因地制宜：亚洲商标授权
Adapting to new environments - trademark licensing in Asia
Precis: Asia is becoming an increasingly important market for trademark owners. However, before entering into trademark licensing agreements, brand owners should not simply copy and paste the rulebook developed in the West
Located in Pittsburgh, Pennsylvania, the Senator John Heinz History Centre, a Smithsonian affiliate, features six floors of long-term and changing exhibition space. Westinghouse invited Asian licensee partners to visit the center, where the company archive is located
While a number of Western brands are now achieving remarkable success in Asia through corporate brand licensing, no matter how long the list of highly acclaimed licensing deals, there are always spectacular failures. As a brand licensor, it is therefore critical to understand some of the key differences in licensing practices in Asia versus the West, and to adapt your licensing strategy accordingly.
Asia is already a hotbed for corporate brand licensing. From Shanghai to Seoul, and across various industries, many large corporate brand licensing deals have already been struck. When deals fail, this usually results from a lack of awareness of the key differences between licensing business practices in Asia and the West. Too many Western brand licensors simply ‘copy and paste’ their licensing programs from the United States or Europe to Asia. This approach can be risky, as considerable damage can be done to the brand and you may find yourself unable to control the fallout. The differences in licensing practice can be either highly visible or difficult to spot, with numerous divergences that could make or break a licensing deal in the long term.
Once you have identified specific Asian countries in which you plan to launch licensing programs, it is important to review the trademark registration status in each of these countries before moving forward. It may seem an obvious point to make, but Asia is not a homogenous market, and there are dramatic variations in languages, legal and business practices which you should be aware of.
For example, in addition to registering your trademark in its original language, it is advisable to register the mark in the distinctive Chinese language, even if the Chinese mark does not appear on your products. This is critical because Chinese consumers will remember your brand in its Chinese-language iteration. If a foreign mark does not have a Chinese name when it enters the Chinese market, licensees, retailers or distributors will have to give it one for practical commercialization in the market. Unfortunately, and without your knowledge, the Chinese marks can then be registered by third parties – after which it becomes very hard for you, the genuine owner, to claim back the trademark rights.
In addition to trademark protection, you should use copyrights to protect your catalogues, brochures and website content – especially if you intend to pursue a bundled license (as is covered later in this article). Copyrights are granted automatically, but it is advisable to register them in your key markets – especially in India and China, where voluntary registration is allowed. Copyright registration will be accepted as evidence of copyright ownership in the event that you wish to pursue an act of copyright infringement and will greatly reduce the evidence required, thus saving your company extra costs in a long and complicated process.
While reasonably strong brand awareness in Asia is a good starting point when expanding into the region, many Western consumer brands enjoy much lower brand awareness in Asia than in their home countries. These differences in recognition have significant implications for the brand’s licensing potential in Asia. If you do not enjoy significant brand awareness in Asia, the licensing door is not necessarily shut, but you will need to add tangible value to the licensees’ business by bringing in other forms of intangible assets.
Before asking what you can add to your licensing package, it is important to ask yourself what Asian licensees need, and what they value most, in a licensing arrangement. Commonly asked questions by Asian licensees include the following:
· Can you license the product design?
· How would you support us in marketing your brand in Asia?
· How much will you invest in advertising?
· Can we tap into your supplier base?
· Can we enjoy the same discount rate that you have with your suppliers?
While many of these questions are not common in the West, you don’t need to go out and search the Earth for an answer. Indeed, you should already have most answers within your organisation. Consider some intangible assets that you may include in your licensing package. One such asset is your corporate history and heritage.
Marketing is all about storytelling. If your brand has an interesting history and rich heritage, exploit them to the fullest and present them to your Asian licensee prospects. This tactic is something that is probably unnecessary when dealing with licensees in your home country, where brand awareness is high, but it pays dividends in dealings with Asian licensee prospects.
