I’m Being Sued in China for Infringing My Own Trademark? Or, Do You Feel Lucky, Punk?

Many months ago, an American company emailed me in a panic after reading a Linkedin post “your law firm” wrote on the need to register your brand name as a trademark in China as soon as possible.  This company and I corresponded back and forth about why securing trademarks in China  is so important and then we got them a China trademark. All good.

Yesterday, while cleaning out my e-mailbox, I saw the original email from the company and I noticed for the first time that it was not any of my law firm’s lawyers who wrote the post that had spurred the email from this company. The post to which the company linked was written by David Bennett, “IP Australia’s first Intellectual Property Counsellor to China, based at the Australian Embassy in Beijing,” not by anyone in my law firm and it is titled, I’m being sued for infringing my own trade mark?

I immediately loved the title because I have talked with countless companies who believe they have trademark rights in a country when they don’t. These companies just assume that because they are using a brand name in their home country, nobody else anywhere in the world can use that brand name and, of course, nobody else in the world can sue them for using their own brand name. WRONG.

So I read the article and I how it clearly relayed the need for “companies to register their trademarks in China as early as possible.” Bennett based this lesson on the  sad tale of an Australian wine company that failed to register its brand name as a trademark in China:

I always urge companies to register their trade marks in China as early as possible. An urgent enquiry I received this week from an Australian wine company serves as a cautionary tale of what can go wrong if you don’t.

The Australian wine company has been selling wine in China through local distributors for several years without incident. This week, they found that a Guangzhou-based company has registered their trade mark in China, and is suing two of their Chinese distributors for trade mark infringement. The distributors have been ordered to appear in local court this week.

As if this wasn’t bad enough, the squatter has also recorded the trade mark with Chinese customs, which could allow them to seize shipments of the Australian company’s wine entering Chinese ports.

Why is the Guangzhou company doing this? Most likely to build leverage to sell the trade mark back to the Australian company for a huge sum, or to use the trade mark on their own counterfeit or copycat wine products.

Sadly, my law firm’s international trademark lawyers constantly hear stories like the above one. Most of these sad stories of trademarks lost involve China, but many do not. Most involve American and Australian and Canadian companies but some do not. I explain below why companies from these countries tend to be most at risk for trademark loss.

Bennett then notes how China trademark problems like that suffered by the Australian wine company are “much harder to fix than . . . to prevent.” I would add that even when this sort of China trademark problem can be fixed, doing so will cost much more than it would have cost to prevent. Bennett then reveals what to do to avoid this sort of China trademark problem: “[I]f you’re contemplating doing business in China, register your trade mark in China as early as you can – well before you enter the market. China has a first to file trade marks system, which means the first person to file for a trade mark gets it.”

Repeat after me: “The first person to file for a trademark gets it.” This means that if someone files for “your” China trademark before you do, that person or company that filed first gets it. Why would this be the case? Because it isn’t your trademark in China until you have filed for and been granted it. And this is because China is a “first to file” country.

Australia and the United States and Canada are “first to use” countries, and that is why companies from these three countries are so often the ones that mess up on China trademark filings. In first to use countries, the first to use a trademark gets it. That means that if your United States widget company has been using the name “Bill’s Best Widgets” for 72 years to sell its widgets throughout the United States, it has trademark rights in the Bill’s Best Widgets name even if it has never filed for that trademark. These trademark rights mean anyone else that uses the Bill’s Best Widgets name on its widgets would be committing trademark infringement. But in China, this would not be the case, because in China (as is true in all first to file countries), pretty much all that matters is who has the filed trademark. This is why U.S. and Canadian and Australian companies tend to sleep on their trademark rights in China. The United Kingdom is a first to use jurisdiction as well, but by being in the EU (which is first to file), its companies are generally more savvy about what must be done to protect trademarks in first to use jurisdictions like China.

Bennett concludes his article by stating that “[o]perating in China without a registered Chinese trade mark is risky, but operating when someone else has registered your trade mark is just dangerous.” He’s right. Of course.

Way back in 2007, in China Trademarks — Do You Feel Lucky? Do You? we explained all this:

Our advice to all our clients is to register their trademarks in China before they go there.

China is a first to register country, which means that whoever registers the trademark first gets it.

Yes, there is an exception for famous trademarks, but unless you are Coca-Cola, it is lunacy to bank on a Chinese court holding your trademark is famous when just going ahead and registering it costs so little. Most firms charge less than $5,000 for this. So even if the Chinese Court rules your trademark is famous, you will probably have spent at least $100,000 in making your case. The economics just are not there.

Even if you are just manufacturing a product in China (and not selling it in China), you must protect it with a China trademark. If you don’t, someone else will register your product’s brand name and then use that trademark to block your product from leaving China. For more on why this has become so popular of late in China, see China Trademark Theft. It’s Baaaaaack in a Big Way.

Bottom Line: Don’t rely on a lucky feeling. Rely on registering your trademarks in China instead.