Archives: register your trademarks

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:

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?

A number of our clients manufacture products that sell for relatively high prices due in large part to distinguishing characteristics of our client’s company or product.  In other words, the exact kind of product counterfeiters love to copy.

Not sure why, but we have been spending more time lately in helping our clients prevent counterfeiting and in deal with it once it has been discovered.  Hence, this post on how to stop China counterfeiting, or at least reduce it.

Here are the four keys to stopping China counterfeiting:

1.  Much counterfeiting comes from people and entities that know your product well. This could be your manufacturers, your distributers, or your retailers, or your own employee or an employee of a company with whom you are doing business.  It therefore behooves you to do your utmost to conduct business with well-run and reputable companies and to keep your eye on them nonetheless.  If possible, it also behooves you to do your best to prevent these companies from having full and unfettered access to what they need to copy your products.

2. Register your trademarks in China and in your home country, and wherever else you sell or plan to sell your product.  I know regular readers must be getting tired of us always saying this, but hey, it’s the truth. Why is registering trademarks so critical to protecting trademark rights in China?  Because without registering them, you pretty much do not have any such rights. Also, if you register your trademarks in China, you can then also register them with China Customs, which greatly increases the likelihood of China Customs stopping counterfeits of your products from leaving China.  For more on this, check out Register Your China Trademark Now. Then Register It Again With Customs.

If you register your trademarks in the United States and then complete an Intellectual Property Rights e-Recordation (IPRR) application online, US customs will then be on guard for counterfeits of your products coming into the US.

It also helps to go visit with China Customs and with US Customs (particularly at the ports where your products are most likely to transit) to show them examples of your legitimate products and to do what you can to train them to spot counterfeits of your products.

3.  Monitor, monitor, and monitor some more.  Check the internet constantly to see if anyone is selling counterfeit versions of your product.  At minimum, check both the Chinese language and the English language internet.  When we do this sort of monitoring for our clients, we invariably find the really big volume sellers on the Chinese internet.  Search the internet for counterfeits of your product both by name and by image.

4.  Do something to stop counterfeiters once found.  When we find someone on the internet selling counterfeit versions of our clients’ products, we typically send the seller a cease and desist letter.  If, as is usually the case, the seller is based in China, we send that letter in both Chinese and in English. We make clear that if the seller of the counterfeit goods does not immediately cease, we will retain a local Chinese law firm (which we usually name in the letter) to pursue litigation.  These letters usually work. In fact, many times, the seller will profess not to have known that they were selling counterfeit goods (and in some cases I have believed them) and they will often ask whether they can buy the real thing at wholesale for retail resale.

In most instances, the counterfeit goods are being sold on some sort of marketplace site such as eBay or Amazon or Alibaba or Taobao, or — in many cases — some lesser known Chinese online marketplace. The bigger name marketplaces (American and Chinese) have procedures for securing the removal of counterfeit goods from their sites.  The Chinese sites remove the counterfeits only if you can prove you have a Chinese trademark and the American sites generally require proof of an American trademark.

If the above actions do not achieve your desired results, you need to consider suing somebody somewhere to stop the counterfeiting.

What do you think?

As China’s consumer market continues to grow, we have of late been dealing with an increase in requests from clients who want to sell into China the products they are already having manufactured there via product out-sourcing. Doing so is more complicated than what one might initially think.

One thing the foreign company can do is to have its products made in China, shipped to them outside of China (let’s say the United States) and then sell the products into China. The obvious problem with his is the shipping costs and the customs issues.  The way to avoid these things is to have the product never leave China, but that creates its own problems.

The typical situation is as follows:

  • American company A has its products manufactured in China by Chinese manufacturer B.
  • Chinese company C contacts American company A about buying American Company A’s products in China.
  • American company replies, “we make the products you want in China. There is no reason for us to import the furniture into the U.S. and then export it back to China. So instead we will arrange it so that you can purchase directly from our manufacturer.

