Prepare for bad weather before it rains

By Frank Liu, Jincheng Tongda & Neal
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Recently, the author has encountered a number of cases of trademark rights holders enquiring about trademark conflict issues, including trademark infringement cases, administrative trademark litigation cases, and others. Their common point was the rights holders’ lack of a comprehensive plan or arrangement regarding their trademarks, a point that drew their attention only after the occurrence of a conflict.

Frank Liu Partner Jincheng Tongda & Neal
Frank Liu
Partner
Jincheng Tongda & Neal

However, the conflict counterparties in these cases had already duly prepared their trademark strategies before the occurrence of the conflict. Accordingly, even if a rights holder manages to prevail in the individual case, if consideration and arrangement do not begin from an overarching trademark strategy, it is difficult to ultimately secure a brand strategy victory.

There is an old saying in China, “Don’t dig a well when facing thirst, it is better instead to prepare for foul weather before it rains,” which speaks to the importance of having a strategy in advance. This principle is likewise applicable to trademark strategy. In a trademark infringement dispute in 2016, the Guangdong High Court, at appeal, ordered New Balance to pay the plaintiff, a Chinese company, compensation in the amount of RMB5 million (US$723,000).

The trigger can be found in New Balance’s failure, before determining and using a Chinese-language trademark, to carry out a thorough search as to whether there existed any conflicting rights in China, and prepare a corresponding strategy. Through a live broadcast of the case from the court the author could see that, although the defendant fully prepared for the trial, it was nonetheless unable to overcome its initial negligence in strategy, ultimately resulting in its losing the case and being required to pay damages.

The question then becomes, what things need to be considered in a trademark strategy? All things, such as the establishment of trademark rights, a response plan for conflicting rights, the relationship between a trademark and other intellectual property, prevention of litigation risks, non-litigation resolution plans in the course of the conflict, co-ordination of the legal strategy and business strategy, etc., have points worthy of consideration in a trademark strategy. This article will analyze two of these aspects below.

Deployment of rights. The trademark issue of most concern to a rights holder is to determine valid trademark rights in a certain legal jurisdiction to protect its brand. As the protection is territorial, consideration must be given to registering the trademark in different jurisdictions. If the rights in a trademark registered in the US are not also registered in China, they are unlikely to be accorded protection there, even if the trademark has a certain degree of notoriety in the US. Even in China, there are four different legal jurisdictions: Hong Kong, Macau, Taiwan and the mainland. A trademark registered in mainland China does not automatically gain protection in the other three jurisdictions. A rights holder needs to consider the regions where it resides to arrange for registration in light of its business development plans.

Classes of goods and services are another factor to be considered. In mainland China, in addition to the 45 classes of goods and services, each class of goods contains a number of different subclasses under it; some subclasses of goods constitute similar goods, whereas different subclasses of goods without any special explanation do not constitute similar goods. Accordingly, in addition to considering the core class relating to the rights holder’s business, as well as those classes in respect of which defensive registrations have to be carried out, the issue of trademark subclasses also needs to be considered on the basis of the specific goods.

Finally, when establishing trademark rights, the prior IP rights of others needs to be clearly understood, and the appropriate strategy must be formulated in advance. Wherever prior trademarks that could hamper the rights holder’s trademark registration, analysis and consideration of whether such obstacles to registration can be removed through invalidation, “non-use cancellation” (cancellation of a trademark that has not been used for three years in succession) or negotiations need to be carried out. The potential legal risks of prior enterprise names and other prior rights need to be assessed. Subsequently, it is necessary to comprehensively consider the business development plan and legal risks before determining the final trademark rights strategy.

Comprehensive strategy. In judicial practice, a trademark rights holder may only realize the importance of its rights after a trademark rights conflict arises. Furthermore, when handling such disputes, the rights holder will be reactive rather than proactive, i.e., rather than considering the intent of the conflict counterparty, and establishment and protection of its own rights in an overarching fashion, it will train its sights only on resolving the particular case at hand. If the rights conflict truly is a one-off occurrence, it may successfully respond for the time being, without giving rise to any serious consequences. However, in judicial practice, in most circumstances, the conflict counterparty will itself have commenced the deployment of its trademark strategy, with the conflict in any one case merely being a certain part of its conflict with the rights holder in the deployment of its trademark strategy.

Under such a circumstance, if the response is only made on a case-by-case basis, it is very likely that another case will crop up soon after the litigation in the previous one has come to an end. After a string of legal actions, the rights holder will finally realize that the counterparty could have deployed a trademark strategy to gain specific brand and commercial benefits through trademark registration, transfer, legal actions, etc., and not just the occasional triggering of individual trademark rights conflicts. If the response proves unsuccessful, the rights holder will progressively be backed into a corner as the legal actions pile up, ultimately resulting in irreversible brand and commercial benefit losses.

Even if it manages to prevail in the odd case, it may ultimately lose the overall brand and commercial benefit match under the relentless offensive of the counterparty. A trademark dispute is like two armies standing face to face; if deployment is not carried out under an overarching strategy, defeat is hard to avoid. And even if all efforts are expended in an individual case, it is possible to win the battle, but lose the war.

Accordingly, we would recommend that rights holders, when first considering their business plans, focus their consideration and arrangement on an overarching trademark strategy, and make hay while the sun shines, so as to ultimately secure a brand and business double win.

Frank Liu is a partner in the Shanghai office of Jincheng Tongda & Neal

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