what we think

By Wenli Wu, Victoria Lei

In today's fiercely competitive global business arena, intellectual property (IP) is the cornerstone of many thriving businesses. Our law firm supports many international companies on developing and implementing their IP strategies in China. A recent case highlights the intricate challenges that international companies often face when entering the vast and dynamic Chinese market, where trademark protection and IP rights in general are of paramount importance.

Case in Focus – A Battle for Trademark Rights

Our client, an international company, was embroiled in a tough legal battle with its former domestic agent and a third-party company over trademark rights.

1. Neglected Trademark Protection

During the initial distribution phase, the domestic agent assisted our client in distributing foreign brand goods, but the client neglected to file the application for trademark protection in China.

2. Trademark Ambush

Subsequently, the domestic agent, acting under the guise of an affiliated company, registered trademarks similar to our client’s, to block our client from registering their own trademarks in China.

3. Leveraging Trademark Ownership

Later, the agent made use of its ownership of similar trademarks to gain leverage in negotiations with our client. It insisted on signing a cooperation agreement, using the similar trademarks to push for the position of exclusive distributor and to capitalize on our client's international brand influence. The cooperation agreement specified that the trademarks would be transferred to our client upon expiration of the cooperation period.

4. Unilateral Breach and Transfer

However, as the cooperation term neared its end, the distributor unilaterally terminated the agreement on false pretexts and transferred the trademark to a third-party company. This action left our client unable to obtain the trademark as scheduled, leading to a legal dispute over whether the trademark transfer contract between the agent and the third party infringes upon our client's trademark rights and is therefore invalid. 

From this case, we have identified key legal risks to which brand owners should pay attention when entering the Chinese market:

1. Failure to Establish Trademark Protection From the Beginning

During the distribution period, our client's neglect to secure comprehensive trademark protection in China allowed the domestic distributor to exploit this vulnerability. In China’s first-to-file system, it is imperative to file for protection as soon as possible, and cover all (potentially) relevant classes.

2. Over-reliance on the Cooperation Agreement

When negotiating the cooperation agreement, our client did not insist on obtaining the trademark before the cooperation began. Instead, it agreed to wait until the end of the cooperation period to obtain the trademark. This decision left the trademark rights in a precarious state for an extended period.

3. Too Trusting in the Relationship

During the cooperation period, our client placed too much trust in the relationship and failed to monitor the status of the trademark held by the domestic company. As a result, the trademark was transferred without our client's knowledge or consent.

If you find yourself in a similar situation, here are our recommendations:

1. Prioritize IP Protection

When your company begins to explore the Chinese market, first complete comprehensive trademark registration and protection in China. This proactive step can prevent distributors as well as third parties from exploiting loopholes in IP protection and safeguard your company's brand.

2. Secure Trademark Ownership

When negotiating cooperations based on trademark rights, you must ensure that trademarks are registered under your company’s name before the cooperation begins. This approach provides a solid legal foundation for protecting IP rights and minimizes the risk of future disputes.

3. Implement Continuous Monitoring

International companies should establish on-going monitoring systems to track the status and usage of their trademarks in China. Regular monitoring can help detect any unauthorized actions promptly and allow for swift legal intervention. Unauthorized actions can relate not only to infringements but also attempts to file to cancel or invalidate your trademarks, or filings of similar trademarks in your current or other classes that can compromise your enforcement strategy.

This case underscores the critical importance of proactive IP protection and vigilant monitoring in the Chinese market. At R&P our team of experienced lawyers has a proven track record of handling complex IP disputes. We understand the unique challenges that international companies face in China and are committed to providing tailored legal solutions to safeguard your intellectual property rights. If you are navigating the complexities of trademark protection or facing any IP-related challenges, don't hesitate to contact the authors or your usual contact R&P for a consultation.