Trademark risks in brand extension

By Yuan Zhenfu, Vice Director at the Intellectual Property Institute of Shanghai University, Columnist of China IP,[Trademark]

Like Google could never have predicted it would sell glasses now when it first started the search engine business, companies can hardly predict their future products. Under such circumstance, making more or full category trademark registration seems more strategic.

The brand extension strategy became popular in developed countries in the early 20th century, many well-known companies used brand extension to achieve rapid business expansion. Brand extension refers to a company extending its brand of the existing products (or services) to newer products (or services). By using the well-developed image of the parent brand name and consumer approval, the company aims to drive sales of its new products. AI Ries, a famous American economist once said, “In the past ten years, brand extension was the most significant trend in the marketing industry in American.” While in China, brand extension has already become a powerful weapon for companies when they introduce new products or step into a new business area.

Some people don’t find an equal connection between brand extension and brand stretching. They believe brand extension only refers to the successful parent brand extending to the improved products or new products in the same market. For example, Haier began to produce other white goods after its success of cultivating a brand based on refrigerators. While brand stretching means the parent brand enters into a Trademark Risks in Brand Extension totally irrelevant market. Take Yamaha as an example, it was originally a Japanese motorcycle manufacturer, but entered into the fields of stereos, pianos, electronics, and others. However, we will include brand stretching into the broad meaning of brand extension in this article.

Of course, brand extension doesn’t always lead to success, sometimes it may even have negative impacts, like diluting and deteriorating the core brand and damaging the brand equity. For example, an American company Scott, producer of Kleenex brand toilet paper, was the top brand in the toilet paper market. However after Kleenex napkins were introduced, subtle changes occurred among consumers, its brand extension had brought psychological conflicts to consumers, therefore negatively affected the parent brand. An american advertising expert once joked about Scott’s brand extension strategy, “which brand is produced for nose, Kleenex napkin or Kleenex toilet paper.” As a result, the top position for the toilet paper producer was soon replaced by brand named “Chramin” owned by P&G.

Maotai liquor is always considered as the representative of China’s highend liquor. It began to cater to the ordinary people by selling beer in the early 2000s, which is much cheaper than its liquor goods. However Maotai beer hasn’t been successful so far, it is taken as the typical failure case of brand extension in the industry. Maotai Group is not the only company who intends to extent their brand by producing beer, Sanjiu Group which is famous for its stomach medicine also produces Sanjiu brand beer. Its brand management in medicine is quite successful, but consumers have been confused since the brand extended to beer. Does the company intend to cure the consumer’s stomach illness caused by over drinking of its beer?

Compared with Maot a i and Sanjiu, Evergrande Group, which is outstanding in its real estate business, has had better results in brand extension. In September 2013, Evergrande Group (恒大集团 in Chinese) established its whollyowned subsidiary Evergrande Spring Group (恒大冰泉集团 in Chinese). On November 9th 2013, Evergrande football team tied with Seoul FC from Korea in the last round in Guangzhou, China. The players of Evergrande football team wore the new team uniform with “Evergrande Spring” on it instead of “Evergrande” as before. When the Asian Champions League (ACL) championship was won by the Evergrande team, the Evergrande Group claimed to launch its high-end product “Evergrande Spring,” which had attracted unprecedented attention and gained incredibly high exposures since then.

In January 2014, Evergrande Spring created the industry miracle with 5.7 billion yuan sales in 30 days, four months later in May, the new product was exported to 28 countries around the world. Such great sales record should be attributed to the well-developed image of the “Evergrande” brand and the winning of the ACL championship.

Ever since Evergrande Group introduced Evergrande Spring, there are over 5 trademark registrations that are similar to Evergrande Sping’s under category 32.

