Manufacturing in Asia: Can a registered trademark help me?

Dishonest contract manufactures in the People’s Republic of China (“PRC”) and other asian countries may make extra product for “back door” sales. There are countermeasures for this sort of dishonesty, including using different manufacturers for different parts of the product.

Those experienced with using contract manufacturing in the PRC suggest that a trusted relationship is perhaps the best protection. Some business relationships go bad, however, no matter how much has been invested in them. Sometimes it is not possible to use a trusted contract manufacture.

Having patent applications and registered designs filed in the PRC, together with strong contractual relationships for example, are insurance against such dishonesty.

There is less awareness, however, of contract manufacturers that “pirate” their customer’s trade mark.  The pirate registers the client’s trade mark in their own name and subsequently becomes the legal owner of the trade mark.

The pirate can subsequently enforce, or threaten to enforce, their trade mark rights to the detriment of their client. For example, the pirate may threaten to stop another manufacture who the client may wish to use to manufacture the product. This locks the client in and tips the balance strongly in the contract manufacturer’s favour, who may demand more money or not produce to your schedule or required quality.

One popular form of “pirate” trade mark enforcement is through PRC Customs, who have the power to block exports of product that bear a registered trademark without the trade mark owner’s authority.  The dishonest contract manufacturer may well threaten to so use the PRC Customs service if their conditions are not met.

There is no law against this in the PRC.  In fact, it is a built in feature of PRC trade mark law, which is a “first-to-file” country.  That is, the first person who files an application to register a trade mark has priority over all others, even if the first to file is not the first to use the trade mark in the PRC.  There may be ways to challenge dishonest filings, however it may often be challenging and at the very least a nuisance to do so.  It is much easier and less expensive to be the first to file an application to register the trade mark in the contract manufacturer’s nation.

It is not just a contract manufacturer that may file a application to register your trade mark before you. It may simply be someone who “squats” on your trade mark until their demands for payment are met.

There are other Asian countries that are “first-to-file”, including Indonesia, the Philippines, Vietnam, South Korea, Taiwan, Cambodia and Laos.  Contract manufacturing in these countries may face similar trade mark issues.

Trade mark filings in “first-to-file” asian countries, including the PRC, should be prioritised for those seeking a contract manufacturer.