Clients sometimes come to our China lawyers with the following situation. They have found a Chinese distributor for their product, and both sides are ready to begin selling products in China right away. As in, tomorrow. So far so good. But our client sells a branded product, and they have not registered their brand as a trademark in China. This is not so good.
The client knows (perhaps from reading this blog) that the only realistic way to get trademark rights in China is by registering them, because China is a first-to-file country.
And then they learn that it usually takes 12-15 months to get a trademark registration in China. At this point they become concerned about the nontrivial period when their distributor will be selling their branded product in China without trademark protections.
They should be concerned. But not too concerned, as long as they file their China trademark application right away and enter into a written distribution agreement with their Chinese distributor. This distribution agreement should contain provisions stating that the trademark belongs to the client and its distributor may use the mark in China, but will not file any competing applications, oppositions, or invalidations.
The distribution agreement should also include appropriate contractual language protecting the IP more generally. And if you want this agreement to work to protect your trademark in China, it should be in Chinese.
A distribution agreement with the above provisions (along with countless others, of course) will sufficiently protect your IP as against your China distributor. The remaining concern, which cannot be addressed in a distribution agreement, is infringement by a third party while the trademark application is pending.
Without a valid China trademark registration in China, there is usually not much you can do to stop a third party from using “your” mark. But most legitimate Chinese companies do not employ a strategy that gives them only 12-15 months to establish and profit from a brand name, after which it must stop using that brand name or risk paying damages for trademark infringement. Especially when it will be your company (not theirs) that will eventually benefit from the 12 to 15 months of work the Chinese company spent in building up what will become your protected brand name.
That leaves the counterfeiters, for whom 12-15 months is more than enough time to make a profit, but who typically are not interested in spending time and money making and marketing a counterfeit product until the brand they will be stealing has developed enough name recognition to be worth ripping off. Still, yet another reason to file a trademark application now. Because your distributor is going to be the one who bears much of the brunt of any trademark infringement in China we often see situations where an American or European company comes to us after having been instructed by their potential or actual distributors to file for trademarks in China.
We also often see situations where the Chinese distributor – in an effort to protect its own business – will file and get trademarks in China on the brand names of the products it is distributing for a foreign company that has neglected to file for its own trademarks. In those situations, the remedy is to pay the Chinese distributor a nominal amount to transfer ownership of the trademarks to the foreign company. If the distribution relationship is going smoothly and profitably, this is usually not a problem. But if the situation is otherwise, this is usually a big problem for the foreign company.
One final note: many foreign companies do not create a Chinese brand name before selling their product in China, only to discover that a name has been created for them and registered as a trademark – often by their Chinese distributor. This is obviously a lot more likely to occur if your product is being sold in China. So if you have not already come up with a Chinese brand name for your product, do so now, and also make sure that your China distribution agreement requires your Chinese distributor to assign to you any Chinese-language marks that relate to your product that it has already registered.