We've Got Your China Trademark And Your're Goin' Down.

Over the last six months or so, my firm's work for Chinese companies going international has zoomed, and with that, my knowledge of how Chinese companies "handle" foreign companies has zoomed as well. One of the things I have learned is that Chinese companies understand the value of trademarks -- YOUR trademark. Let me explain.

I am going to have to be very vague here so as to avoid revealing any confidential information, but I can be specific enough so you can get the gist. Two stories:

1. Chinese company manufactures product for US company. Product ships from China with US company name on it and US company distributes it throughout North America. China company also sells its product in North America under its own brand name. US company is trying to get Chinese company to lower its prices and Chinese company is balking. US company is talking of finding another manufacturer. Chinese company tells me that people in China "very friendly" to them registered the US company's name in China for this product years ago and so if anyone else tries to manufacture this product in US company's name, Chinese company will be able to stop them based on trademark violation.

   China company is very smart. It knew that it could not register the trademark itself because China trademark law prohibits an agent to register the trademark of the company for whom it is acting as agent, so Chinese company did not register the trademark itself. US company is going to be in for a very rude awakening if it ceases to use this Chinese company for its manufacturing. Now here's the part that ought to really scare you. I asked my Chinese client how they knew to secure the trademark and the response was "everybody in China knows about this."

2. US Company A is in a very contentious battle with US Company B. US Company A had for many years been working with US Company B, with US Company A assisting US Company B in China. But when things started going bad, US Company A had a Chinese company secure a China trademark for a name that is absolutely essential for US Company B. US Company B does not know this yet as US Company A plans not to tell them unless and until things get really bad, along the lines of a loss at trial, if things ever get that far without resolution.

   Because US Company A is a US company, I was a bit concerned that its having orchestrated the registering of a China trademark of a name that is absolutely critical for Company B might somehow subject Company A to legal liability in the US. However, I have discussed this with many US lawyers expert in this sort of thing and all of them are of the view that this is not going to be the case because Company A's actions were completely legal in China. Amazingly enough, US Company A has a paper trail showing that it strongly advised US Company B of the need for US Company B to register its trademark in China.

On the flip side of this, if you are a company that gets paid to handle China outsourcing for Western companies, you would be well advised to put something in writing somewhere (perhaps in your contract with the Western company) making clear that you are of the view that your client should be registering its trademark and that you will not be doing that for them. Such a provision will help protect you from a negligence or breach of contract lawsuit should what I described above happen to your Western client.

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