The fashion, design and lifestyle sector is a significant driver in South-East Asia’s creative economy. The global fashion industry has traditionally been one of the most lucrative industries, with sales generated in the trillions globally. This is especially true in South-East Asia, where consumers gravitate towards fashion and do not shy away from paying top dollar for luxury fashion products. Singapore, for instance, holds a 2% share of the world apparel market and their fashion industry generates sales of USD3.6 billion (approx. EUR3.1 billion). In Indonesia, it contributed about USD49.3 trillion (approx. EUR42.8 trillion) to the GDP, with the fashion industry alone accounting for 28% of total earnings in the creative economy.
Among the South-East Asian countries, the design and lifestyle industry is classified as emerging industries especially in Singapore where, an ad hoc organization, the Design Singapore Council, was established in 2003 to help develop the nation’s design sector, following the Economic Review Committee’s report which identified the creative industry as one of the three new sectors for economic growth of the country. Similarly, the Thai government is making investments to further strengthen its fashion industry, as for example it is actively supporting the “Bangkok Fashion City” project launched in February 2004, which aims to turn Bangkok into a fashion hub in the South East Asia region and into a world fashion centre.
Given the potential for growth in the fashion, design and lifestyle economy in the South-East Asia region, there is tremendous value in understanding how SMEs can protect their intellectual property in the region. Even though, IP laws and regulations have been considerably improved in most South-East Asian Countries, counterfeiting and other IP violations are still commonplace in the region and thus a comprehensive IP strategy is needed before starting business in the fashion and lifestyle industry in South-East Asia.
Trade Marks Protect your Brand
A large part of a brand’s equity and identity would reside in the brand name, which is an asset as it distinguishes the products of an SME from products of other producers and functions as a badge of quality. Businesses in the fashion industry are thus fiercely protective of their brand name and seek to protect it through the registration of trade marks.
Trade marks are territorial in nature, so a European registered trade mark is not protected in South-East Asia if it is not registered there as well. Thus, it is extremely important to register trade mark in the countries an SME can foresee doing business in.
In South-East Asia, some of the countries are members of the international trade mark regime, the Madrid Protocol System. These countries include Singapore, Cambodia, Vietnam, Brunei and the Philippines, in 2017 Indonesia and Thailand also joined the Madrid System. As such, European SMEs can file a Madrid Protocol application and designate these countries as part of their international registration. For South-East Asian countries which are not members of the Madrid System, European SMEs will have to file a national application in each of them.
The procedure to obtain the trade mark varies from country to country. Most of countries adopt a so called ‘first-to-file’ system, for which the first person or entity to register a trade mark will be the right owner. Only Brunei, Malaysia and Singapore have the ‘first-to-use’ system.
Where the country is a ‘first-to-file’ country, it is important to seek trade mark protection as soon as possible, because European SMEs may lose their trade mark rights if another party files their proposed mark first. This problem is particularly acute in countries like Indonesia and Thailand, where third parties apply for trade marks (often in bad faith), which in turn blocks original trade mark owner’s trade mark applications when they apply for their own mark. These companies may then try to “sell” the original owner these trade mark registrations at an inflated price. While in some countries, it is possible to cancel a registration for a trade mark that has been made in bad faith, these cancellation proceedings are often expensive and time-consuming, and substantial evidence of bad faith is needed to succeed in the cancellation action.
In some countries, such as Malaysia and Singapore, if European SME’s trade mark is not registered, it is still possible to enforce rights through the common law tort of passing off. To succeed in an action for ‘passing off’, a trade mark owner must show i) there is goodwill in the use of EU SME’s mark, ii) there is a misrepresentation that has been perpetuated by other traders passing off their goods and services as the SME’s, and iii) there is damage caused to original trade mark owner’s business. A ‘passing off’ action may not be easy to establish, and an action could be costly and time-consuming. Therefore, EU SMEs should register their trade marks in South-East Asia as soon as they start to explore opportunities on the market.
Design Protection is Essential in Fashion Industry
The protection of industrial designs is at the heart of the fashion, design and lifestyle industry. At present, even though the fashion, design and lifestyle industries are creating a large number of new and original designs every season, it appears that little use is made of relevant national and/ or regional design law to register and protect these designs. This is mainly because of a general notion that the short life-cycle may not always justify the financial cost involved in registering a design for each product. Though this concern is understandable, there are several benefits of having a registered design. Through registration of design, EU SMEs will obtain an exclusive right to prevent third parties from using the design without permission. Moreover, there are systems such as The Hague System (of which Brunei, Cambodia, and Singapore are parties to), which enable EU SMEs to register multiple designs in the same class in multiple jurisdictions in a cost-effective manner.
