September 2023
Lihui Jiang and Jane Tsai
China’s trademark registration system mainly follows the “first-to-file principle” and the “voluntary registration principle”. This means that typically, the person who submits the application first has the right to obtain a registered trademark. The situation does create opportunities for some individuals with malicious intentions to register trademarks that belong to others. At present, there is no precise legal definition of trademark squatting, but it generally refers to the preemptive trademark registration of other entity’s logo, name or other object of rights without authorization, with the main purpose of transferring them at a high price or striking at competitors.
Although academic circles have different opinions on whether the nature of the preemptive trademark registration should be distinguished from good faith or bad faith, the essence of the principle of first-to-file is to encourage people to actively apply for trademarks in the first place. In addition, Article 32 of the Trademark Law stipulates that an application for trademark registration shall not prejudice the existing prior rights of others, nor shall it be used to preempt the registration of a trademark that has already been used by others and has a certain influence by improper means. And Article 44 also states that if any registration is obtained by fraudulent or other improper means, the Trademark Office shall declare the registered trademark invalid. Thus, the registration of trademark belonging to others is considered illegal only when the person engaging in such registration exhibits subjective malicious intent.
I. Main Circumstances of Preemptive Trademark Registration
There are various forms of preemptive trademark registration and common ones are to register as one’s own trademark the graphics, characters, letters and other signs which have been used by others but not yet registered, or to register as a trademark the Chinese translation, Chinese abbreviation or letters of famous foreign trademarks and celebrities. In the agency business, especially in the foreign-related agency business, there are often agents, representatives, business contacts or other related parties taking advantage of the information gap to seize the trademark of the agent product. In addition, very few companies will register their trademarks in all classes as Apple does, therefore, some squatters will maliciously register some famous trademarks on goods or services that are not authorized for use. Moreover, there are also cases of imitation of other’s trademarks or hoarding of trademarks such as generic names and industry terms without the purpose of use.
In the face of others’ malicious registration of trademarks and infringement, how should prior rights holders safeguard their legitimate rights and interests? According to the different circumstances and stages of the trademark infringement, it can be considered from two aspects, namely, administrative recourse and judicial recourse.
II. Administrative Recourses for Preemptive Trademark Registration
1. File an opposition application with the Trademark Office.
According to Article 33 of the Trademark Law, for a trademark whose preliminary approval is still within the announcement period, the prior right holder or stakeholder may file an opposition application with the Trademark Office. However, it should be noted that if the opposition is successful, although it effectively prevents others from squatting on the trademark, the prior right holder cannot obtain automatically the exclusive right of the trademark, but still needs to apply for the trademark through the trademark application process.
2. Apply to the Trademark Office for invalidation.
For registered trademarks, Article 45 of the Trademark Law stipulates that one can request the Trademark Review and Adjudication Board to declare the registered trademark invalid within five years; furthermore, the owner of a trademark registered in bad faith or a well-known trademark is not subject to the five-year limitation.
3. Apply for cancellation of a registered trademark that has not been used for three consecutive years.
Article 49 of the Trademark Law and Article 66 of the Regulations for the Implementation of the Trademark Law state that if a registered trademark has not been used for three consecutive years without justifiable reasons, any unit or individual may apply to the Trademark Office for cancellation of the registered trademark.
III. Judicial Recourses for Preemptive Trademark Registration
1. Initiate a civil litigation on grounds of unfair competition
In addition to filing an opposition or application for invalidation with the Trademark Office in the face of malicious trademark registration by others, one may also consider seeking judicial recourses. Article 2 of the Anti-Unfair Competition Law stipulates that in their production and business activities, operators shall follow the principles of voluntariness, equality, fairness and good faith, and comply with the law and business ethics. The prior right holder may initiate a lawsuit on the grounds that the act of squatting is suspected of disturbing the order of market competition and/or damaging the legitimate rights and interests of others, and violating the principle of honesty and good faith, claiming that the squatter constitutes unfair competition and demanding that the squatter be held liable for cessation of infringement, elimination of influence, compensation for damages, and other civil liabilities.
Taking Xiaomi v. Zhongshan Benteng as an example, the Jiangsu High Court held in the second instance that Zhongshan Benteng imitated Xiaomi in terms of its trademarks, promotional phrases, colour schemes and other aspects, deliberately misleading consumers, violating the principle of honesty and good faith, and constituting unfair competition, and ultimately upheld the original judgment, i.e., that it should immediately stop the infringement, compensate Xiaomi for the economic loss of RMB50 million yuan and the reasonable expenses of RMB414,198 yuan, and publish a statement on the relevant website to eliminate the impact[1]. In addition, Xiamen and Hangzhou also had similar jurisprudence, in which the court found that the defendant maliciously squatted the trademark and other behaviors violated the principle of honesty and good faith, constituting the unfair competition.
