From 31 December 2020, registered EU trademarks (EUTM) and Community design rights (RCD) will no longer be valid in the UK.

• The UKIPO will create equivalent UK ‘cloned’ rights.
• All pending and future EUTMs and RCDs will no longer extend to the UK. A separate right will be required to secure protection in the UK.

With the end of the transition period fast approaching, it is important to get ahead and consider how you will secure protection – both in the EU and the UK.

Five areas of focus

Navigating the changes to the European IP landscape does not have to be complicated. Here, we take you through the key changes and explain how to ensure your rights remain protected and enforceable when the UK exits the EU.

Understanding UK cloned rights

Registered EUTMs and RCDs will cease to apply in the UK from 1 January 2021, but the UK Intellectual Property Office (UKIPO) will automatically create equivalent “cloned” national rights.

Where an EUTM that is older than 5 years is not used in the UK, the cloned UK right will not be immediately vulnerable to cancellation for non-use. For the first 5 years (until 2025 year-end), genuine use of the mark in the EU prior to 31 December 2020 will be taken into consideration by the UK IPO.

The same applies to claims of reputation; where an EU trade mark has notoriety in the EU, the cloned UK right will also benefit from this reputation, at least initially.

Pending applications

New applications for both EUTMs and RCDs are likely to be pending at the end of the transition period, so now is the time to consider how you will ensure protection in the UK.

Applicants must apply for an equivalent UK trade mark and/or design within nine months from the end of the transition period to maintain protection in the UK.  If this deadline is missed, then ultimately, the rights will be lost in the UK.

Managing opt-outs

If the owner of a registered EUTM or RCD does not wish for a UK clone to be generated, it must ‘opt out’. Companies like ours are already reviewing client portfolios to ensure ‘opt outs’ are not converted to UK rights.

As a reminder, if an ‘opt out’ is not filed, the UKIPO will automatically generate the clone with no further notice to the EUTM/RCD holder.

If an ‘opt out’ is not filed, the UKIPO will automatically generate the clone with no further notice

Oppositions

It is important to identify ongoing EU oppositions that rely on UK rights, as it could impact on your desired outcome. EU trademark proceedings which are based solely on a UK registered or unregistered right will be terminated at the end of the transition period, as the earlier rights will no longer be relevant. UK trademark proceedings that are based on EU trademarks will see the unitary rights replaced with the cloned UK rights.

This is crucial when formulating opposition strategy between now and the New Year. If an EU trademark is available to include as an earlier right in an EU proceeding, it may well be worth including it as a ground of opposition, even where the merits are weaker than a UK national right.

Licensing & commercial agreements

Ensure IP agreements currently in negotiation adequately deal with Brexit – these should clearly state whether or not it is intended to cover the UK and any future UK cloned rights. This can be accomplished by:

• Expressly including the UK in the agreement’s territory, rather than simply referring to the EU as it currently exists.
• Stipulating that EUTM/RCDs listed in an agreement are considered to include the impending cloned UK rights.

At a glance action list

To ensure that the end of the transition period does not leave gaps in your IP portfolio, it is recommend that you:

• Review your portfolio for pending EU trademarks that are unlikely to proceed to grant before 31 December 2020, and consider whether UK protection is needed.
• Ensure all formal requirements are met on new or pending registered community designs to increase the chances of them being registered before 31 December 2020, and for any which are filed close to this deadline and may not register in time, consider whether UK protection is required.
• Include an EU trademark or registered community design as a basis of proceedings in the EU, rather than relying on UK rights alone.
• Where an automatic UK clone is likely to be problematic, i.e. conflict with a previous agreement or prompt challenge from a third party, consider opting out of the clone. Ensure that your EU representatives can continue offering you the services that you require, and that the changes to representation will not increase costs.
• Consider transferring responsibility to a single firm that can operate both in the UK and the EU to ease the administrative burden of managing these rights.

