Supreme People’s Court gives clear legal prescription for trademark squatting

Reining in bad-faith trademark filing, or trademark squatting, is one of the stand-out features of the third revision of the Trademark Law that took effect 1 May 2014. In the year since the law took effect, there has been a definite degree of containment of trademark squatting.

However, the applicability of certain provisions of the new law is still to be clarified by judicial interpretation or other such official documents. There remains sharp contrast in how courts rule in practice on issues such as squatting on a large number of trademarks or filing marks with the names of well-known public personalities, fictional characters and works of art.

The SPC circulated for comment a draft of the Regulations on Several Issues in Hearing Administrative Cases Involving Trademark Authorization in 2014. The draft regulations set out explicit provisions on the application of the law in trademark squatting cases. While these regulations have not yet been finalized or implemented, practitioners generally believe that they will have considerable significance in further curbing trademark squatting.

Trademark squatting

A great number of trademarks have been filed in bad faith with the names of famous persons and brands from China and around the world per the first-to-file principle. News of large returns resulting from trademark transfers engendered a class of professional trademark filers who filed trademarks in large numbers for profit only and not their own use – the squatters. Squatting on trademarks harms the interests of the rights holder and China’s image both.

In a few cases the adjudicator found that a squatter had registered other trademarks unrelated to the case being heard and denied that the squatter’s acts were subjectively in bad faith. In effect, they permitted or preserved those bad-faith filings. In other cases, the adjudicator negatively evaluated this kind of bad-faith filing where there were adverse effects under the adverse effects clause or the improper means clause. It is evident that considerable controversy remains over which provisions are applicable in these trademark squatting cases, and here the law is in urgent need of definition.

The draft regulations make it clear that, in cases where a trademark filer lacks actual intent to use and files a large number of marks for personal or place names which have a certain level of fame or seem to be trademarks, or those filers who lack proper reason for filing a large number of trademarks, the trademark appraisal committee will use the principles of good faith and improper means and not grant the filing or declare the mark null and void. The court will uphold the committee’s decision in these cases. The regulations once issued will evidently provide clear guidance to rights holder and adjudicator in handling cases involving the squatters.

Public names

For a time, squatters were active in registering trademarks such as “Yao Ming”, “Andy Lau” and the names of other celebrities. The adjudicator holds to two principles when dealing in practice with squatters on marks with the names of public persons. First, a trademark filed with the name of a public person can be very misleading, therefore the adverse effects clause can be applied directly and the filing rejected. Second, squatting on the names of public persons is unrelated to the public interest, and upholding a particular civil right depends on the rights holder themselves claiming the right to their own name.

The authors were counsel in two cases in which squatters registered the trademarks “Yundi” (as in the classical pianist Li Yundi) and “Warren Mok” (the opera singer). In these cases, the approval authorities did not reject the filings ex officio. Rather, the rights holders themselves had to file claims for their rights, rendering the squatters’ filings ineffective.

The draft regulations clearly set out that, in the course of a review of a rejected filing, the trademark appraisal committee will not grant approval if it finds that a third party had not authorized the filing application of a public person’s name which may engender adverse effects. The court will uphold the committee’s decision in these cases. This implies that, in the future, authorities in charge of examining trademark registrations would reject a filing in the name of a public person per the adverse effects clause. Further, they would by no means require that the rights holder claim the right to their own name as a prerequisite to rejecting the filing.

Fictional characters and works

For a long time squatters filing marks with the names of famous fictional characters such as the cartoon character Doraemon or 007 was not uncommon.

Rights holders may actively claim the right to their own works’ name, yet often they are faced with the awkward situation of having no proof showing that it is theirs. This is due to the 2001 and 2014 editions of the Trademark Law, which stipulate that a filed trademark must not damage prior rights. However, the names of well-known characters and works cannot be understood to have prior rights.

In practice, the adjudicator has granted or upheld these types of filings by squatters in a considerably large number of cases due to a lack of a clear legal foundation for rejection. In certain cases, a squatter’s filing was rejected due to adverse effects, such as in the Harry Potter case. There are also a small number of cases where the adjudicator ruled on grounds of prior rights.

The draft regulations clearly set out that the names and characters of fictional works do not constitute a creative work itself but have a relatively high degree of renown. Using these names as a product’s trademark can easily lead the public to mistakenly believe that the creators of these products have obtained permission from the original rights holder of the fictional work or have some other relationship to the rights holder of the work. A claimant can state that this constitutes a prior interest in the trademark that is protected under the Trademark Law. The court will uphold the decision in these cases. This has been included under the category of prior rights as the right of commercialization after many years of debate, which can be seen as a major breakthrough.

The draft regulations have many additional clauses on trademark squatting which will not be explored here due to spatial constraints. The first-to-file principle was chosen by China’s legislature after much consideration, but rigid application of the principle can only exasperate trademark squatting. Further, not interfering in these acts actually goes against the fundamental legislative goal of the Trademark Law. The SPC has paid attention to the issues discussed above, and the regulations, when passed, will target this sort of behaviour, which merits celebration.

Wang Yadong is the executive partner and Lu Lei is a partner of Run Ming Law Office.