However, Evergrande Spring had already made the necessary preparations for defending its trademark. Evergrande Group had applied the trademarks of “EVERGRANDE SPRING” and graphic both in Chinese and English under category 32, including pure water (beverages), fruit juice (beverages), spring water (beverages), plant beverages, soft drinks, water (beverages), non-alcoholic fruit juice, distilled water (beverages), spa r k l i ng wa t e r . The g roup reapplied “EVERGRANDE SPRING” and its Chinese name “恒大冰泉” on November 5th 2013 and March 7th 2014 respectively under category 32 and covered some goods it didn’t registered previously.

From the above trademark applications, Evergrande Group seems quite urgent for “Evergrande Spring” trademark, but the applications are still pending currently. However, the threat to Evergrande Spring’s trademark is not really coming from the followers who apply similar trademarks; the real critical strike comes from “恒大” trademark owner.

On October 14th 2014, Jiangxi Hengda Hi-tech Co., Ltd (Jiangxi Hengda) issued a statement on its official website, claiming that Evergrande Group, the listed company in Hong Kong, had infringed its “恒大” trademark, and it will take actions to fight for its trademark right.

The statement is not groundless, Jiangxi Hengda really owns the “恒大” trademark under category 32 including beer, beans drinks, cola, milk (non-milk based), plants beverages, pure water (beverages), vegetable juice (beverages), nonalcoholic fruit beverages, yoghurt beverages (fruit products, nondairy), and beverage preparation, with registration number 6931816, valid from May 21st 2010 to May 20th 2020. The “恒大” trademark owned by Jiangxi Hengda is active at present.

It was uncovered that, Jiang Xi Hengda has been interested in working with others to set up a spring water company, and is planning to produce spring water under the brand name “恒大”. It seems that the battle on obtaining the “恒大” trademark is becoming more intense. On September 29th 2014, Jiangxi Hengda filed a lawsuit against Evergrande Changbai Moutain Spring Water Co., Ltd (owned by Evergrande Spring Group) for trademark infringement at People’s Court of Nanchang High tech Industrial Development Zone in Nanchang city, Jiangxi Province. The court had taken the case.

In this regard, an Evergrande Group official said, “As a world-famous brand, Evergrande Spring’s trademark is unique and completely legal, it does’t infringe any other trademark. Jiangxi Hengda’s action had constituted unfair competition which have severally harmed consumer interests, and also have brought damages to Evergrande Group’s brand fame and legitimate rights. Evergrande Group will take legal measures to solve the problem.” The official added that the trademark “恒 大冰泉” which is used to distinguish the source of goods, has been only used on its spring water product, it is well known by consumers and will not cause confusion or misidentification among them.

On the one hand, did Evergrande Group infringe Jiangxi Hengda’s “恒 大” trademark by producing and selling of spring water with “恒大冰泉” trademark? On the other hand, as a company which researches, develops, produces and sells new materials used on industrial equipment, was its trademark registered under category 32 properly used? If not, it may face the danger of withdraw due to lacking of use according to the law. Will the two parties bury the hatchet? Let’s wait and see.

From real estate to spring water, Evergrande Group though makes its spring water product successful in business and encounters great challenges in the legal field. This happens because the company’s trademark registration strategy does neither keep up with its product and business development, nor its brand extension. The disputes give a warning to the company which is committed to or interested in diversified business.

Companies are more likely to focus on a rather narrower area at their early stage, but the trend of being diversified in production and operation seems prominent. Haier Group which began selling household appliances, now also runs an insurance business. Google, who made its name by an Internet search service, is now selling intelligence glasses. Additionally, it set its foot in self-driving cars in 2009 and by May 2014, the mileage of Google’s self-driving testing car has reached 700,000 miles.

Alibaba has expanded its business in many areas by a series of investments and acquisition, including areas related to search engine, local life, cultural, logistical, social, and financial sectors. It even invested in the Evergrande Football Club before listing in the U.S.

Sometimes companies can hardly predict what business they are going to be involved in the future. In face of this situation, it is more strategic to register trademarks under a variety of categories, or even all categories to provide comprehensive protection to their trademarks. It can avoid possible trademark obstacles when one company plans to extend its business in the future.

(Translated by Emily Tan)


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