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The long-term cost of not protecting your intellectual property from the beginning

17 September 2013

Hong Kong companies looking to establish a foothold or even expand on the mainland have met with rude awakenings, be it failing to secure patent and trademark, or new regulations imposed as a result of health risks in foodstuffs. From mooncake maker Wing Wah, to bird's nest retailer Home of Swallows, the message is, tread carefully. Sophie He investigates.

Hong Kong's Wing Wah Cake Shop is renowned for its mooncakes, and while they are mostly sold for 14 weeks before the Mid-Autumn Festival, they account for over one-third of the company's annual revenue, says company co-founder Lau Pui-ling. A significant proportion of those sales, 30 percent, Lau tells China Daily, come from the mainland. In the late 1980's, the firm saw the potential of the vast market across the border and began marketing there.

"There certainly is great potential for us (Wing Wah) to continue to expand on the mainland," says Lau.

"I have no doubts that one day our revenue from the Chinese mainland will surpass the revenue from Hong Kong," he says. "The market size on the mainland is bigger than the combined market for Hong Kong and Wing Wah's overseas markets."

There is however a problem standing in the way of plans to expand the 63-year-old company across the border; a legal dispute that has dragged on for 15 years.

The dispute serves as a lesson to any Hong Kong entity hoping to set up or expand on the mainland. Wing Wah Cake Shop's dispute involves Guangdong businessman Su Guorong, who produces and sells mooncakes on the mainland under the trademark of "Wing Wah" using similar packaging designs.

According to the finding of the Supreme People's Court, a Shandong sweets factory registered a rounded logo of Wing Wah, in simplified Chinese characters, in 1990. The trademark later was sold to Su Guorong. Su also secured a trademark for "Wing Wah Moon", written in traditional Chinese characters in 1999.

Too stupid

Hong Kong's Wing Wah had been selling its products in Guangdong since the late 80's but was unable to register its trademark written in Chinese characters for "Wing Wah" (the trademark already had been registered by another company). Lesson learned, the Hong Kong-based firm did have its packaging design - two blooming flowers against the backdrop of a full moon and dark blue sky, registered in 2001.

The dispute has dragged on through various courts. Lau says Su started manufacturing and selling mooncakes in 1997 with a package design similar to Hong Kong's Wing Wah, which Lau characterizes as "taking a free ride".

The Supreme People's Court agreed with the finding of the court of second-instance that Lau's "Wing Wah Mooncake" is a "well-known product", but ruled that Su is entitled to use "Wing Wah Mooncake" in simplified Chinese characters on its products.

The Hong Kong magazine Eastweek, quoted Su as saying that Hong Kong's Wing Wah was "too stupid to register its trademark in the first place". Su told the magazine his factory covers more than 18,580 square meters and produces annual revenues of more than 10 million yuan.

Price of ignorance

Wen Xu , a lawyer representing Hong Kong's Wing Wah says that in view of the undisputed fact that the company was established over 60 years ago, there can be no doubt it has been using the trademark, "Wing Wah Mooncake" decades before Su, but the firm lacked knowledge of mainland law and saw no urgency to register its trademark there.

Hong Kong's Wing Wah clearly has paid a heavy price for its ignorance. Wen says the firm has spent millions of dollars on lawsuits over the years, and that mainland consumers can't tell the difference between the package designs of the competing "Wing Wah" mooncakes. There have been cases of mainland consumers purchasing Su's mooncakes, then lodging complaints with Hong Kong Wing Wah about the quality of its products.

"We are also suffering from the losses of intangible assets," says Wen.

He says the company still has six lawsuits against Su, including a challenge to Su's right to use the trademark "Wing Wah Mooncake" written in traditional Chinese characters. Wen says it may take as long as three years for all the suits to be settled.

In the meantime, to avoid further confusion, as well as to prevent Su's factory from "taking advantage" of Hong Kong Wing Wah, Lau's firm launched a new mooncake on the mainland, "Yuen Long Wing Wah" to replace "Wing Wah Mooncake."

Lau says the company was established in Yuen Long and the trademark "Yuen Long Wing Wah" had been registered on the mainland years ago, so there can be no trademark dispute. The package design of the new brand will be identical to the original "Wing Wah Mooncake."

Hong Kong Wing Wah's mainland distributors sell only the "Yuen Long Wing Wah" brand, though customers will still be able to purchase the company's mooncakes with the original brand name from Wing Wah's self- operated shops.

"We are going to enhance promotion on the Chinese mainland for the new brand," says Lau, who adds he's not concerned about customers' reaction to the new brand as the products are the same.

"Our market share in the Pearl River Delta region is as much as 70 percent. Customers in the region know us well," he says.

Lau admits that its market share in Northern China is limited. The firm is seeking distributors to help it expand, especially into major northern cities like Qingdao, Dalian and Harbin.

Currently, Wing Wah operates several shops in Guangdong, Suzhou, Beijing and Shanghai, its products selling in more than 100 mainland cities through distributors.

"We can focus on promoting and expanding the business on the mainland after lawsuits are settled. There is unlimited potential," Lau says.

The firm also plans to expand its Hong Kong business. Wing Wah has more than 40 shops and three restaurants in the city.

"The tricky part in Hong Kong is to find the right place, as the rent in the city is very expensive," said Lau.

Lau said he hopes other Hong Kong firms planning to enter the mainland learn from Wing Wah's experience and protect their intellectual property from the beginning. He also hopes the Hong Kong government can provide more assistance and even protection for small- and medium-sized companies doing business on the mainland.

Sophie He

(Source: China Daily, HK Edition, 08/23/2013)

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