'Free Stuff is the Most Expensive'
By Doris Li (China IP)
Updated: 2015-09-11

'Free Stuff is the Most Expensive'

According to the statistics, by the end of June 2014, China has got a total of 14,257,000 trademark applications and 9,075,000 registrations, ranked 1st for 12 consecutive years in the world. In 2014, 1,881,500 trademark applications were filed, accounting for 41% of the world’s total. During the Two Sessions of 2014, the Supreme Court’s work report shows that courts at different levels concluded 100,000 first instance cases over IP rights.

From the above details, it can be seen that the IP service industry has been developing rapidly. With supportive policies from the government and growing demands from enterprises, the IP industry will have a good springtime. Young entrepreneurs have been using the Internet to overturn the Chinese development mode which has lasted for decades. Pushed by the waves of the Internet Plus, many traditional service organizations have begun to feel “agitated”. Does the feeling come from the absence of self-confidence, anxieties over newborn modes, or uncertain prospects for the industry due to the intrusion of the Internet Plus?

As a senior manager of the traditional service industry, how do you think of the Internet Plus and its interconnection with IP?

Tao Xinliang: Currently the magical giant network of the Internet has “netted” us all on this blue planet. The Internet Plus serves not only as a historical bridge and tie of the IP service industry, including the legal profession, in its future development and growth, but also as a turning point and milestone in the current upgrading and rebirth of the industry. The first step of the Internet Plus in the IP service industry may likely achieve the “level of quantitative application” with simple gathering and mechanical applications of related information with the help of the Internet; the second step will grow into the “level of qualitative application” that further realizes the in-depth integration and optimization of relevant information.

Yu Gang: The real Internet Plus, in my opinion, means integration of social resources to provide services beyond the client expectations, rather than an overturn simply for its own sake. Most industries make progress step by step, and will likely achieve a revolutionary change after a certain degree of development. In this way, the whole industry may have been overhauled. As far as the role of the Internet is concerned, I tend to term it “traditional industries plus the Internet”. The essential nature of the Internet lies in two factors, one is de-centering (namely a challenge against authority) and the other is flat management (namely, an adjustment of organizational restructures). If a company does not adjust its organizational structure and pushes the traditional pyramid style management to operate on the Internet, it will be a mere change in name and will unlikely go further. However, in the meanwhile, the flat management may place a higher requirement on the capability of baseline managers.

Bai Gang: The Internet Plus has been a highly popular concept recently, setting off an unprecedented wave in all industries and trades. The concept also finds its way in the IP industry, and many Chinese IP service providers on the Internet pop up. They have their own resources and come up with slogans and methods to provide free services, making an unprecedented impact on the relatively isolated IP service industry by the Internet Plus whirlwind. However, we believe that in the IP industry, the relationship should be IP plus the Internet, not the Internet plus IP. The IP service as a professional and highly tailored industry, has a small chance to be substituted or seriously impacted by the Internet Plus.

Fu Gang: The Internet is open and creative, and is a manifestation of our times. To keep the Internet open and creative, we need to promote the Internet Plus and emphasize integration of each industry with Internet technologies. IP has been created to protect innovations, and its system evolves constantly with technological developments. If the object that follows the Internet is limited to traditional industries, the Internet and IP should be in a close and inseparable relationship: development of Internet technologies puts new demands on the I P protection, and IP should also adapt to the characteristics of the Internet and make constant changes.

Li Binglin: In my opinion, the Internet Plus, in its foray into the IP industry, will face a key issue, as other traditional industries did, namely, effective integration between the Internet and IP. Unlike traditional industries, such as retail, real estate, tourism and education, the IP industry will find it more difficult to integrate effectively with the Internet because of the slow progress so far in its informatization, the basis of Internetization. Besides, currently the offline IP services have not yet got unified standards and norms, and there are also differences over professional service levels of IP service organizations and personnel, which will indirectly affect the effective integration between IP and the Internet.

Another key issue is that IP is different from common tangible goods. If IP protection fails to catch up, its value will not be demonstrated. As a result, not only the IP industry itself, even the development and transformation of the whole China may have numerous problems. In this regard, Internetization will face the existence problem, just as the Chinese saying goes, “with the skin gone, what can the hair adhere to?”