If sales are made, how much money goes to American company A and how much goes to Chinese manufacturer B? How will it be paid? When? Who takes the risk on quality? Who takes the risk of payment? It sounds simple, but it actually is not. What if Chinese buyers contact Chinese manufacturer B directly?

One of the things we always provide in our OEM agreements/supplier agreements/manufacturing agreements is that the Chinese factory can sell the U.S. company’s products only to the U.S. company. We do this so that the factory cannot sell direct to anyone for any reason. We do this for many reasons. What if the Chinese buyer is not really planning to sell the products in China? What if the Chinese buyer is planning to purchase the products in China and then sell them into the gray market in the United States or Europe or somewhere else? Or, what if the sale is done secretly, without the United States’ company’s knowledge? Or, what if the Chinese buyer is not qualified to market, service or repair the U.S. company’s product and the value of its brand gets damaged as a result of that. We have seen this many times.

No matter how the foreign company (in this case American company A) chooses to proceed, it must be sure to register its trademarks in China or it runs the very real risk of others selling its product in China under its name without it being able to stop them or, even worse, others being able to stop the U.S. company from manufacturing its products in China under its own names.

Every few months or so, I see something that reminds me of how important it is to file your trademarks in China before anyone else does. I often tell clients that filing a trademark is about the only China legal no-brainer. Or as I said in a post from earlier this year, entitled, “China: Do Just One Thing. Trademarks,” if you do nothing else to protect your company in China, register your trademarks.

Apple Computer is learning the importance of being first to file a trademark in China. Apple just lost a lawsuit in China against Proview Technology over ownership of the iPad name. Proview Technology filed a trademark for the iPad name in China back in 2000 so my initial reaction to the lawsuit was that Apple had zero chance of prevailing. China is a first to file country, which means whoever files for a trademark first (with only a few rare exceptions) gets it. Turns out the case is not so simple in that Apple’s claim was actually based on a 2006 contract it had with Proview to buy the iPad name from Proview. So the real question in the case appears to have been one of contract interpretation, not China trademark law.

Every few months, my firm gets a call from someone seeking either to sue someone in China for having “stolen” their trademark or seeking to buy it. I put quotes around the word “stolen” because if someone beats you by filing “your” name as a trademark in China, they have not stolen anything; they have merely beaten you to a name by being the first to file it.

When someone retains us to try to buy a name from a Chinese company that has registered it as a trademark in China, the first thing we do is try to learn more about the company and what it is actually doing with the trademark. That helps us develop our initial offering price. Then we have a Chinese person (NOT a lawyer) call to see about buying the trademark. We would never call the company ourselves because we figure that a foreigner calling drives up the price 100-fold. A Chinese lawyer would have a similar effect.

We are also increasingly getting retained by American companies seeking to register their competitors’ trade names in China before their competitors catch on to the need to do so for themselves.

How can you stop a Chinese or a foreign company by beating you to “your” name in China? One simple way, register it before they do.

For more on China trademarks, check out the following:

This latest recession has only caused even more small and medium sized businesses to look to cut costs by outsourcing their product manufacturing to China. Unfortunately, many of these companies now engaging in OEM (original equipment manufacturing) outsourcing to China are failing to take some or all of the minimal legal steps necessary to protect themselves. When problems arise, they can do little or nothing to protect themselves because they have no legal basis for protection.
China’s legal system for resolving commercial disputes has improved greatly over the past ten years and taking a few basic legal steps can greatly reduce your risk. The cost of such protection is modest compared to the protection it will provide.
The following five basic steps will greatly reduce your problems with Chinese manufacturers, while improving your chances of recovering should any problems arise.

1. Create and properly register your intellectual property rights in the United States or whatever country or countries in which you sell the bulk of your products. If you do not have a firm basis for your IP rights under U.S. law, you will have nothing to protect in China. Before you go to China, be sure your intellectual property is protected under U.S. law or the laws of whatever country or countries in which you sell your products. Protect your brand identity by creating and registering your trademark, slogan and/or logo. Register your important copyrights. Carefully identify and protect your trade secrets, proprietary information and know how. Patent what you can.

