Chinese’s trademark filing rules operate on a first-to-file basis, stipulating that the first person to file for trademark protection generally becomes the owner of said mark upon the success of their application. This is irrespective of whether they have held the trademark in the past. Such an issue has plagued companies for a while, including Tesla, and more recently, large, international law firms such as Norton Rose Fulbright and Squire Patton Boggs. The practice, known as ‘squatting,’ is harmful to businesses, often resulting in companies being unable to operate, forced to pay licensing fees to the squatter or running into other legal issues.
Squatters with particularly nefarious motivations can register a trademark with the intent to hold a company to ransom by threatening to seize goods. What’s more, if a company is attempting to license their goods to a Chinese distributor, lacking trademark protection can cause difficulties, especially if the distributor takes the opportunity to register it themselves, essentially cutting the company out of the equation.
Combatting Disingenuous Registrations
The difficulties with the system add to the pressures Western companies face when conducting business in China – due to the lengthy process of registering a trademark, companies must rely on their long-foresight one or two years before they conduct business in China.
Furthermore, even if a company is not selling goods in China, but merely manufacturing for export, registering the trademark can protect against state seizure for trademark infringement. This instance can occur where the company puts its trademark on goods intended for export but without registering that trademark in China, opening up the possibility that another company could register the mark which would allow them to claim an infringement of their rights. On the other hand, exporting goods to China with the mark being registered there could lead to such goods being suspected counterfeits and thus seized.
A trademark can also extend protection against e-commerce sites like Taobao listing fake goods since the trademark provides a right to have infringing goods taken off the listing. Furthermore, companies can increase their protection by registering the trademark with Chinese Customs.
For companies that have been the victim of squatting, there are several options, including negotiations. However, litigation is often an outcome and the long-winded process can cost a large amount of time and money, as noted by the Jordan/Qiaodan case which received a final decision in December 2016, in favour of Michael Jordan. Michael Jordan, the retired NBA basketball player, sued Qiaodan Sports in 2012, claiming that the company built its operations around the Chinese translation of his name, including a silhouetted basketball player as its logo. While the judgment itself leaves a lot to be desired in whether Qiaodan can continue to use the name in future enterprises, alongside other trademarks left alone including the silhouette, it shows a step toward better protection of rights and the closing of the gap left by the first-to-file system.
Ultimately, the case shows that registration guarantees the protection as China’s civil law system does not recognise common law rights. Furthermore, it shows the importance of registering the trademark in the Chinese language as choosing a prominent Chinese translation to protect the trademark in both languages can extend protection. Lastly, one could take the route of registering famous trademarks defensively, for example, if your company operates under several names alongside being known by several others, trademarking such names in China under the system can also help prevent squatting.
On the whole, seeking protection early, regardless of whether or not business is currently being conducted in China, could give companies the edge with their future operations.