Although it is not strictly necessary to file for a trade mark registration before using a mark, there are significant advantages to securing trademark protection, particularly in a company’s primary markets. Amongst other benefits, a trademark registration gives the owner the exclusive right to use that mark in association with the goods and services covered by the registration. However, many companies forget that trademark protection in countries where they manufacture can be equally important and can prevent costly customs issues.
North American companies who are sourcing product in China and who do not have a Chinese trade mark registered with are increasingly encountering customs issues. One recent example illustrates the problem. A North American company had been sourcing product from China for 15 years without any problems. Problematically, a shipment was unexpectedly detained during a random inspection by the local customs, on the basis that the company’s mark on the exported goods was similar to a third party trade mark registration which had already been recorded on the customs trade mark recordal system (the “Third Party Mark”).
The Chinese customs rejected the argument that the goods destined for export were not sold or circulated in China and therefore should not constitute trade mark use in China and hence there should be no trade mark infringement. The policy adopted was that even goods exclusively intended for export were subject to Chinese trademark laws. Customs also rejected the argument that goods intended for export were not the same as the goods covered by the Third Party Mark. The local customs officers maintained that they still needed to detain the client’s shipment since the goods intended for export and the goods covered by the Third Party Mark both fell in the same class (even if not the same sub-class of goods).
In the circumstances, the local customs insisted that it needed express consent from the owner of the Third Party Mark before it could release the goods. This particular incident was successfully resolved because we were able to obtain a written Declaration from the owner of the Third Party Mark confirming that they did not intend to assert trade mark infringement regarding this particular shipment. The customs officers accepted the Declaration and did eventually release this particular shipment.
Chinese Customs’ application of Chinese trade mark law to goods intended for export has been uneven around the country, particularly since a China Supreme People’s Court (“SPC”) decision in 2020 which found that in certain circumstances trade mark laws apply even to products exclusively intended for export. The SPC did, however, emphasize that infringement always has to be considered on a case-by-case basis. In that particular SPC case, the Plaintiff was Honda, which was the genuine trade mark owner bringing a suit against an unauthorised exporter, so the SPC may have been more willing to find infringement. Since local customs officers are unlikely to be legal experts, frustratingly, they can, however, often just blindly follow any internal policies or guidelines in a very literal way.
It is not uncommon for local Chinese manufacturers to file trade mark applications themselves for the foreign brand owner for whom they produce product. This helps avoid customs issues when the goods are exported from China. In the example noted above, the company’s Chinese manufacturers had indeed filed trade mark applications for some of the company’s other brands. This was done without the company’s knowledge and explained as having been done “for convenience” by the manufacturers. Happily, when confronted the two Chinese manufacturers were cooperative in assigning the other trade marks across to the company. However, in other cases, the local supplier, or worse former supplier, are no longer on good terms with the foreign brand owner, and the brand owner will need to incur substantial extra costs to file bad faith invalidation proceedings against these unauthorized trade mark registrations. Provided there is evidence of an existing or past manufacturing relationship, it is likely that the foreign brand owner can recover or at least invalidate the registrations. However, the time and expense to sort this out can be significant, particularly when there are shipments being held by Chinese Customs.
In view of the above, we strongly encourage Brand owners using Chinese manufacturers to proactively register their trade marks in China in order to avoid potentially costly customs issues. In addition, since the “first-to-file” principle applies in China, having a local trade mark registration will prevent subsequent copycat trade mark applications covering similar goods and services being registered. The advantages of securing trade mark protection more than justify the time and effort of doing so. We encourage all of our clients who have significant manufacturing operations in China to ensure that they protect themselves against these potential problems with Chinese Customs.