China Trademark Protection Basics

China Trademark Protection

My good friend and trademark lawyer extraordinaire, Mike Atkins, recently wrote a post on his Seattle Trademark Lawyer Blog entitled Basics of Trademark Protection in Plain English. Though that post deals exclusively with U.S. trademarks, nearly all its big-picture analysis is apropos to China trademarks as well.

Below I take what Mike said, and explain how it applies to China or not. Mike’s portion is in regular font and my portion is in italics.

A. Trademark Enforcement principles. The main way to protect a trademark is by perfecting and maximizing one’s rights in the mark, which usually occurs by registering it with the U.S. Patent and Trademark Office, and then by enforcing those rights against competitors, imitators, and would-be users in an effort to keep them as far away as possible from the property.

Enforcement, in turn, usually boils down to sending cease-and-desist letters to the wrongdoers in the hopes of obtaining voluntary compliance with your demands, under threat of suit; and if the wrongdoer doesn’t voluntarily comply, to carrying out the threat and commencing suit. In this respect, protection of one’s intellectual property rights is both binary and simple: either the wrongdoer voluntarily stops its bad behavior in response to your pressure, or it doesn’t; and, if needed, you either escalate the dispute to court, or you don’t. There really aren’t any other legal options. (I don’t count hiring the likes of Tony Soprano (R.I.P) to enforce one’s rights as a legal – or advisable – option.)

Generally true for China, with a few minor modifications. First, and most obviously is that you need to register your mark with the China Trademark office, not the USPTO. Second, you need to consider whether to register your mark in just English, just Chinese, or both. Third, though the bit about having to choose between pursuing and not pursuing escalation is true, China has other dispute resolution options in addition to a straight-up lawsuit. 

B. Basic Principles of Trademark Law. Trademarks function the way cattle brands function on a ranch. Cattle brands distinguish one cow from another, so there’s no question which cow belongs to which rancher, even if they get mixed together. Trademarks are the same way. They are unique names, symbols, or tag lines (among many other devices) that tell consumers that a good or service sold in connection with the brand comes from a particular producer. They are affixed to the product itself, or product packaging, or they are displayed on websites or other promotional materials. When consumers see a Nike shoe, for example, the Nike name, Swoosh logo, and “Just Do It” tag line tell consumers that the shoe doesn’t come from Adidas, New Balance, or any other manufacturer – it only comes from Nike. In this way, trademarks symbolize the owner’s reputation and encourage good, consistent, quality by enabling consumers to efficiently identify producers and make repeat purchases. In other words, if you like Nike shoes, you know where to go when you need to buy a pair (or who to avoid if you weren’t satisfied with your previous purchase).

Trademark law is a creature of both state and federal law (and both statutory and common law). At bottom, trademark rights arise through use, which means affixing the mark to a good or product packaging (for goods) or by displaying the mark on websites or signs (for services), and selling the item to consumers. Registration is available through state governments and the U.S.P.T.O. Registration is not required, but it expands the geographically limited rights that automatically arise through use. There is a lot to say about trademark registration, but further discussion is outside the scope of this discussion.

Protecting a brand normally starts with selecting a brand. Protection has two facets, which you can think of in terms of both sides of a coin. You probably want to register your mark (or at least have that option), and you want to be able to enforce it in court. But you also want to choose a brand that won’t get you sued by another trademark owner. In other words, there are “offensive” considerations, and “defensive” considerations. To understand them, you need to know a few basic principles.

First, the maxim of “first in time, first in right” often controls. That means if you start using your mark first, you (usually) can go to court to prevent later adopters from using a brand that is close to yours in connection with similar goods or services. Registrations can change this outcome, but that discussion is outside the scope of this writing. Therefore, we will proceed with the simple notion that when there is a conflict between two trademark owners’ rights, the first user in a given geographic area will have superior rights – called priority – and will win in a trademark infringement lawsuit against a later adopter.

To do so, however, a trademark plaintiff also needs to prove that the later adopter’s trademark use is “likely to cause confusion” with the plaintiff’s prior trademark use. Whether a likelihood (probability) of consumer confusion exists is determined by the multi-factor test that applies in a given jurisdiction. In the Ninth Circuit, it is known as the “Sleekcraft” factors, after the influential trademark infringement case of AMF Inc. v. Sleekcraft Boats, 599 F.2d 341 (9th Cir. 1979). But other jurisdictions have similar tests under different names. Regardless of the jurisdiction, courts apply this test to determine whether an ordinary consumer would likely be confused into believing that the branded goods or services that come from the later adopter (the “junior” user) come from, are approved by, or having something to do with, the earlier adopter (the “senior” user). If the answer is yes, then a court would find the junior user liable for trademark infringement.

