If you have a product or intellectual property you want to license in China, YK Law can help. We’ve helped many clients monetize their intellectual property in China, by authorizing third parties to commercialize the products through technology license or transfer.
There are a number of ways you can license your product and protect it at the same time. We work with our clients to fully understand their business and technical goals before helping them effectively negotiate and prepare either an IP licensing agreement, a technology transfer agreement, or collaboration or joint development agreement in order to license a product in China.
Beyond providing legal advice about licensing products in China, our value to our clients is the way we help them protect and utilize their technology and its related IP overall, internationally. Contact one of our offices to help you fully protect and monetize your IP in China.
How does a Licensing Agreement Work in China?
Both foreign licensors and licensees in China benefit from licensing agreements and their variants. The licensor is compensated for use of the licensor’s IP, expands brand recognition, and receives some amount of protection against non-use cancellation claims against their registered marks. The Chinese licensee benefits from the goodwill of an existing mark and from the revenue generated by production and sales.
Types of License Agreements in China
In a typical licensing agreement in China, the foreign owner of the intellectual property (whether a brand name, trademark, or technology) grants the Chinese licensee the right to produce and sell those goods or use that technology. The types of licensing agreements are:
The licensee is authorized by the licensor to use the mark on specific goods or services for a period of time in a certain territory. Neither the Licensor nor any third party may use the mark in that region during that time.
The licensor may use the mark, but no third party can, and if the licensor does not bring suit for third-party infringement the licensee is authorized to do so.
Most common in franchising, the licensor authorized a number of licensees to use the mark.
For each of the three types of licensing above, the licensor may specify a territory in which the Licensee may use the mark, which can be a city, a province, the entire country, or worldwide.
Know that whichever type of licensing agreement you choose, licensing in China is not without risk. Here is what you need to do to mitigate risk.
Things to Consider as a Licensor in China
Ensure All IP Is Registered in China
The first order of business is to register your intellectual property in China, to prevent licensees from registering and using trademarks that are similar to your licensed mark. The use of similar marks will cause brand confusion, could dilute your brand’s distinctiveness and reputation and could affect your portion of the market share. It is important to understand that each of Mainland China, Hong Kong, Macao and Taiwan is a separate jurisdiction and you may need to register your trademarks with all of the four jurisdictions.
Protect Your Mark
Once you’ve registered your IP in China, you should ensure that your licensing agreement contains a provision forbidding the licensee’s use or registration of your mark or any mark that is similar, or any mark that makes use of any of the distinctive elements or words of your mark, without your permission. Another provision should also prevent any third party from using the mark or a similar mark, and if infringement occurs, the licensee has the power to sue in its own name.
Confirm Licensee Ability and Monitor Quality Control
The quality of the products produced by the licensee that bears the licensor’s mark can make or break a licensor’s reputation and the value of the mark. Licensors are advised to choose licensees with care, and independently confirm the licensee’s ability to produce goods to the licensor’s standards by obtaining proof of production capacity, management experience and stability, and production quality.
Quality control during the license period should be of concern for licensors for another reason besides maintaining brand reputation. Under Article 43 of China’s Trademark Law, a licensor is required to supervise the quality of the goods bearing the licensor’s registered mark.
To comply with the law and to protect brand reputation, the licensor should ensure that the license agreement stipulates the supervision and inspection methods required to prevent any decline in quality standards, such as:
Regular and unexpected visits by inspectors for guidance, training or inspection; and
Random inspection of products.
The licensor must monitor quality standards throughout the agreement period. If an issue with quality arises, the licensor should take remedial action. The licensing agreement should provide for the licensor’s ability to terminate the agreement should remediation fail.
Notwithstanding the above, the licensor should consider including an indemnification clause in the license agreement to protect itself from product liability disputes between the licensee and its distributors or final customers.
Record the Licensing Agreement with the China Trademark Office
Under Article 43 of China’sTrademark Law, if a licensor authorizes another party to use its registered mark, it must submit the trademark license agreement to the China Trademark
Office (CTMO) for its records. If the licensor fails to do so, the agreement cannot be used in litigation against good-faith third parties for infringement.
License Your Mark in China with YK Law
While these are the steps for licensing in China, there are nuances of Chinese law and contract drafting and negotiation that we can help you with to efficiently and effectively protect your IP and monetize it in China. Contact us at any one of our China IP offices nationwide to discuss your licensing agreement.