As often as we write about the need to register your trademarks in China, we have never written about how common it is for your China distributor to take your trademark and how easy it is to prevent that. I thought of this after receiving yet another phone call where this had happened.
The “this” is something along the lines of the following:
- U.S. or EU based SME wants to sell its products in China.
- Oftentimes the US/EU SME is already manufacturing its products in China and it sees the China market as yet another market to which it can and should be selling its products.
- US/EU SME seeks out someone in China to sell its products for it in China. We have often written about how using distributors to sell your products often makes good sense. See Getting Your Product Into China Via Distributorship, China Distribution Contracts: The Basics and Selling Your Product To China Through A Distributor.
- Someone in China (oftentimes the company already manufacturing the products for the US/EU SME) is brought on to sell the US/EU company’s products in China.
And the US/EU company just stops there. No contract. No trademark registration. No licensing of any trademark. Big mistake.
If you are going to use a distributor for your products in China, you should have a contract with your China distributor that protects you from your distributor destroying your reputation in China (and possibly subjecting you to liability). This contract should also make clear that you own your name and logo (and whatever other IP is important to you) and you are merely licensing it to your distributor. You then usually must register that licensing agreement with the appropriate Chinese government authorities for its IP protection portions to be valid.
We get calls from American/EU SMEs saying that they are not getting paid for their products sold in China. Then when we look deeper into the situation, we learn that the American/EU company never registered its IP in China and that someone else has — presumably at the direction of the Chinese distributor. We then try to get the trademark “back” for our client.
If the Chinese distributor wishes to maintain its relationship with the American/EU company, we usually are able to persuade it to get the trademark assigned to our American/EU client. We are nearly always able to accomplish this when the real money for the Chinese company is in manufacturing products for the American company for sale by the American/EU company outside China. But in a few cases, the Chinese company has refused to assign over the trademark either because it does not manufacture products for the American/EU company at all or because it views its ability to sell the products in China (and in other countries in which the American/EU company does not have trademarks) as more valuable than manufacturing products for the American/EU company.
There is a very easy way to prevent your Chinese distributor from “taking” your trademark for China. Register it in China and do not allow anyone to use it without a properly registered trademark licensing agreement that explicitly permits them to do so. Without this, you are putting yourself at risk of forever losing your name in China.