Can you avoid the pitfalls in TM arrangements?

By Frank Liu and Adam Zhu, Tiantai Law Firm
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Recently, two pieces of news about trademarks have gained public attention. The first one is that Hong Kong actor Nick Cheung registered the trademark of “Zha Zha Hui” in 45 categories. “Zha Zha Hui” was derived from the pronunciation of Nick Cheung’s Chinese name when he introduced himself as a spokesman of a game.

The second one is that Beijing Enlight Pictures submitted new applications for more than 1,800 trademarks in August 2019, almost all of which were in relation to the film Ne Zha, a recent hot film released by Enlight Pictures.

Trademarks
Frank Liu
Partner
Tiantai Law Firm

Considering the overall intellectual property rights (IPR) protection awareness of Chinese rights owners, the authors cannot help feeling surprised at the determination of these Chinese applicants to protect their trademarks. As they are unlikely to use all these trademarks for all designated commodities or services in the short term, most of the above-mentioned applications for trademarks were probably done for the purpose of defence, namely, holding other persons back from squatting or using the trademarks. Especially for the trademark applications submitted by Enlight Pictures, the official application fees payable was as much as RMB500,000 (US$70,000), which did not include the service fees paid to trademark agencies.

Although the applicant scheme is not necessarily suitable for most enterprises at present, the authors applaud these enterprises’ strategy of making comprehensive defensive trademark arrangements at an early stage, when the popularity of their “hot sale” products zoomed skyward, at least in the short term. This undoubtedly reflects a new trend that many enterprises attach more and more importance to early-stage arrangements for IPR.

trademarks
Adam Zhu
Partner
Tiantai Law Firm

The authors have recently been consulted about many hard cases on trademarks, all of which face the same dilemma: rights owners have neglected their trademark protection for a long time; they have not developed a comprehensive and complete strategy, leading to obvious flaws in trademark protection, and thus causing the consequence that certain important trademarks were squatted or used as enterprise names by other persons.

In these cases, some persons squatted and registered trademarks identical with or similar to those of rights owners, and have used them for more than five years. Some persons have used trademarks, which they successfully squatted to trade names to register companies, and have continuously been engaged in businesses in competition with the rights owners for many years, thus continuously stealing market share of the products of the rights owners.

With regard to trademarks already registered for more than five years (especially those in use), it is very difficult to take appropriate action against others after missing the opportunity to do so. Meanwhile, the corporate trade names and trademarks squatted by infringers are mutually supported in terms of rights, which significantly increases the difficulty in taking action to retaking such corporate trade names.

These infringers have gradually raised one obstacle after another against the rights owners through continuous and gradual action. The infringers not only steal market share of the rights owners through selling infringing commodities, but even directly compete with them in tendering activities due to the support from the rights of the squatted trademarks. In addition, a large number of products with similar trademarks has caused product confusion in the market, seriously affecting the product reputation and pricing strategies of the rights owners.

All this could have been avoided at a very low cost. The simplest way of preventing trademark squatting is to register trademarks in core categories, and defensive trademarks in related categories, as early as possible. If the arrangements for the trademark do not cover various categories sufficiently, the rights owner will undoubtedly keep itself at bay if the trademark is squatted.

In addition, a lack of routine monitoring of trademarks is also one of the reasons why the rights owners fall into unfavourable situations. For example, the right owners fail to find in a timely manner that their trademarks are registered by others, or have found such registrations for a long time, but have not taken immediate measures because they thought that such registrations would not have a significant impact on their businesses, thus missing a crucial opportunity.

If lost in such an unfavourable situation, it is often extremely difficult for a rights owner to directly take action against infringers. Only when an appropriate breakthrough is found can such an adverse situation be altered. Generally, a comprehensive investigation against the infringers may be conducted to check whether they have committed other activities such as counterfeit packaging and decoration, false advertising of a relationship with the right owners, use of a trademark beyond the scope of commodities approved under the trademark squatted, and other methods of unfair competition. The rights owners may take action from these perspectives once infringements are found.

Although these actions do not aim to directly settle the problem of squatting trademarks or enterprise names that right owners are most concerned about, they can reduce the confusion in the market caused by infringing products in other ways. If the actions are successful, they can serve as strong evidence of the malicious registering action by the infringers, to support further actions against squatting trademarks or enterprise names.

Meanwhile, these actions can serve as bargaining chips to force the infringers to stop using the squatted trademarks, and even give up the trademarks (such as transfer to the rights owners), and change their enterprise names through negotiation. Rights protection actions can also be used to send a signal in the market that rights owners are actively protecting their IPR, and urging infringers to cease their activities. Finally, measures can be taken against squatting trademarks and enterprise names based on these peripheral actions.

If a rights owner fails to get a reward due to its negligence in arrangements for its trademark, finding an appropriate solution is especially important. For such complex cases, traditional and single actions against infringement often will not work. Only when a more tailored and comprehensive strategy is adopted can we find proper solutions. However, it is without doubt that a more forward approach is to improve trademark arrangements as early as possible to prevent similar events from the source.

Frank Liu is a partner and Adam Zhu is an associate at Tiantai Law Firm

trademarks

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