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Register Your China Trademark Or Go Home, Part II.

Posted in Basics of China Business Law, Legal News

Late last week, we did a post, Register Your China Trademark Or Go Home, screaming about the importance of foreign companies that do business in or with China (including those foreign companies that do nothing more than have their products made in China) registering their trademarks in China.  That post was in response to “East Asia Company” who had left a comment saying that many companies simply cannot afford to register their trademarks in China.

That same reader, in response to yesterday’s post, backed down a little bit and seemed to recognize the importance of trademarks for those doing business in China, but then argued that most companies are not Pfizer and simply cannot afford the $28,000 required to secure trademark protection.

WRONG, WRONG, WRONG.

Here is East Asia Company’s comment to yesterday’s post:

Thanks for replying to my post. I know that trademark squatting is a problem but I was not aware that orders were held at ransom with any regularity. I know it does happen sometimes (seldom I thought). That was interesting to read and makes me think a little more about the advice I give people, which is simply do it if you can, but if you can’t then don’t lose sleep over it. I guess now the advice I would give people is ” if you can do it, great. If you can’t, just buy some Unisom and try to get a good night’s sleep.” :)

But however you look at it, protecting IP in China is not cheap. And you yourself said as much in a UK Telegraph article last year in which you were quoted as saying “Each trademark filing costs around £460,” said Mr Harris. “So if you are Pfizer you register your name across all 40 categories. Then you have to register Viagra across all 40, and then your logo across them all and it begins to add up.” That is $700.00 per category and a whopping total of $28,000. Well if you are not Pfizer, for whom $28,000 is crumbs, and are just ABC company in Podunk USA, how can you afford this? Mind you this is only trademarks and not patents or copyrights for written material, (children’s books for example, a current project I have). I’m sorry but I just think this is expensive. And that is doing work on the front end only. What happens when a company in China infringes on your IP? What about those costs? As you say they “add up.”

If I heeded the advice in the last paragraph of your post today, I would have to go back to some of my clients and tell them, “My apologies, bud, but you just don’t have the money to start a business. I think you should close up your online store immediately and go back to your old job whatever that was.” In fact many of these people are extremely driven, they have a good product, good sales and loyal customers; in short they have a perfectly legitimate business. They are just small and simply lack the resources to do all the things that they should do in an ideal China sourcing world. I’m sorry but I just have a hard time telling people who are achieving success to quit just because they don’t have enough money. That is like telling the kid who is 5’4″ that he/she can’t play basketball even though he/she has just drilled seven straight 3 pointers. The better advice IMHO is to encourage them, at the same time you make them aware of the difficulty, and provide them with the knowledge that will allow them to win in China. Because the fact is that small companies who do not protect their IP when they go into China can sometimes be more “successful” than large companies who do.

Right, and sometimes those who smoke live longer than those who don’t. And who is telling the 5’4″ kid that he or she can’t play basketball?  I’d be telling the kid, hey kid, I realize you are only 5’4″ so here is what you are going to have to do.  We are not going to make you into a great rebounder, but we are going to work on your ball handling and shooting skills and …. For future reference, don’t anyone ever try to out-analogize me when it comes to basketball.  Just talk to anyone in my office.  I make my living analogizing pretty much everything to basketball.

More fundamentally, like so many, East Asia Company does not seem to understand the distinction between what are commonly called “offensive trademarks” and what are commonly called “defensive trademarks” and the massive cost difference between achieving good protection from the one as opposed to the other.

Let me explain by noting off the bat (I’m good with baseball analogies too), probably 98 percent of my law firm’s clients that are just sourcing product from China need only one trademark.

Pfizer does a whole lot more than just source product from China. Pfizer sells its products in China both directly and through others. So Pfizer must make sure that nobody else will be able to sell non-Pfizer products in China that consumers (or anyone else) will mistake for a Pfizer product.  Let’s take Viagra (made by Pfizer) as an example.  What do we commonly identify with Viagra?  Many things. Its name. Its color.  Its shape. The company that makes it.  The way the Pfizer name looks (it has a rather distinctive “f”).  The VGR that seems to always be stamped on the pill itself.  I am sure there are more identifiers, but in just looking at images of the pills, these are what come to my mind. So what should Pfizer you do in terms of its trademark registration in China? It probably should, at minimum, apply with China’s trademark office to register the following:

  • The name “Pfizer”
  • The name “Viagra”
  • The color blue
  • VGR
  • The diamond shape
  • The distinctive “f”

But wait, there’s more.  Since Pfizer is selling Viagra in China (not just manufacturing it there), it should also apply to register a Chinese character name for both Pfizer and for Viagra.  On top of that, since Viagra is commonly known as “Wei Ge” (meaning, “great brother”) in China, it should also register that name as well.

