While for many companies China is the land of opportunity, with abundant labor and a rapidly expanding middle class, for brand owners it has long been regarded as the ultimate challenge. Peter Ollier reports.
Over the past few years there has been a pattern in China of legal changes creating minor improvements while the overall picture remains frustratingly complicated for brand owners. At the China Trademark Office (CTMO), brand owners face severe delays as the examiners deal with the growing numbers of applications, making it harder to enforce rights against trademark squatters. A session today aims to highlight the main challenges and provide some tips on how to deal with the China challenge.
Zhengfa Wang, a partner of China Patent & Trademark Agent (HK), believes that so-called ghost trademarks are the main problem in China at the moment. The most common take the form of bad-faith registrations that are not used but made purely to extort money from brand owners. Some ghost trademark owners also seek illicit income from manufacturing goods bearing the ghost trademark.
"It is astonishing that the ghost trademarks exist in such a huge number, increase at such a dreadful rate and exist in so many varieties of forms," says Wang. As an example he cites the attempt by one trademark squatter to register BEIJING OLYMPIC GAMES as a trademark.
Often the names of famous people will be associated with unlikely goods by enterprising trademark squatters. For example the famous basketball player Yao Ming had his name designated for the manufacture of beer and steel pipes, while the name of film star Zhang Ziyi was registered for an electric device for trapping and killing bugs and expelling mice. One ambitious squatter even tried to register the device of Zinedine Zidane's head-butt against Marco Materazzi in the FIFA soccer World Cup final.
The exorcists
Wang believes that there are a number of ways to exorcise the ghosts, though he admits that registering all trademarks in all classes is unfeasible. China has opposition, re-examination and cancellation procedures that can and should be used, he argues. Brand owners can claim that the mark conflicts with a prior right, is confusingly similar, is devoid of distinctive character, has unhealthy influence, was registered in bad faith and by unfair means or is diluting their trademark.
But all these ways of attack become meaningless if you have to wait years and years for decisions to be made. Delays at CTMO and the Trademark Review and Adjudication Board (TRAB) have now reached serious levels.
"The problem is massive, the situation is terrible and it's getting worse," says Doug Clark, a partner in Lovells' Shanghai office.
One reason for the rise in waiting times is simple: there has been a rapid increase in the number of people applying to protect their trademarks in the country and the CTMO is now the world's largest receiving office. Figure 1 shows a substantial increase in applications over the past 20 years. Although the number of trademarks being processed has also risen, it has failed to keep pace with demand.
Estimates for the size of the delays vary, but approximate figures are between 18 and 30 months to register a trademark, five years to get a ruling in an opposition hearing, and up to seven years for a decision from the TRAB in a cancellation action. The time needed to register varies depending on the class. Class 25 for clothing, footwear and headgear suffers from the worst delays.
Tactical applications
Unfortunately, the unprecedented growth in applications and the subsequent delay in processing oppositions have led to a dramatic rise in tactical applications designed to strengthen an applicant's hand.
For example, Clark says that he advises clients to register as many variations on their trademarks as they can rather than rely on opposing infringing marks. This in turn further increases the workload of the already overburdened CTMO. Delays create more delays, and a vicious circle is born.
This problem seems particularly acute at TRAB, where Linda Chang, an executive in Rouse & Co.'s Shanghai office, says she chased up a case that she filed in 2003 only to discover that the organization is still hearing cases from 1999.
Delays in deciding trademark oppositions can also affect infringement actions. In late 2005 the Supreme Court stated that when there is a dispute over registered trademarks, courts should not handle such cases but should wait for the dispute to be dealt with by the Trademark Office first.
Given the time it takes to get a decision, this can be disastrous for rights owners. For example, Danish shoemaker Ecco became a victim of this policy when a judge refused to deal with an infringement case while the CTMO was still deciding the outcome of an opposition action. The alleged infringer is free to continue his actions until the case is heard.
Clark argues that this is not compliant with Articles 41.1 and 42 of the TRIPs Agreement, which require WTO members to make available to right holders civil judicial procedures concerning the enforcement of any intellectual property right covered by the Agreement. At the moment, it could be argued that the courts are abdicating responsibility to the administrative level.
So is there a magic solution to all these problems? One obvious answer is that the Office should recruit more examiners and ensure they stay longer. Yang Yexuan, deputy director general of TRAB, wrote in Managing Intellectual Property in 2005 that pendency had become "an urgent issue," and said that a plan had been approved to hire more examiners. This has led to some improvement in the number of cases being processed but the issue is far from being resolved.
