Tips for Trademark Licensing in China

Entering a trademark licensing agreement in China offers significant benefits to both licensors and licensees. Licensors can earn revenue and enhance their brand’s image while mitigating the risk of non-use cancellation lawsuits. Licensees gain the advantage of using a well-established mark to generate consistent revenue. However, these benefits come with inherent risks that both parties must anticipate and manage. Here are essential tips to ensure a successful trademark licensing experience in China.

Conduct Thorough Due Diligence

Before entering into a trademark licensing agreement, it’s crucial to perform comprehensive due diligence on both the licensor and the licensed trademark. As a licensee, you should:

• Confirm Registration: Ensure that the licensed trademark is properly registered in China and that the rights are stable.
• Investigate Proceedings: Look into any pending cancellation or invalidation proceedings against the mark.
• Verify Export Registration: Check registration in destination countries if the trademark will be used for exports.
• Research Licensor: Investigate the licensor’s background, qualifications, and reputation.

Proper due diligence helps avoid potential issues that could invalidate the agreement later on.

Choose the Appropriate Type of License

There are three main types of trademark licenses in China:

• Exclusive License: Only the licensee can use the mark, including the trademark owner.
• Sole License: Both the licensee and trademark owner can use the mark, but no one else.
• General License: The trademark owner can freely license the mark to multiple parties.

Carefully consider which type best fits your business needs and negotiate accordingly.

Register the License with Authorities

Under Article 43 of China’s Trademark Law, trademark licenses must be recorded with the China Trademark Office (CTMO). Failure to record the license means it cannot be used against third parties in disputes. While recording doesn’t affect the validity between the licensor and licensee, it provides important legal protections.

Ensure Quality Control Provisions

Licensors should include clear quality control standards in the agreement to maintain the trademark’s reputation and value. The agreement should specify:

• Quality Standards: Established quality standards for licensed products/services.
• Supervision Methods: Methods for supervision and inspection.
• Consequences: Consequences for failing to meet quality requirements.

Address Trademark Stability Issues

To protect the licensee’s interests, the licensing agreement should include provisions that:

• Prevent Transfers: Prevent the licensor from transferring the trademark to others during the license term.
• Handle Renewals: Require the licensor to handle trademark renewals in a timely manner.
• Liability Clause: Hold the licensor liable if the trademark becomes invalid due to their actions.

Consider Chinese Language Issues

It is highly advisable to register the trademark in Chinese characters in addition to any foreign language versions. This provides broader protection in the local market and makes the brand more accessible to Chinese consumers.

Monitor for Infringement

Both licensors and licensees should actively monitor for potential trademark infringements in China. This includes:

• Database Checks: Regular checks of the CTMO database for similar trademark filings.
• Online Monitoring: Monitoring online marketplaces for counterfeit goods.
• Unauthorized Use: Watching for unauthorized use of the mark by third parties.

Be Prepared to Enforce Rights

If infringement is discovered, be ready to take swift action, such as:

• Cease and Desist Letters: Sending cease and desist letters to infringers.
• Filing Complaints: Filing complaints with relevant authorities.
• Legal Action: Pursuing legal action in Chinese courts if necessary.

Consistent enforcement helps protect the trademark’s value and deter future infringement.

Comply with Chinese Laws and Regulations

Ensure the licensing agreement complies with all relevant Chinese laws and regulations. This includes:

• Proper Procedures: Following proper procedures for license recordation.
• Industry Regulations: Adhering to any industry-specific regulations.
• Royalty Payments: Complying with foreign exchange rules for royalty payments.

Working with experienced Chinese legal counsel can help navigate these requirements.

Plan for Termination and Dispute Resolution

Include clear provisions in the agreement for:

• Termination Conditions: Conditions under which either party can terminate the license.
• Dispute Procedures: Procedures for handling disputes (e.g., arbitration vs. litigation).
• Governing Law: Governing law and jurisdiction for resolving conflicts.

By carefully considering these tips and working with experienced legal professionals, companies can structure more effective and legally sound trademark licensing agreements in China.

Get in touch with our team of Professionals

A well-structured trademark licensing agreement in China can offer substantial rewards for both licensors and licensees. However, it is essential to navigate the complexities of the Chinese market with due diligence, careful planning, and adherence to local laws and regulations. By implementing these tips, businesses can maximize the benefits of trademark licensing while minimizing risks.

For tailored legal support, visit China Legal Solutions to connect with experienced professionals who can guide you through the complexities of trademark licensing in China.