By Claus Barrett Christiansen, Partner, Bech-Bruun
Trademark Considerations when Working with
Chinese Partners
If you are the proprietor of Chinese trademark registrations, certain precautions must be
taken by you if you allow Chinese partners to use your trademarks either individually or
as part of a joint venture. In relation to this, Claus Barrett Christiansen briefly discusses
how to deal with different situations that might arise.
Protection of trademarks in China
China operates a "first to file" trademark system. The first to apply for registration of a trademark
is considered the rightful proprietor. The Chinese Trademarks Act does include bad faith provisions, but, in reality, it is almost impossible to succeed filing bad faith claims, i.e. it is not possible to reclaim a trademark by suggesting that a Chinese company had positive knowledge of
the trademark already being used in Denmark or elsewhere at the time of application. Use outside China is irrelevant unless the foreign trademark is well-known in China even without having
been used there, which is a very rare situation. Even if the trademark has been used in China,
this would almost never provide a basis for any protection – if you are not the first to register,
you have no rights! When you attract attention in China, your trademarks will be registered by
someone. Therefore, as a new market entrant, you should make sure to apply for registration of
all your trademarks in both English and Chinese – and maybe also a transliteration - covering all
goods and services in which you are interested before entering the Chinese market. Usually, a
trademark registration certificate will be issued within 18–24 months as from the filing date if no
opposition or refusal is raised.
Allowing third parties to use your trademarks in China
When entering into cooperation with Chinese partners, your position will be strengthened substantially if you are the proprietor of the trademark used in your cooperation. As a trademark
proprietor, you may dictate conditions of use of the trademarks and you would most often also
be in a position to terminate use of the trademarks, and, furthermore, all goodwill and increase
in value of the trademark would be to the benefit of you as the trademark proprietor.
However, it is important that certain formalities are complied with if you allow a Chinese partner
to use your trademarks either independently or through a joint venture. Firstly, a license agreement should be entered into between the parties as it is a mandatory requirement under Chinese law that trademark licence agreements are registered with the Chinese trademark office
within certain time limits. In addition, there are legal requirements as to the contents of the license agreement, such as a control provision. The consequences could be severe if formalities
are not complied with. The use requirement may for example be challenged, which may ultimately after three years lead to a cancellation of the trademark registrations.
Furthermore, it is extremely important that you do not undertake any obligations in a license
agreement to make available the use of trademarks not yet registered as this could constitute
breach provided the application does not mature into registration. Until registration of a trademark in China, it cannot be enforced, and it is often very difficult to foresee whether a trademark
application will result in registration.
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In, it is advisable to regulate between the parties whether the Chinese partner, or a joint venture
entered into between the parties, is allowed to develop new trademarks – and if so, whether
such newly developed trademarks should be assigned to the Danish undertaking and licensed
back or, alternatively, the licensed trademark must be the only trademark which can be used
between the parties.
Furthermore, transfer pricing tax issues should be taken into consideration as both Chinese and
Danish tax authorities are stepping up transfer pricing control.
Third parties having registered your trademarks
One of the following four scenarios will usually occur if someone registered your trademarks in
China: 1) you find out that someone has registered your trademarks and you approach them in
order to negotiate an assignment usually in exchange for a quite substantial purchase sum, 2)
the Chinese company approaches you and suggests that you enter into a cooperation in China,
for example by having the Chinese company appointed as agent or distributor or by incorporating a joint venture, 3) the Chinese company starts using the trademarks in China for their own
business, sometimes even also copying product designs or technical inventions to sell and market under the trademark in China, or 4) the Chinese company submits an unsolicited offer for
you to buy back your trademarks.
Surprisingly, situation 4) is not very common, whereas the three other situations are quite common. As a Danish undertaking, you will have to secure your trademark rights before entering
into the Chinese market as you will otherwise be infringing the trademarks of the Chinese company. This could lead to severe consequences, such as claims for damages and compensation,
injunctions, fines and customs seizure of your goods for export or import.
If you will not pay for buying back your trademarks– or the trademarks may not even be offered
for sale, the only option left is often to swallow all pride and enter into cooperation with the Chinese company by appointing them as agent, distributor or incorporating a joint venture. This is
not always a bad option since Chinese companies having registered trademarks used by foreign undertakings abroad are often quite professional and have market experience and financial
strength within the kind of business for which the trademarks are registered. Such cooperation
will almost always be regulated by written agreement between the parties, and it could be an
opportunity to negotiate a future assignment of the trademarks back to you. This could be done
in different ways, but a standard way of doing it is by agreeing that, during a transition period,
the trademarks remain the property of the Chinese company, but afterwards the trademarks are
assigned back to the Danish undertaking in return for either an agreed purchase sum or increased ownership for the Chinese company or access to know-how or designs. Usually, such
agreement will be combined with an obligation to license back the trademarks to the company in
China for a period of time.
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