Deborah Maxwell is a patent and design attorney and Cameron Malone-Brown is a trademark attorney with Potter Clarkson LLP, a full-service European intellectual property law firm.

The post How to protect your IP in time for Brexit appeared first on Focus - China Britain Business Council.

On a stroll through Beijing’s buzzing Tai Koo Li mall, you don’t have to look for long to spot familiar cartoon characters on the T-shirts in window displays, or well-known paintings printed on to the latest covetable tote bag. Of course these cartoon characters and artworks are IP assets, but the retail merchants don’t own that IP. Rather, they have been licensed by the rights holders to manufacture and sell the products for an agreed period of time within a certain territory in a bid to boost sales figures.

Essentially, IP licensing is a way for companies to increase the visibility of their brand and generate more revenue. To some extent, the licensor and licensee share the risks when they engage in IP licensing: on the one hand, the licensor does not need to risk producing and shifting merchandise that might not sell, and is simply paid royalties; on the other, the licensee does not need to worry about developing the reputation of the licensed IP and can simply use it to gain their own advantages in the market.

According to the Global Brand Licensing Market Report 2020 undertaken by the International Licensing Industry Merchandiser’s Association (LIMA), the retail sales of licensed merchandise increased 4.5% worldwide in 2019, to $2,928 billion. By type of merchandise, clothing (15.1%), toy (12.2%) and fashion accessories (11.9%) stayed ahead of the market in 2019.

In respect to the licensing statistics of China, the China Toy & Juvenile Products Association (CTJPA) underwent a survey that indicated retail sales of licensed merchandise increased 15.6% nationwide in 2019, to reach RMB 992 billion (approx. £113.5  billion) of sales revenue and RMB 38.2 billion (approx. £4.3 billion) of royalty revenue.

In this article, three world-leading licensors, Hasbro, Mattel and eOne Family Brands share their experience of licensing IP in China and, more importantly, explain how to effectively protect IP rights and deal with various challenges to help propel your business and commercial operations in China forward.

Hasbro

According to Licensing Global, Hasbro ranks seventh among the top 150 global licensors, with £5.3 billion of retail sales in 2019. The portfolio of Hasbro’s iconic brands includes Transformers, My Little Pony and Monopoly, and the company is a leading licensor in the entertainment industries: Hasbro’s licensing operations in China cover merchandise licensing, publication licensing, co-marketing promotion and more.

Jessica Qian, head of Hasbro’s licensing business for China, says that Hasbro attaches great importance to its cooperation with its licensee partners, citing the case of licensing its IP to Baleno, a well-known apparel brand in the China market.

When Hasbro selects a suitable licensee, the licensee’s sales volume and coverage of sales areas are considered the most important factors. As a result of this criteria being applied, Baleno was one of the best contenders for winning the licence: the company is capable of achieving strong sales figures and its retail stores are located all over China, including in third and fourth tier cities.

When Hasbro selects a suitable licensee, the licensee’s sales volume and coverage of sales areas are considered the most important factors.

As a result, Baleno obtained the non-exclusive licence from Hasbro to manufacture, promote and sell clothes bearing the cartoon characters owned by Hasbro. That is, Hasbro itself may also use the same IP as well as grant such an IP licence to other licensees in China within the licence period, though Hasbro would usually not authorise a number of licensees in the same sector for the sake of avoiding competition.

Under the details of the licence, Baleno can select certain images of the brand’s cartoon characters from the design books provided by Hasbro, and then has the right to manufacture the clothing bearing those selected images. Baleno is also permitted to use the relevant trademarks in promotion and advertising campaigns.

It is therefore essential that Hasbro, as the licensor, has registered the trademarks underlined by the China National Intellectual Property Administration (CNIPA) and has recorded the copyright of the principal images of the cartoon characters with the Copyright Protection Centre of China (CPCC) before licensing its IP to Baleno.

