In recent years, China has stressed repeatedly the importance of intellectual property rights protection. Several legal and administrative measures were adopted to strengthen domestic and international intellectual property protection within China. Additionally, various means to crack down malicious trademark registration. Though, for many foreign brands entering China IPRs infringement remains a high issue.
Namely foreign niche brands or those with a high IPRs value should be equipped with the right safeguard tools before entering the China market. For example, prioritising the registration of your brand name and associated graphics and text as trademark (‘TM’).
However, many may find that through an anteriority search, a third party may have registered their trademark registration priorly. Under such circumstances, brands may be highly concerned about the following aspects:
- Who is the third party that registered my trademark? And what is the purpose?
- It that still feasible to register my trademark in China?
- If not, would it be possible to purchase my trademark from such third party?
In the below, we highlight the key issues in China trademark protection.
1. Determining a malicious intention
Firstly, trademark protection is “territorial” based and trademarks registered in their original country should be registered within the territory of China. Secondly, the China follows the principle of “first to file” rather than the ‘first to use’. Therefore, third parties can register trademarks identical or similar to foreign brands in China before company applies. Such applicant will be the legitimate owner of the trademark once it will be approved for registration.
Despite that the “first to file” principle for trademark registration, if solid evidence can prove that the trademark application was filed with malicious intention, then invalidation of such trademark registration can be applied according to Article 4, 19, 32 of the Trademark Law of the People’s Republic of China (“Trademark Law”). Invalidation is determined by whether the registrant/applicant is a trademark squatter. Generally, the nature and number of trademarks registrations/applications that has been registered or filed under the name of the same registrant/applicant can be investigated. “Trademark squatter” refers to a legal person or natural person who accumulates in mala fede trademark registrations to be connected or profit from the brand-value by improper means.
For trademark registrations filed from a legal person or an organization, retrieving all the trademark registrations or ongoing trademark applications can be relatively easily conducted through the online Chinese Trademark Office search system. Whilst natural persons could be more challenging to retrieve due to likely duplication of names. In such case, we need to identify the registrant/applicant through other means.
We have encountered many cases in which the “partners” or “potential partners” in China have registered the foreign brands’ trademark. Foreign brands may have meet with potential partners at industry exhibitions prior to launching in China. Under such cases, if the foreign brand entered a certain relationship or collaboration with the third party who filed their trademark registration. The foreign brand may apply to invalidate the registered trademark before the Chinese Trademark Office for violation of Articles 4, 7, 19 and 32 of the Trademark Law.
2. Cancellation for non-use in three consecutive years
Besides claiming malicious intention of trademark squatting, the foreign brands may also apply to cancel the disputed trademark by non-use cancellation for three consecutive years. Trademarks are unlikely to be used by trademark squatters since they only accumulate them and may resell to the interested parties. If the disputed trademark has been registered for over three years without any usage, then there is higher probability to cancel the registration.
After the non-use cancellation application is submitted, the registrant of the trademark can provide relevant evidence (‘defense’) within the defense period. Under this circumstance, the applicant should analyze the authenticity and rationality of the defense and determine whether it should be deemed as “post-factum” evidence or symbolic evidence (generated intentionally solely or mainly to maintain the trademark effectiveness).
Equally, the non-use cancellation for three consecutive years regulates if the trademark holders’ uses the trademarks on designated products/services an actual, legal, compliant, open and effective manner. In other words, proper utilisation of trademarks is conducted by the holder and relevant customs can distinguish any products/services that derive from different sources. Therefore, symbolic use is generally not deemed as true, reasonable and regular use of the trademark by the Trademark Office or Intellectual Property Court.
3. Purchasing the registered trademark or “transfer with compensation”
Brands may face tougher challenges if the non-use cancellation for three years cannot be applied and no solid evidence can demonstrate a malicious trademark registration. Under such situation, brands may wish to purchase the disputed trademark. Although, purchasing the trademark from the registrant is not recommended for two main reasons noted below.
Firstly, trademark squatters mainly register and maliciously accumulate trademarks with the objective of reselling to the highest bidder. Many perfectly understand the importance of trademarks in brand promotion and sales in a specific market. As a result, trademark squatters will likely transfer the ownership of their registered trademarks to the highest bidder. If foreign brand contacts the trademark’s owner to purchase the ownership back, it would be a likely entrapment.
Secondly, foreign brands wishing to purchase back their trademark can be victims of “fruit from the poisonous tree”. Namely, if the trademark registration was applied in violation of the Trademark Laws, such as registered by fraud or other improper means, then the brand foreign will bear responsibility once the trademark is transferred. For example, after the trademark is assigned from its original registrant (the “Assignor”) to other entity or individual (the “Assignee”), a third party can raise an invalidation application against the said trademark for violation of the articles 4, 10, 11, 12 and 19 paragraph 4 of the Trademark Law. Though the Assignee may claim that the assignment of the trademark has been conducted in bona fede, and request approval for the trademark registration or remain effective is unlikely to be supported by the court.
Therefore, if the registered trademark has violated the Trademark Laws upon its application of registration after the transfer, the foreign brand will still face the invalidations risks.
In conclusion, we do not recommend purchasing the registered trademark from the trademark squatter. Such approach may not guarantee the validity of the trademark and could risk unnecessary economic losses for the brand.
4. In summary, we recommend the following:
- The trademark registration of the related marks (device or words) shall be applied as soon as possible – upon the establishment of the brand
- In the initial brand promotion and prior to the application of trademark registration, brands shall be very prudent when working with “potential partners”, and adequately evidence any discussion or information exchange concerning the brand cooperation including but not limited to name cards exchanged, group photos, correspondence etc.
- Seek qualified and experienced Chinese local IP lawyer to strengthen the protection of intellectual property rights.
This content appears as a courtesy of Horizons Corporate Advisory, a proud member of the China Collaborative Group (CCG Association). It is informational in nature and does not constitute legal advice or establish an attorney-client relationship between you and its author, publisher or any member of CCG. For more information, please visit www.horizons-advisory.com.