Starbucks Wins Key Trademark Case in China

Starbucks has big plans for China. It believes the fast- growing nation will become the company’s second-largest
market after the United States. Starbucks entered the country in 1999, and by the end of 2007 it had more than
300 stores. But in China, copycats of well-established Western brands are common. Starbucks faced competition
from a look-alike, Shanghai Xing Ba Ke Coffee Shop, whose stores closely matched the Starbucks format, right
down to a green-and-white Xing Ba Ke circular emblem that mimics Starbucks’ ubiquitous logo. The name also
mimics the standard Chinese translation for Starbucks. Xing means “star” and Ba Ke sounds like “bucks.”

In 2003, Starbuck decided to sue Xing Ba Ke in Chinese court for trademark violations. Xing Ba Ke’s general man-
ager responded by claiming it was an accident that the logo and name were so similar to that of Starbucks. He
claimed the right to use the logo and name because Xing Ba Ke had registered as a company in Shanghai in 1999,
before Star- bucks entered the city. “I hadn’t heard of Starbucks at the time,” claimed the manager, “so how
could I imitate its brand and logo?”

However, in January 2006 a Shanghai court ruled that Starbucks had precedence, in part because it had regis-
tered its Chinese name in 1998. The court stated that Xing Ba Ke’s use of the name and similar logo was “clearly
mali- cious” and constituted improper competition. The court ordered Xing Ba Ke to stop using the name and to
pay Star- bucks $62,000 in compensation. While the money involved here may be small, the precedent is not.
In a country where violation of trademarks has been commonplace, the courts seem to be signaling that a shift
toward greater protection of intellectual property rights may be in progress. This is perhaps not surprising, since
foreign governments and the World Trade Organization have been pushing China hard recently to start
respecting intellectual property rights.

Sources: M. Dickie, “Starbucks Wins Case against Chinese Copycat,” Financial Times, January 3, 2006, p. 1;
“Starbucks: Chinese Court Backs Company over Trademark Infringement,” The Wall Street Journal, January 2,
2006, p. A11; and “Starbucks Calls China Its Top Growth Focus,” The Wall Street Journal, February 14, 2006, p.1.

QUESTIONS:

1. Discuss the concept of property rights protection and why it is so important to companies. What does the
court ruling against Xing Ba Ke mean for other companies that are already doing business in China, or are
considering entering the market?

2. How important is the Chinese market to Starbucks? Does the presence of look-alike companies like Xing Ba
Ke deter firms from entering the market?