Victim of Fake Trademark
Dessert cafe franchise Sulbing decided to sell at least 50% of its management rights with Deloitte Anjin LLC appointed as the lead manager. At present, Sulbing founder Jung Sun-hee and her family own 100% of the franchise. As of the end of 2016, its assets totaled 21 billion won (US$18.9 million) and its debt ratio stood at 75%. In addition, it is currently the second-largest among about 50 ice cream and ice dessert franchise brands in South Korea. The decision is because its business expansion in China has been thwarted and its current net income shrunk to 350 million won last year. Only tens of billions of won is estimated to be recovered by the sale.
Sulbing was launched in Busan City in August 2013. In only four months, the number of its franchise stores increased to 480 nationwide. Its current net income skyrocketed from 600 million won (US$540,000) to 12.2 billion won (US$10.9 million) between 2013 and 2014. Problems arose after it signed a master franchise agreement with Shanghai Yabin Food Stuff Trade in February 2015 in order to enter the Chinese market. At that time, a South Korean trademark broker who is a Chinese national already copied the brand image of Sulbing, registered a trademark in China, and was running 400 franchise stores in Shanghai alone after finding that Sulbing was very popular in South Korea.
Sulbing began to gain popularity in China in November 2014. It said in February 2015 that it would open at least 150 stores in China by 2017. However, the fake Sulbing stores were already in business in Shanghai, copying its employee uniforms, napkins and so on as well as its menu and logo. Their registered trademark was extremely similar to that of Sulbing. Shanghai Yabin Food Stuff Trade filed a suit against Sulbing, claiming that it could not do business activities due to Sulbing’s poor management of trademark rights. In response, Sulbing is claiming that the agreement was cancelled because the Chinese company did not pay royalties. The litigation is still ongoing.
The Chinese patent authority gives priority to a previously registered trademark even if it is one copied without permission and some trademark brokers in China have taken advantage of this loophole. In China, a trademark registered in Korean or English can be re-registered with a Chinese character added and a chicken franchise registered in the food category can be re-registered in the chicken category. This is why innumerable counterfeit brands are flourishing in China, where even global corporations such as Qualcomm, Tesla and Apple have had to face illegal use of trademark rights.
According to the Korean Intellectual Property Office, South Korean companies faced 1,200 or so such cases in China in 2015 and 2016 alone. However, only nine out of them could recover their rights via the Intellectual Property Trial & Appeal Board, which acts as the court of first instance.