As often as we write about the need to register your trademarks in China, we have never written about how common it is for your China distributor to take your trademark and of how easy it is to prevent that. I thought of this last week after receiving yet another phone call where this had happened.
The “this” is something along the lines of the following:
- US SME wants to sell its product in China.
- Oftentimes the US SME is already manufacturing its product in China and it sees the China market as yet another market where it can sell its product.
- US SME seeks out someone in China to sell its product for it in China. We have often written about how using distributors to sell your product can make good sense. See Getting Your Product Into China Via Distributorship. A Legal Piece Of Cake and That’s Hot: China Distribution Contracts and Selling Your Product To China Through A Distributor. Just The Basics.
- Someone in China (oftentimes the company that is already manufacturing the product for the US SME) is brought on to sell the US company’s product in China.
And the US company just stops there. No contract. No trademark registration. No licensing of any trademark. Big mistake.
If you are going to use a distributor of your product in China, you should have a contract with your China distributor that, at the very minimum, protects you from your distributor destroying your reputation in China (or even possibly subjecting you to liability) by providing a terrible product or terrible service and makes clear that you own your name and logo (and whatever IP is important to you) and are merely licensing it to your distributor. You then must register that licensing agreement with the appropriate Chinese government authorities for it to be valid.
We usually get calls from American SMEs to complain about how they are not getting paid for their product being sold by others in China. Then when my law firm looks deeper into the situation, we learn that the American company never registered its IP in China and that someone else has — presumably the Chinese distributor. We then try to get the trademark “back” for our client.
If the Chinese distributor wishes to continue maintaining a relationship with the American company, we usually are able to persuade the Chinese company to assign over the trademark to our American client. This is usually the case when the real money is in the manufacturing of product for the American company for sale by the American company outside of China. But in a few cases, the Chinese company has refused to assign over the trademark either because it does not manufacture product for the American company at all or because it views its ability to sell the product in China as more valuable than manufacturing product for sale by the American company elsewhere. Oftentimes the worst thing about this is how the Chinese company now has increased incentive to sell “your” product outside of China as well.
There is one easy solution to prevent your Chinese manufacturer or distributor from “taking” your trademark for China. Register it yourself in China and do not allow anyone to use it without a properly registered license to do so. This is how to protect your trademark in China from your China distributor and if you do these two things, you should be fine. But, if you do not, you are putting yourself at risk of forever losing your name in China.
What are you seeing out there on this front?