Many traders in commodity goods outsource the production and labeling to suppliers in foreign countries where the goods are manufactured but not sold. The labeled goods are then shipped to traders for distribution in other countries and it is often assumed that the trade marks applied to these goods do not have to be registered in the production country, particularly if they have already been protected in the distribution countries. However, this assumption could not be more wrong.
In South Africa, wine exports is an industry where this misconception seems to be prevalent as the following fictional example could serve to illustrustrate: Wexports, a South African wine export company, supplies large quantities of wine to a UK customer under a so-called “buyers own brand”. WINO, the trade mark used on the wine label, has been registered by the customer in the UK, but not in South Africa, because the wine will not be sold in South Africa. However, these parties are both unaware that another company, Homegrown, has registered the trade mark WINO in relation to wine in South Africa. The implications for Wexports and its UK customer are that Wexports could be prevented from labeling and exporting wine bearing Homegown’s (South African) WINO mark to any country in the world, including the UK, as our Trade Marks Act specifically extends trade mark infringement to the unauthorised application of a registered trade mark to goods exported from South Africa.
It is interesting to note that this “technique” is sometimes used by wine producers who do not want to spend any money on protecting their trade marks in foreign countries. Instead, they simply obtain registration of their mark in South Africa and then carefully police their competitors’ exports.
For Wexports and its UK customer, this scenario could quite easily have been prevented had they timeously done their homework by conducting a clearance search of the South African Trade Marks Register and then filed an application for the registration of the mark.
The problem is not limited to South Africa. Many legitimate traders from South Africa and across the world look towards Chinese suppliers to manufacture their branded products for distribution elsewhere. The products are not intended for sale in China but simply manufactured, labeled and then exported by the Chinese supplier to the trader. While the trader may have obtained trade mark protection in the distribution countries, an omission to do so in China could cost him dearly.
Consistent with the South African Act, Chinese trade mark legislation also stipulates that it is an infringement to export branded goods without the authorisation of the owner of a conflicting mark registered in China. In addition, China is what is known as a “first to register” (as opposed to a “first to use”) country, which simply means that whoever registers the mark first, gets it, with very few exceptions.
A further danger is that the owner of the conflicting Chinese trade mark registration may also have recorded his registration with customs in China. This measure has been implemented mainly to guard against the enormous amount of counterfeit goods leaving Chinese shores. However, the unsuspecting “legitimate” trader may also be caught in the web. His only objective may be to import goods from China with a trade mark registered in his name in the countries where the goods will be sold. It should be clear by now that this will not safeguard him against possible seizure or even destruction of his goods by Chinese customs.
Given that Chinese production facilities form the backbone of numerous South African and foreign businesses today, particularly in the clothing and retail industries, it is surprising to what extent the dire consequences of non-registration are misunderstood or simply ignored. Importing traders believe that they will not be affected because they have made use of Chinese suppliers for many years without any problems or detection. Once detected, however, it would serve no purpose to argue that the production of the goods pre-dates the conflicting trade mark registration in China.
What then are the options available to a trader who finds himself in this kind of predicament? Apart from non-legal solutions, such as using a different mark on the goods, or only applying the label once the goods have left China, or even moving production facilities to another country (all of which may be impractical, depending on the circumstances), the following options could be considered:
- Cancellation of the registered mark
The conflicting registration could be attacked on the basis of non-use. This remedy would only be available if the owner has not used his mark for a continuous period of at least 3 years after registration. The onus will be on the owner to show that he has, in fact, used his mark. A prior registration can also be cancelled if it is similar to an earlier, well-known mark or was filed in bad faith, or if an agent or representative of the trade mark owner registered the mark in his own name. The onus to prove these facts will be on the person seeking cancellation. The first ground may be the most difficult, if not impossible, to prove given that the goods in question have been manufactured in China for export purposes only and could therefore hardly have established a reputation in that country.
- Reaching agreement with the owner of the registered mark
The owner could be asked to consent to the trader’s use of the trade mark or to sell or licence the mark to the trader. These agreements, however, usually come with a hefty price tag attached.
Prevention is therefore the only viable solution in most cases which may be a cold comfort to traders who have been sourcing their goods from China for years without any trade mark protection. However, traders considering China as a future source of supply would be well advised to register their trade marks without delay.
South Africa and China have been used as examples in this article because of their particular relevance to the South African import and export industries. The issues discussed here are, however, equally applicable to other countries where goods are produced for export purposes only. Therefore, whether you are sourcing glassware from Italy or T-shirts from Vietnam under your own brand, always remember to protect your trade mark in those countries as well.