The main factors in assessing a likelihood of confusion are the similarity in the parties’ marks (considering sight, sound, and meaning); similarity in the goods or services offered under the parties’ marks; the similarity in how the parties’ goods or services are advertised, marketed, and sold; and whether consumers have actually been confused in the marketplace. There are other factors, but these usually are the most important.

Mike’s first three paragraphs apply with equal force to China (with the exception of the part about federal and state law). But his last three paragraphs do not really apply to China at all. It is this distinction between the two systems (that of the United States and other common law countries like England and Australia and Canada versus China and other civil law countries like Germany, Japan, Korea, and France) that so often trips up American and British companies. China is NOT a first to use country; it is a first to file company. 

What this means is that if you make all sorts of men’s shirts and I register “your” brand as my trademark in China for men’s shirts, I get that trademark and you cannot use that trademark in China, at all, not even for goods to be exported. What that also means is that if you register your trademark for men’s shirts in China, I can go off and register that same trademark for men’s gloves and men’s shoes and I will get it, likelihood of confusion be damned. 

“Offensive” Trademark Considerations. As a trademark owner, you normally want to select a trademark that is both registrable and enforceable against later adopters. Your ability to do these things is heavily influenced by the technical strength of the mark. To determine strength, courts place the mark on the spectrum of trademark distinctiveness most prominently discussed in Abercrombie & Fitch Co. v. Hunting World, 537 F.2d 4 (2d Cir. 1976). In doing so, they categorize each mark as “generic,” “descriptive,” “suggestive,” “arbitrary,” or “fanciful.”

In large part because China does not recognize common law trademark rights, the same concept of a “spectrum” of trademark distinctiveness does not really apply in China. Certainly the more distinctive a trademark, the more likely it is to be registrable, and the easier it will be to prove infringement. But either a trademark can be registered or not; it’s not like some registered trademarks have more rights than others. It’s almost a circular definition: if a trademark is deemed distinctive, then it can be registered in China. And if a trademark has been registered in China, then it is deemed distinctive.

A mark is generic if it denotes the thing itself, or category of thing. Generic marks have no trademark significance because they are incapable of distinguishing one source from another. If a mark is generic – either from inception, or because it has become generic over time, like the once-proprietary brands “elevator,” “escalator,” “nylon,” and “raisin bran” – it is deemed to be always generic and can never be registered or enforced.

Descriptive trademarks immediately convey information about the good or service being sold. In this way, SPEEDY AUTO GLASS is a descriptive trademark because it tells consumers that the company installs auto glass, and that it does so in a hurry. Descriptive trademarks can only be registered on the lesser Supplemental Register (which doesn’t offer all the benefits provided by the Principal Register), and cannot be enforced against third parties, unless the owner can establish that the mark has acquired distinctiveness, or “secondary meaning.” A mark acquires secondary meaning through longstanding use (usually at least five years) and proof of sales, advertising expenditures, or (most persuasively) consumer surveys. A descriptive mark with secondary meaning can be registered on the Principal Register and can be enforced against later-adopters (though third parties can still use descriptive terms to describe their own goods and services even if such terms happen to be your client’s trademark). These limitations make descriptive marks the weakest form of protectable trademark.

Like the US, China does not permit generic or descriptive marks to be registered. By statute, China also provides that an otherwise non-distinctive trademark could acquire distinctiveness through use and would therefore be registrable. But China does not have a Supplemental Register, and it would be a poor business plan to employ this quasi-common law mechanism in China. If your trademark is unregistrable, that means anyone else can use it in China. If you are using your trademark enough so that it acquires distinctiveness through use, do you really believe that no one else in China would notice? This is just a recipe for copycat merchandise that you would be powerless to stop.

Surnames and geographic names are classified as descriptive marks, as are self-laudatory “we are the best” words. For this reason, the very descriptive SEATTLE’S BEST COFFEE trademark is technically weak, though it has become commercially strong through its longstanding use, millions of dollars spent on advertising, and millions of cups of coffee sold.

China does not allow Chinese geographic names if they are at or above the county level, or foreign place names if they are “well-known to the public.” That said, a number of geographic names (including quite a few well-known place names) have nonetheless been registered, many during a period when the Chinese Trademark Office was not particularly assiduous in its examinations. Don’t think about trying to invalidate such marks; they’re grandfathered in by statute.

