Introduction

On 18 March 2021 the Minhang District (Shanghai) Court published a judgment, rendered on 25 September 2020, which could become a precedent in the fight against trademark squatting.

The case concerned a form of trademark squatting that targets the owner of a reputable trademark. The squatter files numerous identical or similar marks, preferably in classes of goods or services in which the targeted trademark is not registered. This behaviour forces the victim to file numerous oppositions or invalidation actions and therefore incur significant costs.

Facts

The targeted trademark was BRITA and its Chinese transliteration, registered respectively in 1993 and 2010 by the German company Brita GmbH in Class 11 for water purification systems. The German company also registered several sub-brands and acquired a certain reputation in the field.

A Chinese company, Shanghai Kangdian Industrial Company, registered the trademark DEBRITA in the same class and filed 21 other applications in other classes. Based on this, Shanghai Kangdian challenged the registration and use by Brita Gmbh of its own trademarks in various sectors.

It took eight years for Brita Gmbh to finally obtain the invalidation of the DEBRITA trademarks and put an end to Shanghai Kangdian's harassment.

The cost of these administrative and judicial procedures, added to the damage caused by the infringement actions committed by Shanghai Kangdian, was such that Brita Gmbh decided to seek compensation and sue Shanghai Kangdian before the Minhang District Court. The Chinese subsidiary of Brita Gmbh, whose business had also been affected by the acts of Shanghai Kangdian, joined in the action.

One of the focal points of the dispute was whether the use of trademark administrative procedures could be considered abusive and malicious and constitute acts of unfair competition.

Decision

The Minhang District Court held that the trademark legal system gives business operators the procedural means to protect their own trademark rights. However, business operators must not use such procedures to pursue illegal purposes.

The court cited Article 2 of the Law on Anti-Unfair Competition, which defines the term 'unfair competition' by referring to the conduct of business operators that harm the lawful rights and interests of other business operators and disrupt the social and economic order.

The court held that the defendant's malicious pre-emptive registration of trademarks and abuse of trademark administrative procedures had violated the principle of good faith, contradicted business ethics and disrupted the order of market competition. Therefore, the defendant's behaviour constituted acts of unfair competition.

Comment

This decision gives hope to victims of trademark squatting who must spend huge sums of money to keep the trademark registry clear of identical or similar trademarks. The cost of filing such trademarks is only few hundred Renminbi yuan and constitutes no risk for trademark squatters.

It will only be fair if, once the bad faith of trademark squatters has been established by a final decision, the squatters face the financial consequences of such bad faith.

An earlier version of this article was first published in Marques.