Since the publication of the National Intellectual Property Strategy, the government has encouraged the filing of all types of IP right, including invention patents, utility models and trademarks. Measures have been taken to facilitate filing, accelerate the application procedures and lower the corresponding costs.
As a result, the number of trademark applications has increased progressively – to almost 8 million in 2019 – and this proliferation of trademarks has created serious adverse consequences. Most of these trademarks are never used. They are filed in anticipation of possible litigation with the purpose of reselling them to the genuine brand owner for profit. Fighting such trademark squatting is time consuming and costly. Further, business projects may be blocked by the risk of being sued by squatters.
Thus, rights holders must be aware that legal means are available to help them deal with trademark squatters and know that, since the government has decided to tackle the problem, these legal means are effective.
How to fight against bad-faith applications
The latest amendment of the Trademark Law (2019) directly addresses the proliferation and commoditisation of trademarks, with an amended Article 4 providing that trademarks filed in bad faith without the intention to use should be refused. Brand owners may rely on Article 4 to oppose or invalidate such trademarks, if they have been approved for registration. Article 4 may also be useful even if the disputed marks have been assigned from a bad-faith trademark hoarder or if the applicant has some connections with such a hoarder.
Malicious trademark applicants and even trademark agencies that assist them may be fined.
In practice, conventional means such as oppositions and non-use cancellation have become more effective. For instance, the opponent's success rate in oppositions raised from approximately 23% in 2010 to 52% in the first three-quarters of 2020. With respect to non-use cancellation actions, the success rate is high: usually approximately 50 to 60%.
In particular, opposition or invalidation cases based on the following are becoming much easier to succeed before the China National Intellectual Property Administration (CNIPA) or the people's courts:
- the existence of business relations with the trademark applicant (Article 15);
- prior copyright, name right or trade name; or
- prior use of an unregistered trademark with a certain influence (Article 32).
How to defend from bad-faith infringement claim
With trademark squatting, there is also the risk of being sued by bad-faith trademark squatters. In recent years, the courts have gradually developed a consistent practice to dismiss such cases on the basis of the trademark squatter's bad faith.
In Ellassay (2014), the Supreme Court ascertained that the principle of good faith, which governs the act of filing and using trademarks, also applies to civil litigation. Therefore, a trademark right acquired in bad faith cannot serve as legal ground for an infringement claim.
In Uniqlo (2018), the Supreme Court reiterated that the plaintiff's registration of more than 2,600 trademarks without intention to use them harmed public interests. The filing of infringement lawsuits nationwide, after the plaintiff failed to sell the trademark in question to the defendant, was considered an abuse of right. The lawsuit was dismissed.
In MK (2020), the Supreme Court also considered other factors. The infringement action was based on a trademark filed and registered in good faith by the plaintiff (a relatively unknown company). However, prior to filing the lawsuit, the plaintiff attempted to file another trademark that was identical to a trademark used by the defendant (a well-known company). Although it confirmed that, in principle, registered trademarks should be protected regardless of their reputation, the court ruled that despite the fact that the disputed trademark is more well known, the plaintiff's subsequent attempt to file for another identical mark of the defendant and benefit from the reputation of the defendant was an act of bad faith. Thus, the court dismissed the case.
In Bayer (2018), the Hangzhou IP Court went further and ordered the bad-faith squatter to pay damages. The court considered that, by knowingly registering as a trademark the logo on which Bayer enjoyed the copyright, and then filing massive online complaints against Bayer's distributors, the bad-faith squatter had violated the principle of good faith and should pay Bayer Rmb700,000 as damages.
It is always possible to file defensive applications targeting classes that surround the core businesses. This is the most cost-efficient way to prevent trademark squatting. Moreover, according to deliberations that took place in China before the promulgation of the final version of the amended Trademark Law, particularly concerning the new Article 4, the practice of defensive applications should continue to be accepted as not being a bad-faith practice.
In any event, applicants should conduct a clearance search before filing and using a trademark in China, as it is preferable to take proactive actions to remove obstacles and ideally secure registration before any substantial commercialisation.
When a trademark application is refused by the CNIPA on account of a prior trademark, applicants should investigate the cited trademark owner to find out whether it is a squatter or a genuine trademark owner.
Bad-faith filers in China can be highly sophisticated. For example, a trademark squatter may deliberately apply for a sign which is relatively dissimilar to a prior registered trademark so that it may remain unnoticed by the owner of such prior trademark, or that an opposition against such sign may fail, and the sign becomes registered. However, in actual use, the newly registered trademark is (sometimes only slightly) transformed and amounts to an infringement on the prior registered trademark. In such case, aggressive administrative raid and civil actions should be taken to contain the infringement relying on bad faith evidenced by the way in which the mark is actually used. This may eventually support the invalidation action against the disputed trademark.
Sometimes, buying a mark may be a good idea purely from the perspective of costs. Depending on the strength and complexity of the case, the purchase price may be lower than the costs involved in a legal battle.
An earlier version of this article was first published in INTA Daily News.