Suggestive trademarks are one rung up the protectability ladder. They suggest a quality or characteristic of the good or service being sold, but require the consumer to exercise at least some degree of imagination to understand the information being conveyed. Take, for example, CHICKEN OF THE SEA. This mark tells consumers that the good sold under the mark is seafood, and it is akin to chicken. The consumer must process this information to understand that the good being hinted at is tuna fish. Marks with double entendres are likewise classified as suggestive. The distinction between descriptive and suggestive marks can be blurry, but it’s an important one, because suggestive marks do not need proof of secondary meaning. Suggestive marks, therefore, are inherently distinctive and are protectable upon adoption.

Arbitrary marks put a familiar word in an unfamiliar context, such as APPLE for computers. While APPLE as a brand name for fruit would be generic, it has no meaning when paired with computers. For this reason, arbitrary marks are considered inherently distinctive and, indeed, are given wide berth as a strong trademark.

Fanciful marks are perhaps the strongest class of mark. They are made-up words, like GOOGLE, EXXON, and POLAROID. They are accorded great protection because they usually leave the defendant with little explanation for adopting a confusingly similar mark. Given the infinite number of possible trademarks, a court can quickly conclude that a search engine named “GAGGLE” was only given that name to benefit from confused consumers. In this way, both arbitrary and fanciful trademarks are thought to “cast a long shadow,” which later trademark adopters need to avoid.

China does not use this terminology. Distinctive is distinctive, whether it’s suggestive, arbitrary, or fanciful.
There also are a number of statutory bars to registration or enforcement that don’t stem from technical strength. Under federal law, they are largely set forth in Section 2 of the Lanham Act, 15 U.S.C. § 1052.  These include marks that are primarily surnames, marks that would tend to deceive consumers, marks that include someone’s name without their permission, and marks that include country flags.  Other statutes grant exclusive trademark rights to specified owners in the way that  OLYMPIC, OLYMPICS, and the five-ring logo may only be used by the U.S. Olympic Committee and its licensees (with a narrow carve-out for longtime users of the OLYMPIC and OLYMPIC names that are located near Washington’s Olympic Mountains). Obviously, one needs to avoid these marks if they want a brand they can register and protect in court.

China also has a number of statutory bars, set forth in Article 10 of the Trademark Law, including prohibitions on trademarks similar to the name, flag, or emblem of any nation, trademarks similar to an official inspection seal, trademarks similar to the symbols or names of the Red Cross or Red Crescent, trademarks that discriminate against any nationality, trademarks that would easily confuse the public with respect to the underlying goods’ quality or origin, or any trademarks “detrimental to socialist morals or customs, or having other unhealthy influences.” I’m talking to you, Rob Lowe.

In summary, owners selecting a new trademark need to appreciate the ramifications of where the mark would likely be placed on the spectrum of distinctiveness, and avoid the statutory bars to registration and enforcement. Only then can they help maximize the scope of their trademark protection.

Trademark applicants in China should of course be mindful of the statutory bars, but in China the “spectrum of distinctiveness” is a straight proxy for the likelihood that a trademark will be registered. Once a trademark is registered, enforcement is fairly straightforward. Accordingly, trademark applications must be prepared with care.

Trademark applicants in China have an additional “offensive” option not available in the United States. China does not require trademark applicants to prove use of the mark at the time of application, or any time thereafter — unless a third party seeks to cancel the mark for non-use after three years. Accordingly, many applicants will apply to have their trademarks cover a range of goods far wider than what they are actually producing or selling – simply to keep third parties out of the market. This falls under the rubric of “The best defense is a good offense.” If you had enough money, you could file trademark applications in China in every single class and cover every single good and service in existence. It would be expensive, but not break-the-bank expensive and really big companies with really strong brand names sometimes do this.

“Defensive” Trademark Considerations

The “offensive” considerations discussed above focus on the things a trademark owner should consider in order to maximize and enforce its rights. There are “defensive” considerations as well, which mainly focus on not infringing a prior user’s trademark rights. This involves not selecting (and wasting money by investing in) a trademark that would cause a likelihood of consumer confusion with a senior user – both at common law in the same geographic market, and through the statewide or nationwide rights that a prior owner might have through registration. This, in turn, requires one to search the PTO’s database, Google, domain name registrations, and industry databases to learn the trademarks that other sellers have selected, and with which goods and services. Truly comprehensive searches can involve engaging a sophisticated vendor like Thomson Reuters to capture a large universe of relevant hits, which trademark attorneys can analyze to determine the risk of triggering a trademark infringement claim. Again, the relevant jurisdiction’s multi-factor test will control, and it’s up to the trademark lawyer to help her client avoid a likelihood of confusion. While it’s impossible to avoid all risk, doing one’s due diligence can minimize the chance that a prior trademark owner will demand that your client stop using the trademark it has adopted.

