The fight against trademark squatting in China

31 August 2022

The fight against trademark squatting in China

When discussing IP problems in China, one might easily recall the numerous cases of trademark squatting, in which a perpetrator registers a trademark before its original owner does so. Victims of trademark squatting can be celebrities, such as Olympics athletes whose names almost became trademarks of food, apparel and household products without their consent; or famous brands from overseas, like New Balance with its years of struggling against copycats including “New Balanced”, “New Barlun”, and various Chinese translations of its brand name. The issue of trademark squatting remains a persistent one for local and overseas businesses to tackle when developing their business in the mainland China market. 

Michelle Yee, counsel at Mayer Brown in Hong Kong, explained the reasons why trademark squatting is so common and serious in China. “The upfront costs for squatters are relatively low – they can apply for a large number of trademarks without spending a lot of money.” She pointed out that the subclassification system (under which the Nice international classes of goods and services are further subdivided into subclasses) and limited recognition of cross-class protection create opportunities for squatters to secure registrations for copycat marks, even when a brand owner has registered its marks for its core goods and services. 

Zhigang Zhu, a partner at Wanhuida Intellectual Property in Beijing, illustrated how massive the scale of trademark squatting is in China. “According to the CNIPA’s statistics, 3.674 million trademarks have been approved registration in the first six months of 2022. The total number of trademark registrations reach 40.545 million till the end of June 2022. Indeed, most of these trademarks are never used. They are filed in anticipation of a possible litigation with the purpose of reselling the trademarks to the genuine brand owner for profit.” 

Zhu said that trademark squatting is closely associated with bad faith infringement claims. “In recent years, trademark squatters took more and more legal actions to force the ‘real’ trademark owner to either pay damages or purchase back the trademark acquired in bad faith at very high prices.” Fortunately, Chinese courts have gradually developed a consistent practice to dismiss such cases on the basis of abuse of right of the trademark squatters. 

Zhu shared an example of a trademark squatter’s failed attempt to seek profits from the genuine brand owner. “In the Uniqlo case (2018), the Supreme Court dismissed a lawsuit of a plaintiff, who was the registrant of more than 2,600 trademarks, and who, after having failed to sell one of the trademarks to the defendant, had started infringement lawsuit nationwide. The court reiterated that filing so many trademarks without intention to use them harmed the public interest and affirmed that the lawsuit was an abuse of right.”  

Zhu also shared some cases in which the right owners fought back after invalidating the squatter’s trademark and claimed the compensation of reasonable costs, and even damages. “In the Bridgestone case (2018), the Suzhou Intermediate Court ruled that the cost of Rmb291,343 (US$42,100), involved in safeguarding the trademark rights, including trademark opposition and following administrative litigation and infringement, should be paid by the losing defendant. In the Bayer case (2018), the Hangzhou Intermediate Court went further and ordered the bad faith squatter to pay damages. The court considered that, by knowingly registering as a trademark the logo on which Bayer enjoyed the copyright, and then filing massive online complaints against Bayer’s distributors, the bad faith squatter violated the principle of good faith. The court ordered the defendant to pay Bayer Rmb700,000 (US$101,200) as damages.” 

In the recent case involving Brita in 2021, after successfully concluding all the administrative cases caused by the trademark squatter, the brand owner sued on the ground of unfair competition. Zhu said: “The Shanghai Court held that the squatter’s malicious pre-emptive registration of trademarks and systematically challenging of Brita’s registrations, violated the principle of good faith and business ethics. The court affirmed the trademark squatter’s behaviour constituted acts of unfair competition and ordered the payment of Rmb2.8 million (US$405,000) as damages.” 

The Fujian High Court went one step further in the In-Sink-Erator case (2022). It considered the behaviour of the defendant, who had registered many trademarks identical or similar to the plaintiff’s trademarks, and also other famous marks, with no intention to use them, had breached the principles of good faith. Zhu said: “The court issued an order prohibiting the defendant from filing such pre-emptive applications in the future. This is a first instance decision. Appeal is pending. One more point worth mentioning is that, a few days before the trial, the squatters withdrew or deregistered its existing infringing trademark applications or registered trademarks.” 

