Trademark Checks for Franchisees in China: Verify Brand Licensing and Infringement Liability Before Signing

When you join a franchise network, you are buying more than a shop sign: you are securing the right to continue using the brand’s business resources on agreed terms. If you discover only after signing that the trademark belongs to another company, that a licence is about to expire or that your outlet’s use falls outside the authorisation, your investment in fit-out and marketing could be at risk. Before signing, treat the question ‘Can this brand legally be made available for me to use?’ as a separate due diligence exercise.

1. Distinguish registered trademarks from brand marketing

Article 3 of China’s Regulations on the Administration of Commercial Franchising lists registered trademarks, business logos, patents and proprietary know-how among the resources used in a franchise business. The absence of a registered trademark therefore does not, by itself, mean that all of a brand’s franchise agreements must be invalid. However, if you are paying primarily to use a particular name and logo, their legal status is central to your investment decision.

Ask the franchisor for a list of the resources it intends to license, specifying the trademark image, registration number, registered proprietor, goods or services covered by the registration, validity period and the exact versions your outlet may use. Do not settle for a screenshot of a trademark in a franchise recruitment brochure.

In particular, distinguish between three situations: a trademark that has been registered, one for which only an application has been submitted, and an application for a mark that differs from the signage actually used. Documents confirming acceptance of an application are not a trademark registration certificate, nor do they prove that registration will ultimately be granted. If the franchisor says it is ‘updating the logo’, ask how long the old version can still be used and who bears the risk if registration of the new one fails.

The Regulations on the Administration of Commercial Franchising require prescribed information to be disclosed in writing, and a copy of the contract to be provided, at least 30 days before signing. The Measures for the Administration of Information Disclosure in Commercial Franchising contain further provisions concerning business resources such as registered trademarks. Compare the resource list item by item with the disclosure documents and contract schedules, rather than relying solely on explanations from the franchise sales team.

2. Trace the rights from the registered proprietor to your contracting company

Use the China National Intellectual Property Administration’s public trademark search channels to check the registered proprietor, validity period, registered scope and status of any relevant proceedings. Search results may not reflect the latest developments. If you find information about an assignment, renewal or dispute, request the supporting documents and, where necessary, have a professional verify them.

The key issue is not simply whether someone can produce a certificate, but whether you can answer these three questions:

• Who owns the rights? Is the registered proprietor the same company whose seal appears on the contract? If not, do not accept ‘we are in the same group’ or ‘we have the same owner’ as proof of authorisation.
• Who has the right to license your use? Ask to see valid licensing documents linking the registered proprietor to your contracting company. Confirm that the company may authorise outlets to use the mark under franchise arrangements, rather than merely use it in its own company-operated outlets.
• How long will the authorisation last? Does the upstream licence cover your contract term, business location and intended uses? If it expires before your agreement does, how will the franchisor secure your continued use?

China’s Trademark Law allows a registered proprietor to license others to use a registered trademark under a licensing agreement and requires the licensor to record the licence with the Trademark Office. An unrecorded licence cannot be asserted against a third party acting in good faith, but this does not automatically make the licensing agreement invalid. Recording a trademark licence and filing a commercial franchise are also separate procedures: neither substitutes for the other.

3. Put permitted uses and the cost of changes into the contract

Trademark rights are limited by the goods or services covered by the registration. A brand’s ownership of a trademark for a particular category of goods does not mean that every service offered by your outlet automatically enjoys the same protection. Equally, specific infringement risks across different classes cannot be assessed mechanically from class numbers alone.

List the intended uses based on your actual opening plans: shopfront signage, menus, packaging, delivery-platform pages, social media accounts, group-buying pages and promotional materials produced by the outlet itself. For each, specify the permitted mark, approval process and prohibited uses. The contract schedules should also fix whether you may use a word mark, a figurative mark or a combined mark, to avoid disputes arising from unauthorised changes by designers.

The contract should also address voluntary rebranding by the franchisor and changes in the underlying rights: who must give notice, who pays to update signage, packaging and platform pages, whether existing materials may still be used, and when the changeover must be completed. Do not accept a bare requirement to ‘follow head office’s latest instructions’ without arrangements for costs and deadlines.

To address gaps between authorisation periods, you could require the franchisor to provide evidence of trademark renewal or renewal of the upstream licence by a specified date. The contract should also set out how payment and performance obligations will be adjusted if that evidence is not provided. These arrangements should create clear contractual rights; do not assume that you can simply stop paying on your own initiative.

4. Agree in advance how infringement complaints and loss of authorisation will be handled

Receiving a solicitor’s letter or a platform complaint does not automatically mean your outlet has infringed a trademark. However, you should not expand your use merely because the franchisor tells you to ignore it. The contract should name a contact for complaints and set deadlines for the franchisor to provide evidence of its rights, assist with challenges to complaints and propose a response plan.

Distinguish between the sources of liability. A defect in the rights to a mark supplied by the franchisor should not be treated in the same way as a franchisee changing the mark without permission or using it beyond the authorised scope. For the former, agree how reasonable legal defence costs, replacement materials and losses from any necessary temporary closure will be allocated, as well as the arrangements for termination and financial settlement if the agreement can no longer be performed.

An agreement between you and the franchisor that the franchisor will bear liability does not prevent a third party from bringing a claim against the outlet actually using the mark. Franchisees should retain licensing documents, design approvals, purchase records and complaint notices, and promptly take appropriate steps to limit losses. Whether infringement has occurred, whether the contract can be terminated and how much compensation is payable depend on the facts and applicable law. A trademark dispute does not automatically entitle you to a full refund.

Practical takeaway: before paying, complete a checklist covering ‘trademark—rights holder—licensing documents—permitted scope of use—validity period’. If any link remains unclear, obtain the missing evidence and agree the contractual arrangements before committing money to signage, fit-out and marketing.