How China is acting to combat bad faith trademarks

Trademark squatting is a perennial headache for existing foreign companies and those trying to enter the Chinese market. In China, squatters may not just be local competitors but also syndicates operating as a giant profit-making machine, and they are upping their game as the Chinese government and brand owners have both increased their efforts in defending legitimate trademark rights.

While tackling trademark squatters may seem daunting, a well-devised strategy would go a long way in acting in both offence and defense against bad faith trademark squatting in China. In this article, recent trends in curbing bad faith filings are explored and practical tips on combatting squatters are considered.

The 2019 amendment to the Trademark Law (the Law) sees that a bad faith trademark application that is not filed for the purpose of use shall be rejected. This provision in Article 4 of the Law provides an explicit ground upon which trademark owners may file opposition against a trademark application or invalidation against a trademark registration, but also empowers the China National Intellectual Property Administration (CNIPA) to outright refuse an application if it considers it a bad faith filing.

The provision surely did not disappoint to deliver what trademark owners expect it to do. Since the enactment of this new provision, many brand owners successfully removed bad faith application by opposition and invalidation by prevailing on this ground. More recently, bad faith applications have been outright refused by the CNIPA citing the same ground on its own initiative. From the CNIPA guidelines and decisions, a list of relevant factors being considered with regard to this ground are summarised below:

• How many marks are filed: when the marks are filed in bulk in a lot of classes by the same person or those that are clearly its affiliates, or if the applicant filed many marks that are similar to many different brands, there is a good reason to suspect that they may be bad faith filings.

• The transaction history of the mark: As much of the consideration hinges upon whether there is 'intent to use', examiners may also consider the transaction history of the trademarks, e.g. whether the mark or other marks from the same applicant have been offered for sale on trademark platforms.

• Any previous decisions/judgments against the applicant: if there have been previous administrative decisions and/or litigation judgments on bad faith or infringement that are against the applicant or its affiliates, these records would be cogent evidence of bad faith.

• Class of goods/services or the industry in which the applicant operates: if the industry in which the applicant operates does not correspond with the goods and/or services as filed, examiners may also consider this a red flag for bad faith.

• How distinctive/famous is your mark: the more distinctive/reputable your marks or trade names, examiners will be more inclined to infer bad faith if the applied-for mark is identical or highly similar to your marks.

Of course, sophisticated trademark squatters have been finding loopholes to work around these considerations. For example, they may set up shadow companies with a company name that incorporates the name of famous brands, giving the illusion that these marks are filed by their legitimate owners. Some may go as far as setting up foreign companies to disguise as legitimate foreign brand owners. While some may simply use different entity/individual names or names of their family members to ensure they are not flagged up from excessive filing by the same person.

CNIPA examiners may not be able to spot such bad faith filings on their own in these circumstances. As such, it is important that brand owners set up or subscribe to watch services to monitor publication of marks similar to their marks and file oppositions against them. In such opposition (the same applies to invalidation), further investigation must be conducted in order to prove bad faith of the applicant. Such investigation will include thorough company searches against the applicant entity to find out its legal representatives, shareholders and director and to try link them to other bad faith filing activities (e.g. mass filing/trademark hoarding activities, unfavourable decision against them, etc.).

If a foreign company is used as the applicant, a foreign company search will have to be done. It is often revealed that the shareholders or directors of such foreign companies are indeed Chinese individuals, and once the identity of the Chinese controlling parties are revealed, more in-depth investigations can be continued in China to dig out further bad faith evidence. If the applicant is a Chinese individual and the applicant's address is a residential address, online searches will often be futile, and site-visits will have to be conducted at the applicant's address which may assist in revealing information of familial trademark squatting syndicate.

Having identified exactly who you are against, foreign brand owners may then regularly monitor their activities and whether any unfavourable decisions or judgments have been issued against them. Records of trademark sales and domain name bidding/purchase and false representation on social media platforms are also helpful in proving malicious intention of squatters, especially with the advent of digital and blockchain evidence in Chinese courts.

The Article 4 amendment is part of a dedicated effort by CNIPA to function as watchdogs for trademark squatting activities. Rather than just relying on foreign brand owners to initiate actions, this allows the two groups to work in conjunction to tackle bad faith filings. As such, it is pleasing to see that tens of thousands of bad faith applications are indeed rejected based on the Article 4 amendment since 2019 and these decisions and the parties' names are also made available to the public.

That said, given that trademark squatters are notoriously adaptable, foreign brand owners should remain vigilant and proactive in their efforts to oppose, invalidate and/or cancel trademarks based on non-use. It is recommended to conduct in-depth background searches to root out the network of squatters, who may exist as affiliates, shareholders, directors and/or legal representatives.

Some clients' person names have become so famous that they have turned into a personal brand of high commercial value. This is particularly common amongst famous fashion designer labels, celebrity brands etc., but many clients omit filing trademarks for the same before entering in the Chinese market or more often, squatters already registered the clients' personal names before the brand officially launches in China.