The first licensing cooperation between Hasbro and Baleno was established back in 2013. Baleno was initially licensed by Hasbro to sell boys’ clothing and accessories bearing images of Transformers. During the licence period, Baleno displayed Transformers-themed props in its local stores, attracting young Transformers fans and boosting sales. The success of this initial partnership led to a further licensing cooperation between Hasbro and Baleno on another brand – My Little Pony – the subsequent year.

To everyone’s surprise, revenues from Baleno’s My Little Pony items outperformed those of Transformers, despite the candy-coloured horses being much less popular in China at the time. Not only were the appealing images selected from the design book provided by Hasbro the key to the success of this particular licensing deal, but also Baleno’s efforts in making the shopping environment more attractive to customers.

Baleno purchased several merchandise items such as toys, bags, hair accessories, stationery, etc. from Hasbro and its other licensees, in a bid to provide customers a more immersive experience and the chance to do one-stop shopping for My Little Pony products. The sales were so successful that Hasbro went on to license other brands such as Monopoly and Peppa Pig to Baleno. Since then the selection of merchandise has even expanded from children’s clothing to adults’.

Mattel

Mattel, another leading global children’s entertainment company specialising in toys and consumer products, share a similar experience of IP licensing in China. Mattel’s portfolio of brands includes Barbie, Thomas & Friends, Hot Wheels and Fisher-Price, among others. Its licensing operations in China range from character and merchandise licensing, to publication licensing, gift promotion and so on, covering a more broad range of sectors including clothing, food and beverage.

Mattel currently has a licensing relationship with Bright Diary, one of China’s largest dairy producers, on use of trademark and images of Thomas & Friends on the packaging of its yoghurts and cheese bars. According to Mattel, it’s Bright Diary’s wide sales channels covering numerous e-commerce platforms and marketplaces that have the most value, and from which Thomas & Friends have gained a great deal of exposure as a result.

More often than not, an international IP is less well-known in the third and fourth tier cities than in the first and second tier cities in China. Hence, as a preliminary matter, the licensor should first attempt to raise brand awareness in the local market. In Mattel’s case, the focus was on promotion of the content. For example, the cartoon series of Thomas & Friends was broadcasted on the China Central Television’s Children’s Channel. Nowadays, given most people in China’s widespread access to the internet, Mattel has expanded the licensing to online video platforms such as Iqiyi, Tencent Video and others, which are also popular among cartoon-watching children across China. Such accessibility to the cartoon series will in return cultivate the local market and increase  popularity of the licensed merchandise.

eOne Family Brands

Understanding how to effectively protect your IP in China is the true key to successful IP licensing. Peppa Pig, a British cartoon character, met Chinese audiences in 2015 and became an instant hit. Owning one of the most globally popular pre-school children’s brands, eOne Family Brands (the parent company of which was acquired by Hasbro in 2019) has encountered myriad issues relating to IP protection, including counterfeit goods, trademark squatting and product and content piracy, to name a few.

eOne countered the challenges in several ways. Firstly, they engaged enforcement vendors to constantly monitor all major e-commerce, social media and VOD platforms in China to identify and remove product or content piracy on a large scale. Secondly, they collaborated with several key stakeholders to facilitate these efforts, including the major platforms, licensees, commercial partners, relevant authorities and industry bodies. Such collaboration helped eOne identify and deal with potential threats more quickly, and stay at the forefront of any industry developments. Thirdly, they proactively identified and raided infringers who manufactured and stored large quantities of counterfeit goods, and had customs recordals in place to prevent the export of counterfeit goods from similar scale infringers.

eOne proactively identified and raided infringers who manufactured and stored large quantities of counterfeit goods, and had customs recordals in place to prevent the export of counterfeit goods from similar scale infringers.

Unlike most of the other rights holders, eOne carries out a high volume of litigation in safeguarding their IP. Litigation allows eOne to enforce against hundreds of infringers annually with the added bonus of damages awarded at the conclusion of the case, which covers all legal fees.

