China Law Blog: It’s Perfectly Legal for Your Chinese Manufacturer to Copy Your Products

Once again China Law Blog spells out the reality…

Dan Harris writes….

1. Chinese Manufacturers Will Copy and Sell Your Products; It’s What They Do

Literally every single day this past week, the international IP lawyers at my law firm received at least one email from an American/European/Australasian company on how their Chinese manufacturer was selling their products at wholesale and/or at retail to others. These emails usually concluded by asking our lawyers what they would charge to sue these Chinese manufacturers.

Our response would be to ask whether these American/European/Australasian companies had a written contract (or even anything else in writing) forbidding their Chinese manufacturer from copying their product. And then, when none of them had any such writing, we would tell them that we were not interested in suing the Chinese companies.

2. You Need a Written Contract to Protect Yourself from Your Chinese Manufacturers

One of these emails expressed surprise at what their Chinese manufacturers were doing to them, to which our response was as follows:

If your Chinese factory were not stealing your designs and using your name I would have been surprised. Truth is they do that pretty much every time (and it is perfectly legal) unless you have a contract or IP registrations that can prevent that. At this point, my advice would be to find a new factory as soon as you can because once their sales of your product on their own behalf have taken off, you are just a nuisance and their next move will no doubt be to keep raising your prices until your business is completely crushed and you no longer exist as a competitor to their selling what was once your product.

There is probably nothing to do about them making your product (at least nothing that would make economic sense) but – as I always tell people – it’s bad enough when your product is copied and sold for 40 percent less than for what you sell it, but it’s usually lights out for a small business when the Chinese company can sell “your” product for 40 percent less with “your” name on it. So at this point the best thing we can do for you is to seek to secure your brand name as a trademark in China and in those countries in which you are selling your product. I urge you to read Manufacturing in Asia: Let’s Talk United States and Canada and Mexico and EU Trademarks.

Without a written and China-specific contract, there is essentially no good recourse against a Chinese manufacturer that copies and sells your product. It may be possible to bring a trade secret claim but these are really tough and really expensive cases.

In fact, in the last couple years, we have seen a massive increase in Chinese manufacturers taking on new customers with the SOLE intention of selling the products of those new customers. We are seeing a large increase in Chinese manufacturers low-balling their pricing to lure in foreign companies simply to flip around and steal and start selling the foreign company’s product. If you are getting manufacturing pricing that is too good to be true, it probably is and you are probably dealing with a manufacturer that wants your business just so it can steal from you. And as we mentioned in the email above, once the Chinese manufacturer has gone to market with your product, it will usually increase your pricing sky-high or simply refuse to make your product for you any longer.

The same holds true for stealing your trademark.

3. You Also Need a China Trademark to Prevent Your Chinese Manufacturer from Stealing Your Brand Name

In China Trademark Theft. It’s Baaaaaack in a Big Way, we wrote how China trademark theft had massively increased and what companies can do to stop it:

Starting about a year or so ago, our China trademark lawyers started getting a ton of China trademark theft calls and the number of those calls has been accelerating ever since. Why has the tide on trademark “theft” come in again? Two reasons. One, there is hardly a sole in China who does not know how to get around the prohibition on an agent registering the trademark that rightfully should go to the foreign company for whom it is acting as an agent. If your manufacturer in Shenzhen wants to secure “your” trademark in China it will not register it under its own name as it knows that cannot work. So instead of registering the trademark under its own Shenzhen company name, it will ask a cousin or a nephew in Xi’an to register it under its company name, making it nearly impossible for you to invalidate the trademark. Two, many Chinese factories are hurting right now and they desperately want to improve their profit margins. What better way to do so than to sell a product under a prestigious or well-known American or European brand name — or even just any brand name? See Your China Factory as your Toughest Competitor.