The most common scenario necessitating defensive action in China is when foreign companies discover that someone else has already registered “their” trademark. A few recent cases have given foreign companies hope that they can invalidate such trademarks, but such victories are the exception, not the rule. The vast majority of the time, companies only have a few options, all unpalatable: (1) buy the trademark at a severe markup; (2) go into business with the trademark owner on unfavorable terms; (3) pick a new trademark and rebrand; or (4) stop doing business in China.

The one thing you don’t want to do is use your trademark in China as if the existing trademark doesn’t mean anything. I’ll take up this topic in greater detail in a future blog post, but here’s a preview: it’s a TERRIBLE idea.
Another defensive strategy is recognizing that many ostensibly valid trademarks have been effectively abandoned, and therefore may be vulnerable to cancellation for non-use. We have used this strategy a number of times on companies ranging from huge multinationals to sole proprietors, and have thereby cleared the way for our client’s proposed marks.

One final defensive issue is what constitutes “use” of a trademark in China. In particular, if you use a third party’s trademark for export-only OEM manufacturing, have you infringed that trademark? We’ll take up this topic as well in a future blog post, but the short version is: it’s complicated.

Remedies for trademark infringement 

A trademark owner’s main remedy in a lawsuit is the injunction – a court order enjoining the trademark wrong from continuing. A trademark owner can also seek lost profits and to disgorge any wrongful profits the infringer received through the infringement. However, proving damages to the reasonable degree of certainty that a court requires can be difficult. Therefore, damages usually take a back seat to the injunction. A successful litigant (either plaintiff or defendant) can also seek an award of its attorney’s fees and court costs incurred in the litigation, but such awards are not routine. (Under Washington law, they are discretionary, and under federal law they may only be awarded in “exceptional” cases.) For this reason, both sides usually assume they will pay their own freight in trademark litigation, win, lose, or draw.

In theory, a trademark owner in China has a number of potential remedies against trademark infringement: (1) administrative action by the State Administration for Industry and Commerce (the CTMO’s governing administration), (2) seizures at customs, or (3) injunctions or damages from a court. But it is almost impossible to implement any of these remedies quickly or with partial information, which makes them only useful in cases of massive, obvious, long-running infringement.

Meanwhile, a large and ever-increasing percentage of trademark infringement in China occurs via e-commerce. As a result the IP protection units of Alibaba, JD.com, and other Chinese e-commerce sites are taking on the role of de facto IP courts in China, and providing the only realistic remedies for foreign companies through takedowns of counterfeit merchandise.

 China Trademark Resources

At the federal level, trademark law is largely driven by the Lanham Act, 15 U.S.C. §§ 1051, et seq. In Washington, the largely parallel trademark statute is RCW 19.77. An obvious and unavoidable place to start when learning about trademark law is the statutes themselves, and the cases that interpret the statutes.  Federal and state case law also flesh out the contours of common law trademark rights, which predate both statutes, are incorporated in them, can operate independent of them. Trademark owners also can look to McCarthy on Trademarks and Unfair Competition, and Gilson on Trademarks. Both provide encyclopedic, multi-volume analyses of trademark law, including important subtopics like cybersquatting, false advertising, counterfeiting, fair use, online liability, licensing, international trademark rights, and practice before the U.S. Trademark Trial and Appeal Board, the PTO’s administrative law arm. One or both of these invaluable treatises are available at Seattle’s law school libraries, as well as at the law libraries of Washington’s state and federal courts.

China’s Trademark Law (in English and Chinese) and related regulations are available at WIPO Lex. The law (preferably the original Chinese language version) is an essential starting point for understanding the basics of trademark law in China, but offers scant elucidation on how it is implemented in practice.For that, most start by reviewing the Implementing Regulations, but that’s not an option right now because the regulations have been in “draft” form for more than two years.

I have found Internet resources to be more useful than any treatises or textbooks. In addition to this blog (of course), I consider Prof. Mark Cohen’s erudite China IPR Blog and the EU’s focused, practical China IPR SME HelpDesk to be the most helpful. 

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