Foreign companies lose millions every year not because China's trademark system is broken, but because they treat it as optional. The assumption sounds reasonable: if you don't sell in China, you don't need a Chinese trademark. Or if you do file, covering just your core product class feels sufficient. Both assumptions are wrong, and the consequences range from seized shipping containers to rival products bearing your brand name in markets you never expected competition.

What this means in plain terms: China's first-to-file trademark system (Trademark Law, Article 29) gives rights to whoever registers first, regardless of prior use elsewhere. A company that files only its core class, or skips registration entirely because it only manufactures in China for export, creates blind spots that squatters and competitors exploit through customs seizures, regional market hijacking, and supply-chain disruption. Any foreign business with manufacturing, sourcing, or future sales plans in China needs to close these gaps now.

The Core-Class Trap: A Partial Filing Is a Vulnerable Filing

Under China's Trademark Law (Article 29), the first applicant obtains rights. There is no common-law protection for unregistered marks. So when a foreign brand registers only in its primary class—say, Class 25 for footwear—it leaves every adjacent class open: Class 35 for retail services, Class 18 for leather goods, Class 24 for textiles, Class 28 for sporting equipment.

Squatters fill those gaps fast. Professional filing operations now use AI tools to scrape overseas trademark databases and file within hours of a new brand appearing abroad, according to a 2025 industry analysis by PLTFRM. Industry practitioners estimate that the majority of squatting disputes in China are resolved through negotiated buybacks rather than litigation, with settlement figures often reaching tens of thousands of dollars per class—though specific figures vary widely depending on the brand's profile and the squatter's leverage.

The damage goes beyond paying ransom. A squatter who owns your brand in Class 35 can legally operate retail stores or e-commerce shops under your name in China. One who holds Class 18 can sell leather goods that dilute your brand positioning.

What foreign companies should know about defensive filing: Preemptive registration across 5 to 8 relevant classes costs approximately USD 1,300–2,500 per class including legal fees. Recovering a single squatted class typically costs USD 50,000–150,000 and takes 1 to 3 years. There is no scenario where waiting is the cheaper option.

"We Don't Sell in China" — The Most Expensive Assumption in IP

Here is the scenario that catches companies off guard: you manufacture in China, ship everything abroad, and never sell a single unit domestically. Your products still pass through Chinese ports. And if someone else holds your trademark in China, Chinese Customs (GACC) can seize your goods at the border for trademark infringement.

This is not theoretical. In 2024, China's General Administration of Customs recorded 53,200 IPR enforcement actions, detaining 41,600 batches of goods. Of those, 99.17% occurred at the export stage, according to the customs annual report released in April 2025. When goods are detained, the trademark holder is notified and has just 3 working days to decide whether to request formal seizure, and must post a bond equivalent to the value of the goods.

A German industrial valve manufacturer learned this the hard way. After three years of working with a Wenzhou foundry, the factory quietly registered the company's trademark in China and recorded it with Customs. Four containers worth approximately USD 1.8 million were seized at Ningbo port. The company missed delivery deadlines, paid USD 720,000 in contract penalties, and ultimately bought back the trademark for USD 80,000 (the squatter's initial demand was USD 300,000). The company had considered filing in China earlier but decided it was "too expensive and unnecessary."

When Squatters Weaponize Customs

A particularly damaging pattern has emerged: Chinese trademark squatters who record their registrations with Customs can block a foreign brand's exports at the border, even when the brand has been manufacturing in China for years. Resolving these blockages through trademark invalidation or litigation takes months or years, during which the goods remain stranded and the brand's supply chain is paralyzed.

The Manolo Blahnik case illustrates the long-game reality of squatting. A Chinese businessman registered the "Manolo & Blahnik" mark in 1999. It took the British luxury shoe brand 22 years of legal proceedings before the Supreme People's Court ruled in 2022 that the registration was made in bad faith and invalidated it. The 2019 amendments to the Trademark Law, which strengthened provisions against bad-faith filings (Article 4, Article 44), were instrumental to this victory. During those two decades, the brand could not enter the China market at all. Manolo Blahnik opened its first mainland China store only in November 2024.

How Courts Decide OEM Infringement: Facts, Not Formulas

Chinese courts do not treat OEM production as automatically infringing or automatically exempt. The judicial trend since 2019 is toward case-by-case, fact-specific analysis. The outcome depends on multiple factors, and uncertainty itself is the risk.

The Supreme People's Court's 2019 ruling in the HONDAKIT case (Honda Motor Co Ltd v. Chongqing Hengsheng Xintai Trading Co Ltd et al., (2019) SPC Civil Retrial No. 138) is often cited as a turning point, but the specific facts matter. The defendant had manufactured motorcycle parts bearing the mark "HONDAKIT," in which the "HONDA" portion was prominently displayed in a non-standard, enlarged format. The Supreme Court found that this prominent, non-standard use of HONDA demonstrated intent to imitate the registered mark, and was a significant factor in the infringement finding. The Court also expanded the concept of "relevant public" to include people involved in production and transportation, not just consumers. But the ruling did not establish that all OEM exports automatically constitute infringement. The defendant's bad faith in how it rendered the mark was central.

Contrast this with the 2023 PREDATOR case ((2023) Shanghai IP Court Civil Appeal No. 475). Chongqing Shenchi, an OEM manufacturer, produced generator sets bearing the "PREDATOR" mark for Harbor Freight Tools USA (HFT), the US trademark owner. One unit was seized by Shanghai Yangshan Customs during export. Both the Shanghai Pudong New Area People's Court and the Shanghai Intellectual Property Court on appeal found no infringement. The courts held that the OEM goods were destined solely for the US market, would not re-enter China, and therefore would not cause confusion among domestic consumers. Critically, the manufacturer had obtained proper authorization from the US trademark owner and produced evidence of the authorization chain. The court also noted that whether the OEM manufacturer had fulfilled a duty of reasonable care in verifying the foreign client's trademark rights is a key consideration—though in this case the court's reasoning ultimately centered on the absence of harm to the domestic trademark's identification function.

