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The Challenge: Trademark Squatting in China

One of the greatest challenges that many foreign companies face when entering the Chinese market, is that their brand has already been registered as a trademark by a Chinese company. The registrant could be the foreign company’s (former) distributor or agent, but it could also be a professional trademark squatter who snaps up mainly foreign trademarks, with the goal of selling these back to the legitimate owner for (huge) profit.

Under current PRC trademark laws, the rightful owner can take administrative and legal actions to get their trademark back; available tools including the opposition, the invalidation or the court action against a squatted mark. But while the chance of winning these procedures has increased considerably in recent years, they take a lot of time to complete (often 3-5 years) and the process is complicated, exhausting many foreign companies to the point that they simply give up and develop a new brand, or pay a high price to purchase the squatted trademarks.

New Legislation: Rejecting Bad-Faith Trademark Applications

Rather than facilitating the return of trademarks, a new initiative by the China National Intellectual Property Administration (CNIPA) aims to fight the problem at the source, by increasing the chance that bad faith trademark applications will be rejected. The Several Provisions on Regulating the Application for Registration of Trademarks (Provisions) were issued as a draft on 12 February 2019, and include a number of useful provisions:

• Trademark applications should have actual needs and shall not prejudice the prior rights of others (Article 2);
• Both the applicant and its trademark agent are required to abide by the principle of good faith (Article 2);
• A pre-procedure is established for malicious applications; i.e. if the CNIPA considers a trademark application to be irregular, it has the right to request the applicant to provide reasons for the application with relevant evidence. If the reasoning and evidence are deemed insufficient to prove the actual need, the application will be rejected (Article 4);
• Any organization or individual who finds an irregular application for trademark registration may report it to the CNIPA (Article 7).

Article 3 of the Provisions provides further guidance on the types of applications that should receive special scrutiny. This includes applications for trademarks:

1. Imitate those familiar to the relevant public;
2. Are identical or similar to others’ prior rights, and the applicant is aware of this;
3. Are part of a large number applied for by the same applicant in a short period of time;
4. For which there is no intention to use;
5. In violation of the principle of good faith, infringing on the legitimate rights and interests of others or disrupting the market order.

The same article also prohibits anyone from assisting others or trademark agencies to conduct the application for registration of such trademarks.

Conclusion: Filing Trademark First Still the Best Policy

This initiative is the CNIPA’s recognition that more needs to be done to protect rightful trademark owners against trademark squatters, and once effective the Provisions are step in the right direction, giving the CNIPA more scope to reject bad-faith trademark applications. However, the CNIPA and individual examiners retain a lot of discretion, and so how this will really impact the landscape will depend on how actively examiners will enforce these new rules in practice. Considering the large number of applications that are going through the Chinese system (over 7 million in 2018 alone, which according to some sources gives an examiner about 10 minutes per application), it is unreasonable to expect that the Provisions will solve all the problems.

With that, the best advice remains that international trademark owners must always file for registration of their trademarks as early and comprehensively as possible; and should have an comprehensive strategy to build a trademark portfolio, but also to actively maintain that portfolio as new trademarks are created, and with support in China be ready to respond immediately to threats to the portfolio, as well as act on infringements.

R&P’s IP team advises international clients on developing their trademark portfolio, assists them with applications and legal actions, and represents companies against trademark squatters. The team yearly manages over 3,000 applications, oppositions, appeals, lawsuits and cancellations; represents clients to purchase trademarks from third parties (including squatters); and fights infringements with administrations (incl. Customs, the AIC, online platforms), with the Public Security Bureau, and through the courts. For more information, please contact Victoria Lei at leishijing@rplawyers.cn or Maarten Roos at roos@rplawyers.cn).