Doing the above will mean that no matter what happens in China, you will at least be able to protect your product to the fullest extent possible in the country or countries in which you sell your products.

2. Register your trademarks in China. Registration can protect your future access to the Chinese market, prevent the export of counterfeit goods from China, and prevent a competitor from registering your mark in China, which would prohibit you from exporting your own product from China. For more on the necessity of registering your trademark in China, check out, “WHEN To Register Your China Trademark” and “China Trademarks — Do You Feel Lucky? Do You?

3. Use a written agreement to protect your know how and trade secrets in China. Small and medium sized companies usually do not have an extensive portfolio of patents. Their most valuable intangible assets typically are their know-how and their trade secrets, which cannot be protected by formal registration. Chinese law, however, permits companies to contractually protect their know how and trade secrets by contract. Such agreements may (and in most cases should) also address issues such as non-competition and confidentiality. Without such a written agreement, no such protection is available. For more on using non disclosure agreements (NDA) in China, check out, “Why Non Disclosures (NDAs) Alone Are Not Enough For China.

4. Product Quality and Payment Terms. The rule here is simple. Do not make final payment to your Chinese manufacturer until you are confident you will be getting an on time shipment of the correct items and quantities at the quality standards you require. This usually means you must incur inspection costs in China and provide for a clear procedure for dealing with these problems as they arise. You must take the lead on this. You cannot depend on the OEM manufacturer to do this for you.

5. Use comprehensive OEM Agreements with each manufacturer. Small and medium sized businesses often enter into OEM manufacturing transactions with a simple purchase order. This is a mistake. The purchase order will not protect you. Your protection depends on your securing a signed written OEM manufacturing agreement with each Chinese manufacturer with which you deal. The ideal OEM agreement will address all of the issues discussed above while also addressing other basic legal issues such as jurisdiction and dispute resolution. This agreement should be in both Chinese and English, since the Chinese language version will control in China. For more on this, check out, “China OEM Agreements. Why Ours Are In Chinese. Flat Out.

If you do the above, you will greatly increase the chances of good results from your China outsourcing. For some more tips on China product outsourcing (including non-legal ones), you should also check out, “The Six (Not Five) Keys To China Quality” and “Six More Keys To Quality Product Made In China.

In response to yesterday’s post containing outsourcing tips from a business perspective a reader sent me an e-mail asking what to look out for on the legal side.  Fortunately, I was able to find a short article fellow blogger Steve Dickinson had published a few years ago on just this topic.  Here it is:

Many small and medium sized companies that engage in OEM manufacturing/outsourcing in China fail to take the steps necessary to protect themselves. When problems arise, they can do little or nothing to protect themselves because they have no legal basis for protection. The fact is that outsourcing disputes must be resolved in China, under the Chinese legal system. The Chinese legal system has improved greatly over the past ten years and taking a few basic legal steps can greatly reduce your risk. The cost of such protection is modest compared to the protection it will provide.

The following five basic steps will greatly reduce your problems with Chinese manufacturers, while improving your chances of recovering should any problems arise.

