Gaining the advantage against trademark squatters

By Frank Liu and Sandy Shan, Tiantai Law Firm
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When trademark squatting occurs, the prior right owner is usually confused about the purpose of the squatter. With the reason for trademark squatting and its possible effects unknown, the prior right owner may not believe that such activity will have a significant impact on it, and does not consider taking countermeasures until its business operation is hampered, but at that moment its loss cannot be recovered, even when a multi-fold price has been paid.

Without a mindset adjustment, or active countermeasures taken based on an insight into the profits behind trademark squatting or the way the squatters are approaching them, one cannot gain the advantage in a confrontation with squatters.

Profits behind

Rampant trademark squatting is driven by profit. The squatter only needs to pay hundreds of renminbi for a trademark registration, but can earn tens or even hundreds of thousands of renminbi by using or trading the registered trademark. It is this excessive profit that prompts squatters to set a trap for prior right owners by every means possible.

trademark
Frank Liu
Partner
Tiantai Law Firm

Most squatters aim to profit from assignment of trademarks. Squatters use an endless stream of measures to assign registered trademarks at a high price. A trademark is most vulnerable to squatting in the right establishment stage. It is most common to see that a business entity finds its application for trademark registration rejected due to trademark squatting.

In such circumstances, the prior right owner should commence opposition, invalidation or cancellation (non-use for three consecutive years) proceedings against the squatter to clear obstacles while dealing with the re-examination of a rejected application.

trademark
Sandy Shan
Associate
Tiantai Law Firm

The squatter will also create obstacles against the prior right owner’s business activity in an attempt to assign the trademark at a good price. For example, the squatter may file the registered trademark with customs to impede the prior right owner’s export/import activities, or file frequent complaints with the administrative authority or online service platform, to interfere with its production or sales.

By such means, the squatter prevents the prior right owner from carrying out its normal business, or causes financial or reputational loss to it, forcing an expensive assignment on the prior right owner. Of course, the squatter may also profit from others’ brand popularity through “association” or “free riding” in trademark squatting.

Squatters’ strategies

Squatters aim at well-known trademarks for potentially lucrative profit, and their approaches and engagement are too strong to be ignored. The hit-or-miss mode of trademark squatting still exists, but many squatters have a clear plan and complete strategy for trademark squatting.

For example, some squatters focus on trademarks in a specific field or category. Based on their in-depth study in this field, they plan for squatting, even monitoring the prior right owner’s real-time progress of application, and then file timely additional applications to create more obstacles. Some squatters will turn to registered trademarks of other parties to look for loopholes in their registration strategy, seeking bad-faith filing for unregistered related trademarks and setting a trap for the business expansion of the target entity.

Apart from the diversity of squatting approaches, the squatters’ level of engagement in “protecting” their trademark registrations is often underestimated by prior right owners. To achieve the ultimate goal of trademark squatting, the squatter also will manage and maintain their trademark registrations after they are granted, and even deliberately produce and retain the evidence of trademark “use” as a defence against the cancellation (non-use for three consecutive years) proceedings lodged by the prior right owner.

When the trademark squatting is challenged, the squatter will also actively take countermeasures. Trademark squatting will obstruct the prior right owner from using its trademark normally, whether the squatter aims to keep its registration valid or it maliciously delays the proceedings. Some prior right owners run out of patience amid the delay by squatters, and eventually give up and sit down for negotiation.

Your response

Although squatters use complicated and various approaches to trademark squatting, prior right owners are not totally lacking in retaliatory resources. It is crucial to align an overall strategy with specific actions, but the prior right owner’s mindset will also make a difference.

An unsatisfactory confrontation result with a squatter at a certain stage is not necessarily attributable to improper action. Instead, it might result from the prior right owner’s underestimation of the squatter’s threats, and from his or her wrong mindset, which led to negligence in evidence production and procedural response.

In real cases, many prior right owners are very emotional when confronting squatters, arguing that they are the parties in the right, and taking it for granted that their claims will be supported. Such a mindset does not help at all.

On the contrary, it causes prior right owners to let down their guard and become inactive in their confrontation with squatters. They cannot understand or accept suffering an interim setback.

In the administrative and judicial proceedings regarding trademarks, the prior right owner must produce sufficient, objective evidence to persuade trademarked examiners and judges. It is hard to avoid frustrations or setbacks during these confrontations, so prior right owners must be highly determined and mentally prepared. If they give up or show weaknesses midway, all the efforts already made will be in vain, and a bigger price might be paid.

Although China has attached increasing importance to fighting and containing trademark squatting in recent years, the confrontation with squatters does not always go smoothly. Without adjusting mindset, or taking active countermeasures based on an insight into the purposes and means of trademark squatting, one cannot gain an advantage in a confrontation with squatters.

Frank Liu is a senior partner and Sandy Shan is an associate at Tiantai Law Firm

trademarks

Tiantai Law Firm
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No.1133 Changning Road, Changning District
Shanghai 200051, China
Tel: +86 21 5237 7006
Fax: +86 21 5237 7009
E-mail:
frankliu@tiantailaw.com
sandyshan@tiantailaw.com
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