The advice most
frequently repeated in relation to trade marks in China is that
brand owners should file early. China operates a first-to-file
system, which means as the name suggests that the first person
to file for a trade mark is the owner, irrespective of prior
use. A business model commonly known as trade mark squatting
takes advantage of this system, whereby squatters file for
trade marks they have seen in use on the internet or at trade
fairs in the hope of later selling them to the rightful owner.
Famous companies have fallen foul of this, including New
Tesla, as well as innumerable small companies. In the past
there have been three options for resolving the situation: (1)
wait three years and hope that the squatter does not use the
mark, enabling the rightful owner to cancel for non-use;
(2) apply to cancel the mark on the ground that it was
registered in bad faith (This has been very difficult,
requiring a prior sales agency between filer and rightful
owner, but should be easier following the latest trade mark law
revision); or (3) buy the mark.
So when Trunkbow
Asia Pacific (Shandong) applied for a trade mark "weixin" in
classes 9, 38 and 42, apparently intending to use it for a
communication program, it probably assumed it would soon be the
unassailable owner. At the time of filing (November 12 2010)
there was nothing called Weixin on the market and no relevant
registrations. Fast forward to January 21 2011, and
Shenzhen-based technology company Tencent launched its Weixin
("WeChat" in English) messaging app. As anyone who has been to
China will know, almost everyone with a smartphone uses Weixin.
It is the equivalent of Facebook, WhatsApp and Instagram rolled
into one and now has 500 million users.
Back to Trunkbow:
all seemed to be proceeding smoothly. On July 26 2011 the China
Trade Mark Office (CTMO) gave preliminary approval. Later that
year, however, a third party named Zhang Xinhe submitted an
objection to the application. That objection was based on
Article 10.1(8) of the Trade Mark Law, which reads: "The
following signs shall not be used as trade marks ' those
detrimental to social morals or customs, or having other
It is not
immediately obvious why Weixin (not a rude word!) should be
detrimental to social morals or customs, or have other negative
influences. The Supreme Court has previously indicated that
this exception is to be interpreted narrowly and is not to be
used to protect private rights. CTMO, however, decided that
granting the Weixin mark to Trunkbow would lead to confusion
among customers thereby causing a negative social influence.
Accordingly, and extraordinarily, the mark was refused.
Trunkbow's appeal to the newly formed Beijing IP Court was
dismissed, the Court holding that public interest should be
taken into account in deciding whether to grant trade marks.
Trunkbow's application, if successful, would have caused
inconvenience and had a negative impact on the public.
This is a serious
departure from the first-to-file rule and brings into question
China's commitment to the rule of law. Tencent could, like all
brand owners before, have paid Trunkbow for the mark or
rebranded. A company with such phenomenal market penetration
should have no difficulty in informing its customers that
henceforth it would be known by a new name (it would probably
be national news, and certainly the main topic of conversation
at the office water cooler).
Looking to the
future and the ramifications of the decision, will Article
10.1(8) become a more widely usable back door attack on trade
marks not susceptible to bad faith and non-use attacks, or will
only companies as famous as Tencent benefit? It is hard to
think of many foreign brands (bar KFC and McDonalds) with the
market penetration of Weixin, and certainly the innumerable
small victims of the squatters are not going to be able to take
I assume Trunkbow
will appeal to the High Court and I await the decision with
great interest. Will the High Court maintain the Tencent
exemption, or will it overturn it and maintain the stable and
predictable first-to-file rule, leaving Tencent and Trunkbow to
negotiate an appropriate price for the transfer of the mark.
Any improvements on $60 million (the price Apple paid for the
iPad trade mark in China)?
Carver is a director in the IP department at Wragge Lawrence
Graham & Co.