Trade mark squatting is not unique to China, but it is especially prevalent due to the low cost of filings and the rush of foreign brands looking to enter the Chinese market.
Trade marks in China are generally awarded on a “first to file” basis, resulting in floods of applications, often mimicking foreign brands that have yet to expand into the Chinese market. According to the 2012 Annual Development Report issued by the China Trade Mark Office 1,648 million trade mark applications were accepted in 2012 – over double that of the US – making China the top filing destination in the world for 11 years running.
Foreign brands confronted by trade mark squatting face the prospect of not being able to use their own trade marks in China. If the brand is marketed in China by the "squatter", the brand owner faces the possibility of brand dilution and confusion.
The term “squatter” may generate an image of an unsophisticated Chinese individual looking to make some quick cash, but this is rarely the case. Many of these "squatters" are professional trade mark agents working within the industry, with extensive knowledge of trade mark law and procedures. The agents combine their legal knowledge with brand industry research to run complex trade mark squatting businesses on a mass-scale. There are numerous Chinese e-commerce websites where professional squatters offer thousands of trade marks for sale, searchable by the Nice Classification.
In our experience, the price of trade marks varies from case to case, but as a business case for the squatters, the price more than covers the filing cost and their "investment" in other applications. If the squatters file the right trade mark it can mean hitting the jackpot – Ferrari, Michael Jordan and Hermes have all faced stolen trade marks in China, with squatters demanding millions to release the rights to “their” trade mark.
Our last article in BrandWrites (November 2013) highlighted some of the changes to Trade Mark Law in China, effective from 1 May 2014. Some provisions contained in the amendments may reduce professional trade mark squatting. The new law expressly provides that all trade marks must be applied and used in accordance with the principles of honesty and integrity. This good faith requirement also extends to trade mark agents and agencies. Agents are prohibited from applying for marks on behalf of clients if the agent is aware or ought to be aware that the application is being made in bad faith. A separate new provision expressly prohibits trade mark agencies from applying for registrations other than in the course of providing their agency services. These provisions are supported by new penalties such as fines and revocation of the agency licence.
The new Trade Mark Law contains improvements for dealing with bad faith filings directed towards agents. However, the general provisions on bad faith have not changed significantly from the old law. China still remains a first-to-file jurisdiction and we would therefore continue to recommend companies register their brands in China as soon as possible as a key element of their trade mark portfolio management strategy.