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How to tackle Chinese trade mark squatters

Linda Chang explains why bad faith under Chinese law is often misunderstood by foreign trade mark owners, and how new amendments to the law could improve enforcement

The Land Rover case was a breakthrough in recognising the reputation of a trade mark solely created through the media

One-minute read
Bad-faith registration of foreign trade marks in China has been a big problem for foreign brands. One reason is that the interpretation under Chinese law of ‘bad faith’ has been quite narrow and well-known status hard to acquire. But a court case involving Land Rover has shown that the courts are gradually broadening the understanding of prior use of a mark, which could be particularly good news given amendments to the Trade Mark Law that introduce new protection for brand owners, but are highly dependent on court interpretation.

With more and more Chinese individuals and organisations realising the possibilities for abuse in China's first-to-file trade mark registration, trade mark squatting has become a very profitable business. Squatters just need to spend a couple of thousand renminbi to file with the Chinese Trade Mark Office and become the owner of a brand, so long as it is not yet registered. If the legitimate owner cannot successfully oppose the application, it will have to forgo or re-brand for the Chinese market, or buy back the trade mark for thousands to millions of renminbi. This taking of another party's trade mark by merely registering it early is known as bad faith registration.

Bad faith – not what you think it means

While lay people may think that bad faith should encompass any act of pre-emptive registration, disappointingly in the Chinese Trade Mark Law it is a much narrower concept.

Article 31: Marks used before in China

Under Article 31 of the Trade Mark Law, the pre-emptive registration of a trade mark that has been used before in China by another party, and such prior use has created a reputation for the mark, is a form of bad faith registration. It is crucial to establish the italicised limbs of the article in order to succeed in an opposition or cancellation.

Many rights owners have lost cases because they failed to prove the prior use of their mark in China had created a reputation sufficient to defeat the squatter's registration. There has been much debate about the requirement that there must be prior use of the mark in China under this article. For a long time, Beijing courts have held that use of a trade mark only referred to active use by the trade mark owner in the Chinese market. In other words, the reputation of a trade mark arising from media reports about the mark does not count as use. However, the Beijing High Court recently took a different view.

In Landrover Company v Geeley Group, Land Rover filed to cancel the registration of the trade mark Lu Hu, the Chinese name for Landrover, meaning land tiger, registered by Geeley. Both the Beijing Intermediate and High Courts held that based on the 41 news reports and media commentary submitted as evidence, the Chinese public had already associated Lu Hu with its English name Landrover and BMW (its owner then), before Geeley applied to register Lu Hu. Both the first and second instance courts further held that Geeley, as a player in the automobile industry, should have known about Lu Hu at the time it filed the application, and therefore, did so in bad faith.

This case was a breakthrough by the Chinese courts in recognising the reputation of a trade mark solely created through the media. The judgment is also contrary to earlier cases, such as Pfizer v Guangzhou Wei'erman over the trade mark application for Wei Ge (the Chinese name for Viagra given by the market and widely used in media reports), and SonyEricsson v Liu Jianjia over the trade mark Suo Ai (the Chinese name for SonyEricsson given by the market and widely used in media reports). In these two cases, the same courts refused to recognise the reputation of a trade mark created through media reporting, and denied the trade mark owners' bad faith claims under Article 31. As a result, when promoting Viagra tablets, pharmacies have to add the remark "genuine Wei Ge" in brackets next to it, to distinguish the products of Pfizer, from those of Guangzhou Wei'erman's, which remains the trade mark owner of Wei Ge. This is a typical example how a rigid judgment can result in consumer confusion.

Article 15: Partnerships

Rights holders may also bring a bad faith claim under Article 15. This article provides that an unauthorised application for a trade mark that is owned by a business partner, or a potential business partner, shall be refused if the legitimate owner raises an opposition. This typically occurs in two situations. One is where the potential Chinese partner, after the initial contact between the parties, registers the trade mark in its own name without the legitimate trade mark owner's knowledge. The other is where the Chinese joint venture partner registers the Chinese name of the trade mark concerned.

In the first case, as long as the legitimate brand owner can demonstrate that it had contact with the applicant, it will be a straightforward situation, and the owner should be able to succeed in the bad faith claim. When dealing with the second situation, the key for the brand owner is to prove that the Chinese mark is associated with the original foreign language mark. This can be demonstrated by showing similarity in the pronunciation of the Chinese mark, and how the Chinese partner uses the Chinese mark. For example, if the two marks are always used side by side, or the Chinese partner makes it very clear in advertising that the products bearing the Chinese mark are from the same origin as the original foreign language mark, then the trade mark authorities and courts are more likely to find for the brand owner.

A partner who squats on a brand name may also attempt to hide the business relationship by registering the bad faith application in the name of a family member or friend. While this scenario is far more complicated, as long as the connection between the applicant and the business partner can be demonstrated, such an act will still be considered bad faith under Article 15 according to the Supreme People's Court's interpretation.

