what we think

The Golden Rule For Exploring China - KLM BlueBiz Blog Post

11 April 2018

What is the first thing a (foreign) company should do before even considering winning the affection of 1.3 billion potential Chinese consumers? Before opening an office or selling online in China, even before scanning and visiting China for suppliers, partners or distributors, it is absolutely crucial that that you make sure that you own or apply for the trademark right to use your name and brand in China. In my practice, I have seen too much money wasted on buying such rights from people or companies who outsmarted the ‘new kids on the block’, often by maliciously registering ‘their’ trademarks.

Forgetting to register their brand is probably the most common mistake made by international companies entering the Chinese market. Ten years ago, this issue already caused big MNCs launching consumer products in China plenty of headaches. Newcomers seem to not have learned much from their predecessors seeing that the latest wave of foreign companies to entering China still often forget to register their names and brands - after which they turn to me to resolve this critical issue. The same day if possible – but regretfully so, I do not possess a magic wand!

Naivety can be costly

Many still think that their status in the west and the fact that they have been around for many years will protect them in China. Others are under the impression that registering their name and brand in Europa or other countries will be sufficient to enjoy rights in China and legally conduct business. Unfortunately, this is almost never the case. This naivety is why I have seen many decent businesses having to pay up tens of thousands (and sometimes millions) of Euros, to obtain the right to use their ‘own’ brand in China after others managed to register it before they did.

Proper registration

Avoid this mistake! To enjoy the full trademark protection in China, you need to register the name of your business and the brands of products and services at the China Trademark Office (CTMO). I know dozens of companies that are currently active in China without having a proper registration. Often, when they start working with partners, agents or distributors who they trust, only to find out that their Chinese partner has registered ‘their’ trademark in its own name or that of a relative or third party, forcing their foreign counterpart to remain partnering with them. Things can even get crazier – and with even more damaging results. I have seen cases in which a Chinese partner sued the gullible international business for using its ‘own’ name in China. My advice is therefore: never leave the registration in the hands of your Chinese counterpart. Do it yourself, ASAP!

‘First to file’

Bear in mind that PRC Trademark Law is based on the ‘first to file’ principle. This means that the party that files first is likely to be accepted for registration. A local application in China is recommended since it only costs a few hundred Euros, and takes around 9-12 months (international application often 15+ months).

In case your desired mark is registered by another company, your case may fall under on one of three most common grounds for appeal:

(i) This registration has been done in bad faith, by someone (a supplier, distributor) of whom you can prove they knew your company, name and brand before filing;

(ii) If the trademark has been registered for more than three years, it may be cancelled if the holder of the mark could not prove use in the past three years.;

(iii) The brand was (very!) well-known in China before the trademark holder applied for the mark.

Case: wine

There are some well-known cases concerning this subject matter. Castel, an international wine brand, had not registered its Chinese character name “Ca Si Te” when they started selling and becoming known under this name in China (somebody else did though!). Castel, perhaps unaware of the registration or its importance back in the days, continued its wine marketing and sales under the Chinese name in China. The Chinese owner of “Ka Si Te” was awarded around EUR 3.5 million in damages even in court of appeal (though this was ultimately overturned by the Supreme Court into the insignificant amount of around EUR 65,000). Another famous case involved Apple who settled for an amount in excess of USD 60 million to retrieve the right to use the word “iPad” in China, because somebody got to the registration office before them, sued them for trademark infringement!

Pulling tricks

No matter how questionable the ethics of Chinese businessmen pulling tricks like this are, it is a matter of perspective. Are they so different from the people that registered domain names during the internet hype 20 years ago in Europe and the US? Not all motives are about money: (i) for some parties it is just their clever way of making sure you will remain to conduct business with them in the future, (ii) some companies may just randomly apply for the same or similar name and want to use this brand, and (iii) finally one should understand why enjoying protection in China for ‘your’ brand is not – and should not be – a given. Let’s say your Dutch brand is called Vale, imagine how many brands in South America may be called Vale (means ‘okay’ in Spanish!), and engage in the same products or services as you do. Which of these companies should enjoy exclusive protection in China? Yours? But why? Difficult to determine, right? Well then perhaps awarding it to the first-to-file isn’t such a bad solution after all…

What should you do when you find out somebody registered your desired trademark before you did?

Find a professional advisor to find out who is behind the application, and determine a trademark strategy together, which can include legal action, negotiations or purchasing;

Do not contact the other party yourself until you obtained proper advice.  If a trademark squatter registered in bad faith, they may want to either secure your business as distributor/supplier, or they did it to sell it to you at a premium. In case of the former, you can benefit from legal support to get the upper hand in negotiations, rather than giving in to their demands. In case of the latter, if legal action does not bring a result or even before taking action, you may want to try to purchase the trademark as the fastest and most secure way to obtain the trademark. Though if they find out you as an international brand are interested in this trademark, they will presume you are planning to do business in China, and the asking price will rise sharply. Using an undisclosed party to secure the mark is potentially a viable option to lower the purchasing price;

Consider how quickly you want to enter the Chinese market, and how strongly you need trademark protection when entering. If you can afford to wait 1-3 years, legal action may be a first way to try to obtain the trademark at reasonable cost, but with a lengthy and still costly process and without any guarantees. If you want to conduct business sooner rather than later, you may have to negotiate a deal and purchase the trademark.