Wolf In Little Sheep's Clothing?

West to East or East to West, the rules of successful business expansion remain the same.

As the ancient Chinese saying goes, “yi gu zuo qi”, 一鼓作气, “the first drum roll rouses the spirits.” There’s no equivalent English expression, but “strike while the iron is hot” is close.

Chinese businesses developing intellectual property assets are increasingly coming to recognise the value of investing in legal protection. It just doesn’t make sense to put energy, creativity, long hours of hard work, and lots of money into building your business brands and goodwill if you don’t follow through and protect them.

And if you’re expanding internationally, powerful legal frameworks are there to assist, but you must move strategically and decisively. If you don’t, opportunistic competitors may take advantage, making success and profitability that much harder to achieve.

Spicy food lovers around the world will be familiar with the “Little Sheep” (xiao fei yang 小肥羊) brand owned by Inner Mongolian company Little Sheep Catering, the first Chinese food product company to list on the Hong Kong Stock Exchange (see www.littlesheep.com ).

The company has established “Little Sheep” branded restaurants in many parts of China, Japan, Canada and the US, and sells its popular “Little Sheep” soup ingredients worldwide. Its restaurants are renowned for the use of special seasonings, organic products and certified processes in their distinctive Mongolian hotpot dishes.

Little Sheep Catering has gone to considerable lengths to protect the Little Sheep trade mark in China. In 2011 it won a high profile 5 year legal battle for the mark with seasonings competitor Hua Cheng Ke Mao.

The company has registered the Little Sheep brand in some overseas territories, including Australia. However its global intellectual property protection plan does not appear to have included New Zealand, opening the door to competitors here. Currently there are two Chinese hotpot restaurants trading in Auckland, each claiming to be the only genuine New Zealand “Little Sheep”.

If Little Sheep Catering were to decide to launch its restaurant business here, it would need to register its trade mark in New Zealand. This might not be straightforward if there are claims of prior use of the brand in New Zealand by the other two businesses. Note that trade mark registration is territorial, and “first come, first served”, unless an applicant can prove prior common law rights.

Even assuming Little Sheep Catering eventually secures exclusive rights to the mark in New Zealand, the cost to the company could be significant, and far greater than it might have been. You might say New Zealand is such a small market, why should they bother? Well for a start we are often considered strategically significant and a good testing ground for products and services. Furthermore, unauthorised use invariably reduces the value of brands, and damage to the Little Sheep brand here could easily spread beyond these shores.

The Little Sheep scenario is not unusual. It’s conservatively estimated that around 30-40% of Chinese restaurants in New Zealand are using the brands of well-known Chinese restaurant chains without formal authorisation.

 

(From our Easter Newsletter 2013)

 

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