For example, as an iconic American brand, Westinghouse maintains a well-kept archive with images of vintage Westinghouse products (e.g., the world’s first electric cooking range, produced in 1917, and the world’s first electric clothes dryer, introduced in 1946), and boxes of documents that capture many milestone events in its 124-plus-year history. To leverage this history, the company’s Asian licensee partners have been invited to visit the Heinz History Centre in Pittsburgh, Pennsylvania, where the archive is located; many of the vintage Westinghouse products, artifacts, and historical records have been presented to licensees in Asia. You may ask why this extra step is needed, but it is important to recognize that it is a common business practice among Asian companies to register a trademark in Europe or the United States and then market the newly registered trademark as a European or US brand to their consumers, with a fabricated brand story. This practice may sound ridiculous, but it has proven to be both cheap and effective for these brands. However, as consumers become more sophisticated, companies have realized that they need substance to their brands. Licensing or acquiring a Western brand with history and heritage is therefore an appealing solution, and this history is often a key factor in success.
Other assets that often add value in the bundled licensing deal include product design, both in terms of design direction and actual collections that can be adapted to the local market, and marketing collateral, such as product catalogues and website content, which can be leveraged by the Asian licensees for the local markets. .
Finally, many Asian licensees often request access to your supplying network or seek to be introduced to your other licensees for joint product procurement. For example, many Indian licensees do not possess merchandising capability in-house or prefer not to source by themselves, so it makes sense to allow them to access your supplier network. Sharing your supplier network not only helps you and your licensees to enjoy greater volume discounts, but also maintains a consistent identity across the continents.
Differences in licensing strategies
This approach also conflicts with that of Western brand owners, which care more about the long-term growth of the brand. For lesser-known brands that require a more substantial upfront investment in Asia, it is therefore much tougher to find good licensee partners with not only strong capabilities, but also an equal commitment to brand investment and sufficient patience to experience growth in the Asian markets.
A second common trait of Asian licensees - particularly among Hong Kong, Indian and Chinese companies - is their strong preference to acquire Western brands as against becoming licensees. This may well be a consequence of the shorter-term mentality mentioned above. Since trademark rights are territorial in nature, the notion of selling trademark rights in selected countries is therefore a valid one and may make business sense.
Some innovative licensing strategies, such as license-to-own (LTO), have been successfully used in Asia on numerous occasions. An LTO approach is a licensing arrangement with a performance-triggered option for the licensee to purchase the trademark rights, usually in limited territories. It starts with a licensing arrangement with pre-determined performance criteria, such as number of retail stores to be opened, sales volume, advertising spend and strict compliance with the licence agreement. Once these milestones have been met, the licensee can exercise options to purchase the partial or full trademark rights in specific territories, and in some cases establish a joint venture with the brand owner.
The prospect of owning, at least partially, the trademark rights in the country in which the licensee operates provides a strong motivation and long-term security for it to focus resources and invest in the brand upfront. Further, the licensee is more likely to treat the licensed brand with the same level of dedication and care as the brand owner. Even if the licensee chooses not to exercise its option to acquire the brand, the brand owner will have enjoyed cooperation with a highly incentivized partner who had more to gain from the successful operation of the license than a “standard” licensee.
The LTO strategy has worked well for many brand owners seeking to introduce their brands to Asia but without the necessary resources to do so by themselves. As an example of how this can work, BasicNet SpA, the Italian sportswear firm that makes and sells Kappa-branded goods, received €27.1 million in 2006 from the sale of rights to the Kappa brand in China and Macau.
Evaluating licensee partners
Developing a winning licensing strategy is no guarantee of success – equally important is working with the right licensees.
Given the significant differences between business practices in Asia and those in the West, brand owners need to develop an understanding of the local market and evaluate potential licensee partners against a set of standards that may differ greatly from those used at home.
To illustrate this, consider the department store channel. This is always one of the most important routes to market when upscale consumer brands enter a new jurisdiction, and this is certainly the case in China. Some Western brand owners naturally want to duplicate their proven dDirect to rRetail licensing model with department store operators in China, but soon realise this can be difficult to achieve.
Department stores operators in China adopt a different business model from their Western counterparts. They are often said to act like landlords, with the bulk of their revenue derived from the rental of floor space to vendors that set up shop in their premises. Vendors that rent space at department stores are responsible for merchandising their product lines in the store and hiring salespeople to staff the stores. This is why department stores pay little attention to merchandising and marketing, making them unfit for a Direct to Retail licensing arrangement.