I could go on and on. But I have only gotten started because I have not even addressed the classes and subclasses within China’s trademark system in which Pfizer should seek to file the above. If Pfizer misfiles its trademark application and, let’s say, files for the above names/logos in the class for “clothing,” rather than in the class for pharmaceuticals, anyone would be free to sell pharmaceuticals using those names and logos.  So obviously Pfizer should file its trademarks/tradenames in the class for pharmaceuticals.  But does Pfizer want someone to start a chain of medical clinics in China called “Viagra Medical Clinic”?  Probably not. How can Pfizer stop that? By securing the Viagra name in the medical services class.  In fact, Pfizer probably does not want people making t-shirts with the name Viagra and the blue pills on them either, so it probably should register its trademarks/trade-names under the clothing class as well.  Very expensive.  Complicated too.

But let’s pretend for just a minute that we are dealing with a small company called Seattle Fish that has its one product manufactured in China.  This one product is a  fish net called “The Iron Trap.”  Seattle Fish’s yearly sales have been pretty steady over the last few years and they are as follows:

  1. $2 million to the United States.
  2. $1 million to Canada
  3. $500,000 to the United Kingdom
  4. $300,000 to Japan
  5. $200,000 to Korea
  6. $25,000 to France
  7. $20,000 to Spain
  8. $7,000 to India
  9. $7,000 to Saudi Arabia
  10. $6,000 to Burkina Fasu
  11. $5,000 to Myanmar
  12. $5,000 to Poland
  13. $2,000 to Egypt
  14. $1,000 to Brazil
  15. $1,000 to Mexico
  16. $1,000 to Afghanistan

Seattle Fish expects its future sales will roughly track the above, but with one exception: it plans to enter into a distribution agreement with a Mexican company to sell its product throughout Mexico.

Seattle Fish puts its “Seattle Fish” name on its product, along with its “Iron Trap” brand name. Seattle Fish has a rather non-distinctive logo of a fish on its product.

What should Seattle Fish do?  Here would be our advice:

1.  China Trademarks.  Register the name “Iron Trap” in China, for “defensive” purposes.  Do this to prevent anyone else from registering that name and blocking Seattle Fish product from leaving China. We would advocate for registering that name in only one class because registration in only one class is almost always enoough to ensure product can leave China without being stopped for trademark infringement.

Do not bother trying to register the name Seattle Fish because China does not allow registering place names.  We would confirm with Seattle Fish that it would be no big deal if it had to change its fish logo and we would then probably tell them it is up to them to decide whether to seek to register that logo as a China trademark.

So that’s it.  Probably just one China trademark.  And if Seattle Fish were not using “Iron Trap” on its product or its packaging, it would not even need to register that. We have a client that has around fifty pieces of massive equipment made in China a year.  Rather than bothering to register a trademark in China, this company has the equipment shipped to the United States where it pays someone at the port a few bucks to bolt on the company’s identifying information.  It does this because its trade-name has already been taken in China. Because it never uses its trade-name in China at all, it faces no risk of having its machines seized at the China border for having violated someone else’s trademark.

2.  United States, Canada, England, Japan, Korea Trademarks.  Because Seattle Fish has substantial sales to these five countries, we would strongly recommend that it register its trademarks in each of these five countries.

3. France, Spain, and Poland.  We would inform Seattle Fish of the cost to register its trademarks in each of these three countries and we would also look into whether it might not be cheaper for it to register its trademarks with the European Union (this is called a Community Trademark or CTM), covering all three of these countries and the United Kingdom as well.

4.  Mexico.  We would advocate that Seattle Fish register its trademarks in Mexico and then license their use to its distributor there.

5. The other countries.  We would suggest Seattle Fish not bother registering its trademarks in these other countries, but we would suggest that once it has secured its China trademark that it register that trademark with China’s customs authorities. The reason for doing this is that China customs will then forbid any product from leaving China that infringes on Seattle Fish’s trademarks.  This is a relatively cheap way of securing trademark protection (to a certain extent anyway) for the entire world. For more on how to determine where to register your trademarks, check out Trademark Protection In The Global (And China) Marketplace.  For more on using customs to protect your IP, check out Using Customs To Protect Your Brand From China Counterfeits.

Now let’s pretend for a minute that Seattle Fish is just starting out.  It has never sold a product anywhere, but it has this one great product with a great name: Iron Trap.  It is planning to start out selling its product only in the United States, but it might have random sales to other countries through its website.

In this case, we would suggest that it register its Iron Trap name in China right away and consider registering its other trademarks in the United States either right away or when its sales numbers justify it. That’s it.One China trademark.

