Protecting your intellectual property – trademark registration in China

By Richard Hoffmann, ECOVIS Beijing China

The Company:

A German SME distributing a certain type of household furniture in China.

The Issue:

When a company enters the Chinese market it has to make sure its assets are well protected. That especially applies for non-material yet indispensable assets such as its brand name. Therefore this company wanted the registration of its trademark in China to be dealt with first and foremost.

When registering a trademark in China – aside from following lengthy and complicated administrative procedures – a company is being faced with two key issues: (I) in which categories to register the trademark and (II) under which legal entity to register the trademark.

The Solution:

Ecovis Beijing was able to suggest the following solution to the client:

I. Categories for trademark registration?

When registering a trademark in China a system of registration categories has to be taken into account. For this system, China uses the internationally renowned NICE Classification, which is a categorization of goods and services into a total of 45 classes. Yet, although the general classes are as specified by the NICE standard, the specific goods and services covered by a class are different in China.

A trademark must be registered in connection with at least one of those classes of goods. The trademark will then be protected for distributing this type of good. However, trademarks can also be registered in connection with multiple classes, which often might be a good idea, as it will ensure comprehensive protection of the intellectual property and leave room for broadening the range of products and services offered under this brand in the future.

In this case, we advised the company to register its trademark in three different categories, which are all linked to the type of product being distributed.

II. Trademark registration under the home company (e.g. the German company) or under the local company (the Chinese legal entity, e.g. the WFOE)?

In this case we advised the client to register the trademark under the German home company. Registering the trademark under the home company brings several advantages, which arise from a combination of legal and taxation aspects:

First, if the trademark is registered under the home company, the home company will own the trademark and can license it to the Chinese WFOE. The Chinese WFOE can then pay royalties for the use of the trademark to the home company. In this way, the home company can collect a part of the revenue of the Chinese WFOE back, before corporate income tax has to be paid.

Second, should the Chinese WFOE be liquidated for whatever reason and it has the trademark registered under it, then the trademark is an invisible asset of the WFOE and thus will be part of its liquidation assets. That means the trademark would be used to pay back creditors of the WFOE, should there not be enough cash/liquid assets. In contrast, if the trademark is registered under the home company, it will remain an asset of the home company and not be affected a liquidation of the Chinese WFOE.

The Company’s Benefit:

By adopting this solution the customer can ensure comprehensive protection of his intellectual property, save money on taxes paid and guard himself against uncertain future events such as possible liquidation.

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