What do you think of the new service mode initiated by some startups in the IP service industry, such as Zhiguoguo and IP Master, who hold high the banner of the Internet Plus overturning the traditional mode? Do you think they have posed a threat to the traditional service mode?

Tao Xinliang: I think the IP service industry and related legal profession, which emerge and grow with the times, may combine with the Internet to achieve the “level of quantitative application” with simple gathering and preliminary applications of related information with the help of the Internet, or the “level of qualitative application” that further realizes the in-depth integration and optimization of relevant information. The service mode, like Zhiguoguo and IP Master, is likely to fall into the “level of quantitative application”. If they simply use the “free services” to solicit clients and rely on angel investors to get funding, I don’t think they will have promising prospects. Also, the service mode will only affect low end IP services, such as large-scale and low-cost IP applications and rights determination, and will not, for the time being, pose a threat to middle and high-end IP services. Sure enough, if the service mode achieves the “level of qualitative application”, it will pose a threat to middle and high-end IP services.

Yu Gang: So far we have not yet encountered immediate challenges. I don’t think there is any threat for the time being. I believe there may be some in the future, but I think the client has the right to choose. It makes sense if the client really thinks the service is good enough to satisfy their specific requirements. Any new service mode is indeed able to further the development of the traditional services. Firstly, it may be able to make you rethink the future direction of IP services, explore how to use advanced technologies and Internet features to make our work more efficient and marketing more successful, and enable clients to get a better experience. In addition, the impact of the Internet mode will force us to begin seriously with some internal adjustments and reforms to make the overall structure meet the needs of the Internet era.

Bai Gang: The current free service mode by online IP service providers is an innovative attempt. However, for professional services like IP services, the free mode is not new. In trademark prosecutions, there have been acts of ill-will competition in the industry, such as “zero service fees” and “no registration, no fee.” The service mode makes it difficult to regulate the industry, and heaps much pressure on the self-discipline of the industry, and so far it seems that there has not been a particularly successful story. For the professional services like IP services, it does not make sense to provide free services; it is just like a professional doctor who does not charge any fees from a patient. As a result, his or her service effectiveness and sustainability is questionable.

In addition, if the “free service” is deemed as a major marketing gimmick, it seems that the advantage of the Internet Plus has not been fully demonstrated. The free service does not appeal much to clients with strong IP awareness, large and mature business scale. Free registration may not mean zero costs, but may bring about huge legal risks. If no cautious pre-application searches are conducted and no appropriate precautions are taken in the free services, there may be circumstances of rejections and infringement upon other rights, which will bring about business risks and huge costs that real commercial clients cannot afford.

Fu Gang: Recently the government has attached great importance to the promotion of the Internet Plus, which also contributed to the emergence of similar service providers. The IP industry itself offers mostly similar services with intense competition, and the emergence of new service platforms has made a great impact on many traditional service agencies. But as far as the IP service is concerned, the present so-called Internet Plus platforms are not powerful enough to overturn the traditional service mode. In terms of service modes, these platforms engage mostly in simple businesses which can be completed by procedural and standardized operations. While the IP legal services, in some rather complex cases in particular, demand absolute professionalism and sophistication; therefore, communication with clients and tailored services are needed, which cannot be retailed on the Internet. Characteristics of the Internet thinking focus on user experience and “de-centering”, which demand close and profound interaction between supply and demand. In the meanwhile, needs of individual users should also be satisfied. It is not as simple as moving the business online.

Li Binglin: First of all, we need to recognize the useful explorations made by these non-traditional IP service providers. But the nature of the service mode may conflict with interests of clients. Business insiders know that a client’s IP rights, in general, go through phases of creation, use, protection and management, involving services in determination, protection and utilization of rights. The phases and services are not isolated, but closely linked like a chain. The most important part is the so-called front-end service or basic service, whose quality will directly impact all the other follow-up procedures. Therefore, not all clients would value free front-end services. Instead, they mostly pay more attention to the service quality. Certainly, the Internet service mode can save costs, improve work efficiency, and decrease fees or expenses related to procedures and marketing.

Are you optimistic about the free service mode, similar to the Internet Plus IP, in the IP industry? What’s your point of view in this regard?