So what is a sourcing company that handles product sourcing for small companies to do?  We suggest they have a provision in their contract with those companies that makes clear that it the product company (not the sourcing company) is responsible for figuring out what to do about its own trademarks and other intellectual property.

That contract should also recommend that the product company secure its own lawyer to figure out its own trademark and other IP issues.  Sourcing companies that don’t have such contracts are at risk of getting sued if their product company has its trademark “taken” anywhere in the world.  Small product companies that hire sourcing companies far too often see their sourcing company as their “China expert” tasked with handling anything that has to do with China.   So when a China trademark problem happens, the product company’s first response is going to be to go after the sourcing company.  Trust me when I tell you that I am saying all this based on real world experience.

Sorry for going on for so long about this, but this is game on the line type stuff and so it is critical that we make the fundamentals clear.

Register Your China Trademark!

Who’s with me?

  • Mark

    This is exactly how to do it. Good post!

  • http://twitter.com/theeastasiaco East Asia Co.

    Dan:

    You are a lawyer and obviously know much more about this than I do and the discussion we have had here on trademarks has been both enlightening and useful. And I don’t question your advice, and never have, that it behooves companies who source in China to register their trademarks there, if for no other reason than to ensure safe timely exit of their orders.

    My only contention was that this is not sound advice for small companies on a shoestring budget. To this you replied that it was your opinion that any company which does not register its trademark in China has no business being in China (your post on 4/5/13). I think this is an extreme and somewhat condescending attitude. In fact, I have worked over the years with several successful companies that manufacture in China under their own brand. None has registered their trademark there and none has encountered any problems getting their product out of China. And some of them have been there for years. When I look at these companies I would not say they lack “wherewithal” as you said any company does if it is doing business in China but does not register its trademark there. These ARE successful companies and they DO NOT have trademark protection in China.

    This is NOT to say that I would not advise these companies now, in light of this discussion, to consider registering their trademark in China. I would because in the reading I have done this past weekend, trademark squatting in China seems to be a growing problem and one that all companies – big and small – should be aware of. You also said you have had companies come to you with this problem ( though you did not say if they are big or small companies ). But I nevertheless suspect that for the companies I raise the issue with it is still too expensive. These are small companies, in some cases very small companies, after all.

    And that raises the issue of the expense of registering a trademark which is the other point on which I fundamentally disagree with you on ( with all due respect of course). You had a blog post about six years ago in which you put the expense to register a trademark in China at less than $ 5000.00 ( 7/14/2007). And you mentioned the $ 5000.00 benchmark the other day as well So I will go on the low side and assume that $4000.00 is about the cost to register one’s trademark in China, when all is said and done. Well, that is a lot of money to me and I know it is a lot of money for some of my clients as well. And I am sure it is a lot of money to many small business owners out there. I would add that trademark registration can be an incredibly long process taking upwards of 2-3 years in some cases according to a report by Thomson Reuters on Trademarks in China. Is any small business owner just starting out going to budget 4 K they really do not have on a “defensive” measure the effectiveness of which may not be apparent for years ? Probably not. If they did I might question their “wherewithal.”

    And what does that money get you, protection in one trademark class only as you say that is what most of your clients need ? Is that really enough ? You seem to think it is ( though you don’t say it definitively. “always” shuts the door. “almost always” leaves the door open) but others disagree with you. There are other opinions out there which say that the more classes you protect your logo in the safer you will be – whether for “offensive” or “defensive” purposes ( I do understand the difference). Given the savviness of some of the trademark squatters in China, I would tend to agree with them. But I am not a lawyer and I don’t know the filing subtleties so I won’t even try to get involved in this. I defer to your experience and expertise. Maybe you are right. Once again, I have no idea.

    In the end though I do think your advice is good which is to advise product companies to do the research on IP themselves and not to rely on their sourcing company. So this is what I will tell people : “Protecting your IP in China is complicated, time consuming and expensive. It is also necessary. However, if you just don’t have the means to do it now, don’t worry about it. But regard it as important, talk to a lot of people about it and get it done as soon as you can.” In saying this I will sound a little like my old Dentist, “Dr P” who always advised me to get a problem tooth fixed and do this as soon as possible ( no more sports analogies here). I always was under the impression he kind of just wanted me to sign up for the expensive procedure he recommended. So I didn’t do anything for a couple of years and didn’t have any problem with the tooth. But I always knew there was a problem and kept his advice in mind. And some time later I got the tooth taken care of. No regrets. How are your dentist analogies ?

    • http://www.chinalawblog.com/ Dan Harris

      Just did a Google search for China Trademark Squatting and it came up with 729,000 items. That indicates something, wouldn’t you agree?

      • http://twitter.com/theeastasiaco East Asia Co.