2. Malicious litigation by the squatter
One of the main purposes of trademark squatting is to make profits and sometimes the squatters will “sue first” to defend their rights in bad faith through lawsuits, filing trademark infringement lawsuits against the use of trademarks by prior rights holders with the trademarks that they have squatted in advance. In this type of litigation, the court will usually reject the plaintiff’s claims if it determines that the plaintiff has malicious intent[2]. A recent case in the Shanghai Intellectual Property Court also pointed out that registering a trademark in bad faith and filing an infringement lawsuit violates the principle of good faith[3].
In the case of malicious litigation by the squatter, based on the principle of litigation and judicial trial, the court can only adjudicate on the determination of infringement and the plaintiff’s claims, such as rejecting the squatter’s claims, but cannot respond to the costs incurred by the prior right holder for defending its rights. However, this does not indicate that the squatters can defend their rights in bad faith at no cost. The Supreme People’s Court issued the Reply of the Supreme People’s Court on the Issue of the Defendant’s Request for Compensation for Reasonable Expenses on the Grounds of the Plaintiff’s Abuse of Rights in the Litigation of Intellectual Property Infringement in June 2021 stating that: “In an intellectual property infringement litigation, where the defendant submits evidence to prove that the plaintiff’s action constitutes an abuse of rights as stipulated in the law which harms its lawful rights and interests, and requests the plaintiff to compensate for the reasonable expenses such as attorney’s fees, travelling expenses and accommodation and food expenses paid by the plaintiff in connection with the litigation, the People’s Court shall support the request according to the law. The defendant may also sue separately to request the plaintiff to compensate for the above reasonable expenses.” In other words, the prior right holder can request the bad faith rights defender to compensate for the above right defending expenses by way of a counterclaim or a separate lawsuit.
3. Protect trademarks with copyright infringement litigation
In view of the limited types of goods for which a trademark is authorized to be used and the fact that it takes about one year to register a trademark, sometimes a lot of forged or counterfeit goods appear on the market before the trademark has been registered. In this case, some companies may consider protecting their logos or graphics with copyrights, such as Paul Frank Limited, which has successfully defended its “big mouth monkey” logo’[4]. However, it is not very common to use copyright to defend a trademark because the trademark, or graphic, needs to be meet the “work” under copyright, as well as a number of other conditions, in order to be protected by the Copyright Law.
Conclusion
Although there are a number of ways to defend a trademark that has been preemptively registered, in practice some companies settle with the squatter, purchase the trademark from the them, or even rebrand the trademark. The reason is that no matter whether it is administrative or judicial recourses, it is necessary to consider the time cost, legal cost, and the probability of success in defending the right. It is recommended that enterprises choose the appropriate means of defending their rights after weighing advantages and disadvantages of different infringement situations involving trademark squatting, taking into full consideration of all factors.
Fortunately, in recent years, China has paid more and more attention to the intellectual property protection, and the number of cases in which trademarks have been maliciously registered has been significantly reduced. For example, in March 2021, China National Intellectual Property Administration issued Special Action Plan for Combating Malicious Trademark Squatting Actions in 2021[5]; and in March 2022, China National Intellectual Property Administration issued a document on continuing to crack down on the malignant registration of trademarks[6]. In the first half of 2023, the Trademark Office cumulatively cracked down 249,000 cases of malicious registration of trademarks, in which 192,000 cases, or 77.1%, were rejected from authorization in the authorization or opposition process of trademark registration applications[7].
[1] Jiangsu Provincial Intellectual Property and Trademark Strategy Implementation Leading Group Office: http://jsip.jiangsu.gov.cn/art/2020/5/15/art_76029_9120419.html
[2] The Determination of Trademark Squatting and Relevant Legal Regulations, Yang Jie, Shanghai Intellectual Property Court: https://m.thepaper.cn/baijiahao_8303098
[3] The Behavior of Registering Trademarks Maliciously and Filing Lawsuits Violates Principles of Honesty and Good Faith, Yang Jie, Shanghai Intellectual Property Court: https://www.thepaper.cn/newsDetail_forward_21779085
[4] Beijing Court Website: https://bjgy.bjcourt.gov.cn/article/detail/2018/06/id/3334830.shtml
[5] China Trademark Office Website: https://sbj.cnipa.gov.cn/sbj/tzgg/202103/t20210324_5589.html
[6] The State Council of Central People’s Government of the People’s Republic of China:
https://www.gov.cn/zhengce/zhengceku/2022-04/13/content_5684967.htm
[7] The State Council of Central People’s Government of the People’s Republic of China: https://www.gov.cn/govweb/zhengce/202307/content_6892780.htm
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