Recently, Tesla Motors learned a hard lesson about the importance of the China market. When new businesses, small businesses even large businesses launch new products and roll out new trademarks, the primary focus is usually the domestic market, and rightfully so. After all, why care about foreign markets if you cannot gain traction in the U.S. So, many companies forego international trademark protection for their marks during the early stages of product development and launch. While this strategy could save some money short term, there are potential risks.

For example, Tesla struggled for years before its Model S took the automobile world by storm in 2012. Before that, and rightfully, its focus was on developing the technology that powers its cars. Like many startups, trademarks were a secondary concern to Tesla in the beginning. In the United States, it was not until 2009 that Tesla sought registration of any of its trademarks. It did not seek any international registrations at the time.

How China Differs

In the United States, trademark rights are based on use of a mark. The first to use a mark is the party that generally has the strongest rights. However, in many countries use is not relevant. Rather, the first party to register a mark has the highest rights to it. China is such a country.

What Can Happen

While Tesla was still struggling to bring a car to market, a Chinese citizen named Zhan Baosheng saw an opportunity and registered TESLA for automobiles in China before Tesla Motors. In 2012, when Tesla sought registration of its marks in China, they were refused registration because of Zhan’s prior registration of the TESLA mark. Thus, Tesla Motors was faced with the potentially ugly consequence of not being able to use its own trademark in China.

Faced with the grim fact that Zhan had registered TESLA first and there was no valid basis to cancel that registration, Tesla Motors settled with Zhan. Though terms of the agreement were not disclosed, Zhan agreed to voluntarily cancel all his TESLA registrations. With the Zhan marks cancelled, then Tesla Motors’ own TESLA trademark can move toward registration in China. Obviously, none of this would have occurred had Tesla filed for registration in China earlier than Zhan had.

Key Take Away

Tesla is only the latest high profile company to have China troubles like this. Also, the situation is repeated in many other countries where trademark rights are based on first to file. What this demonstrates is that trademark owners should consider international issues when initially developing and launching their products. While international expansion might be three, five, seven years down the road, locking up protection for trademarks now could save significant costs in the future.

Photo by NRMA Motoring and Services on Flickr