Businesses in the United States and Canada frequently use Chinese manufacturers to produce their products. There are of course many advantages to this including access to competitive engineering and design services, low manufacturing costs, and access to nearby suppliers of complementary parts. However, occasionally even businesses experienced in outsourcing from China are caught in the Chinese trademark trap.
The Chinese trademark trap is set when the Chinese manufacturer of a product for a foreign customer registers the trademarks that appear on the product in China. These marks can include both the name of the customer and the name of the product, as well as slogans, images, colors, and other identifiers. Although the marks may be registered to the customer in North America, the marks are often not registered to the customer in China. The customer is often completely unaware that its manufacturer has trademarked these marks. However, the registration of these marks by the Chinese manufacturer can have dire consequences in the future.
The trap may be sprung when the customer decides to move manufacturing of the product from the current manufacturer to a new manufacturer. The move may be to secure a better price, support higher volumes, or improve quality. Regardless of the reason, the current manufacturer may use its trademark registration to stop the move to the new manufacture.
Typically, the current manufacturer will inform its customer that if the customer attempts to manufacture the product at the new manufacturer, the current manufacturer will sue to enforce its Chinese trademarks. The enforcement could include confiscation and destruction of all the product produced by the new manufacturer, and even money damages. Faced with this threat, and the potential disruption in product supply, the customer will often capitulate and remain with the current manufacturer. The customer may further be forced to endure higher prices, poor quality, and bad service until it can find a suitable manufacturer outside of China.
The trap may also be sprung when the manufacturer decides that there is an excellent market for the product in China. The manufacturer may begin to sell the product for itself. The customer contracting for the manufacturing may not even realize that is being cut out of the China market until it tries to enter China itself, and finds that its manufacturer is already selling under customer’s brands.
Businesses can protect against the Chinese trademark trap in two ways. First, a business may register its marks in China, preventing its manufacturer from surreptitiously doing so. However, this registration strategy is only effective if the business has a way to use its marks in commerce in China. Chinese trademark law requires the marks be used or abandoned, so the marks must be used.
The second way to protect against the Chinese trademark trap is simply to monitor registrations of the business’s marks in China. Then if the manufacturer or another entity attempts to register those marks, the business can take timely action and oppose the registration. By either registering marks in China or monitoring for registration of those marks in China, a business can avoid falling into the Chinese trademark trap.