If Manufacturing in China, Do Just ONE Thing: Register Your Trademarks AND Your Design Patents

Well of course that’s two things, but we call this sort of thing lawyer’s privilege.

Way back in 2011, I wrote a blog post saying China trademarks are the most important thing of all. China trademarks are the most important thing of all. No matter what else a foreign company does when doing business in or with China, it must, must, must file to secure China trademarks for its trade names and logos, because if it does not, someone else will and then the foreign company will not be able to use its trade names or logos in China, even if all it is doing is having its products made in China for export.

In talking with foreign companies looking to do business in or with China, I talk about how NNN Agreements can help prevent their China counter-party from competing with them, contacting their clients/customers, and duplicating their products. And if they are going to be manufacturing in China, I tell them about the importance of Product Development Agreements for protecting their intellectual property before their product is fully developed, and Manufacturing Agreements for protecting their intellectual property after their product is developed and for ensuring quality and timely deliveries.

These agreements are all very important and in some cases, not having one can be fatal to a company. But with the exception of an NNN Agreement, they are relatively expensive and in some cases — rightly or wrongly (almost always wrongly), we get foreign companies who believe their Chinese counter-party can be fully trusted and such agreements are just not worth it to them.

But when it comes to the need to have a trademark, I and the international intellectual property lawyers at my law firm have seen far too many companies go out of business after losing their trademark to China and having their goods seized at China customs for violating someone else’s trademark and then not being able to switch their manufacturing to some country other than China.

When it comes to the need to secure the appropriate trademarks in China, I am blunt: anyone who doesn’t do it is making a big mistake. I tell companies that if they do nothing else, they should immediately register their trademarks in China. This one usually surprises them and they often think I have misunderstood what they are planning for China. They at first do not understand why I am emphasizing the need for filing a trademark in China when they have no plans to sell their product in China.

I then explain how China is a first to file country, which means that (with very few exceptions) whoever files for a particular trademark in a particular category gets it. So if the name of your company is XYZ and you make shoes and you have been manufacturing your shoes in China for the last three years and someone registers the “XYZ” trademark for shoes, that company gets the trademark. And then, armed with the XYZ trademark, that company has every legal right to stop your XYZ shoes from leaving China because they violate that other company’s trademark.

And this happens constantly.

About a year ago, we started seeing the same thing with design patents. In many circumstances companies must register a design patent on their product. This is because if they don’t, someone else will and then they find themselves having to challenge that patent in China (which is relatively expensive and time-consuming) or just walking away from China.

A design patent in China is generally analogous to a design patent in the U.S. or a Community design in the EU and it covers novel product designs that (1) incorporate shapes, patterns, and/or colors, (2) are rich in aesthetic appeal, and (3) are fit for industrial application. China registers design patents without conducting a substantive examination of the design patent application and so it does not take much at all to secure one. Substantive examinations only occur if a third party challenges a patent’s validity after registration. A design patent applicant need only submit an application to SIPO that satisfies the procedural requirements, particularly with respect to proper formatting of documents and drawings.

Even though many of the design patents in China are nothing more than slight modifications of existing product designs they still can have substantial value because its owner can sue for patent infringement and register the patent with Chinese Customs and have counterfeit or copycat products seized at the border. Even if you do not think your design is novel enough to be patented, there is a first mover advantage to your filing for a China design patent simply because your design patent will be valid until successfully challenged by a third party. A Chinese design patent grants its holder exclusive use of the aesthetic features of a product, not its functioning portion. In other words, the patent is on how the product looks; its external appearance.

What though does it really mean to have a China design patent? The typical design patent cases our China attorneys have recently handled are a good way to answer this question.

The case typically starts with a phone call from a Western company telling us a Chinese company (usually a company it already knows and usually either its manufacturer or a competitor) just contacted the Western company (or the Chinese company that makes the Western company’s product) and said the Western company’s product violates the Chinese company’s China design patent. The Chinese company then threatens to sue the Western company (and/or its Chinese manufacturer) for patent infringement damages and to block any of the Western company’s “infringing” product from leaving China. Needless to say, the companies that call us on these matters are concerned.

Though China customs frequently blocks products from leaving China due to trademark infringement claims, blocking products due to a design patent claim is considerably less common. China customs generally requires a party seeking to block a product from leaving China a block to post a substantial bond, which then becomes available to the party whose product has been blocked by customs. Many companies are willing to bear this risk to stop trademark infringing products from leaving China than are willing to take this risk for a design patent claim.

What’s the best way to nip design patent hijacking? Register your design patent first, before anyone else can do so. And that is why we are adding design patents to our list of the one thing (well, maybe two) you must do if doing business in or with China if your business involves a physical product. If you want to be sure to avoid your products being held up at the Chinese border on an IP claim, you should secure both a trademark and a design patent.