Besides court decisions that protect IP rights of original brand owners, the CNIPA also continues its efforts to crack down on bad faith trademark registrations. “Conventional means such as oppositions and non-use cancellation have become more effective,” Zhu said. “For instance, the opponent’s success rate in oppositions raised from around 23 percent in 2010 to 52 percent in the first three quarters of 2020. As to non-use cancellation actions, the success rate is high: usually around 50 to 60 percent. In particular, opposition or invalidation cases based on the existence of business relations with the trademark applicant (Article 15), or prior copyright, name right or trade name, or prior use of an unregistered trademark with a ‘certain influence’ (Article 32) are becoming much easier to succeed before the CNIPA or the People's Courts.” 

“In 2021, the CNIPA had, in the prosecution cases (ex-officio refusal, opposition and invalidation), rejected or invalidated over 482,000 bad faith trademark applications or registrations,” Zhu said. “The ongoing revision of the trademark law will also address the trademark squatting issue by strengthening the use requirement and streamlining relevant procedures. Stakeholders are suggested to closely follow up the law revision process and duly submit their comments, if any.” 

Furthermore, there are various measures introduced by the Chinese government in recent years to target serial trademark squatters and the trademark agents that assist them, according to Yee. “For example, in the 2019 amendment of the Trademark Law, a new Article 4 was introduced that empowered the CNIPA to proactively reject a trademark application during examination on the basis that it had been filed in bad faith without genuine intent to use. Prior to this amendment, the CNIPA could only consider bad faith during opposition or invalidation proceedings, which meant that the onus was solely on brand owners to actively monitor and take action against copycat marks. The CNIPA also released a number of related measures and guidelines that clarified the meaning of ‘bad faith without genuine intent to use’, and on disciplinary measures that could be taken against trademark agencies that knowingly assist in trademark squatting behaviors.” 

Whilst the new Article 4 does in theory empower CNIPA examiners to reject bad faith applications during examination, Yee pointed out that examiners have to process thousands of applications a day, and thus cannot be expected to proactively investigate the filing history of each applicant. “In practice, an applicant would already have to be on the CNIPA’s internal blacklist of serial trademark squatters in order to have its application rejected under article 4 during examination, so ultimately the onus remains on brand owners to alert the CNIPA to trademark squatting behavior through opposition and invalidation proceedings, or by writing to the CNIPA to request that an applicant be blacklisted.” 

In the unfortunate case that a brand owner discovers that its trademark has been registered or filed by a third party, Yee suggested that they should immediately look into removing the application or registration by initiating opposition or invalidation proceedings. She advised: “The brand owner should look into whether there might be any evidence of bad faith (e.g. if the third party might be a former licensee or have prior business dealings with the brand owner, or if the third party might be a squatter selling the mark through online platforms, etc.) which might help increase the chances of successfully opposing or invalidating the mark. If the squatter appears to have filed a large number of copycat marks, it is also possible to write to the CNIPA requesting that the squatter be blacklisted so that their future applications will be rejected. If the mark has been registered for over three years and does not appear to be in use, the brand owner could also consider cancelling the registration on the basis of non-use, which is a much simpler and cheaper procedure and does not require proof of bad faith.” 

International famous brands are often targets of trademark squatters, especially when the brands are well-known overseas but have yet to develop their official presence in China. According to Rieko Michishita, a partner at Bird & Bird in Beijing, it is not easy for brands from overseas to get back their trademark rights from squatters in China, mainly because of two reasons: the high demand for proof of bad faith registration, and the fact that trademark squatting has become an industry itself and developed new ways to bypass the related laws. 

One widely applicable regulation is tackling trademark squatting is Article 44(1) in Trademark Law, which regulates registration by improper means, such as registering plenty of famous trademarks of others and accumulating trademarks. “Nevertheless, to apply this regulation, it often requires the proof that the trademark squatter submitted numerous registrations that obviously copy or imitate other famous trademarks. Thus, if the squatter submitted fewer registrations, there would be limitation in determining their ‘bad faith’, and require other strong evidence instead.” 

Another applicable regulation is Article 13 in Trademark Law, which protects well-known trademarks. “To qualify as a well-known trademark, it is necessary for the right owner to provide a large amount of strong evidence proving their trademark has already been widely promoted and used in China for a long time and at a large scope before the trademark was registered by the squatter, and that the public has already been very familiar with their trademark. For most overseas brands, it is difficult to provide enough evidence that their fame in China has already reached the ‘well-known’ status. For businesses yet to enter the Chinese market, even if they are well-known in other countries, they might not prove the same ‘well-known’ status in the Chinese market.” 

