Best strategies for fighting trademark squatting in China

Since the publication of the National IP Strategy in 2008, the Chinese government has encouraged the filing of all types of IP right, including invention patents, utility models and trademarks, and has implemented measures to accelerate the application process and lower the associated costs.

As a result, the number of trademark applications has increased year on year, hitting almost 8 million in 2019. While this sounds positive, there have been some adverse consequences to the rise in filings as most of the marks have never been used – they were filed in anticipation of potential litigation, with the aim of then reselling them to brand owners for profit.

Fighting trademark squatting can be time consuming and costly. Further, there is a risk that the squatter may sue and thus block business projects. It is therefore crucial for rights holders to be aware of the effective legal means available to deal with these issues.

How to fight against bad-faith applications

The latest amendment to Article 4 of the Trademark Law (2019) provides that trademarks that have been filed without the intention of being used should be refused. Brand owners can rely on Article 4 to oppose and/or invalidate such bad-faith marks if they have been approved for registration. Article 4 may also be useful if a bad-faith trademark hoarder has assigned the disputed marks or if the applicant has some connections to a hoarder. Further, malicious trademark applicants, and the agencies that assist them, may be fined.

In practice, conventional means (eg, oppositions and non-use cancellation procedures) have become more effective. For instance, the success rate of oppositions rose from around 23% in 2010 to 52% in the first three-quarters of 2020. As to non-use cancellation actions, the success rate is high – usually between 50% and 60%.

Cases that are having much more success before the China National IP Administration (CNIPA) and the people's courts include:

• opposition and invalidation cases based on the existence of business relations with the trademark applicant (under Article 15); and
• prior copyright, name rights, and prior use of an unregistered trademark with a certain influence (under Article 32).

How to defend against a bad-faith infringement claim

Brand owners run the risk of being sued by bad-faith trademark squatters. However, in recent years, Chinese courts have gradually developed a consistent practice to dismiss these types of case.

In WANG Suiyong v Ellassay (2014) the Supreme People’s 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 Guangzhou Zhi Nan Zhen and Guangzhou Zhong Wei v Uniqlo (2018) the Supreme People’s Court reiterated that the plaintiff’s registration of more than 2,600 marks 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 to be an abuse of trademark rights. The lawsuit was dismissed.

In Shantou Jian Fa v Michael Kors (2020) the Supreme People’s Court considered that the infringement action was based on a trademark that had been filed and registered in good faith by the plaintiff (a relatively unknown company). However, prior to filing the lawsuit, the plaintiff had attempted to file another trademark that was identical to a mark used by the defendant (a well-known company). The court  – while confirming that registered trademarks should in principle be protected regardless of their reputation  – ruled that despite the disputed trademark being more well-known, the plaintiff's subsequent attempt to file for another mark that was identical to the defendant’s in order to benefit from the reputation of the defendant was an act of bad faith, and therefore dismissed the case.

In Bayer v Li Qing (2018) the Hangzhou IP Court went further and ordered the bad-faith squatter to pay damages. The court considered that, by knowingly registering the logo, in which Bayer enjoyed the copyright, as a trademark and then filing multiple online complaints against Bayer’s distributors, the squatter violated the principle of good faith and must pay Bayer Rmb700,000 as damages.

Advice for brand owners

It is possible to file a defensive application, which targets classes that surround the core business. This is the most cost-efficient way to prevent trademark squatting. Further, according to deliberations that took place in China before the promulgation of the amended Trademark Law, in particular with regard to Article 4, filing defensive applications is not considered to be a bad-faith practice.

In any event, a clearance search is highly recommended before filing and using a trademark in China, as it is preferable to take the initiative to remove obstacles and secure registration before any substantial commercialisation.

If the CNIPA refuses a trademark application on account of a prior trademark, it is highly recommended to investigate the cited trademark owner in order 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 that is relatively dissimilar to a prior-registered mark, 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. But, in actual use, the newly registered trademark is (sometimes only slightly) transformed and amounts to an infringement on the previous mark. In such cases, aggressive administrative raid actions and civil actions are recommended to contain the infringement. This evidence of bad-faith filing may eventually support an invalidation action against the disputed mark.

Finally, from a cost perspective, entities might consider buying a mark, as depending on the strength and complexity of the case, the purchase price may be lower than the costs involved in a legal battle.