Introduction

Foreign businesses are often vulnerable to trademark squatting in the PRC, where a “first-to-file” trademark system operates. In a “first-to-file” trademark system, trademark rights are awarded to the first applicant who applied for the relevant trademark as opposed to granting rights based on the legitimate use of the mark or an intent to use the mark. In a recent case, we have successfully assisted our client to repel a trademark squatter in the PRC.

Background

Our client is a Canadian company (“M Inc.”) which manufactures products such as waist bands, carrying bags and organizing cases in the PRC through its PRC trading company but does not sell its products there. The trading company engaged an original equipment manufacturer (“OEM”) in the PRC for the manufacturing of the products.

In May 2017, M Inc. discovered that the OEM had filed three applications for registering the trademark of M Inc. for three Classes of goods (Classes 9, 18 and 21) in the PRC in its own name without M Inc.’s consent. As such, M Inc. raised objections against the trademark applications respectively.

At the very beginning, the OEM pretended and claimed that they would agree to assign the marks back to M Inc. and assignment documents were prepared for this purpose. However, it was subsequently found out that the OEM had already filed three assignment recordal applications for the opposed marks to an unrelated individual instead in March 2017.

Three oppositions against the OEM’s trademark applications to the Trademark Office of the PRC (“CTMO”) were filed on the basis that M Inc. is the true owner of the marks and entrusted their PRC trading company and factory to manufacture products bearing the mark prior to the filing date of the opposed marks, and the opposed marks were preemptive registrations made in bad faith.

However, the CTMO refused the initial oppositions as M Inc. could not adduce any signed agreement between the OEM and the trading company to support their claims. As such, the opposed marks were allowed to be registered.

Appeal and the CNIPA’s decision

We then prepared the respective invalidation actions against the squattered trademarks, in which we also made a request for oral hearing for the matter and effectively appealing the CTMO’s decision to the China National Intellectual Property Administration (“CNIPA”). Apart from asserting the client’s prior rights over the marks, we also scrutinized all outgoing documents and emails sent from the client and the trading company to the trademark squatter, in which we successfully traced useful linkage between the evidence of prior use and evidence of bad faith of OEM. The evidence we filed included notarized email chains between M Inc. and the OEM which contained purchase orders, sample products photos, products description and etc. before the filing date of the squattered marks.

At last, the CNIPA accepted our arguments and supporting documents and adjudicated that M Inc. was able to establish its submitted grounds and concluded that the registrations of the disputed marks shall be invalidated. The CNIPA made the following points (among others) in its written decision:

“… …the evidence submitted clearly showed that M Inc. has had long standing business relationship with the OEM. M Inc.’s use of the disputed marks extensively on its products was to enhance public recognition of its brand, and the OEM must have been well aware of M Inc.’s mark given its capacity as its local manufacturer. As such, it is blatantly obvious that the OEM acted in bad faith and breached its duty of trust and confidence by selling products bearing the disputed marks to third parties without M Inc.’s authorization and registering the disputed mark on similar goods… …”

The invalidations of the disputed marks in the three Classes successfully cleared all hindrances to M Inc.’s trademark registrations in the PRC.

Ways to prevent and repel trademark squatters

Foreign businesses relying on OEMs in the PRC for the manufacturing of their products are vulnerable to trademark squatting whether by their own OEMs directly, or by associated entities of the OEMs. It is not an easy task to remove those squattered marks and therefore prudent for the following measures to be implemented to shield against such risks:

1.       Filing and registering your marks at the very beginning as soon as possible. 

2.       Reviewing your trademark portfolio to ascertain whether it is sufficient to cover existing business activities and/or product lines both in and outside the PRC. 

3.       Signing license agreements with OEMs in the PRC (and their associated entities if any) at the beginning of the business relationship.

As the PRC has a “first-to-file” trademark regime, these measures are of paramount importance to foreign businesses with activities and products or services in the PRC. Further, the costs of implementing these preemptive measures could well be much lower than commencing legal actions like in trademark squatting case above. Foreign businesses in the PRC should therefore consider placing heavy emphasis on the protection of intellectual property rights in their business plan as a part of their overall risk management strategy, in line with the above suggestions.