The third regulation quoted by Michishita is Article 32 of the trademark law, which prohibits the improper registration of trademarks that others have been using and have developed considerable influence. To apply this regulation, the right owner needs to not only prove the squatter’s “bad faith registration”, but also provide large amount of proof that they have prior use of the trademark on the same or similar products in China, as well as developed considerable influence. If the right owner has been focusing on the international market, and not yet developed their influence in their Chinese market, it would be difficult to provide enough proof to support the application of this article. 

On the other hand, trademark squatters have also developed new strategies to avoid being identified as "bad faith registration”. According to Michishita, a trademark squatting agency might control several individual companies, or have registered several shell corporations overseas to register the trademarks, each registering for a limited number of trademarks ranging from several to dozens, and no more than 100 in general. Not all, but only a small number of the registrations are famous trademarks, as others are usually just simple word combinations to act as camouflage. By dividing the trademark applications to numerous applicants, the squatters avoid submitting large amount of trademark applications, making it more difficult for original right owners to collect evidence to prove their behavior of “bad faith registration”.  

For international brands whose trademarks are registered and utilized by a third party before they enter the Chinese market, it is hard for them to invalidate the trademark on the basis of non-use for three consecutive years. Michishita suggested: “The major method is to request for declaration of invalidation. It is not impossible for the original owner to take back their trademark rights, and it is necessary to analyze comprehensively on the specific circumstances, such as the extent of substantial evidence of the squatter’s bad faith, the scale and range of the trademark use, the fame, duration, region and scope of use of the trademark of the original owner, whether there is any business collaboration between the squatter and the right owner, whether the original owner has claims on other prior rights (such as copyright, name right, name right of famous work) etc.” She said that these factors can affect the chances of getting back the trademark rights. “Anyway, regardless of the situation, once discovering their trademark are ‘squatted”, right owner should take action to restrict the unauthorized use by ways such as declaration of invalidation, non-use cancellation, or even negotiation for purchase.” 

Not only famous brands would fall victim to trademark squatting, as sometimes lesser known, emerging brands might also become the prey of trademark squatters. Michishita pointed out that according to the trademark law in China, famous brands might find it easier to resolve trademark squatting issues than to less-famous brands. “For Articles 13 and 32 of the trademark law to be applicable, it is required that the right owner has considerable fame in China. The fame of the right owner would also affect the application of Article 44(1) of the trademark law. To some extent, the fame of the brand involved would affect whether a case is considered bad faith registration or trademark squatting. Well-known international brands might have more advantages than small brands as it is easier for them to collect the evidence proving their fame. But fame is not the only criteria to determine whether a case is trademark squatting, and is neither the only factor to determine whether a trademark right can be obtained. The bad faith extent of the squatter, and right basis of the right owner, etc. also affect the success rate in tackling trademark squatting.” 

If businesses would like to protect themselves from trademark squatting, Zhu advised that it is always possible to file “defensive applications” targeting classes that surround the core businesses. “This is indeed the most cost-efficient way to prevent trademark squatting. Also, according to deliberations that took place in China before the promulgation of the final version of the amended trademark law, in particular concerning the new Article 4, the practice of defensive application should continue to be accepted as not being a ‘bad faith’ practice.” He also highly recommended a clearance search before filing and using a trademark in China, as it is preferable to take proactive actions to remove obstacles and ideally secure registration before any substantial commercialization. 

Zhu said that when a trademark application is refused by the CNIPA on account of a prior trademark, it is highly recommended to investigate the cited trademark owner in order to find out whether it is a ‘squatter’ or a genuine trademark owner. “Bad faith filers in China can be highly sophisticated. For example, a trademark squatter may deliberately apply for a sign, which is relatively dissimilar to a prior registered trademark, so that it may remain unnoticed by the owner of such prior trademark, or that an opposition against such sign may fail, and the sign becomes registered. But then, in actual use, the newly registered trademark is (sometimes only slightly) transformed and amounts to an infringement upon the prior registered trademark. In such case, aggressive administrative raid actions and civil actions should be taken to contain the infringement relying on bad faith evidenced by the way in which the mark is actually used. This may eventually support the invalidation action against the disputed trademark.” 

“The last point worth mentioning is that, sometimes, buying a mark may not be such a bad idea purely from the perspective of costs,” he said. “Depending on the strength and complexity of the case, the purchase price may be lower than the costs involved in a legal battle.” 

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