  • Create and properly register your intellectual property rights in the United States. If you do not have a firm basis for your IP rights under US law, you will have nothing to protect in China. Before you go to China, be sure your intellectual property is protected under US law. Protect your brand identity by creating and registering your trademark, slogan and logo with the US Patent and Trademark Office. Register your important copyrights with the US Copyright Office. Carefully identify and protect your trade secrets, proprietary information and know how.  All of this will help prevent Chinese copies from entering the United States.
  • Register your trademarks in China. Registration can protect your future access to the Chinese market, prevent the export of counterfeit goods from China, and prevent a competitor from registering your mark in China, which would prohibit you from exporting your own product from China.
  • Use a written agreement to protect your know how and trade secrets in China. Small and medium companies usually do not have an extensive portfolio of patents. Their most valuable intangible assets typically are their know how and trade secrets, which cannot be protected by formal registration. Chinese law, however, permits companies to contractually protect their know how and trade secrets by contract. Such agreements may also address issues such as non-competition and confidentiality. Without such a written agreement, virtually no such protection is available.
  • Product Quality and Payment Terms. The rule here is simple. Do not make final payment to your Chinese manufacturer until you are confident you will be getting an on time shipment of the correct items and quantities at the quality standards you require. This usually means you must incur inspection costs in China and provide for a clear procedure for dealing with these problems as they arise. You must take the lead on this. You cannot depend on the OEM manufacturer to do this for you.
  • Use comprehensive OEM Agreements with each manufacturer. Small and medium sized businesses often enter into OEM manufacturing transactions with a simple purchase order. This is a mistake. The purchase order will protect the Chinese manufacturer, not you. Your protection depends on your securing a written OEM manufacturing agreement with each Chinese manufacturer with which you deal. The ideal OEM agreement will address all of the issues discussed above while also addressing other basic legal issues such as jurisdiction and dispute resolution. This agreement should be in both Chinese and English, since the Chinese language version will control in China.

Above all else, remember that if you are outsourcing to China you are in effect doing business in China and you need to adjust accordingly.  All of this was true a couple years ago and all of this is true today.

This is the second of my posts on the United State’s Patent and Trademark Office’s two-day conference on “Protecting Your Intellectual Property In China and The Global Marketplace” I attended last week.  My first post, “Nike On China IP Protection:  Just Do It With Green Tea,” was based on a speech by Kevin R. Brown, Nike’s Director of Global Brand Protection.  This one is about Timothy Trainer’s very informative speech on preventing piracy.

Timothy Trainer is the President of the Global Intellectual Property Strategy Center in Washington, D.C.  Before that, he was the president of the International AntiCounterfeiting Coalition (IACC) and before that he was with INTERPOL’s IP Crime Action Group.  He is also the author of the book, Border Enforcement of Intellectual Property.  Both Mr. Trainer’s experience and his speech indicate he knows whereof he speaks when it comes to global intellectual property protection.

Mr. Trainer began his speech by discussing China’s present situation regarding intellectual property protection.  He talked about the many steps the Chinese government has taken to reduce counterfeiting and he cited statistics indicating these efforts were having an impact.  But he was also able to cite statistics indicating the problem is worsening.

He then set out the following methods companies in China can employ to go after those who counterfeit their products:

  • Criminal Action
  • Administrative Enforcement
  • Civil Action
  • Enlisting the aid of local, provincial, and/or national authorities.

Mr. Trainer then talked about how companies must take a global view of their IP and how they must ask themselves questions such as, “Where are our strategic pressure points?  Where are we selling our products and where do we intend to sell our products?”  In other words, if a counterfeit version of your product is being sold in Rwanda and you have no intention of ever selling in Rwanda, you probably do not want to put money into stopping it.  If, however, your product is being counterfeited in China and being sent to the United States, even if you have no intention of selling your product in China, you probably will want to examine your Chinese options as a way to protect your U.S. market.

Mr. Trainer then put up a PowerPoint slide titled, “SMEs, SOL?”  His next PowerPoint slide set forth some of the peculiar difficulties small and medium sized businesses face in trying to protect their intellectual property globally:

  • “SMEs lack resources to man and fund lots of civil actions.
  • “SMEs do not ‘own’ IP in dozens of countries like large multinational companies.”
  • “Lack of IP ownership in a country = NO enforcement of IP”

His next PowerPoint highlighted the Catch 22 IP situation for SMEs and suggested how to try to resolve it:

  • Too small to obtain trademarks and patents abroad, but successful enough for counterfeiters to steal and market goods using your IP where you don’t have rights

Suggestions:

