Quality Control Under Trademark Licensing in China

The quality of licensee’s products may expose the licensor to product quality liability in China under the Product Quality Law, since consumers tend to rely on this quality association when making purchasing decisions. However, if a trademark licensor does not exercise squality control over the goods provided by the licensee, the trademark will no longer signify a certain standard of quality and the public will be misled. Therefore, Trademark Law provides that a trademark licensor shall supervise the quality of the goods, produced by the licensee under its trademark, failing which the China Trademark Office can revoke the licensor’s registered trademark and elicit punishment from the administrative authorities.

Now the question arises as to whether a trademark owner who is not the manufacturer of the product, qualifies for product liability litigation. The Chinese Supreme Court held that any person or business that allows its name, trademark or other distinguishing sign to be affixed to a product indicating itself as the producer should be deemed to be the producer under the Product Quality Law in China. The impact of the court’s interpretation is significant in that a licensor may be liable for product quality when its licensee fails to maintain quality control. However, in order to avoid liability, mark owners may take the following steps:

Preliminary investigations should query the quality control capacity of the prospective licensee.
The licensor should include quality control provisions in licence agreements.
The licensor should not only include the above provisions, but also actually supervise/ exercise supervise quality control.

The licensor needs to control the licensee’s use of the trademark in a manner to ensure that its use will not mislead consumers for the licensor to be the producer. The licensee should clearly indicate itself as the producer on the product packaging, manuals, advertising and other materials.

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