July 8, 2014 at 1:30 pm

Tesla sued in China in dispute over trademark

Tesla Motors Inc., the electric carmaker led by Elon Musk, was sued in China for trademark infringement in the latest example of the difficulties foreign companies face doing business in the country.

Zhan Baosheng, who registered the rights to the name before the U.S. carmaker entered China, is requesting that Tesla shut its showrooms, service centers and supercharging facilities there; stop all sales and marketing activities in the country; and pay him 23.9 million yuan ($3.9 million) in compensation, according to a lawsuit filed in Beijing.

Zhan is the one attempting to steal the U.S. carmaker’s property, Tesla spokesman Simon Sproule said in an emailed response to questions. The company, which has lodged complaints against Zhan to Chinese authorities and won, hasn’t been served with or seen the lawsuit, he said.

The lawsuit would need to overcome a ruling last year in which the Chinese regulator sided with the U.S. carmaker’s claims that Zhan’s trademarks were invalid, though he’s appealing the regulator’s decision. For Tesla, maker of the Model S sedan, the experience puts it with Apple Inc. and Burberry Group Plc among multinational companies that have clashed over their branding rights in the world’s second-largest economy.

“We’ll be watching how China deals with this very closely,” said Paul Haswell, a Hong Kong-based technology law partner at Pinsent Masons. “So-called trademark trolls watch Western brand development and seek to register brands in China that are relatively well known in the rest of the world before they have any brand recognition in China, then use those trademarks as the brands expand into the East.”

Zhan had applied to trademark the name in English in September 2006 — three years after Tesla was founded in the U.S. — for auto-related uses and it was granted by the trademark office in June 2009 for a period of 10 years, according to the website of the State Administration of Industry and Commerce, or SAIC, which oversees trademarks.

He subsequently applied to register more Tesla-related trademarks, including the logo and Chinese transliteration of the name.

“We have brought multiple actions against Zhan on account of his theft of our trademarks, and various Chinese authorities that have ruled on the matter have agreed with Tesla,” Sproule said. Zhan’s lawsuit “will not stop us in any way from operating in China,” he said.

Tesla isn’t the first company to face hurdles in China.

Apple paid $60 million in 2012 to settle a two-year-old dispute over the iPad trademark in the country with Proview International Holdings Ltd., which had applied to Chinese customs to block local shipments of the U.S. company’s tablets.

Burberry, the U.K. luxury-goods maker, said in November 2013 it was appealing a decision by Chinese regulators to restrict the company’s trademark on its hallmark checkered pattern for leather goods.