The trademark laws in China follow a "first to file" principle which seemed favorable to squatters. Business operators would usually target popular foreign brands and claim them as their own through registration.

Companies that enter China are faced with the dilemma of rebranding their products. Their battle with the "trademark trolls" in order to buy back the trademark would entail legal procedures in China's courts or would involve monetary compensation.

Tesla started to enter the Chinese market earlier this year with its Model S luxury electric car. CEO Elon Musk believes that China offers a great opportunity for growth. After all, the country is now billed as the biggest market for automobiles in the world. Sales in China are aided by a subsidy ranging from $5,780 to $9,900 for electric car buyers. Together with Tesla, other major names in the auto making industry such as Ford and General Motors are competing for market share in China.

Tesla sees China as an important key to meet its sales forecasts which the company hopes to have a continued increase. "It's the largest luxury vehicle market in the world, and it's no secret that it is where some of the premium European brands make all their money," said analyst Craig Irwin of Wedbush Securities. "So how Tesla sales are taking shape in China is very important."

However, a Chinese businessman claimed that he is the rightful owner of the "Tesla" trademark. Zhan Baosheng said that prior to Tesla's arrival in China, he had already registered the automaker's trademark. As a result, the automaker was forced to carry the phonetic name "Te Su Le" in China for them to continue retailing their electric Model S.

Baosheng claims that back in 2006, he has registered the Tesla name in China. The registration was made in two languages. The Chinese businessman hoped to sell the trademarks back to the automaker.

Tesla seemed to be winning the battle when a court decision arrived at the conclusion that Zhan Baosheng had invalid trademarks. Unhappy with the results, Baosheng filed a lawsuit against Tesla. He demanded that the automaker cease operations in China and pay him with compensation charges amounting to $3.9 million.

Despite the lawsuit, Tesla said that its operations in China have not been affected.

Finally, an agreement was made which ended the trademark battle between Tesla and Baosheng. The latter has agreed to allow the government in China to cancel his trademarks and at no cost. In return, Tesla has withdrawn compensation claims from Baosheng.