Among several successful litigations, one case that garnered international attention took place in 2018 against two Shantou-based companies manufacturing and selling counterfeit Peppa Pig toy sets on Taobao.com. The case was the first handled by Hangzhou Internet Court, the first internet court established in China, to award damages for a production copyright infringement. It turned out the internet court dealt with IP matters much more efficaciously compared to traditional courts.

The case also shows the value of copyright recordal and its importance as an enforcement tool. Even though copyright recordal is not mandatory in China, it is recommended that rights holders consider recording their most important works as it can help prove copyright ownership in infringement disputes and commercial negotiations.

Niall Trainor, Senior Director of Brand Protection at eOne Family Brands, shares his advice on what UK businesses should do with respect to safeguarding intellectual property in China:

“China is such a huge territory and complex IP environment. There is no ‘one size fits all’ approach to IP protection. However, there are a few basic tips that are essential if a company is serious about protecting its IP in China.

“First, it is essential you register your trademarks (in all subclasses) at least for the goods and services that you intend to use. Make sure you also register any transliterations, artwork and logos if they are essential to your brand. Increasingly you need trademarks in China not merely to protect your brand, but to commercially exploit it because platforms will request documentation that you are indeed the bona fide rights owner.

“Secondly, there is a limit to what you can achieve in running a brand protection program remotely from outside of China. Ideally you need someone on the ground in China, either by hiring an employee directly or appointing a local agent you trust, who can liaise with the relevant stakeholders.

“Thirdly, pick your battles. It is not possible to tackle every IP infringement you come across. Focus on those that materially affect your brand reputation or revenue.

“Finally, tying in with the previous point – this all costs money. China is not a cheap jurisdiction for IP protection, so it is important to accept that you will realistically need to spend tens of thousands of dollars as a minimum. That said, I always say to see it as an investment – it is always much cheaper, easier and less time-intensive preventing infringement, than it is having to deal with it after it has already happened.”

A pre- and post- checklist for licensing your IP in China

So, what should you do before licensing your IP in China? Hasbro cites localisation as its key strategy. As a foreign licensor, Hasbro is of the opinion that understanding customer demand is critical to the growth of its licensing business in China. For example, Hasbro has cooperated with local TV stations to develop a series of cartoons featuring Transformers and Nezha (a Chinese cartoon character derived from Chinese folk tales). Then, once the licensor finds the IP has taken customers’ fancy, it is the time to expand the sales channel and market because the consumption potential of the customers in the third-tier and lower cities can never be underestimated.

A licensor should evaluate the licensing opportunities and be well prepared to enter into the new market. The following points are what Hasbro says it normally takes into consideration before licensing IP in China.

• Understand your brand and know which market segment your IP can fit into;
• Locate the target customers whom you want to sell the merchandise to;
• Make a localised business plan based on the above-mentioned findings;
• Have the IP rights in place, including but not limited to trademark registration and copyright recordals;
• Choose licensing professionals who understand the local market, and share with them your business development strategy and short/long-term goals.

A licensor’s work does not end after signing the license agreement. Hasbro believes giving full support to the licensee in promoting and selling the merchandise is very important in order to build a long-term partnership and enhance the licensor’s reputation. Below is a list of the support work Hasbro normally carries out after licensing an IP to the licensee.

• Make a timely update to the design book in line with market demand, bearing in mind the uniqueness of the respective IP shall remain;
• Support licensees’ marketing campaigns, e.g. arranging brand-led marketing activities in accordance with a major campaign or in conjunction with holidays, e-commerce promotional days, etc., to help promote merchandise and increase sales;
• Support development of joint distribution channels, for example introducing suitable online or offline platforms to the licensee, or facilitate cooperation between licensees to hold brand-led marketing campaigns in the joint sales channels;
• Attach importance to IP protection by combating unauthorised use and counterfeit goods.

  

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