  • Countries where you own rights, be aggressive
  • Countries where you don’t own rights, engage the US government (embassies abroad and agencies in the US); explore other legal grounds to justify trading partners taking criminal enforcement actions against organizations that import, smuggle goods into a country

During the Q&A section following Mr. Trainer’s lecture, I asked what he saw as the biggest mistake SMEs make in seeking to protect their IP from Chinese counterfeiting.  I expected Mr. Trainer to answer “failing to register their IP in China,” because as a China lawyer, that is definitely the mistake I see most often.  Mr. Trainer’s answer was completely different, but hugely insightful.  According to him, the biggest mistake is to provide too much information on the internet, which makes it easy for someone in China to start duplicating.  This makes great sense, because though registering one’s IP in China does reduce the likelihood of your product being duplicated, it cannot be as effective as preventing counterfeiters from even knowing what to copy.

I agree with Mr. Trainer that SMEs have it much rougher in the global IP arena than do huge companies like Starbucks or Nike, which have the resources to register hundreds of trademarks, patents, and copyrights in hundreds of countries around the world, including those in which they may not yet be doing any business at all.  SMEs simply cannot do this.  Nonetheless, my advice for SMEs with respect to China differs somewhat from Mr. Trainer’s global advice.

In dealing with China, I suggest SMEs do the following:

  • Before your company goes to China, you must register your IP there to protect it.
  • Monitor what is happening to your IP in China and move aggressively to protect it.
  • Even if your company is not going to be doing business in China, if Chinese copying of your product is a real possibility, you should conduct a cost benefit analysis on registering your IP in China.
  • If you have not registered your IP in China it probably will not be worth your time or money to try to stop copying of your product or using of your trademarks in China.  However, you can and should do everything you can to prevent copied goods from entering into those countries where you do have IP registrations to protect you.

Oh, yeah, and do be careful about what you put up on your web site.

By:  Steve Dickinson

In part I of this series on China trademarks, I blogged about Starbucks’ trademark history in China and about the recent Qingdao court decision finding a Qingdao coffee shop had violated various of Starbucks’ Chinese trademarks.  In this post, I discuss my own on the ground observations of the Qingdao coffee shop and my own views regarding the Qingdao court’s decision.  Lastly, I discuss what foreign companies doing business in China should take from the Qingdao decision regarding protecting their trademarks in China.

The Qingdao decision was based on the facts and the law and nothing indicates Starbucks was shown any favoritism as a large multinational.  The Qingdao defendant was clearly operating a business openly infringing on Starbucks’ trademarks.  All of Starbucks’ trademarks were properly registered before the infringing Chinese business even incorporated.  Defendant’s only plausible argument was that it was using the Chinese name as a company name, not as a trademark.  However, as a factual matter, this was simply not true. The Qingdao Starbucks was an open rip-off of Starbucks, and the xingbake name was openly used to identify the business to customers.  Starbucks’ success in the case was in complete accord with Chinese law and it shows no favoritism towards Starbucks at all.

It is important to note that the defendant in this case is also a foreign owned company.  The owner of the Qingdao defendant company is an overseas Chinese who only recently returned to Qingdao to open a cafe.  Accordingly, this case was a dispute between two foreign entities, not a dispute between a U.S. company and a local Chinese company. This actually is quite typical in China.  Much copying in China is organized and carried out by overseas Chinese based in Taiwan, Hong Kong, Canada, or the United States.  This increases the complexity of dealing with intellectual property (IP) infringement in China.

Starbucks’ victory in this case is not complete. The defendant has appealed on the issue of using the xingbake name, using the name Star Sbuck and using its logo.  The defendant has conceded on the use of the Starbucks English language trademark.  The appeal will go to the Shandong High Court and may take another year to resolve.  This is a major case and the court will no doubt take a very careful approach to the appeal.