        I could not agree more. Trademark squatting is a problem in China . If you are a company of any size doing business in China you should be aware of the problem and you should be somewhat or very concerned, depending on your product and scope of business in China. If you are very concerned, and have it in your budget to do so, register your trademark ASAP. If you are somewhat concerned and don’t know if you want to allocate 5 K to trademark registration talk to a lot of people and make the best decision for your company as to what to do.

  • Anon this time

    Dan, whatever you do, don’t back down. I had my product manufactured in China. In my first year, I spent around $40,000 for product and made around $30,000. In my second year, I spent around $190,000 and cleared made around $120,000. In my third year, I spent around $600,000 and made around $200,000. In my fourth year, I paid for a $200,000 order that was held up at the border by a squatter who demanded I pay $250,000 a year to license what I had thought was my own trademark, but which he had filed. I couldn’t afford to pay him that (it would have wiped out all my profit and more) and he wouldn’t budge at all on the price. In the end, the product stayed in China and I lost all my customers (who were furious about the late delivery) and my business went under. Small companies need to register as badly as big companies because small companies can not afford what happened to me.

    • http://twitter.com/theeastasiaco East Asia Co.

      Anon:

      It is a very good cautionary tale. Thanks for sharing. But I would qualify this by saying that in all likelihood for every one company that runs into a total fiasco trying to get their order out of China, there are probably ten that don’t. That I think is what people have to keep in mind.

      To put this entiere discussion into perspective it is helpful to read the US China business Council 2012 Survey results on how US companies regard IP in China. If you read the survey there is nothing that mentions trademark squatting as a problem of particular concern to US companies that do business in China ( in fact the term itself “trademark squatting” does not turn up any results on the website). And US companies that do business in China are no more worried about trademarks than they are with patents and trade secrets according to the survey. I would add that in the survey only 49% of the companies say they are “very concerned” about IP enforcement in China. Another 49% say “somewhat concerned.” About 51 % of the people surveyed think things are actually getting better in China with IP protection. In other words, I don’t think the views I have expressed here are unreasonable or in any way out in leftfield. But I know Dan disagrees so I will leave it at that.

      • http://www.chinalawblog.com/ Dan Harris

        Couple big problems with your analysis here. First off, you seem to be saying on the one hand that IP is not a big concern, but the numbers show that 98% of those surveyed are concerned about it. Second, your argument that things are actually getting better with IP protection actually is a reason to register your trademark, not a reason not to register it. It is a reason to register it because as things get better, enforcement of registered trademarks will get better. But there will be no impact on those who haven’t registered their trademarks because under the law, they have no protection. Third, I actually think your ten percent is too high a number, but man, if it is is ten percent, is it really worth putting a $200,000 shipment at risk if the chances of your losing it completely are ten percent? If you are fine with that sort of risk, more power to you, but I am quite certain that those companies that pay to join AmCham (and thus participated in the survey) were not and that is why they are not terribly concerned with trademark squatting. Why should they be concerned when they have likely made such squatting impossible?

        • http://twitter.com/theeastasiaco East Asia Co.

          Dan:
          You like an arguement as much as Earl Weaver did.
          I have NEVER said it was or should not be a big concern. I have always told people that they should be “somewhat concerned” with it and therefore my advice to people is to be no different than about half the US people/companies that do business in China. What is unreasonable about that ?. You obviously fall into the other category of people are “very concerned” about it and are no different than about half the people who do business in China. I have no problem with that.
          As far as IP enforcement getting better in China, I think that is very encouraging but I don’t think that in any way is an arguement that you need to register your trademark ASAP. I think you are throwing people a spitball on that one ( how about that baseball analogy).
          I have no idea about the number of cases like Anon mentioned but if I google “tradmark squatters in China impacting small businesses.” I don’t see any articles devoted to that one topic. A lot on trademark squatting – as you mention below – but mostly having to do with big companies and big names/celebrities. I would advise people if they are truly concerned to get in touch with the US embassy or consulate in China Commercial Section and ask them how many cases like this they deal with reguarly. Are they dealing with stuff every day ? Do they get the cases sometimes ? Not often but it does happen ? I am sure they keep stats on the number of complaints.

    • http://FeverReliever.com nana2four

      It sounds a lot like extortion- a nasty little man looks up companies that make lots of money- finds out they have NO TRADEMARK APP, and file one themselves for the SOLE purpose of extortion! People are so evil….

  • Ryan Casey

    You talked about the need to register products across several classes. I read that the proposed “Third Amendment” to China’s trademark law last December is supposed to eliminate the need for redundant applications, like the filing of multiple trademarks for products under different classes. Can you go into detail a little bit? How is the new trademark law going to eliminate the need for, say, Pfizer having to file trademark applications for clothing and pharmaceuticals?