Linda Chang proposes abolishing relative examination as a solution to the pendency problem in a country where applications keep rising year after year. Although this might lead to a spate of bad-faith registrations, it would speed up the system and shift responsibility on to companies to think more about what they should try and register.
Other practitioners disagree, arguing that this would lead to a backlog of re-examination cases and, according to Sandra Gibbons, a partner of Lloyd Wise in Hong Kong, favor larger companies that can afford to police the system themselves. "The only way is to appoint and train more people," she argues.
The CTMO has been looking at ways to improve the pendency situation in the context of current revisions to the China Trademark Law. This includes addressing the question of whether abolishing relative examination is the solution. In a letter to the CTMO in February 2007, INTA said that while abolishing relative examination might help reduce the considerable backlog of pending cases under examination, it would likely be offset by the lengthy opposition procedure if no measures are taken to expedite the opposition procedure. The current presumptions of a registration's validity would also need to be changed in order to facilitate trademark litigation.
Meanwhile, a number of minor improvements would help make the system more user-friendly. At present, despite the fact that it can take the CTMO years to refuse an application or reject an opposition, applicants are given only 15 days to appeal. For an applicant based overseas for whom time differences make contact with the local agent problematic, it can be difficult to make a decision and prepare necessary documents in time.
Clark says that people should be given the right to apply to a court to cancel a trademark, to help companies such as Ecco. He would also like to see expedited procedures in TRAB. At the moment three people handle each case. Although this probably helps to ensure consistent decision making, it almost certainly does not help the Board shift its backlog more quickly.
He suggests allowing clients to request an expedited decision made by one examiner, on the grounds that "any decision is better than no decision." Time limits could also be introduced, so that if a decision on an opposition or cancellation has not been made after one year or 18 months it is deemed to have been rejected and you can then appeal to the courts.
Other time-saving options include shifting to multi-class examination rather than considering one mark for each class, as is required at the moment. This would temporarily slow down the system but in the long term could make the process more efficient, says Horace Lam, the head of IP at Lovells in Beijing. Some practitioners also argue for a switch from first-to-file to first-to-use, "a more equitable system," according to Lam.
Many of the trademark owners and attorneys that the INTA Daily News spoke to also requested greater transparency on the part of the trademark authorities. CTMO published its examination guidelines in January 2006 and introduced an online search service for trademarks – steps that were welcomed by practitioners. But practitioners would like to be able to have more contact with examiners so that they can contact them directly during the examination or appeal process if they believe it is necessary.
Short-term solutions
While the long-term solutions proposed are varied, in the short term Lily Lei, a partner of Liu Shen & Associates, believes that the only answer is to act as early as possible: "When you begin to think about doing business in China, get your trademarks registered."
If the mark has well-known status then protecting your brand becomes simpler. This first became possible in China after it joined the Paris Convention for the Protection of Industrial Property 20 years ago. While China has a reputation for being reluctant to grant these marks, especially for foreign marks, in the last few years the process has become easier. A ruling by the Supreme People's Court in 2001 means that the CTMO is no longer the only authority capable of recognizing well-known trademarks. The new trademark law later the same year contained provisions dealing with the protection of well-known marks. In 2003, new Rules on the Recognition and Protection of Well-Known Marks provided for recognition of well-known marks through the well-known mark owner's submission of evidence of fame or on a case-by-case basis in opposition on enforcement actions at the CTMO, cancellation actions at the TRAB or infringement proceedings at the Administration for Industry and Commerce.
Recognition of well-known marks is increasing, and in 2006 14 brands were recognized as well-known, according to figures from Wan Hui Da Intellectual Property Agency. These included STARBUCKS and STARBUCKS in Chinese (recognized in a lawsuit); KODAK; L'ORÉAL and L'ORÉAL in Chinese; HONDA and the Chinese equivalents of TOYOTA and PORSCHE.
Despite the progress in establishing marks as well-known, brand owners are having difficulty registering 3-D, certification and collective marks. For example, Lily Lei says she has experienced trouble registering LEGO as a shape trademark. So far it has been difficult to register a shape without a word as examiners have argued that it is not distinctive. Few 3D trademarks have been successful so far.
The story is similar for certification marks, where Lei has been trying to register a mark for STILTON cheese for the British Cheese Association. After almost four years of trying and "four or five" meetings with examiners the mark is still not registered.
The trademark law is being further revised, and drafts have been circulated for consultation. With so many issues to deal with it is hard to see how everyone can be placated. Without a doubt the problem of delays needs to be addressed urgently.