Since I live in Qingdao, I went to visit the defendant’s shop to evaluate this case on the ground.  Here is what I found.  The defendant’s business is a traditional Chinese style coffee shop.  It does not resemble a typical Starbucks cafe.  The shop is located in a somewhat seedy hotel on a busy street in Qingdao.  The offerings are typical of a Chinese style coffee shop: the place is really a combination coffee shop, tea parlor, ice cream parlor, restaurant and bar all rolled into one.  This “do it all” approach is fairly typical in China. Personally, I had a beer and peanuts and avoided the coffee.  The other customers were drinking tea, eating fruit and ice cream or enjoying a beer. There was a great U.S. country and western singer on the stereo.  I stayed about an hour and I had a good time.  I never once saw anyone order a coffee or drinking a coffee.

The defendant has removed all reference to the Starbucks English language trademarks.  However, the old references to Yukon Blend, Frappucino and the rest are clearly visible between the white outs on the menu.  The defendant has not changed anything, however, on the use of the xingbake name, the Star Sbuck name, or the design and shape of its logo. This will be resolved pending appeal.

Nobody familiar with Starbucks would ever confuse this shop with a real Starbucks outlet.  In fact, there is a real Starbucks outlet located about ten blocks up the street from the defendant. The real Starbucks is an absolutely perfect clone of a Starbucks from the United States and it bears no resemblance whatsoever to defendant’s establishment.  Of course, this is the reason Starbucks is concerned about coffee shops such as that of the defendant. The sloppy service, shabby decor and mixed message on the product served all are damaging to Starbucks’ image and brand identity. This is particularly important in China, where Starbucks is working to create its image.

The message from this case to foreign companies involved with China is clear:

  •  Register your trademarks early.
  • Register your Chinese name even if you do not plan to use it right away. This is especially important if your Chinese name is different from your company name, as was the case with Starbucks.
  • Registering your trademarks in China is a necessary start towards protecting them, but it may not be enough. The Chinese government will not protect your trademark for you. You must enforce the trademark yourself.
  • If you properly register your trademarks in China you will probably succeed in an enforcement action.  However, you must be prepared to incur the legal costs of enforcement.  China is a huge and complex country.  If your product is successful, there is a good chance it will be copied. You will need to vigorously defend your rights from the very start to prevent this.

The good news we can take from the Starbucks case in Qingdao is that China’s legal system has developed to the point where intellectual property rights can be successfully defended through legal action.

A reader in Arkansas sent us this article from CSO Magazine [article link no longer exists], entitled, “13 Ways to Protect Your Company in China.”  This article does a very thorough job of both setting out the problems and putting forth a strong list of solutions.

The article notes that “security experts don’t buy into the belief that copying is somehow inherent in Chinese culture. The simple fact is that counterfeit goods are cheaper than the genuine ones, and in developing nations like China, wages are low.”  I completely agree.  Like everywhere else, those in China who can afford the real thing, prefer to buy the real thing.  As China’s wealth increases, and as more and more Chinese companies seek to protect their own brands, counterfeiting in China will decrease.  This is what happened in both Japan and Korea, both of which were at one time, notorious for counterfeiting.

The article also correctly points out that China’s government in Beijing actively seeks to end counterfeiting, but local officials oftentimes are reluctant to go hard after local companies.  In the legal sphere, this means foreign companies pursuing counterfeiting claims in the courts must be prepared to have to appeal local court decisions to a higher, more distant court.

I also like how the article emphasizes the need to secure a Chinese trademark early: “If you do business in China, register your trademarks with the Trademark Office there. But even if you don’t sell there today, it’s a good idea to register trademarks there now if you might do business there in the future….”  I have said it before and I will say it again: it is absolutely essential that you register your trademarks in China before exposing them in any way in China. If you are doing business in China, this is an absolute essential.

The only thing we would add to this article’s list is the need for a good written contract (usually in Chinese) with whomever one does business.  This contract should explicitly set forth your requirements regarding trade secrets, products, trademarks, and whatever else you wish protected.  Contracts in China do not provide 100% protection (nor do they anywhere else) but they are nearly always the critical component to a successful litigation.