International Trade and Global Business

 

Pull the Rug from Under Trademark Sitters

Trademark sitting is the act of registering a trademark belonging to someone else for the purpose of selling it to the holder if and when they decide to enter the country where the sitter registers it.
 
Let’s say you’ve trademarked your product in the EU via your country of residence—Ireland. You’re selling your product on Alibaba. A sitter in China sees your product and finds your trademark is not registered in China. So, they register it, not for you but for them.
 
Years go by, and you decide to sell directly into the China market. You get a letter from a lawyer saying you infringed on a trademark you thought was yours. The trademark holder agrees not to sue you in a China court if you pay them a six-figure sum to purchase your trademark.
 
Trademark sitting is not exclusive to scofflaws in China. It happens in other places, but the scope of it in China is enough to turn heads. Part of the problem is that unlike the US, China law is based on the first person to file gets the rights, not the one who actually makes the product or delivers the service. This also is not unusual, and it’s important to understand the significance.
 
Because of the cost of fighting this issue in court, few foreigners do, and as a result end up paying for the rights or forgoing use of their trademark, meaning the scofflaws can sell it to someone else.
 
No one knows the full cost of this activity, but it probably amounts to many millions of dollars every year. It’s not hard to understand why the US, EU and other governments have pressured the Chinese government for years, mostly without success. Until now.
 
China has its own IP to protect, and the sitters target trademarks that aren’t filed regardless of nationality. China’s government is listening to complaints from other governments and must realize that lax IP laws and enforcement discourage much needed foreign investment. The US may hold a damoclean sword in the form of punitive tariffs if China fails to do whatever it promises in the soon to be revealed terms of the bilateral trade agreement.
 
Trying to get out in front of the issue, China has raised the penalty for infringement to a maximum of $800,000. Members of the legal profession who knowingly file false applications are also on the hook. A slap on the hand this is not. That is in addition to damages that might be awarded to the plaintiff. Some critics have argued that such behavior should be criminalized, but that’s not likely to happen soon.
 
Michael Jordan took a sitter to court in China and won, but it took years. Expediency is something the Chinese judicial system must improve, and US trade hawks will be watching.
 
The best protection and deterrence against sitters are to file for protection in any country you think you’ll be selling to in the future. If your goods are made in China for other markets, file there anyway. A common practice is for the contract manufacturer to file your trademark in China, not for your protection but for their future benefit. You may trust and love them. But this is business, so file.
 
Your embassy in China will have a list of vetted IP lawyers who can file for you. Then when a sitter checks to see if your trademark is registered, they’ll see that it is and move on to the next victim.
 
 

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