Strategy for foreign rights holders against TM squatting in China

By Frank Liu, Jincheng Tongda & Neal
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A large number of companies with brands that have had a significant history and degree of notoriety abroad did not in the past place any great importance on registering their brands as trademarks in China because their major markets were not in the country. The sales of some brands in China have been aided by domestic distributors, but they, too, failed to register their trademarks in such situations.

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

With the changing economic environment, China as a market with a relatively active economy has increasingly drawn the attention of these developing brands. However, once these brands establish a company in China and prepare to go all in, they often discover that their trademarks have been preemptively registered in their core classes by others. Failure to secure the registration of such trademarks in China will have a major impact on the business development of such brands in China, and if business development is forced for short-term gains, their business interests may suffer material damage due to trademark infringement claims.

The trademark registration regime in China operates on the first-to-file principle. Trademark squatting is naturally an extremely negative factor for the business development of a company. However, if an active approach is taken, there is still some hope; if a well-suited response strategy is taken, an “every cloud has a silver lining” type of effect could very well manifest itself.

Where a brand has not been registered in China, or there is a gap in the type of goods/services it is registered for, the first thing to do is carry out the necessary registration. Of course, for the great majority of brands, it is not necessary to carry out registration in all 45 classes of goods/services. In addition to the core class of one’s goods/services, it is a good idea to carry out registration in related classes, based on the specific scope of business and development of the brand.

When applying for registration in the core class, a single application in words or a device that has been preemptively registered will necessarily be blocked by the prior filing. In such a scenario, consideration may be given to filing an application including brand devices or words that have not been preemptively registered, to enhance the chances of success. On the other hand, certain efforts may also be made to prevent others from carrying out further filings by erect obstructions against subsequent acts. Where preemptive registration by another in the core class has occurred, registration in related classes where preemptive registration has not occurred is extremely important. Registration in appropriate related classes not only allows for bleeding into the business of peripheral goods/services, but such registrations may also, in future, become counters in trademark negotiations and weapons in combating infringement.

Of course, only filing trademark applications is a rather passive response to preemptive registration. More active measures, depending on the specific circumstances, include such things as applying for invalidation or cancellation of the preemptively registered trademark. Under such a circumstance, evidence of the use of the trademark by the brand in carrying out sales in China in the past is extremely important. Furthermore, under many circumstances, the trademark squatter is very likely to have had contact with the distributor of the brand in China, and even in some instances it will be the distributor of the brand or one of its connected parties that has preemptively registered the brand. If evidence of this can be collected, it can provide powerful support for efforts to have the trademark invalidated or cancelled. While taking action against the preemptively registered trademark, consideration may also be given to trying to purchase the trademark through anonymous negotiations, and if the price is appropriate, this could also be an effective means of resolving the problem.

When responding to the preemptive registration of a trademark, in addition to working on the trademark itself, consideration may also be given to other potentially advantageous factors that actively increase the counters available for responding to such preemptive registrations. For example, if there has been a contractual relationship between the trademark squatter and the brand, consideration may be given to seeking instances of breach of contract by the other party and seek relief based on the Contract Law.

In addressing the acts of the trademark squatter, one also should not limit oneself solely to trademarks. If other intellectual property rights of the brand itself, e.g. copyrights, patents, and enterprise names, have been infringed by the trademark squatter, legal action may also be taken from the perspective of copyright infringement, patent infringement or unfair competition, placing pressure on the other party.

In certain cases, the author has assisted brands in trying to use commercial means to negotiate with the other party, proposing a commercial arrangement that answers to the other party’s potential commercial needs, thereby achieving the objective of having the trademark transferred to the brand. If the negotiations proceed smoothly and the trademark squatter itself has certain business advantages, some trademark squatters may, after transfer of the trademark to the brand, even become an officially licensed distributor of the brand in China to jointly promote development of the business of the brand.

In summary, when responding to the preemptive registration of a trademark in China, it is necessary to comprehensively consider issues both from a legal and a commercial perspective and take into account the remedies available under trademark and other laws to actively formulate a response strategy. Only in this way can the interests of the brand in China be safeguarded to the greatest extent.

Author: Frank Liu is a partner at Jincheng Tongda & Neal in Shanghai

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