Tesla Sued in China Over Trademark Infringement

U.S. electric car maker Tesla Motors Inc (NASDAQ:TSLA) is being sued in China for trademark infringement, a surprise development that casts a shadow over CEO Elon Musk's ambition to expand rapidly in the world's biggest auto market.

Tesla said in January that the trademark dispute between it and Chinese businessman Zhan Baosheng - long seen by analysts as a barrier to Tesla's entry into China - had been resolved. The car maker began delivering its Model S sedans to Chinese customers in April.

But Zhan, who registered the "Tesla" trademark before the U.S. company came to China, is now taking Tesla to court, demanding that it stop all sales and marketing activities in China, shut down showrooms and supercharging facilities and pay him 23.9 million yuan ($3.85 million) in compensation, his lawyer Zhu Dongxing said on Tuesday.

The Beijing Third Intermediate Court will hear the case on Aug. 5, according to a statement on the court's website. Tesla China declined comment. Zhan declined to be interviewed.

The case underscores one of the thorniest problems faced by foreign firms in China. Global companies including Apple Inc <AAPL.O>, Koninklijke Philips NV <PHG.AS> and Unilever NV <UNc.AS> have all been embroiled in trademark disputes in the country in the past.

Zhan, who claims ownership of the "Tesla" trademark, has long been a headache for the Palo Alto, California-based car maker and in part contributed to Tesla's belated arrival in China.

Based in China's southern province of Guangdong, Zhan registered the trademarks to the Tesla name in both English and Chinese in 2006. He had in the past sought to sell the label to the U.S. company but negotiations collapsed.

In January, Veronica Wu, head of Tesla's China operations, told Reuters the company had resolved the trademark dispute that had prevented it from using "Te Si La", the Chinese name best known among Chinese consumers, which Tesla wanted to use in China.

Zhan's current lawsuit, however, brings new uncertainty to Tesla's fate in China, which the firm had expected to become its biggest global market next year.

Apple Inc was embroiled in a similar case for years before reaching a $60 million deal last year for the rights to use the iPad trademark in China.