The Role of Trademark Strategy in Business Profit and Brand Success

The primary goal of business operations is to achieve profitability, ensuring that the goods or services offered attract a growing number of consumers. Representing brand identity, trademarks are not just legal markers, they can be the silent salespeople speaking volumes about a brand’s origin and quality, “here is something worth your attention,” guiding consumers as they make buying decisions. Hence, mapping out trademark strategies is akin to charting the course of a business’ survival. Trademark strategy seeks to secure legal acknowledgment and shield the symbiotic bond between the trademark and the business, ultimately ensuring the company’s bottom line. This article aims to strike a balance between the practicalities of trademark registration and the art of brand storytelling in China, finding the sweet spot where your trademark not only meets legal standards but also the expectations of your target audience. In essence, we are looking at how to make your trademark a key player in your brand’s narrative, making sure it is not just seen but remembered.

Trademark acquisition: the foundation of competitive advantage

Under the Trademark Law of China, protection is primarily extended to registered trademarks, with the unregistered only receiving protection under certain statutory conditions. Thus, achieving trademark registration represents the fundamental step and core of trademark strategy in China. Registration is the bedrock upon which businesses can sustain profitability. It also acts as a strategic asset enabling companies to build brand reputation, attractiveness, and consumer loyalty, thereby securing a competitive edge and winning in market contests. Drawing from real-world client engagements, we wish to offer recommendations on strategic trademark acquisition and planning for businesses from the following three perspectives.

1)      Forecasting your blueprint

Chinese official regulations mandate that trademark registration applications must clearly define the specific goods or services involved, categorizing them into 45 distinct classes. Many businesses, focusing on their immediate need to protect the main offerings, opt for particular categories for their trademark applications. However, beyond the present, it is advisable to reserve the room for potential business expansion by stockpiling trademark resources in categories that the business might grow into. This foresight is particularly beneficial for companies whose revenue heavily relies on intellectual property, such as those in the entertainment or digital content sectors.

Take the case of an internet technology company we consulted for, specializing in movie ticketing services and reviews. Initially, their trademark registrations were confined to service-oriented categories, notably class 41 for entertainment, without considering goods. Over time, it realized significant market success as the company diversified into merchandising with movie character-themed products, like pillows, phone cases, and dolls. Consequently, the company shifted its operational focus toward merchandising movie characters, necessitating trademark registrations across multiple goods categories for these licensed characters. Given the high volume of trademark applications in China, applying at this later stage meant facing considerably more challenges than at the initial phase of service category trademark applications, resulting in more money, time, and human resources being invested. The lesson here is clear: products that seem unrelated at the outset can unexpectedly turn into major sources of revenue down the line. While predicting every future business move may not always be possible, adopting a broader perspective in initial trademark strategy can facilitate smoother future transitions and reduce the need for costly, complex registrations later.

2)      Prioritizing service applications

In today’s market, app products are abundant, each with its specific functionalities, such as streaming film and television offerings, ride-hailing and food delivery, etc. The types of commodities or solutions these applications present are integral to their identity. Nonetheless, numerous apps extend beyond their primary scope, advertising and recommending products or solutions for third-party entities. Given their software nature, the services they provide are closely related to software services, communication services, and the like. This means App products are inherently closely related to service classes such as 35 (advertisement and business), 38 (telecommunication), and 42 (science and technology).

We do not support the viewpoint that disregards an app’s specific functionalities and straightforwardly categorizes its trademark as being commercially utilized under classes 35, 38, and 42. The “Beijing High People’s Court Guidelines for the Trial of Internet Intellectual Property Cases,” Article 28, suggests a more tailored approach. It states, “Determining whether the goods or services provided through application software via information networks constitute the same or similar goods or services as those for which another’s trademark is registered shall be made comprehensively based on the specific purpose, content, method, and target audience of the services provided by the application software. It should not be presumed that they constitute similar goods or services to computer software goods or internet services.” In instances where trademark holders in classes 9 and 35 bring infringement actions against app providers, we maintain that decisions regarding in which category or categories an app’s name and associated trademarks are commercially active should be informed by the app’s designated purpose, content, functionalities, and audience.

Despite this nuanced perspective, disputes over which trademark class an app belongs to can get tricky. For example, an entertainment app primarily fits class 41 for providing “entertainment information.” But does it cross over into class 35 territory when it starts to feature ads? If an app provider has registered only in class 41 and faces a lawsuit from another party with the same trademark in class 35, does that constitute infringement? Judicial opinions on such matters are yet to converge, indicating that debates will likely persist for some time.

