China Still Has Too Many Trademarks

I wrote last year about the massive number of trademark applications filed in China in 2016 – 3.6 million, far more than any other country in the world, and increasing at a tremendous rate.

The statistics from 2017 are now available and they are staggering, both in gross numerical terms and in the year-on-year increase. More than 5.7 million trademark applications were filed with the Chinese Trademark Office (CTMO) in 2017, an increase of more than 55% from the previous year, which had already set a record. By comparison, just under 600,000 applications were filed with the United States Patent and Trademark Office (USPTO), which is the world’s second-busiest trademark office. At the end of 2017, China had 14.9 million active registrations overall; the US had only 2.2 million.

What are we to make of these numbers? Why are so many trademark applications being filed in China, and what does it mean for current and future applicants? Keeping in mind that correlation is not the same thing as causation, I nevertheless offer the following hypotheses and predictions:

1. More CTMO rejection notices. It will become increasingly difficult to register a trademark in China due to simple mathematics: the greater the number of trademark registrations, the greater the chances of a conflict. And it’s still the case that many CTMO examiners are relatively untrained, with a huge backlog of trademarks and a hard 9-month examination deadline. I feel for the CTMO examiners. In all likelihood, their daily workload is governed by the thousands of applications filed 9 months earlier, which must be either approved or rejected by the end of that day. And multiple sources in China have confirmed my own experience: the default CTMO examination standard is “When in doubt, reject.”

2. Increased value for registered trademarks. As it becomes more difficult to secure a trademark registration, existing registrations will become more valuable. China already has a robust secondary market for trademarks, and this market will only become more relevant.

3. Greater incentives for trademark squatters. As trademarks become more valuable, the incentives for squatters to file applications will also go up. Yes, such applications will be more likely to be rejected, but trademark squatters are by definition taking a calculated risk. They’re not collecting their favorite trademarks; it’s purely a business proposition for them and some file for hundreds of trademarks at a time.

4. More non-use cancellations. China’s trademark system allows (and implicitly encourages) trademark owners to file applications covering goods they do not actually use. See China Trademarks: Register in More Classes, Take Down More Counterfeit Goods. Accordingly, when we conduct a trademark search and find a conflict with an existing mark, one of the first things we consider is whether the mark is vulnerable to cancellation (i.e., if it has been registered for at least 3 years) and if so, if the mark is actually in use on the goods that created the conflict. At least half the time we discover that the mark is not and has never been in use on the goods in question, and we are able to cancel the mark and thereby clear a path for our client’s application to be approved.

5. More proactive filings to forestall non-use cancellations. Some companies opportunistically file applications that specify more goods than they actually sell, as a way to stake out more ground without any added cost. Others do so as an explicit strategy to prevent trademark squatters in any class and on any goods and services. Starbucks and Disney are two companies that follow this strategy, but even their marks are vulnerable to non-use cancellation after three years. That said, nothing’s stopping Starbucks from filing a new application every three years for the same goods. It’s not cheap, but it’s a lot cheaper than dealing with trademark squatters because it means a non-use cancellation would have no effect – they’ve got another trademark right behind the canceled one as if the trademark is just a shark’s tooth.

6. The tipping point for non-traditional trademarks. Currently, the vast majority of trademarks are either word marks or devices (i.e., graphic images, with or without words). But as it becomes increasingly difficult to register a traditional trademark, companies are starting to look more closely at filing non-traditional trademarks like sounds, colors, and even three-dimensional representations. In part this would be driven by necessity, and in part by technological innovation.

7. Registered IP matters. It’s hard to see the vast number of trademark applications as anything but a resounding vote in favor of registering IP in China. If owning a trademark registration in China is meaningless and only provides aspirational rights, people wouldn’t be paying the money to do it.

8. China Law Blog FTW. Occam’s razor holds that the simplest hypothesis is usually correct. Could it be that this blog’s clarion calls for companies to register their trademarks in China have finally resounded? Obviously not to the tune of 5.7 million, but still, we like to think we’ve done our part.