Foreign companies that manufacture in China are often concerned about their Chinese factory or some local competitor stealing their design, yet are far too relaxed about protecting their trademarks. This approach ignores the basic facts of the manufacturing world: product designs are relatively difficult to steal, but stealing a trademark is easy. So the trademark will almost always be the first thing stolen, while the design will be last. We see this all the time in China. Our China lawyers deal with trademark theft pretty much every day, while a true case of product theft occurs only three to five times a year.
This mistaken conception of risk is then compounded by a lack of understanding of how trademarks work in China. International companies often wrongly believe China trademarks are relevant only if they are selling their product in China. Since they are just exporting their product, they think a Chinese trademark is not relevant. However, under Chinese law, the exclusive right to use a trademark applies to the manufacture of the trademarked item in China and to the sale of that item to anyone anywhere in the world. So, when the manufacturer applies the trademark during the manufacturing process, that is a use of trademark subject to the trademark law.
When the manufacturer then sells the product to the foreign buyer, that sale is subject to China’s trademark law.
Consider what happens when if another party registers a foreign brand’s own trademarks, with that party perhaps being a trademark squatter or a competitor. If that happens, that other party can completely shut down the foreign brand’s manufacturing operations in China.
First, it can demand that the Chinese factory making product(s) for the foreign brand cease using the mark because such use constitutes trademark infringement. Second, that party can record the trademark with China Customs, then have Customs seize trademarked products at the port of export, preventing the shipment from leaving China. This is a particularly nasty surprise in cases in which the foreign buyer has already paid for the product.
The message here is simple. If you are manufacturing in China, the cost-benefit analysis on trademark registrations is as simple as it gets. Registration is simple and inexpensive, and the result of failing to register can be devastating. So, the first step for every company engaging in OEM manufacturing in China should be to register all of its trademarks in every class that applies. Simple, right?