Other cases reinforce the fact-specific nature of the inquiry. In the 2016 DONGFENG case ((2016) SPC Civil Retrial No. 339), the Supreme Court found no infringement where a Chinese manufacturer produced diesel engine parts under the "DONGFENG" mark for export to Indonesia, based on authorization from the Indonesian trademark owner. The Court emphasized that the manufacturer had exercised reasonable care and that the Chinese trademark owner (Shanghai Diesel Engine Co) had itself attempted to register the mark in Indonesia but was rejected—a fact the Court viewed as relevant to the overall equity analysis. In the 2016 PEAK case ((2016) Shanghai IP Court Civil Appeal No. 37), by contrast, the Shanghai Intellectual Property Court found infringement, citing the mark's high recognition in China and the possibility that Chinese consumers could encounter the goods through cross-border e-commerce.

The practical takeaway is not that OEM production is safe or unsafe. It is that the outcome turns on case-specific facts—facts you cannot control if someone else holds your trademark in China. No lawyer can guarantee an "OEM defense" will protect your shipment.

The Regional Spillover: When a Chinese Registration Attacks Your Neighboring Markets

A China trademark registration does not stay in China. Squatters who register foreign brands in China increasingly use those registrations to disrupt business in Southeast Asia, the Middle East, and other regional markets where the legitimate brand operates.

The mechanism is straightforward. A Chinese entity that holds your trademark can manufacture and sell products under your brand name in China, then export them to Vietnam, Thailand, Indonesia, or the UAE—markets where you may have established distribution but limited trademark coverage. Consumers in those markets encounter your brand on inferior or unrelated products. Your distributor complains. Your market share erodes.

A Swedish Bluetooth earbud brand experienced a particularly damaging variant. A Shenzhen factory sales representative posted product images on LinkedIn and the factory's website. A professional squatter in Guangzhou saw the images, filed for the brand in Class 9 (electronics) in China, then filed a complaint with Amazon Europe under its "notice and takedown" policy. Amazon froze the brand's European storefront. By the time the account was restored, Black Friday week had passed. Estimated loss: over EUR 2 million.

Rouse, the international IP consultancy, noted in its 2025 Southeast Asia briefing that Chinese companies' accelerating expansion into the region has created what it calls a "fertile environment" for trademark squatting across jurisdictions—particularly in Indonesia, Thailand, and Cambodia, where first-to-file systems and relatively low registration costs make bulk filing attractive.

What Foreign Companies Should Do Differently

File before you need to. If your brand exists and you manufacture, source, or plan to sell in or through China, register now. The cost of a China trademark application (approximately USD 300–500 per class in official fees) is trivial compared to the six-figure costs of recovery. Use the Paris Convention priority claim to backdate your Chinese filing to your home-country application date, giving you a six-month window.

Cover more than your core class. At minimum, register in your primary product class plus Class 35 (retail/wholesale services), and any adjacent classes where squatters commonly operate. For a consumer brand, this typically means 5 to 8 classes.

Record your trademark with China Customs. This is separate from CNIPA registration. Recording your trademark with the General Administration of Customs (GACC) enables Chinese Customs to proactively monitor and seize suspected infringing goods at the border. The official recordal fee is RMB 800 per IP right under current GACC regulations (adjusted fee structures may apply for multi-class filings; verify current rates on the GACC IPR protection portal). The recordal itself, however, is only available if you hold a valid Chinese trademark registration—another reason to register early.

Write IP clauses into manufacturing contracts. Nondisclosure agreements alone will not prevent a factory from filing a trademark application. Your OEM agreements must explicitly prohibit the supplier from applying for any IP rights related to your brand, products, or designs, and must specify liquidated damages for breach.

If you are an OEM manufacturer, document your due diligence. Courts increasingly consider whether the manufacturer exercised reasonable care before accepting an order. This means verifying the foreign client's trademark registration in the destination country, obtaining written authorization, ensuring the mark is used in the exact form registered, and maintaining complete production and export records. In the DONGFENG and PREDATOR cases, the manufacturers' ability to produce authorization documents and evidence of due diligence was central to the non-infringement findings.

Monitor continuously. Set up trademark watching services that cover CNIPA filings in your brand name, Chinese transliterations, and common misspellings. The average time from squatter filing to registration is 4 to 9 months. Catching a bad-faith application during the 3-month opposition period is dramatically cheaper than fighting a registered mark. According to CNIPA data, opposition success rates hover around 35%, while invalidation petitions succeed at approximately 42% overall, rising above 60% in cases involving clear evidence of bad faith.

The Business Case Is Not Complicated

The math is straightforward. Defensive filing across 8 classes in China: roughly USD 2,000–4,000 including legal fees. Fighting a single squatter: USD 10,000–20,000 in legal costs, plus 8 to 36 months of delay, plus potential loss of market access. Manolo Blahnik's 22-year ordeal is the extreme case, but even routine squatting disputes consume 12 to 18 months and tens of thousands of dollars.

Companies that treat China trademark filing as a discretionary expense rather than a structural necessity are making a bet: that no one will notice their brand, that their supply chain will never be disrupted, that customs will never inspect their containers. It is a bet with asymmetric downside. The squatter risks a few hundred dollars. You risk your entire China and regional market position.

If your company manufactures in China or has any plans to sell there, review your trademark portfolio today. Identify the gaps. Close them. The alternative is paying someone else for the right to use your own name.