Tao Xinliang: I don’t quite agree with the free service mode in the current Internet environment. I even think the service relates to acts of unfair competition by means of “low-price dumping”, which will disrupt the market order and damage public interests. Regarding the super power and full coverage of the Internet information dissemination, the free service mode of the Internet Plus IP is more likely to disrupt the normal, legitimate IP service market order. It will also bring about wide ranging impact and take advantage of the Internet to maneuver the market. I think the offline market activities have relatively limited influence due to its relatively limited time and space, but the online market activities will exert a far-reaching effect and have a prominently competitive edge over the traditional IP services. Therefore, strict limitations should be imposed to draw a clear demarcation line between “free services” and “low-price dumping”. We should clearly define the legal boundaries between legitimate online business strategies and violations of basic business ethics. The business mode of “network marketing and free service” should be reasonably regulated and systematically fine-tuned.

Yu Gang: I think competition is a good thing. It can promote progress, increase efficiency, improve quality, meet customer demands and accelerate the healthy development of the industry. But I don’t think the free service mode will have a promising future, because I believe there is no free lunch in this world. The so-called free service is in fact a promise that you make to the client but you are not able to keep. In a mature market economy, it is known to all that free stuff is actually the most expensive. Under the free service mode, if no clear profit mode or profit point is detected, only two results will ensue: death of the service provider or a higher price by the client. But from another perspective, in the presence of the free mode, the existing traditional offices will face some challenges and probably have to reconsider their service approaches, which may also help push the industry to some favorable changes to the client.

Bai Gang: Some may argue that free e-commerce mode has its advantages. It is transparent in information dissemination. It can also increase efficiency, reduce costs and prices. However in a professional industry, we all know the truth: there is no free lunch. If the service mode only aims to profit from investors, take advantage of information asymmetry and their lack of understanding of the IP service industry, use the Internet Plus as a gimmick by means of free services, “launch brutal attacks” in the IP services field, and expects to attract clients in this way in a bid to obtain capital investment in a short time or even get profitable returns by listing, two questions will ensue: is there any act of unfair competition? How long will this service mode last?

In fact, different from the free mode, another mode, known as the investment mode (similar to the angel investment), is emerging. Under the investment mode, profits and risks are shared between service providers and inventors, and service providers don’t offer capital investment, but legal services. In simple terms, the provider meets the inventor to assess the stability and commercial value of the latter’s patents, promising to have the patents registered and maintained. In return, the inventor agrees to assign some of future benefits as consideration to the provider. Unlike the free mode, the investment mode prefers quality over quantity and bases its investment on the full assessment of the quality and value of patents. We are obviously more concerned about this investment mode, and suggest industry peers actively participate in this mode. We may achieve commercial successes through the patents obtained, acquire considerable returns, and make due contributions to China’s IP strategy and economic restructuring.

Based on the above analysis, we believe that the free mode may have an impact on the basic market of the IP industry, but it is difficult to overturn the traditional service mode.

Fu Gang: The Internet Plus does not mean the free service. Instead, it needs to use the Internet to achieve optimal allocation of costs, manpower and other resources, so as to upgrade the industry. Moreover, the legal service is a professional service, whose nature determines that it cannot be provided for free. The free service always associates with low quality and it is difficult to help clients get assured. For example, Zhiguoguo’s business mode requires a large number of upfront free trademark applications, and relies on charges in subsequent oppositions, reconsiderations and lawsuits. If the client has its trademark registered online free of charge, on the one hand, the registration may be “watered down” possibly due to lack of necessary searches and analysis and the service quality cannot be guaranteed. On the other hand, it means that the client may pay a higher price and find it difficult to make up for irreparable losses in the timing of trademark rights.

Li Binglin: Problems may occur if the free service mode persists for a long time in the IP industry. The IP service is essentially a highly professional service, and the biggest cost lies in continuous supply of manpower. The free service in the Internet age is a marketing tool and plays the major role of publicity and channeling. However, if a platform implements the free service mode for a long time or all platforms compete to implement the free service mode, it will have adverse effects on the platforms, the traditional service organizations and ordinary clients. Of course, things always change, so the original free service may turn into a fee-based mode in the future.

(Translated by Wang Hongjun)

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