Although not necessarily deemed as infringement, such disputes or litigation can lead to significant investment of resources for app providers, particularly for internet companies facing financing or IPO opportunities, potentially having severe adverse effects on business development. Therefore, when planning trademark strategies, foresight is key. Businesses should anticipate potential trademark disputes and pay attention to applying for classes 35, 38, and 42, especially internet companies, to prioritize registering relevant trademarks in these categories. After all, in the high-stakes game of trademarks, it is better to be a chess master, thinking several moves ahead, than a checker player, reacting to each jump.

3)      Securing brand signposts

The value of a trademark comes from its ability to direct consumer attention to a specific brand, which drives engagement and sales. Beyond the traditional scope of product branding, the digital age introduces fresh elements that serve as direct pointers to specific companies. These include app interfaces, domain names, and WeChat public account names, all carrying an inherent ability to guide consumers precisely to their intended business destinations.

Understanding the significance of these directional tools, it is crucial for businesses to actively seek legal protection for them. This step is essential in maintaining the they’re searching for. Without this protection, there’s a risk that these valuable assets could be used by others, leading to confusion among consumers and potentially diluting the brand’s presence in the market. By protecting these key elements, businesses can and will safeguard their unique identity and interests. This is not just about avoiding legal disputes; it is about ensuring that your brand stands out in a crowded digital marketplace, now and in the future.

Beyond acquisition: crafting a unique trademark identity

When crafting a trademark strategy, businesses need to weigh securing legal rights and ensuring the brand’s visibility. This calls for a ‘strong trademark’ strategy which focuses on enhancing the uniqueness of your mark to avoid blending in or causing confusion with others.

Trademarks are categorized based on their connection to the goods or services they represent: fanciful, arbitrary, suggestive, and descriptive. Descriptive trademarks, which directly describe a product or service, typically face registration challenges due to their lack of distinctiveness. Suggestive trademarks, offering a hint without directly describing the product or service, may be registrable but often tread close to being too descriptive, risking rejection. Arbitrary trademarks, which use common words in an unrelated context (think ‘Apple’ for tech products), bring a high level of originality. In practice, however, we have frequently encountered cases where such arbitrary trademarks were rejected. Often, this is because examiners believe that the trademark’s inherent ‘literal meaning’ prevents it from being recognized as a distinct trademark. Conversely, fanciful trademarks, which are entirely invented with no previous meaning, usually enjoy a smoother registration process and are less likely to be confused with existing marks.

From a long-term business perspective, adopting a ‘strong trademark’ strategy with fanciful trademarks can increase differentiation from others, especially competitors’ trademarks, thus reducing the risk of market confusion. Imagine that, if a trademark is a pre-existing word with a specific literal meaning, registering it may not prevent others from using the literal meaning of the word to describe their goods or services in certain specific circumstances. The line between ‘illegal use’ and ‘proper use’ is not always clear-cut.

The ‘strong trademark’ strategy not only focuses on the possibility of trademark registration but also emphasizes the trademark’s ‘uniqueness’ in the market. A strong trademark can further assist in profit generation, commanding premium branding, and more. It requires continuous accumulation of goodwill, the establishment of a positive brand image, enhancement of trademark recognition, and reinforcement of the unique correspondence between the trademark and the enterprise through long-term use and management, helping the enterprise stand firm and succeed in competition.

Trademark enforcement: detecting infringement is key

While achieving trademark rights sets the cornerstone and inception of a brand’s strategic map, it’s also imperative for companies to harness legal avenues to enforce these rights, fending off adverse impacts from third-party actions. The essence of trademark enforcement lies in the adept identification of infringement. As the digital landscape and AI technology advance, the channels for promoting and selling products or services have multiplied, broadening the scope for infringers to operate under the radar, and making their actions more intricate and harder to trace, intensifying the potential harm to trademark owners.

The internet has become a fertile ground for such infringements in recent years, not limited to the sale of counterfeit goods on digital platforms but also including the cunning use of trademarks as keywords or tags to misdirect consumers originally searching for the trademark owner to the infringer’s offerings. This kind of stealthy infringement extends to using someone else’s trademark as a name for WeChat public accounts, apps, or even company registrations, showcasing the diverse methods of misuse. Therefore, uncovering these acts of infringement is pivotal for businesses in safeguarding their trademarks.

Companies should focus on regular, comprehensive monitoring to quickly identify any infringing activities and assertively employ legal tools, such as issuing cease and desist letters, filing platform complaints, and initiating legal actions, all aimed at preserving the unique identity of their trademarks and their brand’s reputation.

Reflecting on our discussion, we can appreciate that trademarks go beyond being legal identifiers; they are the very essence of a brand’s commercial life force. A well-thought-out trademark strategy that captures and keeps consumer interest can turn trademarks into vital assets for competitive advantage. Such a strategic approach can cement a more resilient market presence and consistent profit flow, steering businesses towards a path of brand growth and dominance. For companies aiming for durability and prominence, how can they afford to sideline trademark strategy?