Fraudulent Name Trademarks: A Comparison Between the United States, the European Union, the United Kingdom and China (Part IV of IV)

Introduction:

Perhaps no other country has as negative a reputation concerning respect for intellectual property as China. It seems like every week another article is published discussing Chinese patent infringement, Chinese trademark infringement, Chinese industrial espionage… the list goes on and on! Regrettably, in our firm’s experience, China’s reputation as the “wild west” of intellectual property – particularly trademarks – is justified.

Famous persons ranging from Michael Jordan to President Donald Trump have all faced challenges in navigating China’s trademark system – often finding themselves embroiled in expensive and time-consuming litigation and appeals fighting what should be obvious cases. In many instances, Chinese trademark “squatters” have successfully registered the English (or Chinese-character transliterations) of famous celebrity names. In other instances, Chinese squatters have even been successful in registering corporate logos or other trademarks containing distinctive design elements.

This article explores some of the shortcomings of Chinese trademark law and what rights holders can do to protect themselves in China.

Chinese Law:

On its face, Chinese law contains many provisions prohibiting squatter trademark filings and other forms of fraudulent trademark behavior. By way of illustration, Article 58 of the Chinese Trademark Law provides that:

“Whoever uses a registered trademark or an unregistered well-known trademark of another party as the trade name in its enterprise name and mislead the public, which constitutes unfair competition, shall be dealt with in accordance with the Anti-unfair Competition Law of the People’s Republic of China.”

Good as such provisions may be “on paper,” enforcement has historically been lax and non-uniform.

Critically, we believe China’s poor trademark reputation is attributable to several factors, namely:

China’s legal system tends to favor Chinese nationals;
there is no requirement to provide a written consent when seeking to register trademark rights in a living person’s indicia of persona (such as a name, portrait or signature); and
the procedures in place to attack an application / registration are unduly onerous.

Of these, factor 2 merits further discussion.

Chinese Oppositions / Invalidation Actions:

China, like the United States, publishes trademark applications for public opposition. Under Article 33 of the Chinese Trademark Law, an interested party may – within three months of publication – oppose such applications. Similarly, under Article 45 of the Chinese Trademark Law, an interested party may – within five years of a trademark’s registration – request that a previously registered trademark be declared invalid.

While there are a number of grounds for opposing an application or declaring a registration invalid, some of these require having prior Chinese trademark registrations covering the mark in question. However, as discussed below, many rights holders do not consider securing trademark protection in China until long after a third party has secured infringing registrations.

As such, in most cases, rights holders seeking to oppose / invalidate a Chinese trademark application / registration attack such application / registration under the following provisions of the Chinese Trademark Law:

Article 13.2 (where the trademark is a “reproduction, imitation, or translation of another person’s well-known trademark not registered in China and is liable to cause public confusion” and covers “identical or similar goods” to those covered by the legitimate trademark);

Article 13.3 (where the trademark is a “reproduction, imitation, or translation of another person’s well-known trademark not registered in China and it misleads the public so that the interests of the owner of the registered well-known trademark are likely to be impaired” and covers “different or dissimilar… goods”);

Article 30 (where the trademark “is identical with or similar to the trademark already registered by another person”);

Article 32 (“[n]o applicant for trademark application may infringe upon another person’s existing prior rights, nor may he, by illegitimate means, rush to register a trademark that is already in use by another person and has certain influence”); and

Article 44 (where the trademark registration is obtained by “fraudulent or other illegitimate means”).

The problem with pursuing such proceedings in China on behalf of celebrities is that, in general, the Chinese authorities require that oppositions / invalidation actions be supported by a showing that:

The disputed mark infringes upon the celebrity’s name.
The celebrity was well-known in China prior to the filing date of the disputed application / registration.
The applicant / registrant applied for the disputed application / registration in bad faith.

In our experience, the most problematic of these three grounds is demonstrating the well-known status of a celebrity in China prior to the filing date of the objectionable application.

Rarely does a celebrity become a truly global phenomenon overnight. Rather, most celebrities – be they musicians, actors, athletes or others – work their way to the top of their professions and to international stardom.

An entire cottage industry has arisen in China wherein infringers scout American and European markets for new celebrity talent. Once a rising star is spotted – especially once such rising star begins filing trademark applications in the United States or the European Union – Chinese infringers rush to file applications at the Chinese Trademark Office. The squatters then “sit tight” and wait to be discovered – often years later – and offer to assign their squatter trademark registrations to the legitimate rights holder: for a high price.

Thus, Chinese squatters are often able to file applications months or years before a celebrity begins gaining publicity in China – especially in light of the cultural and linguistic barriers separating China from western nations.

Not only does such trademark squatting disrupt the legitimate rights holder’s commercialization efforts in China, it can also hamper efforts worldwide. The majority of clothing, footwear and other merchandise is manufactured in China.

Indeed, Chinese trademark squatters can use their trademark registrations to hamper manufacturing efforts in China on the part of legitimate rights holders. For example, a trademark squatter can: (a) file an infringing trademark application; then (b) institute trademark infringement proceedings against a right’s holders authorized manufacturers – essentially holding the brand “ransom.” Aware of such devastating potential, Chinese trademark squatters are often brazen in demanding unbelievably high payouts in exchange for assigning their squatter rights.

Chinese Trademark Non-Use Cancellation Actions:

A final point worth exploring is the use of non-use cancellation actions in China to combat squatter trademark filings. In general, Chinese trademark squatters file infringing trademark applications in order to extort money from rights holders – not to actually use the trademarks in commerce.

In theory, this opens the door to the possibility of using non-use cancellation actions in China to combat squatter trademark squatters. In practice, however, non-use cancellation actions often prove largely unhelpful in combatting squatter trademark filings.

Chinese trademark law does not require a showing of use prior to registration of a trademark. Rather, Chinese trademarks do not become vulnerable to non-use cancellation actions until after three years. Accordingly, many Chinese trademark squatters simply periodically re-file applications every few years to ensure that they always have at least one registration which is not vulnerable to a non-use cancellation. Thus, stopping Chinese trademark squatters often becomes a form of “whack-a-mole” whereby new squatter applications are filed faster than old squatter registrations can be cancelled for non-use.

Recommended Proactive Steps:

What can a rights holder do to guard against squatter Chinese trademark filings? Perhaps the best answer to this question comes from the old adage that the best defense is a good offense.

In today’s global economy, celebrities need to consider securing trademark protection in China as soon as possible. At the very least, celebrities should file trademark applications in China at the same time as they file trademark applications in the United States, the European Union, the United Kingdom or other key markets. As noted above, the need for such filings is heightened to the extent that the celebrity’s authorized merchandise or licensed products are likely to be manufactured in China.

If you or your company need to explore trademark protection in the United States, the European Union, the United Kingdom or China, call us today for a free consultation.