Korea-China Trademark Dispute Resolution and Enforcement Strategy

1. Analysis of Korea-China Trademark License Dispute Case

The trademark license dispute between Company A and Company B demonstrates the complexity of international contracts.

Background and Contract Structure

Company A held registered trademark rights for Trademark X in Korea and several other countries, and acquired exclusive distribution rights for the Chinese market from Great Corporation in October 2021.

In February 2022, Company A entered into a 5-year trademark license agreement with Chinese Company B. The key aspect of this contract was restricting Company B to selling apparel products using Trademark X exclusively on the Chinese online shopping platform ‘Doowool’.

Detailed Contract Terms

The royalty structure was set at 2% of total sales revenue, with a minimum guaranteed annual royalty of 650,000 yuan. If 2% of sales revenue fell short of 650,000 yuan, Company B was required to pay 650,000 yuan.

Particularly noteworthy was the penalty clause for contract violations. If Company B used the trademark for sales on platforms other than Doowool and failed to comply with Company A’s cessation demand within 10 days, they would be liable for a penalty of 3.25 million yuan (five times the minimum guaranteed royalty).

2. Strategic Use of Governing Law and Jurisdiction Clauses in International Contracts

The most strategic aspect of this dispute was the governing law and jurisdiction clauses in the contract.

Legal Effects of Governing Law Selection

Despite being a Korea-China contract, specifying Korean law as the governing law was a very wise choice. The application of Korean law created a favorable legal environment for Company A in terms of strict trademark protection, recognition of penalty clauses, and contract interpretation methods.

Practical Benefits of Jurisdiction Designation

By designating Korean courts as the jurisdiction, not only was convenience in litigation proceedings secured, but it also allowed utilization of Korean courts’ firm stance on trademark protection and strict judgment on contract violations.

However, arbitration is generally preferred over litigation in international disputes because arbitral awards are more easily enforceable worldwide under the New York Convention.

3. Document Service to Chinese Courts: Practical Issues and Solutions

One of the most time-consuming procedures in international litigation is document service.

Utilization of Korea-China Judicial Cooperation Treaty

Official service procedures are conducted under the Civil and Commercial Judicial Cooperation Treaty between the Republic of Korea and the People’s Republic of China, which has been in effect since 2005. While service through this treaty ensures legal stability, it can be quite time-consuming.

Methods to Minimize Service Delays

In practice, various methods should be considered in parallel, including service through diplomatic channels under the Hague Service Convention, service through branches or agents in China, and when necessary, service by publication.

It is important to secure accurate service addresses from the contract formation stage and prepare property preservation measures in advance to prevent the defendant from concealing assets due to service delays.

4. Enforcement Procedures for Korean Judgments in China and Success Cases

While enforcing Korean court judgments in China is theoretically possible, there are several practical barriers.

Successful Enforcement Cases in China

The 2017 case where the Qingdao Intermediate People’s Court of China recognized and enforced a final judgment from the Suwon District Court of Korea is a very significant precedent. In this case, reciprocal guarantee was recognized based on the defendant’s residence in Qingdao for over 10 years and the precedent of Korean courts recognizing a judgment from the Weifang Intermediate Court of Shandong Province, China in 1999.

This was the first case of a Korean judgment being enforced in China, establishing an important precedent that increased the possibility of similar enforcement decisions in other Chinese courts.

Practical Application of Reciprocal Guarantee Principle

Article 282 of China’s Civil Procedure Law stipulates that recognition and enforcement of foreign judgments should be determined based on the principle of reciprocity when there is no international treaty. Although there is no separate treaty between Korea and China regarding judgment recognition and enforcement, enforcement is possible if reciprocal guarantee is proven.

As precedents of Korean courts recognizing Chinese judgments continue to accumulate, the likelihood of Chinese courts also recognizing Korean judgments is gradually increasing.

Practical Measures to Enhance Enforceability

To increase the possibility of enforcement in China, it is essential to secure guarantees or collateral within China from the contract formation stage, or to understand the status of assets within China in advance. Additionally, close cooperation with local Chinese law firms to prepare enforcement procedures in advance is crucial.

5. Trademark License Violations and Damage Claims

Company B’s contract violations in this case were specific and clear as follows:

Violation of Minimum Royalty Payment Obligation

Company B failed to pay the third-quarter 2023 royalty of 250,000 yuan and the first-quarter 2023 royalty of 200,000 yuan within the stipulated timeframe. In trademark license contracts, minimum royalty clauses are core mechanisms that guarantee the licensee’s continuous business activities and ensure stable revenue for the licensor.

Violation of Sales Channel Restrictions

Company B violated the Doowool-exclusive sales condition specified in the contract by also selling apparel marked with Trademark X on other online shopping platforms such as Taobao and JD.com. Despite Company A’s demand on January 31, 2023, to cease such violations, Company B took no corrective measures until February 27, 2023.

Unauthorized Contract Termination Notice

Company B unilaterally notified contract termination on January 19, 2023, without proper cause or procedure. This constitutes a serious violation that severely undermines contract stability and trust relationships.

6. Contract Dispute Prevention Checklist for Chinese Companies

To prevent disputes with Chinese companies and ensure effective remedies, the following advance preparations are necessary:

Key Elements in Contract Drafting Stage

Clearly stipulate governing law and dispute resolution methods (arbitration or litigation), and secure accurate service addresses and contact information. Specifically define penalties and damage compensation scope for contract violations, and if possible, secure enforceability in advance through collateral provision or guarantor establishment within China.

Risk Management System Construction

Thoroughly investigate the counterparty’s creditworthiness and financial status, and understand the status of assets within China. Build networks with local law firms to enable rapid response when disputes arise.

Continuous Monitoring System

Establish a system to detect violations early and respond quickly through regular confirmation of royalty payment status, monitoring of license usage scope, and inspection of contract performance.

7. Conclusion and Comprehensive Recommendations

While obtaining a successful judgment from Korean courts in trademark license disputes with Chinese companies is certainly meaningful, considering actual enforcement requires comprehensive risk management from the contract formation stage.

Setting governing law and jurisdiction to Korea is merely the first step to securing a favorable judgment, and additional safeguards are essential to ensure the effectiveness of service and enforcement.

The increasing number of cases where Korean judgments are recognized in China is a positive signal, but since there is still heavy reliance on the application of reciprocal guarantee principles and discretionary judgment by Chinese courts, it is wise to prepare multi-faceted rights protection measures.

Based on the experience gained from this case, we can once again confirm the importance of strategic approaches and systematic risk management that enable substantial remedies in international contract disputes with Chinese companies.