Bar & Bench brings to you the second column of the India-China Education Series written by DH Law Associates Partner and Head of China Practice, Santosh Pai on Trademark Registration in China.
Bar & Bench brings to you the second column of the India-China Education Series written by DH Law Associates Partner and Head of China Practice, Santosh Pai on Trademark Registration in China.
Why every Indian company must think about registering its trademarks in China?
The Chinese legal system employs the “first to file” principle in relation to registration of trademarks. Article 3 of the Trademark Law of the People’s Republic of China, 1982 provides that only “the trademark registrants shall enjoy the exclusive right to use the trademarks, and be protected by law”. This simply means that only trademarks which are registered in China will receive legal protection. It also means that if there are two confusingly similar trademarks being used in relation to the same class of goods then the person who registered the trademark earlier gets priority regardless of the fact that the other person might have been using the trademark for a longer duration. Unlike in India, the mere use of a trademark does not confer any inherent legal right on the user. This crucial difference is one major reason why Indian companies often omit to register their trademark in China.
Another common reason that causes an Indian company not to register its trademark in China is the mistaken assumption that the need for registration of a trademark in China arises only when products under a particular brand are being sold or are intended to be sold in the Chinese domestic market. This is simply not true.
Ever since China emerged as a global manufacturing powerhouse many international brands have realized that it is prudent and even essential to have their trademark registered in China in order to prevent a competitor or counterfeiter from registering their trademark in China and then exporting sub-standard and lower cost products to markets around the world. This can cause enormous damage to the brand equity, market share and reputation of the trademark owner. In the absence of a registration in China, the trademark owner’s options of availing legal recourse is extremely limited.
This risk is somewhat pronounced for Indian companies since Indian and Chinese products compete for market share in several markets worldwide within the same product category. To illustrate this risk let us examine a few examples –
a) Products which are partly or fully manufactured in China and sold in India – Many Indian companies get their products partly or fully manufactured in China for sale in the Indian domestic market. Since such products are not sold in the Chinese domestic market the Indian companies fail to register the trademark in China. In such instances, there is a distinct risk of ‘leakages’ at the supplier’s end or in the distribution network which might result in the branded products being sold through channels not controlled by the Indian company resulting in losses and erosion of brand equity. This also applies to products where majority of components are sourced from China and the assembly, packaging and branding is done in India. If the Chinese supplier is already manufacturing 70-80% of the inputs it is not very difficult for them to process the remaining portion too.
b) Products which are partly or fully manufactured in China and sold in other countries by an Indian company – There are many Indian companies which have a manufacturing base or suppliers in China for products which they sell in other countries. If such an Indian company fails to register its trademark in China there is a risk of the products (either counterfeit or genuine) reaching markets in which the Indian company does not have a business presence. This again results in losses and erosion of brand equity for the Indian company.
c) Products which are manufactured in India, with or without inputs from China, and sold in a third country – This applies to any Indian manufacturing company which exports its products to any foreign market. For example, if an Indian auto component manufacturer exports its products to South Africa and has 60% of the market share for a particularly profitable product in that market then it is likely that a Chinese competitor will try to register the Indian company’s trademark in China and ‘legally’ export products at a much lower cost under the same brand to neighboring markets like Kenya, Tanzania, etc. before the Indian company can capture these markets. In this way, the Chinese competitor wrongfully capitalizes on the goodwill of the Indian company’s trademark in foreign markets.
d) Products not manufactured in India or China and sold in a different country – This might appear to be an extreme case but it is not as uncommon as it appears. For example, if an Indian company is manufacturing a product in Poland for the EU market then a Chinese competitor can register the same trademark in China and start exporting products to the Middle East or anywhere else in the world using the Indian company’s trademark.
In all the above cases, Indian companies stand to make substantial losses and they might or might not have legal recourse. The more shocking result is that in the absence of a trademark registration in China, the Chinese competitor or counterfeiter might actually be acting in a ‘legal’ manner.
One might argue that there are several multi-lateral treaties which afford protection for trademarks registered in one country within the jurisdiction of all its member countries. It must be remembered that as far as China is concerned the Chinese competitor’s registration in China is valid and since China is increasingly becoming an active party to most intellectual property multi-lateral agreements it is bound to pursue governmental channels to protect the Chinese exporter’s interests in such cases. In any event, the cost and effort of pursuing infringement claims across multiple jurisdictions is far greater than the relative ease of registering a trademark in China.
How does registration of a trademark in China help?
An Indian company which registers its trademark in China will have access to the whole array of legal options to safeguard its interests in any of the circumstances described above. The advantages include the following –
a) the Indian company can sue the Chinese counterfeiter for infringement in a Chinese court of law;
b) the Indian company can record its registered trademark with the Customs Authority of China which monitors export shipments from every single Chinese port for counterfeit goods;
c) the Customs Authority of China is empowered to seize any shipment of goods from China suspected to contain counterfeit goods and is required to intimate the legal owner of the trademark in question;
d) based on information supplied by the Customs Authority the Indian company can effectively formulate a claim for damages from the Chinese infringer and obtain suitable injunctive relief; and
e) the Indian company can also pursue legal action against every single participant in the supply chain such as the exporter, shipper, distributor, etc.
It is extremely important to remember that if an Indian company fails to register its trademark in China then none of the above options are available.
Lastly, many Indian companies need to re-evaluate their impressions about the Chinese legal system. Several years ago there was a widespread perception among foreign companies about laxity in enforcement of laws in China. After China joined the WTO this situation has changed dramatically. In order to attract growing levels of foreign investment China has steadily increased the effectiveness of its law enforcement measures. The number of IP infringement actions being filed by foreign companies in China and their success rate in them has also been increasing steadily. Given this context, if Indian companies still choose not to be diligent enough to register their trademarks in China they will no longer be allowed to cry foul when a Chinese competitor tries to steal their trademark and business.
Santosh Pai is a Partner at D.H. Law Associates, which is the only Indian law firm to have an active China practice since 2010. He is based in Beijing and can be reached at santosh@dhlawassociates.com. He regularly blogs about India-China related business topics here.
