INTELLECTUAL INTELLECTUAL PROPERTY CHALLENGES PROPERTY CHALLENGES OF DOING BUSINESS IN OF DOING BUSINESS IN

CHINACHINA

FosterFoster’’s Groups Group LimitedLimited

•• BeerBeer

•• WineWine

•• SpiritsSpirits

•• NonNon--alcoholalcohol

40% TangibleAssets

Intangible assets approx 60% of Intangible assets approx 60% of Enterprise Value @ 30/6/2006Enterprise Value @ 30/6/2006

60%IntangibleAssets

Enterprise Value = Market Cap + Total LiabilityEnterprise Value = Market Cap + Total Liability

IP Portfolio DimensionsIP Portfolio Dimensions

• In excess of 80 major brands

• In excess of 6,000 trade marks

• Coverage in more than 170 countries

• 50 patents and a handful of designs

• 1,000+ domain names

IPR Business ModelIPR Business Model

Control & Control & defence of IPRdefence of IPR

$$$$$$

Securing IP assetsSecuring IP assets

StrategicStrategicIP DeploymentIP Deployment

The Role of IP at FosterThe Role of IP at Foster’’ss

• Essential infrastructure for brand equity & its defence

• Primary foundation for growth & value creation

• Strategic mechanism to capture and exploitinnovation and creativity

• Major source of differentiation and competitive advantage

China as a Prospective MarketChina as a Prospective Market

• An economic giant that offers significant opportunities for commercial growth and investment by Australian companies

• Presents major challenges in terms of:

- culture, language and knowledge of operating environment

- IP protection and enforcement strategies

• Requires long term investment strategy

The Emergence of ChinaThe Emergence of China’’s Wine s Wine IndustryIndustry

• A fledging wine producer

- some 400-500 wineries- dominated by a handful of players- viticulture & wine making capability still developing

• Faces many challenges

- further development of a strong wine culture- streamlining bureaucratic processes- improving distribution networks

• A market of growing potential

- estimated 50-250 million potential wine consumers- principally domestic consumption of “value” wines

Market Potential for AustraliaMarket Potential for Australia

• Growing income levels and appreciation of wine

• Reduction in import tariffs has lead to greater potential for export growth

• Australia has some 9% market share for imports- volume: 25 million litres- value: $46 million- sales are estimated to have doubled each year

this decade

FosterFoster’’s involvement in Chinas involvement in China

• Brewing interests for more than a decade- owned 3 breweries (now sold)- contract brewing operation in Shanghai- continues to be an export market

• Fledging wine market but with enormous growth potential.

ChinaChina’’s IPR Systems IPR System

• Workable but unnecessarily complex and potentially costly

• Major issues:

- lack of effective appeal re administrative decisions- adequate levels of protection can be problematic - gap between the law and its application in practice

• Positives:

- China’s accession to international treaties- action plans to address shortcomings- greater receptiveness to further harmonisation- prospect of improved processes and system access

Improved IPR Enforcement: A Improved IPR Enforcement: A Pressing ImperativePressing Imperative

• Risks of mis-appropriation are high

• Efficacy of enforcement mechanisms can be questionable

• While the law needs improvement, the greater problem lies in its application.

Major IPR IssuesMajor IPR Issues

• Effective enforcement of IP rights- use of administrative agencies- civil action via courts- criminal enforcement

• Combating counterfeiting and piracy

• Managing dispute resolution

Counterfeit ProductCounterfeit Product

Borrowing Brand ElementsBorrowing Brand Elements

Borrowing Look and FeelBorrowing Look and Feel

Allusory DesignAllusory Design

Possible Approaches to Maximise IP Possible Approaches to Maximise IP SecuritySecurity

• Be prepared to commit considerable resources to prudential searching and clearances

• Maximise prosecution lead times to reduce uncertainty on market entry

• Emphasis on strong as opposed to problematic IP – be prepared to defer use of specific IP

• Understand and anticipate “differences” in nature and operation of Chinese laws

Some Practical Issues for Some Practical Issues for ConsiderationConsideration

• Do we source production locally?

• When partnering, what IP is committed to the venture and on what terms?

• Assessing the commitment to and costs of rigorous IP enforcement

• Reconciling regional market approaches (Asia-Pacific) with the operating environment in China

DisputesDisputes

• Success is directly related to early detection and action

• Critical to understand the practices and cultural disposition to conflict resolution

• The approach to resolution can be at least as important as the objective merits of your position

• Experience counts - post-facto analysis is a powerful learning tool

The Role of Geographical Indications The Role of Geographical Indications (GIs)(GIs)

•• GIGI – an indicator of origin where a given quality, reputation or other characteristic is essentially attributed to that origin

• Principles- all products encompassed by a standard level

of protection- wine & spirits received enhanced protection

• Notable for tensions with trade mark rights

Appellation systems Appellation systems –– France and ItalyFrance and Italy

China & GIsChina & GIs

• Reasonable awareness of GI issues

• Two tiered system- protection under the trade mark system as a

“species” of trade mark (certification/collective marks)- administrative system (AQSIQ) for GIs separately

recognised by China

• Experience indicates the current system can be confusing and consistency is an issue

• Subject to ongoing refinement – desirable that it be included within in scope of Australia-China FTA negotiations

SHANGHAISHANGHAI BeerBeer

• Disclaimer of “Shanghai unacceptable”

• Condition on local production in Shanghai insufficient

• No foreign TM ownership

Intellectual Property and Proposed Free Intellectual Property and Proposed Free Trade Agreement (FTA)Trade Agreement (FTA)

• FTA should include strong IP enforcement provisions to aid administrative & criminal enforcement.

• FTAs should also:

- include provisions dealing with GI-Trade Mark resolution issues

- deal with GIs in a manner consistent withestablished internationally principles (TRIPS)

Conclusion Conclusion –– Some ObservationsSome Observations

• The Chinese market will be increasingly an area of great promise and potential benefits

• Further improving IP infrastructure, service delivery processes and access will be critical for development

• The great leap forward will be improved IPR enforcement

• Strong onus will still remain with companies to develop innovative IP strategies to reflect the operating environment

THE ENDTHE END

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