Foreign enterprises need trademark protection in co-operation contracts

As an important manufacturing and export trading country, China attracts numerous foreign companies and entrepreneurs for business co-operation. If there is no specific agreement on the exercise and protection of trademark rights between the parties in the business co-operation, IP disputes, especially involving trademark piracy, are likely to arise, in the midst or even after the co-operation. In recent years, this author has seen many international enterprises suffer from trademark piracy at the hands of Chinese counterparties in co-operation. Some of these foreign companies found themselves so badly affected by trademark piracy that expanding their business in China proved difficult. To prevent these types of disputes, this author has the following recommendations based on experience and current law.

Register mark promptly

In this author’s experience, there are three main reasons why foreign enterprises suffer from trademark piracy. First, there is lack of awareness of the need for IP protection. This is typical in co-operations with original equipment manufacturers (OEMs), under which circumstances only entrusted production is conducted in China. The foreign enterprises therefore deem it unnecessary to carry out trademark registration in China, leaving their trademarks open to pre-emptive filings by other parties.

Second, they do not recognise the principles of territoriality and the “first to file” rule. Many foreign enterprises have registered their trademarks in their home countries or regions, and some are unaware of the territorial nature of trademark rights. When bringing their brands into China, they do not obtain Chinese registrations, perhaps under the impression that trademark rights can be originally obtained through prior use, while the fact in China is that the exclusive trademark right is obtained through registration.

Tracy Shen is a partner at Chang Tsi & Partners