extent of influence. On this point, perhaps a national system would be best in order to unify all registrations and reduce the possibility of disputes. The law should also prohibit the dilution of the reputation of trademarks. This concept was introduced in the 2009 Interpretation on the Application of the Law Concerning Several Issues Regarding the Trials of Civil Disputes Relating to the Protection of Famous Trademark”, and recognises the damage to the goodwill of a famous trademark as a form of harm to the legitimate interests of the owner . This anti-dilution interpretation should be introduced into any legislation concerning time-honoured brands, as any unauthorised use – “trademark squatting” – does damage the interests of the trademark owner.
While such legislation would not completely address all the issues time-honoured brands currently face, it may pre-empt the need for trademark litigation through a unified system of registration. Raising the awareness of intellectual property rights to brand owners so that they register their trademarks will also help in providing a legal basis for protection. As the system stands now, the difficulty does not lie in proving a certain ownership; it is in establishing a legal basis for argument . Without registering one’s trading identity, then it is difficult for courts to legally ground their argument in favour of the unregistered trademark owner. The road to achieving effective protection for time-honoured brands is long and complicated, but with recognition of their unique attributes and the enactment of specific legislation, the system may be organised to fully include them and the path to safety simplified.
APPENDIX
Pinyin-Chinese
chiming
Donglaishun
Goubuli
laozihao
Quanjude
shanghao
Tongrentang
Wanglaoji
Xinyuanzhai
zhonghua laozihao
zihao 驰名
东来顺
狗不理
老字号
全聚德
商号
同仁堂
王老吉
信远斋
中华老字号
字号
Chinese Legislation and Government Authorities
Anti-Unfair Competition Law
反不正当竞争法
General Principles of Civil Law
民法通则
Law Concerning the Registration of Enterprises as Legal Persons
企业法人登记管理条例
Notice of the Ministry of Commerce and the State Administration of Cultural Heritage on Strengthening the Work on the Cultural Heritage Protection of Time-Honoured Brands
国家文物局关于加强老字号文化遗产保护工作的通知
Product Quality Law 产品质量法
Provisions on Administration of Enterprise Name Regulation
企业名称登记管理规定
Provisions on the Usage of the “China Time-Honoured Brand” Symbol
“中华老字号”标识使用规定
Regulation on the Determination of Time-Honoured Brands
中华老字号认定规范（试行）
State Administration for Industry and Commerce
国家工商行政管理总局
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实习生：Bonnie So
