BEIJING — Hermès’ most recent legal loss over trademark infringement in China could serve as a cautionary tale for international brands expanding in this fast-growing market.

This story first appeared in the February 29, 2012 issue of WWD. Subscribe Today.

The French luxury company has lost its appeal with the China Trademark Appeal Board, which ruled that Hermès could not register a version of its name in Chinese because a Chinese company had already trademarked that name, according to reports in Shanghai Daily and other state media this week.

The name, Ai Ma Shi in pinyin, was the same one used by the Dafeng Garment Company, a Guangdong-based clothing company that had registered its trademark in 1995, the reports said. But it was also the name that Chinese speakers used to refer to the French company, which Hermès argued was reason enough to be protected as a trademark of Hermès.

The Trademark Appeal Board of the State Administration for Industry and Commerce said instead that the two trademarks would both remain listed on the Chinese market. (A spokesman for the State Administration for Industry and Commerce said Tuesday that the agency could not release any information on the decision.)

Seattle intellectual property lawyer Dan Harris, author of the China Law Blog, said Hermès’ mistake is that the company neglected to register the name Ai Ma Shi as a trademark, even though that was the name Chinese speakers had given to the company.

“A lot of the time, American companies go in [to China], and the Chinese start calling them something else,” he said. “You need to register that, too.” A word like Hermès, difficult even for some English speakers to pronounce, is likely to be called something else by Chinese speakers.

Hermès had registered the name Hermès in China in 1977, the reports said. The company argued that Ai Ma Shi was a direct Chinese translation of Hermès and that the company was well-known in Mainland China.

“It’s kind of a classic mistake — forgetting to register the Chinese mark,” said Beijing lawyer Stan Abrams, who writes the blog China Hearsay. “If you go back far enough, these were very common mistakes for foreign companies. Companies didn’t understand the market very well and they thought that the foreign-language brand had value in the market. It turned out that the Chinese local version, that’s the one that has the value.”

The case is probably insignificant for other luxury brands seeking to establish a market in China, said Harris. “Legally, I don’t think this is a major decision that’s going to have much impact on anybody other than Hermès.”

Other observers warned that the decision, whether it is legally correct or not, sends a message to international companies. “There are very, very few brands recognized as well-known in China,” said Paul Ranjard, a lawyer with the Wan Hui Da Law Firm and Intellectual Property Agency in Beijing. “There may be 400 to 500 brands so far recognized [by the Chinese] and only 30 foreign brands.”

It’s also worth considering that appeals courts are permitted to look at the reputations of both companies in a trademark dispute, even if one of the companies has been established for longer, he warned.

“So if the infringer managed to be quick, and opened lots of shops and developed quickly, you can imagine then it becomes impossible to stop that. Recently there have been some high-profile cases where a recognized owner failed to stop the imitator because the court said, ‘You both have a reputation,’” noted Ranjard.

Joel Backaler, an analyst with the Frontier Strategy Group in Seattle and founder of a blog called the China Observer, voiced a similar view.

“As China seeks to create home-grown global brands, cases like that of Hermès will continue,” he said. “Western retailers should proceed with caution and ensure their trademarks are protected while operating in China, given that more and more Chinese retailers may be expanding in the opposite direction overseas with a similar logo.”

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