Smart Chinese manufacturers know that with their costs rising, they need to be able to distinguish themselves from their peers. One of the ways they are choosing to do this (even more frequently than in the past) is by copying and selling products they are making for their foreign customers. See Your China Factory as your Toughest Competitor.
Just this month, I have been dealing with three such matters and one of the things I always tell clients in these situations is to not let your supplier know that you know that it is copying and selling your products, because switching to a new supplier without advance planning can be very dangerous, especially with a manufacturer that has chosen to compete with you.
Bad things nearly always happen when Chinese manufacturers discover their American/European/Australian product buyers will soon stop buying from them. For this reason, we instruct our clients to have new suppliers ready to go before even hinting to their existing supplier that they are considering moving to a new supplier.
Over the years, our international manufacturing lawyers have repeatedly seen the following (mostly in China, but sometimes in other countries, such as Thailand, Vietnam, Indonesia, and Taiwan, as well):
1. British company tells its China manufacturer it will cease using China manufacturer for its production. China manufacturer then keeps all of the Western company’s tooling and molds, claiming to own them. The way you can prevent this happening to you is by get an agreement from your Chinese manufacturer making clear that you own the tooling and molds before your Chinese manufacturer has any inkling that you will be moving on.
2. American company tells its China manufacturer it will cease using China manufacturer for its production. American company then learns someone in China has registered the American company’s brand names as trademarks in China. American company is convinced China manufacturer is behind these trademark registrations, but has no solid evidence to prove this. American company is now facing not being able to have its brand name on its made in China products. See 8 Reasons to Register Your Trademark in China.
3. American company tells its China manufacturer it will ceasing using China manufacturer for its production. A few weeks later, American company has its products seized at the China border for violating someone’s trademark. The American company is (rightly) convinced that its China manufacturer is the one behind the product seizure, believing the Chinese manufacturer registered the American company’s brand names as trademarks in China long ago and is just now using that trademark to seize product as revenge. China has laws forbidding its manufacturers from registering the trademarks of those for whom it manufactures, but because it is usually not possible to prove that your manufacturer in Shenzhen had a cousin in Xi’an do the registering, this sort of thing goes on all the time and there is little that can be done about it. unchecked. This sort of thing is increasingly happening with design patents as well. See Register your China Trademarks in China not Madrid.
4. Mexican company tells its China manufacturer it will cease using China manufacturer for its production. China manufacturer then says it will not be shipping any more product because Mexican company is late on payments and owes it hundreds of thousands of dollars. China manufacturer then reports Mexican manufacturer to Sinosure and Sinosure then ceases to insure product sales to this Mexican company, leads all of the Mexican company’s Chinese manufacturers to stop selling to the Mexican company without getting 100% payment upfront. See China Sinosure: What You Need to Know.
- American company tells its China manufacturer it will cease using China manufacturer for its production. China manufacturer then either threatens to or actually does hold people from the Western company hostage for alleged debt. For more on the problems that can arise from allegations of not having paid a debt to a Chinese company. See How to Reduce Your Chances of Getting Kidnapped in China.
What are you seeing out there?