Traditionally, appliance chain stores in China have adopted a similar business model to that of department stores. However, this is now changing. Suning’s recent Direct to Retail licensing deal with Whirlpool (see boxout on page xx) is considered one of the largest in Asia, and it is notable that the main product category covered by the deal is air conditioners. This category forms part of Suning’s roots, as the company was founded as an air conditioner dealer in the early 1990s, before evolving into the largest appliance retailer in China. Given its past experience and connections in the air conditioner industry, it was therefore easier for Suning to make the transition from being a landlord-type retailer to a brand licensee. However, its commitment to upholding the Whirlpool brand image remains to be seen.
Aside from retailers, many brand owners also find themselves dealing with Asian manufacturers seeking well-known trademarks. Many of these organisations supply products to their original equipment manufacturer (OEM) clients worldwide.
A company visit to these licensee prospects can be an awe-inspiring experience. With massive manufacturing facilities equipped with top-notch production equipment and tens of thousands of well-trained employees working around the clock, the manufacturer may first appear like a decent licensee candidate. But be warned - the scale of the manufacturing facilities is no indication that these companies will be the perfect licensees for your brand in Asia.
In fact, experience shows that OEM-oriented manufacturers are often poor licensee candidates. As manufacturers that thrive mainly on OEM orders, they are set up and operate very differently from sales and marketing-driven companies. Despite the desire to transition from OEM manufacturers to brand players via licensing, most such companies lack in-house marketing, sales and distribution capabilities. Moreover, their OEM clients may pressure them to relinquish their licensed brands if the licensed products are competing with their OEM clients.
Identifying royalty
When it comes to royalties, there is no such thing as a standard rate in Asia. Even for the same brand, the royalty rate can vary greatly from market to market. Interestingly, although there is lower brand recognition in Asia, the royalty rate may not be necessarily lower than what you would typically receive in your home country. Because Asian consumers usually have a preference for Western brands, they are more willing to pay high brand premiums than consumers in the West. So how should you determine the royalty rate?
In general, the ‘one-quarter rule’ can be useful in determining the appropriate royalty rate. In this calculation, the royalty rate is derived as one-quarter of the extra value generated by the brand (ie, the brand premium in a specific market). For example, in highly price-sensitive industries such as consumer electronics, if your brand can garner $110 for its new digital camera compared to the $100 wholesale price for one with similar features, but branded under a local Indian brand, the reasonable royalty rate to ask for would be $2.50 per unit (one-quarter of $10 extra value attributed by your brand). That translates to a 2% royalty rate (ie, $2.50/$110) in India.
As a comparison, if you are in the sportswear industry and the brand can create an extra Rmb200 in brand premium for a sports jacket that retails at RMB600 in China, the royalty rate should be 8% (Rmb50/600).
In order to apply this approach, both parties need to agree on the intended positioning of the licensed brand in the local market and the benchmark against which the licensed brand should be compared in that specific market. The advantage of this approach is that it can be applied across various industries and countries, and the royalty rate derived from such approach is instrumental in building a successful licensing program that is sustainable in the long term. However, such approach places extra challenges on the brand owner as brand owners need to demonstrate an in-depth understanding of the local market, and often, assistance from local licensing agencies is required.
Differences in recording requirements
Unlike in the United States, trademark law in many Asian countries – including China, Malaysia, Singapore and Thailand – requires that the licensor record a brand licensing agreement with the respective government.
For example, in China, within three months of signing of the licensing agreement, the licensor should file a copy of the trademark licensing contract with the China Trademark Office. The national office will then publish the recorded license in the *Trademark Gazette*, to provide public notice of the existence of the agreement. This published notice may serve as proof for the licensee of its rights to the registered trademark. The need to produce such proof is quite common in most Asian countries, as Customs, local government bureaux and retailers may demand this before doing business with licensees.
Further, if any major changes are made to the licensing agreement during its term, the licensor should re-file an application for recordal. Although a failure to record will incur no penalties and will not affect the validity of the licensing agreement, it could undermine any attempts by the licensor to enforce its rights against third-party infringers.
Quality control and factory audits
Ask yourself if you know where your licensed products are made. Do you review your licensed products before they are launched? Do you perform regular inspections of them at retail? Most brand licensors will (or should) answer these questions in the affirmative. But when your licensees are located 6,000 miles from your office and the licensed products are sold in emerging markets, the answers may be very different.
