5 September, 2015
Shadow Companies – The Problem
A shadow company is a Hong Kong-registered company that uses a famous brand or company name as part of its own name, whilst being totally unconnected to the brand owner.
Shadow companies are normally used as fronts to allow individuals behind them to trade off the reputation of a brand owner’s name in the PRC.
The key elements of a shadow company are:
a. it has registered a name which incorporates the name of a well known brand;
b. its director(s)/shareholder(s) are PRC individuals;
c. its company secretary is a secretarial company which will usually incorporate the shadow company and provide its registered office address; and
d. it will authorise a separate PRC entity, which is often connected to the individuals behind the shadow company, to use its name, claiming authorisation from the brand owner.
In our experience, the shadow company will register their registered office address as their place of business with the Inland Revenue so that they have a Business Registration Certificate, giving the illusion they are trading in Hong Kong.
In addition, the shadow company may also apply for a Hong Kong trademark under different classes to those used by the legitimate brand owner.
Shadow companies pose substantial risks of financial and reputational damage to brand owners.
What Can You Do As Brand Owner?
The first step would be to send a cease and desist letter to the shadow company demanding they stop infringing your intellectual property rights. The threat of using court proceedings may cause the infringement to cease and the director of the shadow company to change the company name.
If no response is made, the next step would be to issue court proceedings against the shadow company.
Once a writ is issued it is unusual for the shadow company to defend the proceedings. Normally default judgment and an injunction can be obtained within 2 months of proceedings being issued.
The last step, after an injunction has been ordered, would be to serve the injunction on the Companies Registry. The Companies Registrar will require the company to change its name within 6 weeks of being informed of the injunction. In the event the director does not change the name of the shadow company the Companies Registrar will arrange for the company’s registered number to be substituted in place of its name.
For further information, please contact:
Jezamine Fewins, Partner, Stephenson Harwood
jezamine.fewins@shlegal.com