Article 13: Well-known status

Another form of bad faith is embodied in Article 13, which states that application for a another party's trade mark, or one similar to another party's mark, of which the reputation has reached well-known status in the Chinese market is deemed to have been made in bad faith. However, this provision has been less helpful to international brand owners, who never seem to win an opposition under Article 13, even though their trade mark ought to be well-known in the Chinese market. The reason for this is that the trade mark authorities and courts apply extremely strict evidentiary requirements for proving well-known status that very few international trade mark owners can meet. The rationale behind the strict requirements is that for some time, a large number of well-known trade marks have been recognised based on fabricated cases, and moreover, many of these marks are not really well-known in the Chinese market.

Promising legal reforms

Clearly there is a huge gap between the legal provisions and the variety of bad faith situations faced by brand owners, the most obvious being where the applicant clearly knows, or should have known, of another party's mark through the course of business or other contact. Further, given the strict evidentiary requirements for a well-known trade mark claim, how can brand owners protect marks that have acquired a reputation through use in China, but have not reached well-known status? This is the tension under the current legal framework.

The 3rd Draft Amendment to the Trade Mark law, which has been submitted to the Standing Committee of the People's Congress, addresses these concerns to some extent by the addition of Article 9 and Article 34. These concerns may even be fully addressed if Article 9 is interpreted broadly by the trade mark authorities and the courts.

Article 9: New, general protection

The new paragraph reads: "The application for or use of a trade mark must follow the principle of honesty and credibility."

This article is derived from Article 4 of The General Principle of Civil Law, and its embodiment in the Trade Mark Law is a very welcome addition. While this article can be considered the master article against bad faith registrations, its effectiveness depends on the interpretation given to "the principle of honesty and credibility", or loosely, "good faith". The trade mark authorities and courts will have to decide what constitutes good faith, and whether good faith is the antithesis of bad faith. For example, will it be considered good faith if a party registers a trade mark that another party has registered and used on different goods, and the mark concerned is a coined word with a reputation that falls below the threshold of well-known? There remains a question mark over such a situation, but this article will certainly provide the trade mark authorities and courts with a reasonable level of discretion that simply does not exist under the current law.

Article 34: Promising, but deleted

The first paragraph reads: "Where an applied for trade mark is identical with or similar to another mark for which the owner has prior use in China on identical or similar goods, and the applicant has knowledge of the mark through a contract between the parties, business contact, geographic location or other relationships, the application shall be refused."

The second paragraph reads: "Where the applied for trade mark is a copy of another party's mark, that is distinctive and has a certain reputation, and the registration is likely to mislead the public, the application shall be refused."

The first paragraph strengthens the protection afforded to prior used marks on identical or similar goods. If prior use of the trade mark in China can be demonstrated, and the owner submits evidence showing that one of the listed relationships exists, this shall constitute knowledge of the mark. This amendment alleviates an owner from the burden of proving that the concerned mark has acquired a reputation from use, and is a positive step away from Article 31 of the existing law.

Nevertheless, we are concerned about the degree of "knowledge" needed on the part of the applicant to satisfy this article. If actual knowledge rather than constructive knowledge is required, the burden of submitting evidence to prove this point will remain onerous. The phrase "other relationships" suggests that the listed relationships through which the applicant obtains knowledge of the trade mark are illustrative rather than exhaustive. There remains a question mark over whether parties who are competitors in the same industry fall under "other relationships". If not, will such a scenario be governed by the 'master article' against bad faith? Such lingering questions leave a big role to be played by the Implementing Regulation or a Supreme People's Court Interpretation.

The second paragraph contained in an earlier draft was specifically designed to deal with the rampant bad faith registration of trade marks that have been registered and extensively used in the Chinese market, but have yet to attain well-known status. It is extremely disappointing to learn that this paragraph was recently deleted from Article 34 by the Legislative Office of the State Council prior to the submission of the draft to the Standing Committee. The removal of a specific provision to address such bad faith registrations means that rights owners can only turn to Article 9.

There is now an imperative to interpret Article 9 in its broadest sense so that the act of registering another party's distinctive and reputable trade mark is found to be against the principle of good faith. The author hopes that constructive knowledge of the owner's trade mark is sufficient to constitute bad faith under the first paragraph of Article 34. In the same vein, it makes perfect sense if applying for a distinctive trade mark that has a reputation in the Chinese market, should be found to breach the principle of honesty and credibility under Article 9.

What is still missing?

The Amendment has reinforced the protection granted to a trade mark with prior use in China. This is a great step forward, and one which largely reflects the protection needed by a trade mark in a functioning market economy. Is there any bad faith situation left unaddressed by the Amendment? We believe that word marks in plain text that are neither registered nor used in China remain unprotected. The author doubts that Article 9 can be stretched to protect such plain word marks. Overseas right owners should be conscious of this fact, and take minimal steps to register their trade marks, if they are potentially interested in doing business in China.

What will China's new leadership mean for IP?, November 2012
How to cancel a mark in China, and avoid cancellation, September 2012
Court overturns Patent Office on well-known mark, August 2012
How Supreme Court advice is changing trade mark squatting, July 2012

Linda Chang

© Linda Chang 2012. Chang is a China country manager at Rouse in Shanghai

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