Pledge of Exclusive Trademark Rights in China

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Recently, Jiangsu Jiangyin Electrical Alloy Co., Ltd. successfully pledged its trademark with the help of the Wuxi Market Supervision Bureau and got a 100 million loan from ICBC.
Many enterprises have seen this news, and some of them are confused about the pledge of exclusive trademark rights. They are interested in what the pledge of exclusive trademark rights is and how to pledge it. This article will give an answer about the pledge of exclusive trademark rights in China.
Development of pledge of exclusive trademark rights
With the embodiment of the value of trademarks, the government and enterprises pay more attention to the pledge of exclusive trademark rights. In June 2015, Taizhou was the first place to set up an institution for recording the pledge of the exclusive trademark rights and accepted the first application on July 1, 2015.
On June 23, 2016, representatives of Taizhou Branch of ICBC and Zhejiang Aishida Electric Appliance Co., Ltd. signed a pledge contract for the trademark "Aishida", and then Aishida got 500 million yuan from ICBC.
In 2019, the number of filing the request for patent assignments, licenses, and pledges was 307,000. The amount of the pledge for trademark and patent is 151.5 billion yuan. The pledge of trademark rights is gradually becoming a trend.
Introduction of related laws
According to China’s Property Law, Guarantee Law, Trademark Law and Regulations on the Implementation of the Trademark Law, the National Intellectual Property Administration (CNIPA) issued the Provisions of the Procedures for the Registration of Pledges of Registered Trademark Rights on April 22, 2020, and the regulation took effect on May 1, 2020.
An individual or entity can pledge his/its exclusive trademark right. The pledgors and the pledgees shall sign a written contract and file the request for recording the pledge in CNIPA. After the examination, CNIPA will approve and record the pledge. At the same time, they will issue the certificate of the pledge of exclusive trademark rights.
Legal risks of the pledge of exclusive trademark rights
Certainly, the pledge of exclusive trademark rights has legal risks to both parties.
For the pledgors, the pledge of an exclusive trademark right is a new type of financing to help the pledgors solve their financial problems, but it means the pledgors cannot assign his trademark. In general, the funds obtained from the pledge are lower than those obtained from the assignment. Compared with trademark assignment, pledging the trademark right is to give up part of the trademark rights in exchange for the right to hold the trademark.
The pledge of trademark rights may affect the license of the trademark right. The pledgees will partially restrict the pledged trademark rights in consideration of the inability to repay the outstanding amount in the future. It will affect the transaction of the pledge rights and the recovery of costs by the pledgees if it licenses the trademark to others.
As intangible assets, trademark rights are difficult to assess its value. The pledgees need to appoint a professional institution to conduct the appraisal. It will increase the expenses of the pledgees.
For the pledgees, since the trademark rights are intangible assets, the value changes with the business. The pledgees can determine the amount only by determining the value corresponding to the trademark at the time of the pledge.
In addition to the market value of the trademark right, the trademark may also be invalidated due to malicious registration, loss of distinctiveness, violation of mandatory provisions, and so on. Based on the invalidation of the trademark right, there is undoubtedly a risk for the pledgees to demand the return of the outstanding amount from the right holder who has difficulties.
Hence, the pledgees and pledgors should assess their own risks to avoid disputes arising from the cooperation.
Required documents for the pledge of exclusive trademark rights
After consideration, if both parties still decide to pledge the trademark rights, they may sign a pledge contract and file the request for recording in CNIPA.
The required documents are as follows:

1. Application form for the pledge of exclusive trademark rights;
2. The identification documents of both parties;
3. Copy of the Trademark certificate. If the applicant is different from the records on the certificate, the relevant documentation shall be provided to show the change;
4. The notarized copy of the contract of commercial transaction and the contract of the pledge of exclusive trademark rights;
5. Assessment report of the trademark issued by an authorized assessment organization;
6. Power of attorney by both parties;
As a new type of financing, the pledge of exclusive trademark rights has unique advantages, but there are also many risks in the pledge process, and both parties should be cautious about the risks in the pledge of trademark rights.