However, factory auditing is a ‘must-have’ tool in the due diligence process. Always insist on the right to audit your licensees, and their suppliers if they purchase the licensed products from third parties. Each licensee should be selected for an audit every couple of years, or when a licensee relocates production facilities or begins to outsource production to third parties. The licensing agreement should require timely notification by licensees of any of these events.
Factory audits should be conducted by trained professionals in your organization. If you need to assign an independent auditing firm in Asia, it is recommended that one of your own staff members be present during the audit.
A typical factory audit should cover the licensee’s organization structure, product development capability, manufacturing facilities and equipment, production capacity, quality assurance system, licensed product sales and royalty payment accounting, and its compliance with all standards contained in the licence agreement.
In addition, an SA8000 audit is recommended. SA8000 is a global social accountability standard developed by Social Accountability International, covering issues such as child labor, forced labour, workplace health and safety, working hours and wages. These can be problematic in many parts of Asia. As the brand owner, you need to protect your organization from any public relations nightmares relating to these potential offences. An effective SA8000 audit should also involve interviews of various employees whom you select randomly. During the interview, only you, the auditor and the interviewee should be present, so that the discussion can be conducted in confidence without any external influence.
After the audit, preventive and corrective actions should then be recommended for issues identified during the audit. Importantly, you need to follow up on the implementation of all corrective actions.
Look before you leap
The differences between Asian and Western licensing discussed in this article are by no means exhaustive. Other differences which have implications in creating strong licensing programmes include cultural and management styles, licensors' and licensees’ responsibilities in brand building and licensee compliance.
As national economies grow, consumers become more affluent and appetites for Western brands increase, Asia is becoming an increasingly important and lucrative market for Western brand licensing programs. Yet venturing into new territories is not without risk and the biggest potential pitfall is the temptation to simply ‘copy and paste’ your licensing programme to Asia.
Three principles should guide you in your next venture. First, be aware of the key differences in conducting brand licensing in Asia. Second, avoid making decisions without leaving your headquarters - you really need to immerse yourself in the local market or seek professional assistance from a licensing agency that has a team on the ground. Finally, be prepared to localise your licensing rulebook for Asia to maximize its financial return and its longevity.
BOXOUT: Examples of successful brand licensing
Asia is already a hotbed for brand licensing, although many of these deals are not reported in the licensing trade magazines in the West. Some recent examples provide useful case studies.
In 2008 Whirlpool concluded a multi-year brand licensing arrangement for air conditioners with Suning, the largest home appliance retailer in China. One of the first ‘direct to retail’ (DTR) licensing deals in China, it was portrayed in the local news as a strategic alliance between the companies, without mentioning the phrase ‘brand licensing’. The combination of a well-known US appliance brand and guaranteed shelf space at China’s largest appliance retailer was a powerful and successful one. Not only did the Whirlpool brand quickly rise to become one of the top-selling air-conditioner brands in China, but both companies expanded the license dramatically to cover a much wider range of home appliances.
Encouraged by this success, in 2009 Sunning consummated another DTR licensing deal with Japanese consumer electronics manufacturer Pioneer. The deal is expected to generate sales of more than Rmb770 million ($110 million) in licensed products by 2012. These two licensing arrangements represent a new approach for brand owners. While they are now enjoying success, both Whirlpool and Pioneer initially experienced disappointing results in China using traditional business models.
Whirlpool is not the only US consumer brand that has flourished through licensing in Asia. The Westinghouse brand has a number of licensing agreements with various Asian-based companies for small kitchen products, personal care products, and baby care products and similar. These licensed products have been placed in appliance chain stores in Hong Kong, showrooms in Dubai and department stores in China. Through these activities, Asia has become a key component in Westinghouse's $2.8 billion brand licensing programmer.
LG Fashion, one of the largest fashion companies in Korea, has also successfully built up an outdoor apparel and footwear business through brand licensing with LaFuma, a French company that specializes in outdoor apparel, equipment and footwear. The licensing program worked so well for both parties that LaFuma assigned its trademark rights in Korea to its licensee, LG Fashion, in July 2009. Such license-to-own deals are rare in the United States and Europe, but the strategy provides strong incentives to Asian licensees to invest heavily upfront in the brand – investment that would not otherwise be considered in a traditional licensing or distributor arrangement.
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