Many squatters also file the Chinese transliteration of such names as trademark in different classes to take advantage of the clients' fame. In this regard, the Law helpfully provides that no trademark applicant may infringe upon another person's existing prior rights, and that include personal name rights. Action may be taken against a bad faith filing on the ground that the disputed mark is identical to one's name, and the protection is not restricted by class.

The highly publicised legal battle between the famed American athlete, Michael Jordan, and the Chinese sportswear company, Qiaodan Sports Co Ltd, saw the former finally claiming victory at the Supreme People's Court (SPC), but also establishing a crucial three-step rule on relying personal name rights:

a) The name has acquired a high level of reputation in China;

b) The relevant public refers to that natural person by the name; and

c) There is a 'stable corresponding relationship' between the name and the natural person.

In other words, brand owners relying on this right will have to demonstrate not only their well-known status (or at least a certain degree of fame in the relevant field of interest), but cogent evidence such as market surveys, national library search reports, awards and rankings to show that the relevant public actually associate that name to the natural person.

While the 'name' in question does not necessarily have to be the full legal name of the natural person and stage names, pseudonyms and aliases can also be protected, one should note that the personal name right of a English name does not necessarily extend to its Chinese counterpart or its Pinyin, and vice versa. Therefore, foreign brand owners are encouraged to file both its English and Chinese mark to ensure the broadest scope of protection, as bad faith filers very often take advantage of multiple linguistic representations of a given brand in their squatting activities.

As discussed, a squatter may file the mark in Chinese transliteration, which will further require evidence to support that an exclusive relationship have been formed between the clients' names and the Chinese transliteration. As such, national library searches for keywords in both the original language and the concerned Chinese transliteration should be conducted to prove such exclusive relationships. Also, users report using the Chinese transliteration to refer to the clients' names may also be adduced in support to show the exclusive relationship.

If supported by sufficient evidence, the personal name right client can be deployed by the clients as powerful weapon to challenge squatters' applications or registrations in different classes.

The proliferation of China's e-commerce market is one of the most prominent features of its fast-growing economy. With opportunity also comes impediments: if squatters' marks are not removed from the registry, they can be utilised by some of the more hostile squatters who may file malicious complaints against legitimate merchants on e-commerce platforms, such as Taobao.com and JD.com.

While many of these complaints have no legitimate cause of action by nature, and are unlikely to succeed, they are often made in contemplation to disrupt the normal business of brand owners and act as a leverage to sell their registered marks at a higher price (along with a long list of unreasonable demands). Brand owners will have to expend considerable time and money to dispute these claims.

While it is possible to pursue these activities by arguing unfair competition, it is often more cost-effective to liaise directly with these e-commerce platforms and resolve the matter then and there. Negotiating with reputable platforms whose operation are regulated by the e-Commerce Law is likely more worthwhile than dealing directly with squatters. For example, platforms can take meaningful technical measures that would mean actual ramifications for the business of squatters, such as deleting the links and/or banning their account.

Of course, the best way to prevent such malicious complaints is to remove the squatter's registrations which are their basis for filing such complaints. It should be noted that, in case the opposition is unsuccessful, invalidation actions (other than on the grounds of non-use) should be filed as soon as possible to destabilise the squatter's mark and latest within five years after registration of the squatter's mark.

Again, defensive filing strategies would ensure enough 'ammunition' for brand owners to act on e-commerce platforms. It is therefore advisable to curate a strong trademark portfolio by closely monitoring any squatting activities and proactively remove such filing as soon as possible, and keep a good relationship with these platforms and work in tandem to weed out these unfair trade practices.

As demonstrated in the above, trademark squatters come in all shapes and forms, and their strategies malleable to the ever-changing legal and business environment. While the CNIPA and Chinese laws have stepped up effort in combating trademark squatters, brand owners shall not let their guards down and should take proactive actions to file their trademarks defensively and monitor and protect its legitimate interests against rapacious squatters.

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Vivien Chan

Founding and senior partner

Vivien Chan & Co

T: +852 2522 9183

E: vivchan@vcclawservices.com

Vivien Chan is the founding and senior partner of Vivien Chan & Co. She has over 40 years of experience in mergers and acquisitions (M&A), information technology, IP and related tax issues.

Vivien is a justice of the peace and a past president of the Inter-Pacific Bar Association. She is a notary public, a notarial attesting officer in China, and an arbitrator at the China International Economic and Trade Arbitration Commission, Shanghai International Arbitration Center and the Shenzhen Arbitration Commission. She was awarded the Lifetime Achievement Award in 2017 by the American Chamber of Commerce in Hong Kong SAR and has also been awarded the Bronze Bauhinia Star and Silver Bauhinia Star by the Hong Kong SAR government for her outstanding contributions to Hong Kong SAR.

Vivien received her law degree from King's College London, and is admitted as a solicitor in England and Wales, Hong Kong SAR, Australia and Singapore.

Ann Xu

Head of Beijing Office

Vivien Chan & Co

T: +852 2522 9183

E: annxu@vcclawservices.com

Ann Xu is a trademark attorney and heads the Beijing office at Vivien Chan & Co. She has more than 20 years' experience in IP cases in mainland China.

Ann has trademark, copyright and designs expertise. She regularly advises on prosecution and portfolio management.