A Chinese entrepreneur named Zhan Baosheng registered the “Tesla” trademark in China. Then he waited. Once Tesla started selling its cars there, Zhan sued Tesla for almost $4 million dollars, plus the right to stop their trademark use.
These types of practices highlight key differences in trademark rights and ownership which exist between most English speaking countries, which share a strong history of “common law” rights for unregistered trademarks, and the rest of the world, where the first person to file a trademark application is presumed to be the rightful owner. In most places, it’s a footrace to the Trademark Office; losing that race can carry a high cost. Common law countries like ours will often respect trademark rights of the first user, often no matter who was the first to register.
Further, a dilemma like the one Tesla is facing in China should be helped by an international treaty on the law of trademarks (The Paris Convention) which says that the owner of a famous trademark who resides in a member country should be afforded trademark rights in any other member country, even if they have not used that mark there. But not all members automatically respect that treaty provision. For instance, although the treaty dates back to 1883, and the U.S.A. has been a member for over a century, we still do not grant rights to famous marks from other countries unless those marks have also gained some fame here in the United States. The situation in China (which only joined in 1984) is not all that different. So, unless Tesla can prove it’s already well known to Chinese consumers, they may have a problem. Tesla did attack Zhan’s trademark filings several years ago, and has achieved some success to date. (To my knowledge, that is still on appeal.)
There is nothing novel, however, about what is going on in China. Since way back to the dawn of (Internet) time, people have tried to do a land-grab of internet domain names, lie in wait, and then attempt to sell the trademark rights back to the rightful owners. In the late 1990s, the American legal community was generally hopeful that modifications in U.S. law coupled with changes in arbitration-like procedures administered by the international domain name governing body, would stop the practice and make clear that domain names could not be registered on mere speculation. Those efforts to stunt a market in domain names was a colossal bust; the domain name ownership community grew over time to be gigantic, with speculators grabbing variations of famous brand names which they still can’t use without risking trademark infringement, but they can still hold the domains hostage under certain circumstances. Most importantly, perhaps, is the unassailable practice of registering (without any intent ever to use) common dictionary words or simple phrases, and then holding them as speculation until some marketer comes along with a need for the word or phrase. Domain name regulation did not have to travel down this route but, alas, it did.
But go back even further than the Clinton administration, and you’ll see that what is so much in the news today with China and Tesla (and the Apple iPad before it) has been common in other developing parts of the world for decades on end. U.S. brand owners trying to crack new markets in many regions, most notably in South America, commonly used to face this same dilemma, finding that, lo and behold, someone had already taken their famous names and registered them in some country before they ever did business there. Sometimes, trademark owners would hear from advance marketing teams or even tourists, that products were already on the market in South America, being sold under famous U.S. brands, without permission. But this was not counterfeiting, because until the U.S. owner took steps to protect itself abroad, its mark was at risk. This is now less commonly experienced by big, sophisticated global companies. But for startups and smaller enterprises who have neither the money nor expertise to try to protect their rights globally at early stages, the problem remains. This is exactly what happened on the internet, and exactly what Tesla is trying to fight against today in China.
The way name registration rights evolved on the internet was inexcusable, given this long history of name hijacking that existed in emerging markets long before the invention of the personal computer. China had an opportunity to learn from the internet, and from other countries’ experiences, even before then. China is trying to find some ways to balance its own trademark law tradition with the unmistakable scourge of hijacking. But the problem itself is more like Mr. Nikola Tesla (1856-1943) himself — old news — than like the Tesla Model S, the latest craze.
This post originally appeared on Forbes