As large multinational corporations often have subsidiaries, affiliated companies and other legal subjects, the management of the related trademarks becomes a significant issue. In practice, many companies have adopted “decentralized” trademark management based on their own situations, which may cause problems that deserve our attention.

Model and its causes

In some large multinational corporations, issues such as trademark rights establishment, rights protection and daily management are decided by different entities. For example, in some companies, different departments manage their own trademarks respectively, based on products and business. In some cases, important core trademarks are managed by foreign parent companies, while domestic subsidiaries manage trademarks used in the Chinese market.

There are many reasons. For instance, a multinational company has carried out several mergers and acquisitions in its historic development, and after the completion of M&A it continues to retain the legal entities of the original company, while trademark affairs continue to be managed by the legal entities of the original company. Or foreign headquarters allow Chinese subsidiaries to hold their Chinese-language trademarks, or trademarks used only in the Chinese market. There are also some multinational corporations that do not have strict division of trademark management authority, which can lead to the situation where subsidiaries apply for trademarks on their own according to their needs.

Although decentralized trademark management has its own causes and can flexibly solve corresponding problems at a certain stage of a company’s development, it will still bring many inconveniences to the establishment and enforcement of trademark rights in general.

First of all, if a company lacks an integrated trademark protection strategy, it is prone to the lack of a distributed trademark arrangement in a situation where subsidiaries register and hold trademarks separately. Generally, the trademark holders of subsidiaries are more concerned about the trademarks related to their own business, while not so much about the trademarks of other subsidiaries, affiliated companies and head offices.

In addition, different trademark holders may have their own considerations on the budget of trademark protection. If a subsidiary does not attach importance to trademark protection, it is to be expected that some core trademarks will encounter squatters due to not being registered in time. In these cases, it is very likely to cause confusion in trademark management, and important trademark shave even become invalid after expiration without renewal, in practice.

Second, the trademarks registered by different subjects under the group company may conflict with each other. Prior trademarks will block subsequent identical/similar trademark applications in related classes of other subsidiaries. This will not only cause inconvenience to business operation, but also brings more risk to trademark registration caused by the delay of trademark applications. In practice, it is not uncommon for trademark applications within the same group company to “fight” with each other.

Third, decentralized management may also bring obstacles to trademark rights protection. In reality, it is common for infringers to infringe upon multiple trademark rights, or even multiple intellectual property rights, at the same time. In this case, for trademark protection, co-ordination with other rights and interests (such as copyright, enterprise name, commodity packaging and decoration with certain influence) is usually needed.

If these rights belong to different subjects, the subjects of rights protection may involve many companies at home and abroad, which may affect determining decisions on the ultimate subject, the scheme of safeguarding rights, the improvement of evidence, and the timing and effect of safeguarding rights. Besides, in practice, companies within the group often neglect to sign trademark licence agreements and go through the licensing procedures when using trademarks among themselves, which also increases the difficulty in safeguarding rights when drawing the evidence chain on the use of trademarks and their brand recognition.

Solutions and suggestions

Although decentralized management will bring some practical convenience to the company at a specific stage, it will do more harm than good to the confirmation and protection of trademark rights in general. Therefore, it usually is a better choice to avoid decentralized trademark management as much as possible, to integrate all trademarks of the group by the parent company or a separate intellectual property management company, and to formulate the trademark strategy of the whole group company so as to achieve a comprehensive trademark arrangement.

However, in reality, there are also some situations where all trademark affairs cannot be managed uniformly in a short time due to the company’s business. For example, after the merger of companies it is sometimes inevitable that the original organizations will manage their own trademarks before the business has been fully integrated. If each trademark holder can equip their own professionals to manage trademarks, or entrust external professional organizations to manage trademarks uniformly, and maintain co-ordination and close co-operation in trademark affairs within the group, the decentralized management of trademark swill occur under a unified strategy and alternative arrangement.

In order to realize the value of trademarks, the formulation of a comprehensive trademark protection strategy is an effective way, and proven in practice.  As long as the company has a coordinated and unified trademark protection strategy, it can effectively improve the efficiency of trademark establishment, deploy the different intellectual property rights in time, when it needs to safeguard its rights, and realize the value of trademarks to the greatest extent by making plans and arrangements in advance for the scheme of trademark rights establishment, the differentiation criteria of core trademarks, the distribution of rights and responsibilities among the entities, and the way to deal with infringements.

This article is first published in February 2020 issue of China Business Law Journal