Furthermore, if an European SME has a classic or iconic piece or product in their brand collection, it may be worthwhile to seek design registrations for these pieces. For example, many fashion houses strive to create such classic design pieces which are long-lasting and always recognizable to consumers. The risk of not protecting such classic and iconic pieces is that EU SMEs may find many other parties trying to imitate their designs and as a non-registered design, those ‘imitations’ would be allowed. Therefore, it is vital protect iconic designs.
European SMEs should keep in mind that one of the criteria for successfully obtaining a registered design is that it must be “new”. If the design is the same, or substantially the same as any other design that has been registered or published in South-East Asia or elsewhere, it is not new. If there has been prior disclosure of the design in the public domain, it is also not new. However, a disclosure of a design made during business negotiations which imports an obligation of confidentiality would not destroy the novelty of the design.
Consider also Copyright Protection
Currently, fashion designs are generally not protectable through copyright. However, even though the designs themselves are not protectable because they are considered functional items, certain aspects are protectable, such as original prints, patterns, unique color arrangements and novel combinations of elements used on a design.
In most South-East Asian countries, copyright is automatic right that rises upon creation, so there is no need to register copyright. Furthermore, if the country in which the work is created is a member of the Berne Convention, the work enjoys copyright protection in all ASEAN countries except Cambodia and Myanmar. Even though copyright registration is not mandatory, is also possible to voluntarily record copyright in most South-East Asia countries (exceptions are Brunei, Myanmar and Singapore).
Although a registration is not required, it is helpful in proving ownership in case the need to take enforcement actions arises later. Local authorities in South-East Asia prefer to rely on copyright registrations as evidence of ownership before accepting a case from the complainant who claims to be the copyright owner. In some cases, local authorities may refuse the case if the SME is not capable of producing copyright registration certificate, thus it is always advisable to register copyright in South-East Asia.
Outsourcing and Franchising
Given that outsourcing and franchising have become global phenomena, it is important for SMEs to know their rights in this area. When outsourcing or franchising, it is important to have a licensing agreement. Licensing is a contractual arrangement in which the brand owner (licensor) permits another company (licensee) to use its IP in exchange for a license fee. Under the agreement, SME, as the licensor, can determine the period for which the licensee can use SME’s intellectual property. Licenses can be an effective way to generate revenue without investing in production and avoiding or minimizing market risks.
Original Equipment Manufacturer (OEM) garments and accessories manufacturers
An OEM manufactures garments and accessories that are purchased by another company and retailed under that purchasing company’s brand name. EU SMEs are often looking to enter into a licensing agreement with an OEM entity that is in South-east Asia. Such an agreement allows EU SMEs to protect the brand name and designs while expanding into South-East Asia’s markets.
Distributors / agents and franchising
Often EU SMEs decide to enter South-east Asia’s markets by selecting a distributor or agent who would be in charge of selling the products and goods directly in South-East Asia. Less frequently, EU SMEs decide to undertake a franchising agreement with a local partner in South-east Asia.
Copyright is particularly relevant if an SME produces print or textile designs. They may be franchised / exploited in making home furnishings, bags, packaging, or stationery. If another company wishes to produce such goods using original design owner’s patterns the SMEs may grant them the rights to do so under license.
A License Agreement should include the following:
- Define the IP that the licensee is permitted to use, exclusivity, the manner of use, the scope of use by reference to geographical boundaries, range of products and/or types of services. It is important for the licensor to regulate the use of the IP and see that there is no wrongful use that would damage the value of their IP and jeopardize their ability to further exploit the IP. As the IP is being used by the licensee, goodwill may be generated, or improvements made, and the agreement should provide for how such goodwill or improvement should be dealt with.
- Compensation for the permission to use the IP could be in the form of a lump sum payment, payments of agreed amounts at particular time intervals or payment of royalties calculated as an agreed proportion of actual volume of manufacture or sales achieved, or combination of the above. The agreement should set out the repercussions in the event of failure or delay in payment.
- It is common for a License Agreement to contain provisions on the licensee’s obligations to report and assist in the event of infringement or counterfeits in the market, and on what the licensor and/or licensee would be entitled to do to enforce the IP rights.
The South-East Asia IPR SME Helpdesk supports small and medium sized enterprises (SMEs) from European Union (EU) member states to protect and enforce their Intellectual Property Rights (IPR) in or relating to South-East Asian countries, through the provision of free information and services. The Helpdesk provides jargon-free, first-line, confidential advice on intellectual property and related issues, along with training events, materials and online resources. Individual SMEs and SME intermediaries can submit their IPR queries via email (email@example.com) and gain access to a panel of experts, in order to receive free and confidential first-line advice within 3 working days. To learn more about the South-East Asia IPR SME Helpdesk and any aspect of intellectual property rights in South-East Asia, please visit our online portal at http://www.ipr-hub.eu/.