Protecting Your Brand Name as Manufacturing Leaves China
The recent decade-low in China’s manufacturing exports has pushed many Chinese factories into survival mode, leading to an escalation in trademark theft incidents as they seek new revenue channels. The ongoing trade skirmishes between China and economic powerhouses like the United States and the European Union have further tightened the financial vise around the necks of Chinese manufacturers.
This mounting pressure has led to a surge in incidents of trademark theft as a means of diversifying revenue. Chinese manufacturers, seeking alternative revenue channels, are now pilfering foreign brand names in what seems like record numbers, and then manufacturing and selling products under these usurped identities. For another example of how China’s declining fortunes have caused Chinese manufacturers turn on their own customers, see Fighting Back Against Fake (and Real) Sinosure Claims: A Primer.
This post will focus on the escalating issue of trademark theft in China and set forth the strategies companies can use to protect their trademarks against China trademark theft.
A Short History on China Trademark Theft
The below is a brief history of the China trademark theft frequency the lawyers at my law firm have encountered:
- Ten years ago: Around one call per week regarding trademark theft.
- Five years ago: Improved IP laws reduced calls to one a month.
- Post-COVID: Calls spiked to at least one a week.
The Escalation of China Trademark Theft
This trend, highlighted by the increased calls to our firm, underscores an acceleration of trademark theft by Chinese manufacturers. Some Chinese manufacturers don’t even wait for their relationship with their foreign company product buyers to decline before stealing brand names – we’ve seen factories register customer trademarks just days after the initial outreach.
This reflects both economic challenges and exploitation of legal loopholes. Many Chinese factories register trademarks under a relative’s name, which makes invalidation difficult. Some sell products under stolen brands before fulfilling initial orders. We know of companies that have paid hundreds of thousands to reclaim hijacked trademarks and unblock seized goods.
Don’t Rely Solely on Your Contracts to Protect Your Trademarks Against China
If you want to protect your brand names or logos, you should seek to register your brand names and logos as Chinese trademarks before revealing them to anyone. Period. Once someone else registers “your” mark in China, they can block exports of any goods carrying that brand — including yours! As Chinese suppliers grow more desperate, the most important thing you can do — even if your product is only for export from China — is to secure a Chinese trademark on your brand names and your logos.
My law firm’s China trademark lawyers were once presented with a situation where an American company’s Chinese manufacturer had registered 17 trademarks without the American company’s consent, then approached the American company’s customers offering the same product at a 40 percent lower cost.
In response, we devised a strategy where we registered the American company’s brand name as a Chinese trademark for a separate product, which was a highly visible part of the company’s main product. Additionally, once the products reached the United States, the American company added its brand name to another portion of the product using stickers. Although this solution slightly eroded the company’s margins due to the cost of applying the stickers, it effectively countered the trademark theft, underscoring the importance and efficiency of proactive trademark registration in China.
Measures to Protect Your Brand Name from China
There are a number of steps you can take to protect your intellectual property from theft in China, including the follow:
1. Register your trademarks in China
This is the most important step you can take to protect your brand names and logos in China. Once you have registered your trademarks, you will have the exclusive right to use them in China and can take legal action against anyone who infringes on your rights.
2. Register your China registered trademark with China customs
China Customs can stop products from leaving China that are infringing on your China registered trademarks. The ability to block infringing products from exiting China is a compelling reason to ensure your brand names are registered as trademarks in China, even if your sole activity there is having your products manufactured.
3. Enter into a written contract with your Chinese manufacturer
Your contract should include specific provisions on trademark protection, such as a requirement that your manufacturer keep all of your confidential information confidential and that they do not use any of your intellectual property without your permission. Before divulging any sensitive information, ensure that all parties involved sign robust China-centric Non-Disclosure, Non-Use, and Non-Circumvention (NNN) Agreements. These legal documents are tailored to the Chinese legal landscape and provide a stronger legal footing compared to generic NDAs.
4. Conduct due diligence on your Chinese manufacturer
Before you start working with a Chinese manufacturer, it is important to conduct due diligence to assess their credibility and reputation. This includes checking references, reviewing their business history, and analyzing their financial stability.
5. Monitor your intellectual property for infringement
It is important to monitor your intellectual property for infringement on a regular basis. You can do this by using online tools or by hiring an outside trademark monitoring firm.
6. Pursue legal action
If you find someone is infringing on your intellectual property in China, you can take legal action against them. This may involve sending a cease-and-desist letter, seeking to invalidate their trademark filing, filing a lawsuit, or working with Chinese Customs to seize infringing products.
Sometimes it makes sense to consider pursuing legal action against your own attorneys if they provided you with incorrect or inadequate China trademark advice (which sadly, we see far too much of). This will likely not be a viable option if your legal representation was sourced from online filing companies or fake lawyers, which have seen a rise in prevalence. See Fake China Law Firms Are The Real Deal.
Past Strategies Against Trademark Theft
The below are a few instances that illustrate some of our methods for mitigating trademark theft in China:
Case Study 1: The Proactive Registration Approach. A few years ago, we represented a Northern European home appliance brand which was about to launch its new product line. Before the product launch, we advised them to swiftly register their brand name and logo in China. Six months later, a competitor attempted to register a confusingly similar brand name. But since our client’s trademark was already registered and in place, we managed to thwart the competitor’s registration attempt, ensuring the brand’s integrity in the Chinese market.
Case Study 2: The Legal Loophole Battle. A North American tech startup approached us after discovering that their product blueprints had been replicated and their products were being sold under a similar brand name in China. The catch was that the infringing company had used legal loopholes to make it challenging to prove trademark infringement. We advised our client to leverage design patents in China, which focus on the visual appearance of a product. By focusing on the design aspects where the replication was most evident, we built a case that eventually led to the Chinese company stopping what we saw as its counterfeiting.
Case Study 3: The Collaboration Strategy. A well-known electronics company came to us facing rampant counterfeit products in the Chinese market. Instead of adopting a purely confrontational approach, we proposed a strategy to collaborate with some of the larger counterfeit producers. By offering them a legitimate license to produce certain items under strict quality control, the brand not only reduced illegal counterfeits but also tapped into the Chinese market, where it had almost no presence before. This collaboration led to a win-win scenario, with the brand gaining market share (via its licensees) and the producers operating within the legal framework.
The exodus of manufacturing from China, coupled with China’s economic downturn, has led Chinese manufacturers to exploit foreign brand names at an alarming pace. This amplifies the necessity for foreign entities to take proactive measures to protect their trademarks before engaging in business relationships with Chinese companies.
By seeking early registration of trademarks, diligently assessing potential business partners, and utilizing robust legal frameworks such as NNN agreements, companies can mitigate the risks associated with Chinese trademark theft. Additionally, establishing vigilant monitoring and enforcement mechanisms, coupled with engaging China-knowledgeable legal expertise, can empower foreign brands to tackle infringement swiftly and effectively. See also The Four Best Ways to Protect Your IP from China.
The issues I discuss above apply (with somewhat less force) to most other manufacturing countries as well. And as manufacturing continues to migrate beyond China, it will be important that companies protect their brand name wherever their manufacturing takes them.