Check Your China Registrations

China fraud and scams

I should have run this post earlier and talked about it as a New Year’s resolution, but it did not occur to me until I learned over the weekend that a Canadian company that thought it had a Chinese trademark didn’t really have that trademark at all.

At least once a year, one of our China lawyers has to tell a client that the company or the IP it thought it had in China simply does not exist.

Years ago, we were retained to help a U.S. company whose China general manager had stolen funds from its China subsidiary. Our investigation quickly revealed there was no China subsidiary. No China entity had ever been formed even though the China operations were manufacturing tens of millions of dollars of product a year, with around 100 “employees.” The general manager had lied about having formed a WFOE, no China taxes had ever been paid, and every “employee” had been working illegally. See Doing Business in China Without a WFOE: Will the Defendant Please Rise on how bad it can be to be doing business in China without a WFOE.

A U.S. company once contacted us because its China joint venture company had started selling its product in the United States in competition with the U.S. company. We were tasked with determining whether the joint venture agreement gave the U.S. company the power to stop these U.S. sales. The problem was that the Chinese language “joint venture agreement” was actually a consulting agreement and no joint venture had ever been formed.

An American company came to us looking to sue its former China distributor for manufacturing and selling the American company’s products in China, “in violation of our China trademark.” The American company told us how its former distributor had registered the American company’s brand name as a China trademark “for the American company” and it even had a trademark certificate to prove this. The trademark certificate turned out to be fake and the trademark had actually been registered in the name of a Chinese citizen (almost certainly a close relative of the Chinese distributor) who was now licensing it to the former distributor.

In the above examples, the foreign companies were fooled by people they thought they knew. Equally common is the situation where a foreign company pays someone it does not know to register a company or IP in China but nothing ever gets filed. There are even fake law firms — not even necessarily in China — that focus on collecting money from mostly America, Australian and European companies to (not) register their IP or their company in China. These are the service company equivalents of the manufacturing companies that take money and never provide any product. See China Business Scam Week, Part 2: Bricks for Products.

If you have any reason to doubt your China registrations, you probably should have them checked out. Like now. Make this your (somewhat late) New Year’s Resolution.