• A Warning for Brand Owners Manufacturing In China
  • June 23, 2012
  • Law Firm: Norton Rose Canada LLP - Montreal Office
  • Introduction
    For years, Australian brand owners have struggled with counterfeiters. Brand owners will be pleased to know the Chinese Government has made changes to its customs processes to strengthen brand owners rights. However, unwary brand owners with a manufacturing base in China can be caught out.

    Branded goods being exported from China are increasingly being seized by customs if the exporter can not demonstrate their right to the application of those brands on the goods that have been seized. In 2010, Chinese Customs seized 20,155 consignments of suspected counterfeit goods. The figures for 2011-2012 are expected to be higher. Chinese Customs officers now review consignments based on risk levels which are calculated by a combination of the product type, the manufacturers, the exporters and the relevant shipping lines. These are clearly positive developments for brand owners.

    However, brand owners can also be caught out, and there are a few key issues brand owners should be aware of in the context of Chinese trade mark law and practice.

     


    The risks of not registering your brands in China

    The key concerns for brand owners to be aware of in the context of their rights and issues in China are:

    1. By placing your brand on goods manufactured in China, you are using that trade mark in China even if those goods are only intended for export. If you have not registered your brand as a trade mark in China, but a third party has, this could result in you infringing someone else's registered trade mark rights;
    2. Chinese manufacturers may proceed to register the brands themselves to protect their own commercial position. As China's trade mark system is based on the rights going to the 'first to file', this can result in serious issues arising in the event that the brand owner no longer wishes to use that Chinese manufacturer for its products; and
    3. If you are exporting your branded products from China, but you do not have the brand registered in China as a trade mark, the goods could be seized by customs as suspected counterfeit goods. Although there are means to have the goods subsequently released, assuming they do not infringe someone else's registered mark in China, it is very costly and causes unwanted and unnecessary delay in getting those products to market. If the goods do infringe a registered mark in China, they will not be released.

    The legal position on whether goods manufactured in China for export only will infringe a trade mark registered in China is still uncertain. Chinese courts have issued different opinions on this point. Therefore, the safest approach is to ensure your brands are protected before manufacturing is commenced.

     


    What can be done?

    Register your brand as a trade mark in China
    If you manufacture your branded products in China, even if those products are never sold in that country, the trade marks should be registered in China to avoid these issues. The registrations must relate to the marks that are in use, therefore, and variations in use requires a review of the registered marks. The registration process in China can take several years (you should expect two to three years to secure registration). Therefore, the best practice is to register the trade marks well in advance of entering into any manufacturing agreements. If your brand isn't registered when you intend to commence manufacturing, or selling, in China, a search of the Chinese Trade Marks Register should be conducted to ensure no prior rights exist.

    If you are also marketing and selling your goods in China, brand owners should consider three forms of registration for their brands to cover the three linguistic elements in China of form, sound and meaning. In practice this means you should consider registering your brand as a trade mark, together with the Chinese translation and the Chinese transliteration. This will ensure the complex use of your brand within the Chinese market will be protected.

    Authorisation for your Chinese manufacturer and exporter to distribute your products

    Chinese manufacturers are also now increasingly seeking signed authorisations (which can in essence form a licence to use the trade marks in question) from brand owners. These authorisations are then registered with Customs to prevent the seizure of costly cargos as suspected counterfeit goods.

    The signed authorisations generally include a statement as to the details of the Chinese trade mark application or registration which relates to the specific goods. There is no standard form for these authorisations. They can be vague and overly broad. Whenever brand owners are presented with these documents, they should be carefully reviewed to ensure they do not allow the Chinese manufacturer or the exporter rights beyond what is required for the specific manufacturing agreement.

    For example, brand owners should not enter into an authorisation which:

    • provides the exporter the right to sublicense the brand without prior approval;
    • gives rights beyond the period of the manufacturing agreement; or
    • authorises the application of the brand or trade marks to goods in an unlimited manner.

    Authorisation agreements are a useful tool to ensure that your Chinese manufactured goods are not seized by Chinese Customs. However, in entering into agreements of this form, brand owners should ensure: they first have their trade mark registration, or at least application, in place; that the authorisation is suitably limited to only extended to approved manufacturers; for the period of the manufacturing agreement currently in place; and ,if appropriate, the authorisation should be geographically limited as this can also assist in the fight against parallel imports. For example, if your Chinese manufactured brands are exported to several jurisdictions, you should consider separate authorisations for each jurisdiction to help protect against products intended for a different country making their way into the Australian market as parallel imports.

     


    Summary

    China can be a tricky market for brand owners. However, there are some simple strategies for insuring against misuse or difficulties with your brand in China.

    • Seek registered protection early
    • Search the Chinese Register before using or manufacturing if your brand is not already registered as a trade mark
    • Be vigilant in providing authorisations to your Chinese manufacturers and exporters to apply your brand in China
    • Have these authorisations registered with Chinese Customs.

    China is an important and growing market. Following these simple steps will protect your brands from misuse and ease your commercial dealings in China.