U.S. companies are falling victim to a new trademark scheme in China. Chinese counterfeiters now have a new approach to appropriating foreign brands. Trademark rights are territorial, meaning you will only have trademark rights in the countries in which you register your trademark. As a result, counterfeiters have always had the ability to sell counterfeit goods in countries in which the trademark owner has not secured a trademark registration. The new approach to counterfeiting takes this scenario to a new level. Now when a trademark owner fails to secure trademark rights in the country in which it manufacturers its goods, sophisticated counterfeiters are securing their own trademark registrations in the same country as the true owner’s manufacturer.

How the Scheme Works

As an example, consider a US company, let’s call it “ABC Corp,” with the trademark XYZ for clothing. ABC Corp decides to outsource its manufacturing to a Chinese manufacturer to maximize its profits – an unfortunate reality in manufacturing. A Chinese counterfeiter, let’s call it “Fraudsters, Inc.,” realizes that XYZ clothing is not only manufactured in China, but the clothing brand is extremely popular and ABC Corp never secured Chinese trademark rights. Knowing that ABC Corp failed to secure rights in China, Fraudsters, Inc. decides to profit off the goodwill of ABC Corp.

Instead of just selling counterfeit goods in China, Fraudsters, Inc. also registers the same trademark XYZ for clothing in China. With the Chinese trademark registration, Fraudsters, Inc. begin can freely sell its counterfeit goods not only in China, but in multiple other countries and on e-commerce platforms that favor Chinese trademark registrations, such as Alibaba. Finally, when ABC Corp tries to export its freshly manufactured goods, Fraudsters, Inc. uses its Chinese trademark registration as a basis to seize ABC Corp’s cargo through Chinese customs by claiming trademark infringement.

Canceling the Fraudulent Chinese Trademark

At this point, ABC Corp’s only recourse is attempting to cancel Fraudster Inc.’s trademark registration. ABC Corp should be able to prove that Fraudster Inc.’s trademark registration was secured in bad faith, which will likely result in the cancellation of Fraudsters, Inc’s trademark registration. However, this process could take 9+ months. ABC Corp must somehow hold on for 9+ months until it can begin exporting its product. Alternatively, ABC Corp can seek a second manufacturer, but that process can be extremely time consuming and difficult. Worst of all, Fraudsters, Inc. is likely tarnishing ABC Corp’s brand, which could destroy the company’s goodwill.

Securing Chinese Trademark Rights

Fortunately, the solution to completely combat this new counterfeiting approach and avoid exportation seizures is simple yet effective: secure trademark rights in any foreign country in which you manufacturer your goods and preferably in any country in which you currently or intend to sell your products.