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New Provisions from Supreme People's Court

On 10 January 2017, China’s Supreme People's Court promulgated the Provisions on Several Issues concerning the Trial of Administrative Cases Involving Trademark Right Approval and Confirmation (the “Provisions”, effective 1 March 2017). Article 23 of the Provisions sets forth a clear rule that could impact the protection of foreign brands in an adverse way:

In the case where a prior user claims that an applicant applies for registration of its trademark (which has been used by the prior user and has a certain influence) on the goods that are not similar to its own goods, and this violates Article 32 of the PRC Trademark Law, the people's court does not support such claim.

Article 32 of the PRC Trademark Law: No application for trademark registration may infringe upon the existing rights of others, and bad-faith registration by illicit means of a trademark with a certain reputation already used by another party shall be prohibited.

 Challenges for trademark protection

Prior to the Provisions, China’s trademark laws did not explicitly regard the similarity of goods as one of the factors to cancel or invalidate bad faith marks; but Article 23 changes this. In other words, a Chinese court may not support a claim against a bad-faith applicant for return of a trademark if the criteria of “similarity of goods” is met, even when such mark was squatted in bad faith. We illustrate this with a hypothetical case:

A foreign company has been in the business of clothing retail since 2010 and registered its trademarks in China under class 25 (clothing, footwear, headgear). With the development of its business, the company decides in 2015 to expand its range to include the sale of bags, watches and jewelry. But when it tries to register its brand in class 14 (watches, jewelry) and class 18 (bags), it finds that a squatter applied for its mark in these classes as early as 2014. Under the Provisions and specifically Article 23, an invalidation of the squatter’s trademarks would fail because the foreign company did not yet sell watches, jewelry and bags in 2014, so the squatter’s application at the time could not have been made in bad faith.

In practice, it would not even make a difference if the foreign company had sold bags outside China before 2014, since in this case the burden is to prove the brand’s reputation and name recognition for similar products in China before 2014 – even if it is obvious in practice that the trademark in class 14 and class 18 was squatted. While this does not mean the company can never get its mark back, it does take significant amount of effort, time and resources. All these could have been avoided if the company registered its brand as trademark in all relevant classes in the first place.

Importance of trademark classes selection

Trademark squatting in China is not uncommon. We regularly see cases in which foreign companies were not well advised to register their trade name/logo for all their current products and relevant products in China. When the time comes to explore the China market or to expand into other product lines, companies are tied up and may even become subject to legal actions initiated by the squatters. In addition, the import and export of their own branded goods may be hindered if the trademark was registered by someone else in China, as Customs will recognize and enforce the trademark on behalf of such “owner”.

According to statistics announced by China Trademark Office (CTMO) on 19 January 2017, the number of trademark application in 2016 amounts to 3.691 million, with year over year growth of 28.4%. This makes China easily the jurisdiction handling the most trademark applications – a position that China has held for the past 15 years. By the end of 2016, the number of valid application was 12.376 million. Trademark squatting must have contributed to such high volume and so every foreign brand must be worried about squatters registering their brands before they have the chance.

At R&P China Lawyers, we advise on the selection of classes and conduct similarity search in all relevant classes to see if the client’s mark was squatted. As for the selection of classes, we analyze clients’ goods or services and choose all classes that relate to their business. For example, clients whose main products are in clothes (class 25) are also recommended to register their trademarks in class 14 (watches, jewelry), class 18 (bags), and/or class 9 (sunglasses); and for clients whose main business is in beer or non-alcohol beverages (class 32) should also consider registering in class 33 (alcoholic beverages, except beer). If no existing trademark/applications are found, we suggest registering in these classes, if only to prevent others from squatting the trademark for such related classes and products.

Conclusion

Whether your company is looking to enter the China market or if you already have a presence in China, it is highly recommended that you register your trademarks and brand names in all potential relevant classes. This is especially important if your company is still in its growth stage in China and is looking to expand into other product lines in the future. The risk of someone else registering your brand name in other product lines is high and it will always be extremely costly (in time, money and other resources) to reclaim one’s trademarks.

We should add with China’s first to file system, it is never too early to protect brand names in China. With the recent passing of the Provisions, foreign companies with the intent to conduct businesses in the Chinese market should take immediate and elaborate steps to have their trademarks and other important intellectual property protected.