Doing Business Overseas? Have you Checked your Trademarks

This favoring of design protection over trademark protection is often compounded by misunderstandings on how trademark works throughout much of Asia. Western companies too often believe a trademark is important for them only in the countries in which they are selling their product. However, under the laws of most Asian countries, the manufacturing of a product with a trademark constitutes the use of the trademark.

Why though does any of this matter?

It matters because if someone beats you to registering “your” trademark and you are having products made with that trademark on it, the person or company who owns “your” trademark can stop you from manufacturing your product or exporting the product with the trademark on it. The The trademark owner can also register its mark with its own country’s customs authorities and then have customs seize the trademarked product at the port, preventing your shipment from leaving the country in which it was made. This is a particularly nasty surprise in those cases where the foreign buyer has already paid for the product.

Who is going to register your trademarks? It is typically someone you know, like someone tied to your factory, one of your competitors or even a disgruntled employee. One of our China lawyers loves to talk about what happened a few years ago when he gave a series of lectures in China on how to protect your brand and product when manufacturing in China. After the talks, he went to dinner with a group of foreign company production managers who talked of how they had for years been urging the foreign companies for whom they worked to register their trademark. The foreign companies consistently refused, claiming such registrations were a waste of money. These production managers then told our China lawyer the following:

We are going to form our own trading company. We will register all the important trademarks of our employers in China in the name of that trading company. When we get fired, we will register “their” marks with China customs and completely shut down their Chinese operations. It will serve them right for being so stupid and lazy.

Now just for the record, the laws in many countries would not allow these employees to get away with this, but the mere fact they were plotting this ought to scare many of you. In my view, your bigger threats to register your brand name where you manufacture is someone tied in with your manufacturer (they do this so they can stop you from going to someone else) and your competitors (they do this so they can stop you).

Note though that these operation managers did not say they were going to steal their employer’s product design. That would be difficult and expensive and they were choosing the easier route. The only cost to them would be the expense of registering the marks. But this small expense  might give them considerable power over their former bosses.

Years ago, we represented a very high level sourcing agent in a dispute with a large U.S. company. The dispute involved allegations of the U.S. company having gone behind the back of the sourcing agent to deal directly with the Chinese factories. The parties settled their dispute, but unbeknownst to the large U.S. company, the sourcing agent in the meantime had gone off and registered all of the U.S. company’s relevant trademarks in China, assuring us that he just wanted this “in his back pocket” if the U.S. company ever again tried to [bleep] with him.

The message here is simple. Your brand name is important and you need to protect it in both the countries in which you sell a decent amount of your products and in the countries where you have them made as well. It is fairly common for companies to instruct our international IP lawyers to get them a trademark and a patent and a copyright in every country in which they do business, but few companies can afford that. Our IP lawyers work with them to figure out what is truly central to their business and needs protecting and then they work from there to focus on the easy and inexpensive protections first. The thinking is that it usually makes sense to take care of those first and then move on when ready to the more difficult and expensive protections. If you are manufacturing in China and most other countries in China, the cost benefit analysis on trademark registrations is simple. Trademark registrations are simple and inexpensive and the result of failing to register can be devastating. So the first step for every nearly every company engaging in OEM manufacturing in Asia should be to register its marks and logos in every appropriate class and subclass.

And then move on to the more difficult and expensive measures that protect brand and product in Asia.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.