Selling Product to China: Who Should Own the China Trademark?

As COVID slowly begins to fade (at least in some parts of the world), our China lawyers are seeing foreign companies (mostly American, European and Australian) step up their efforts to sell their products into China. For virtually all of these companies, figuring out what to do with China trademarks is one of the first legal issues they must address.

If the foreign company is selling its product in China directly from abroad, or even running its own operation within China, its core trademark issue is straightforward: It needs to register its trademarks in China.

On the other hand, if the foreign company is using a Chinese distributor to sell its product in China, it is almost always our advice that the company first register its trademarks (and other registrable IP such as patents and copyrights) in China, and then license said trademarks and IP to its Chinese distributors, until the distribution arrangement terminates. For more on what should be done when doing a China licensing or distribution deal, check out the following:

Lately, we have been seeing a third scenario, in which our foreign client company knows China and its markets, and is working to get product into China for a different foreign company. In these situations, our client is usually very China savvy, while the other foreign company that makes the products is usually not China savvy. Our client has usually secured the foreign company as a client by promising to handle everything related to China, and generally make China entry easy for the foreign company product manufacturer. Our client’s compensation is usually at least somewhat tied to China sales.

In these situations the big issue is in whose name to register the China trademarks. Should those trademarks be registered in the name of the foreign company that makes the product and owns the trademarks in its home country, or should those trademarks go into the name of the intermediary foreign company that has been tasked with “everything China”?

We recently dealt with that situation and fielded a question from our China-savvy intermediary client regarding who between it and its own client (we will call that company, Consumer Product Company X) should own Consumer Product Company X’s China trademarks. We gave the following advice regarding trademark ownership (with all names redacted):

1. As you already know, China is a first to file country for trademarks. Accordingly, under Chinese law, it is perfectly legal for either you or Consumer Product Company X to register in China Consumer Product Company X’s name, logo, or any other trademark Consumer Product Company X might own outside of China.

2. Whichever entity registers Consumer Product Company X’s trademarks in China will have all of the attendant rights and obligations of China trademark ownership, such as pursuing infringement actions against counterfeiters and defending challenges to the marks.

3. If the marks are registered in Consumer Product Company X’s name you will want to make sure Consumer Product Company X licenses those China trademarks to your company and that license should include giving you the right to use (and defend) all of Consumer Product Company X’s China IP. This will allow your company to use the marks legally in China, and it will also allow your company to sublicense the trademarks to a Chinese distributor — because the distributor will surely want those rights as well. Actually, the Chinese distributor will probably tell you that they need to register the trademarks in THEIR name, but that’s another issue. See China Trademarks and Your Chinese Distributor

4. If your company registers the marks and the relationship between your company and Consumer Product Company X subsequently ends, Consumer Product Company X would want your company to transfer ownership of the trademarks to Consumer Product Company X. This takes several months.

5. Regardless of which entity legally owns Consumer Product Company X’s China trademarks, Consumer Product Company X would not have to do much beyond providing initial information about their products as well as some jpegs/pdfs of their logos. Beyond that, most of the interaction would be between our law firms China trademark lawyers and the China Trademark Office.

In sum, it can work either way, and it’s ultimately a business decision for you (and Consumer Product Company X). If your company owns the China trademarks, it will have near-complete control of those marks and your obligations to Consumer Product Company X will be purely contractual. If Consumer Product Company X owns the China trademarks, it will have complete control of the marks and your China trademark rights will be purely contractual.

A bit more regarding 2. and 3. As discussed, the trademark owner holds all rights and obligations regarding the trademark. This could potentially mean, among other things, liaising with China Customs to ensure counterfeits are seized and acting as plaintiff in IP infringement actions. There is a lot that service providers can handle in this regard, but there is a minimum level of attention that the actual owner must pay to these matters. In many instances, companies like Consumer Product Company X will not be well-placed to respond to Chinese law enforcement requests and other necessary actions.

Along the same lines, Consumer Products Company X might turn out to be less (or more aggressive) when it comes to China IP enforcement than the China-savvy intermediary would like. Anticipating such potential conflicts and addressing them (contractually and/or through IP ownership) is key.