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Will Chinese Knockoffs Hurt Under Armour Inc.?

Despite garish claims of uniqueness of design, Chinese company Uncle Martian's logo is uncannily similar to Under Armour's (NYSE: UA) (NYSE: UA-C).

In this segment from the Market Foolery podcast, Chris Hill, Jason Moser, and Taylor Muckerman dip into the mailbag to answer a listener question: Will Under Armour have trouble enforcing its IP rights in China? Listen in to find out how much the copying could hurt -- and possibly help -- Under Armour as it starts to expand into the Chinese market. They also discuss how some other companies have dealt with the never-ending battle of having their products imitated and sold for less.

A full transcript follows the video.

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This podcast was recorded on May 2, 2016. 

Chris Hill: Marketfoolery@fool.com is our email address. From Jason Ryan, who writes: "You may have already seen this, but I thought I would pass it along just in case. The launch of Uncle Martian, a Chinese company that makes premier athletic apparel, and has a company logo remarkably similar to that of Under Armour." And I had tweeted out on the MarketFoolery feed the story that Jason had sent us, which includes the prominent red and white Uncle Martian logo.

Jason Moser: [laughs] Now, when you say "remarkably similar," let's hark back. I think had talked about the Domino' Donuts thing at one point in Kazakhstan. This is like that.

Hill: Share that for folks who may have missed it.

Moser: My wife works at the State Department, and for about five years, we lived overseas. We lived in Cairo, Egypt, for three years; moved to Astana, Kazakhstan, for another two. It was in Kazakhstan that I saw, in one of the Ramstore grocery stores one day as we were shopping, this little kiosk at the end of the aisle. And I thought, "Oh my god, that looks like a Dunkin' Donuts!" And I'm just thinking, "thank goodness, we need a little touch of Americana here."

Hill: Dunkin' Donuts, if you've ever seen one, the font of the lettering is very familiar, the color scheme, very familiar.

Moser: Yeah. Now, my eyes were already failing me at that point in my life, so I couldn't quite read at the end of the aisle there. But I saw the color and the logo, and walked up there, and it was not Dunkin' Donuts. It was Domino' Donuts, same font, same coloring, down to the apostrophe at the end of the Domino. Why is there an apostrophe at the end of the Domino? It's not supposed to be there. But it was there! And it was just ... we tried to figure it out, and found a little more about the story. I think Dunkin' Donuts had tried to make some inroads there, didn't do so well.

Taylor Muckerman: They left some packaging behind.

Moser: Yeah, maybe they got kicked out, and people kept some IP and altered it a little bit, and there you go. You can Google it, Domino' Donuts, and you'll see it. It's pretty crazy.

Hill: So, back to Jason's email, because in addition to flagging the story -- and, thank you; I, in fact, had not seen it until Jason sent the email -- he goes on to write, "First, it's noteworthy and almost commendable how brazen the knockoff is."

Moser: [laughs] Commendable!

Hill: "The Uncle Martian company itself posted a side-by-side comparison of the Uncle Martian and Under Armour logo so there could be no mistaking of their awareness of the similarities. But, more importantly, what does the extent of the openness of this particular knockoff say about the potential troubles Under Armour might face enforcing its trademark in a potentially important market like China? Is Uncle Martian -- " [laughs] I just love the name -- "Is Uncle Martian so open about their corporate plagiarism because they know they can get away with it?" I think the larger question there is one that applies not just to Under Armour, but to any number of businesses. As I said, I had tweeted this out on the MarketFoolery feed, and Tim Hanson replied with a link to a story that included photographs of other Chinese ripoffs of well-known American brands and logos. My favorite one is the MasterCard logo for a food kiosk entitled "MasterBeef." 

But look. This doesn't go in the plus column if you're Under Armour. This certainly, to some degree, can't we at least agree, to some degree, maybe just 1%, this hurts them?

Moser: Perhaps? Maybe? I could also flip that around and say it helps them. I'm pretty sure Steph Curry isn't going to be signing with Uncle Martian any time soon.

Hill: [laughs]

Moser: And I'm only being half-facetious there. You don't want to underestimate the power of a brand. This isn't the first time something like this has happened, and it won't be the last. But if we look at Under Armour to date, really no presence in China up until now. We look at the last earnings call, they talked about their exposure to China and how they are growing there. They earned more revenue in China last quarter than they did the full year of 2014. They are focused on growing there. 

But again, going back to the power of that brand, and just using basketball as an example -- there are 300, 400 million estimated basketball lovers in China. It's a very popular sport there. I think, when you have world-class athletes talking your book for you, wherever the country is, I think that has a very strong effect, even more so than here. I think, in developing economies, they can hold a lot of sway. I think that you have such a popular sport there like basketball, you have Under Armour making a lot of inroads in the basketball market, really a lot of success in that Steph Curry line, I wouldn't sell that short. I think this is something we'll look back in a year or two and chuckle about it. I don't think this is really something that threatens their business in any kind of a long-term way.

Muckerman: I'm chuckling right now. That name is fantastic. It's like they had the Boaty McBoatface research vessel in Europe, Obviously, they turned that name down. But, Uncle Martian.

Hill: Uncle Martian. And, presumably Nike has dealt with this for years as well, not just with the symbol but also the name. 

Muckerman: Tesla was hesitant to even sell their cars at the very beginning in China, because they knew the second they touched shore, somebody was going to dissemble it and reverse-engineer their own Tesla. And sure enough, there's a few companies that are already selling almost identical replicas of Teslas in China.

Moser: The first thing that comes to my mind with this is Looney Tunes' Marvin the Martian, right? That should be their logo. They didn't even try to make it different!

Muckerman: They just lowered one letter --

Moser: There's one little gap ...

Hill: They separated the U and the A, and now it's a U and a barely M.

Moser: It's not even an M! It's like Uncle Nartian! It's like the apostrophe on Domino! Weak!

Hill: I've said this before in other situations: I really hope, whichever person at Uncle Martian came up with the name, I hope they got a bonus.

Muckerman: Absolutely.

Moser: Sure. 

Muckerman: They're getting more headlines that way.