Friday, August 9, 2013

Protecting Foreign Brands with Trademark Law in China

Friday, August 09, 2013
The increasingly serious pollution problem in China has directed the attention of Chinese government and Chinese consumers to electric cars. Tesla Motors, a successful American electric car manufacturer, also sensed that this is the opportune time to expand their market in China.

However, Tesla’s plan had to come to a halt because in China, the trademark “Tesla” was already registered by Zhan Baosheng, a Chinese business entrepreneur. Zhan registered the mark for twelve categories of land, air, and marine transportation vehicles, including Tesla Motors’ products, finished cars.

The Chinese trademark authority rejected Tesla Motor’s application for the trademark “Tesla” because trademark law in China is based on a “first to file” regime. The same issue arose for Apple. Inc. in 2011 when Apple introduced its tablet iPad to China. A Chinese company named Proview Technology had registered the trademark “IPAD” prior to Apple’s application to register the mark. In the course of a few months, Proview obtained injunctions from Chinese courts to seize infringing articles and prevented Apple from selling iPad in China. Ultimately, Apple had to pay a steep price to settle with Proview- 60 million dollars!

Now Tesla Motors finds itself in a similar situation to Apple in 2011. Tesla Motors reportedly offered Zhan $326,000 to buy his trademark registration, but Zhan rejected the offer and countered, demanding approximately 3 million dollars. Many observers have criticized Zhan as an opportunistic trademark troll if not an extortionist. 

However, in an interview with Cheyun, a popular online motor forum in China, Zhan retorted the criticisms stating that he registered “Tesla” because he admired Nikola Tesla, the famous electrical engineer who designed the modern alternating current electricity system. A nice tribute, but undercut by his registration of Tesla’s company logo.  Zhan also claimed that he has reached production agreements with two car manufacturers in China and he will soon be selling electric vehicles in China.

In a manner similar to Canada’s trade-mark expungement proceedings, a registered mark can be cancelled if the owner cannot show use within the last 3 years. If Zhan satisfies the Chinese court that he has “used” the mark in association with the registered wares, i.e., electric vehicles within the last three years, his right over the trademark may be upheld. Tesla Motors will then be forced into a very difficult position.

Tesla Motor’s trademark turmoil in China serves to reinforce the need for international companies looking to tap into the Chinese market to plan ahead and to protect their trademark rights in China appropriately.

On the other hand, if companies were careful to avoid the pitfall of the “first to file” system, the legal protection offered by Chinese trademark law seems to be strengthening.

In July 2012, Cartier, the international luxury jeweler, sued two Chinese jewelers and China’s largest online supermarket for unfair competition and trademark infringement in a Shanghai court. The Chinese jewelers sold products with advertisements that referred to the products as “Cartier classic style” and “Cartier collection”. The court ruled in favor of Cartier and awarded about 29,000 dollars to Cartier because the court found that the advertisements could have confused consumers about the quality of Cartier’s products.

Cartier’s success demonstrates China’s commitment to offer adequate trademark protection to foster an economic environment attractive to foreign companies.

While the consequences of failing to register one’s trademark in China in a timely manner can be dire, as China transforms into the largest consumer market on the planet, companies also cannot afford to not expand into the Chinese market. The good news is that once companies overcome the initial trademark registration hurdle, we are seeing indications that trademark rights can be enforced effectively in China.

By David Chen
Articling Student