6 Key Takeaways from Tesla’s Trademark Infringement Battle in China

By now, you may have heard of the term “patent troll.” It’s a phrase that makes the skin crawl collectively among Silicon Valley CEOs. The moniker represents those who may knowingly register patents on existing, branded products or processes, and lay in wait until the unsuspecting company infringes the registrant’s rights.

In many cases, it’s difficult to determine who came first – the chicken or the patented egg. Either way, this alarming trend isn’t the first of its kind, nor will it be the last. Businesses will always battle against brand infringement, especially on foreign soil.

Tesla’s Chinese trademark clash is proof that so-called “trademark trolls” won’t soon retreat beneath their foreign bridges either. In 2006, a Chinese businessman named Zhan Baosheng filed for the “TESLA” trademark in his home country just three years after the conception of the U.S. “TESLA” brand. Tesla’s Chinese presence was further complicated when Zhan registered the Tesla logo and Chinese-language iteration of the brand name.

Regarding Tesla’s trademark and Zhan’s intentions, only one thing is certain: Business owners have a lot to learn from Tesla’s trademark tussle. Read on for six key takeaways from the company’s trademark battle in China.

Zhan Isn’t the First “Trademark Troll”

Tesla Motors Logo


Image via Flickr by Sam Felder

In fact, Zhan has registered other trademarked names of pre-existing companies prior to their entry into China; perhaps most notably, he did this with the German automaker brand, Loremo. However, let’s take the spotlight off Zhan for a moment.

In 2012, Apple faced an expensive fight against Chinese company Proview International Holdings – a trademark tussle that resulted in a $60 million payout by Apple over the company’s iPad trademark. Proview sought to block Apple’s exports of the tablets due to the alleged infringement.

Key Takeaway: Even big-name U.S. brands aren’t immune from trademark trolls. Smaller companies, especially those lacking significant capital, are especially vulnerable to foreign trademark claims that could cost millions.

Trademark Registrants Aren’t Afraid to Fight

Sure, Tesla may have a well-known brand with a noteworthy multi-national presence, but that doesn’t mean Zhan will forego fighting for his rights. Although the Chinese courts ruled in 2013 that Tesla had legitimate claims to the Chinese brand name, Zhan is far from finished.

The capitalist filed a recent appeal that recaps Tesla’s purported Chinese brand infringement and calls for the U.S. carmaker to cease production, sales, and marketing operations within China. Zhan is investing real money in the fight, as well. The filing fees for the Chinese lawsuit are equivalent to around $26,000 in U.S. currency.

Key Takeaway: Whether or not a trademark claim is legitimate, it doesn’t necessarily stop it from being contested in foreign courts. Even if the courts don’t side with Zhan, Tesla is looking at a lengthy appeals process.

Don’t Assume You’re Protected by The Paris Convention

Back of iPad

Image via Flickr by bfishadow

The 1883 treaty, which ostensibly allows renowned brands automatic trademark rights in The Paris Convention’s member countries, is notoriously disrespected. In fact, the U.S. often doesn’t grant the same rights to foreign companies that file similar trademark cases against American corporations.

China signed The Paris Convention in 1984; however, companies’ international rights to their trademarked property continue to be blurred within the country, including the example noted in the recent Apple iPad issue.

Key Takeaway: Despite agreements like The Paris Convention, most countries can (and probably will) still fall back on their own judgments regarding trademark issues. The only way a company can protect itself is through careful planning prior to entering a foreign market.

Courtroom Collisions Could Cause Roadblocks to Production

You already know that foreign trademark registrants aren’t afraid to fight, but what about the realities of a battle’s impact on production and bottom-line numbers? The seed of Tesla’s issue remains: The company pursued a Chinese presence because the country is a mecca for auto sales and manufacturing – and a lucrative one at that.

Ultimately, the court appeals that follow will stave off Tesla, however temporarily, from a potentially productive and profitable stay in China.

Key Takeaway: While there’s no word yet on what, if any, profit loss Tesla might suffer in stalled sales and production, the subject does highlight potential issues for smaller companies in similar situations. Without the resources to fight, a company could theoretically get blocked from the Chinese market entirely, which could keep a fledgling company from valuable foreign growth.

Trademark Issues May Mean a Foreign Name-Change

While analysts believe Tesla has a strong case against Zhan, if the company does fail to take back its trademark, it could require a new Chinese brand name. Although Tesla’s hypothetical new name may be altered only by a few Chinese characters or American vowels, it will lose the recognition of its namesake, Nikola Tesla. Coincidently, this is the very person (not the Tesla brand) that Zhan claims is the inspiration behind his business name, as well.

In the past, companies have made name-change concessions for the sake of the Chinese market. Land Rover, for one, changed the Chinese name of its “land tiger” vehicle following allegations of trademark infringement. The company settled on the Chinese character representation for “street tiger” – nomenclature that clearly strays from the company’s branding.

Key Takeaway: The Tesla-Zahn case is highly publicized; if the company loses its battle, it’s unlikely that Tesla will miss out on basic brand recognition in China – even with a new name. However, a smaller company could be steamrolled into an unrecognizable foreign trademark that robs the product of any of its original U.S. brand recognition.

Develop a Brand Strategy for Foreign Markets

Tesla made the mistake of assuming its trademark was safe in foreign territory when it should have developed a brand strategy for China (a huge auto market) from the start. As a company, Tesla was still proverbially “finding its legs” in 2006 when Zhan filed the trademark; however, Tesla’s lack of foresight could potentially cost the automaker millions before this trademark battle is finished.

Key Takeaway: Companies building their brand overseas may want to register early and everywhere; at the very least, they’ll want to consider registering in any conceivable market they might enter.

Securing your trademark in the U.S. and overseas is key to establishing the safety of your brand name or logo in any market. A trademark attorney can provide invaluable insight into your company’s branding needs, helping you plan for your future in a foreign market.

Xavier Morales, Esq.

About the Author:

Xavier Morales, Esq.

Mr. Morales founded his trademark law practice in January 2007 with the goal of providing intellectual property expertise to entrepreneurs and businesses around the country. Since then, he has filed more than 6,000 trademarks with the USPTO. You can learn more about Xavier here.

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