Shadow companies are companies with company names incorporating or confusingly similar to trademarks or brand names of others, neither with the authorization of nor being in any way connected to the trademark or brand name owners. We have noticed that there is an increase in shadow companies in Hong Kong incorporated by individuals based in Mainland China in recent years. These shadow companies file bad faith trademark applications and distribute and sell counterfeits under such trademarks in Mainland China, causing consumer confusion and harming the business of brand owners. In this article, we share our experience and bag of tricks in dealing with shadow companies and also some tips on how to safeguard the business of brand owners.
HOW SHADOW COMPANIES MAY HAUNT THE BUSINESS
The number of shadow companies incorporated in Hong Kong has been increasing. We have recently helped a client to fight against five shadow companies in Hong Kong last year. Upon investigation, we discovered that the founder of one of the shadow companies has also incorporated other shadow companies targeting different brands. Sadly, this is not the end of the story. Some of these shadow companies also filed bad faith applications for marks identical or confusing similar to trademarks or brand names of others and distributed and sold counterfeits under such marks in Mainland China.
It may not be easy for consumers to distinguish such counterfeits from genuine products due to the company names of the shadow companies. Let’s assume that there is a brand known as “Banana” founded in the United States with a subsidiary in Hong Kong known as “Banana Limited”. Squatters may register the shadow companies in Hong Kong using the names below. Consumers may thus be easily misled by the confusingly similar company names.
(a) US Banana Limited
(b) Banana (US) Limited
(c) Banana (Hong Kong) Limited
The other key reason why Chinese consumers are prone to be misled is that they generally have confidence in products distributed by Hong Kong companies. They may easily be tricked into thinking that the shadow companies are connected with or otherwise authorized by the brand owners and hence the counterfeits are from or endorsed by the brand owners.
