Tesla Tussles With Chinese Squatter

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Doug Young 

Tesla LogoUS electric car maker Tesla Motors (Nasdaq: TSLA) has landed in the headlines with an escalating trademark dispute in China, casting a spotlight on Beijing’s ongoing efforts to bolster the country’s intellectual property (IP) protections. China has made great strides in its IP protection in the last 5 years, resulting in a healthier business environment where both domestic and foreign companies can feel more secure that their trademarks, copyrights and product designs won’t be illegally stolen and copied.

But this latest case involving Tesla shows there is still more work to do, especially in trickier areas like Chinese-language equivalents of famous western brand names. Tesla is the latest major trademark case in China to make headlines over the last 2 years, reflecting the recent build-up by many famous brands in the fast growing market. Media first reported on the case in August, saying a Chinese businessman had registered the company’s name locally in both English and Chinese in 2006. (previous post) The man also registered the Chinese Internet domain of tesla.com.cn, which carries a logo almost identical to the US Tesla’s and claims to be selling its own electric car.

According to the latest reports, the businessman now wants $30 million for the trademarks. (Chinese article) Tesla executives said last week that the trademark dispute is one of the last remaining obstacles to the company’s entry to China, following its recent approval by the government to sell its popular electric cars in the market.

Tesla’s trademark roadblock follows a similar high-profile dispute in China last year involving global tech giant Apple and its iPad tablet computers. (previous post) In that instance, a Guangdong-based computer parts maker had registered the iPad trademark years ago for a line of products that it later discontinued before Apple’s 2010 launch of its popular tablet computers with the same name.

Apple believed it had purchased the trademark through a deal with an affiliate of the Guangdong company, but realized later the trademark transfer was never consummated. Apple later sued to legally get possession of the trademark, and the Chinese courts ultimately helped to mediate a settlement that reportedly saw Apple pay $60 million for local rights to the iPad name.

In another high profile case last year, luxury goods maker Hermes lost in its latest bid to claim the rights to its name in Chinese, which had been registered by a clothing maker from Guangdong. In that case Hermes had registered its native French name in China as early as 1977, but failed to register the Chinese equivalent at a time when the domestic market for luxury goods was tiny.

Since then, demand for luxury goods in China has exploded with the nation’s rising economic clout, and the market is now one of the world’s largest. Hermes took the Guangdong company to court several times to try to regain the Chinese name. But in the latest case that reached a conclusion last year, a Beijing court ruled against the French company because it could not prove that it was a famous brand in China before 1995, the year that the Guangdong company registered the name.

Each of these 3 cases involves slightly different issues, but all are common in showing how so-called “squatters” can use Chinese trademark laws to force big western names to pay large sums for the rights to their trademarks in China. Such problems also exist in the west, but less complex language issues and a more experienced court system has made the squatter problem far less significant there.

China has taken big steps in its effort to stamp out the squatter problem, bringing the country more in line with global practices. Companies that can prove they were already famous brands in China when a local squatter registered their name can use that defense in the courts to win back their trademarks. But legal experts say Tesla may have difficulty convincing a judge the company was already famous in China when the Chinese businessman registered the company’s name in 2006. Hermes has had problems for similar reasons.

China should be commended in its recent efforts to boost trademark protection and more broadly for its moves to protect intellectual property, which have created a more level playing field for all businesses. But as the latest Tesla case shows, there are still a number of loopholes that need to be closed to improve this important area that is critical for orderly development of a private sector that plays an increasingly important role in China’s economy.

Bottom line: China needs to further improve its trademark registration system to stamp out the problem of squatters who register western brands.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.


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