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Legal Update

Light at the End of the Tunnel: Trademark Squatting in China

5 December 2012
Mayer Brown JSM Legal Update

Trademark squatting has been a nightmare for many overseas trademark owners for a long time, and more so in recent years. Our partner, Kenny Wong, published an article last month in Intellectual Property Magazine, titled "Kung fu trademark hustle", in which he says there are encouraging signs that we may be seeing light at the end of the tunnel.

Following the Trademark Office, the Chinese judiciary has also openly acknowledged the problem. On December 3, the Beijing No. 1 Intermediate People's Court held a press conference to report on their study into "the cause, characteristic and judicial response to trademark squatting". Vice president Chen Rui, a supervisor of intellectual property cases at the intermediate court and the leader of the task force, said that the courts should fully exert their judicial function by aiming to deter squatting activities when they interpret and apply the law. In exercising proper judicial discretion, the court should admit evidence and accept proof with a view to prohibiting squatting in order to implement the strategy to achieve a strong intellectual property protection in China through a fair, impartial and efficient judiciary. To demonstrate the point, the court delivered at the same time judgments in six cases (involving six different marks which are adjudicated to be well-known marks) against trademark squatters in hopes of educating the public about the importance of honest trading.

According to the court report, the current "low-cost, high-yield" trademark registration system in China has provided a strong financial incentive for squatters. As observed by Kenny Wong, with a view to profiteering, trademark squatting has become something that involves professional squatters (individuals and corporations), and even lawyers and trademark agencies. Such a phenomenon not only contradicts the basic ethics of honest trading, disrupts fair competition and damages legitimate business interests, but also hampers China's efforts to convert its economy from manufacturing to brand building, and blemishes China's intellectual image in IPR protection. In the report, it is acknowledged that the present remedies are not deterring enough and some academics even claim that trademark squatting and trading should be regarded as a legitimate business activity.

The report proposes that trademark squatting should be dealt with at all levels, including the legislation, judiciary, administration and also through public education. The legislation should aim to deter trademark squatting and protect fair competition. The administration should enhance its supervision of trademark agencies and prohibit trademark agencies from registering, on their own volition, trademarks unrelated to their businesses. Furthermore, there should be publicity to correct the misconception that trademark squatting is a legitimate investment activity.

The report also suggests some specific measures for dealing with trademark squatting, such as expanding the scope of protection for well-known trade names, establishing protection for names of fictional characters in literary and artistic works, strictly applying the three-year non-use cancellation in order to increase the cost of maintaining a squatted mark, determining a well-known trademark from the perspective of an ordinary consumer, and not expecting absolute quantitative volume of advertising or duration of use. Pending strengthening and amendment of the Trademark Law, Kenny Wong proposes that at the administrative level:

  • The Trademark Office should take the initiative in rejecting obvious squatter applications;
  • The Trademark Office should specify what sort of "bad faith" evidence it would require and accept, and how "adverse effect" against squatters should be proven to support an opposition against a squatter application;
  • The Trademark Office's blacklist of squatters should be made transparent to assist true owners in preparing their oppositions;
  • A system should be introduced to enable true trademark owners to report a squatter and advise the Trademark Office of the need to add the squatter to the blacklist;
  • Where an applicant does not answer an opposition which alleges bad faith squatting, the Trademark Office should make an expedited and summary decision in favour of the opponent;
  • Evidence filed by alleged squatters should be carefully scrutinised to ensure its authenticity.

It is hoped that the dark age of trademark squatting in China will soon be over.

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