As we often note on this blog, registering its trademarks in China is one of the key steps a foreign company must take when doing business there. When though should you apply to register your trademarks in China? As soon as China enters the conversation as a possible market and/or manufacturing or sourcing location, we answer.
Honestly, even that early might be too late. This is largely because of China’s first-to-file system, which grants priority to whoever first files a trademark application. This is in contrast to the first-to-use system that exists in the United States and common-law jurisdictions generally.
A few years ago I represented a client entering the China market. It was not manufacturing its products in China and had no intention of doing so. As a result, it has not thought it necessary to register any of its trademarks in China, despite already enjoying some brand recognition in Europe. By the time the client got around to thinking about applying for China trademarks, someone had already beaten them to it. And this someone had no other purpose in mind for registering the trademark than waiting for the day when the desperate European brand would come knocking at their door, angrily demanding, and then begging for, “their” trademark.
In the end, the client had to pay about $200,000 to buy “their” mark. There was no way around it, unless the client was willing to sell in China under a different brand (which to some extent would have defeated the whole point of having a brand). The client could not even lease premises in a shopping center for their flagship store without the trademark.
China has taken some steps to remedy the epidemic of bad faith registrations. Perhaps most notably, the 2019 revision to the Trademark Law strengthened the requirement that trademark applications be filed in good faith. However, as we pointed out in Don’t Sleep on Your China Trademark:
The Chinese Trademark Office still has a narrow conception of what constitutes bad faith. In the vast majority of situations, your only hope of successfully challenging an existing registration on a bad faith claim is to show that the owner of ‘your’ trademark is (1) a business partner or (2) a serial trademark squatter. And even those two methods are far from foolproof. To show that someone is a business partner you need to prove that you had a business relationship before they submitted the trademark application — and without any possibility of court-ordered discovery, such proof can be elusive. It is equally difficult to prove that someone is a serial trademark squatter. If they have registered several hundred trademarks and do not appear to conduct any business related to the goods and services covered by those trademarks, then you have about a 50/50 chance.
A recent court decision out of Shanghai offers some hope. Brita, the German company that makes the famous water filters, won a lawsuit it brought against a Chinese company, called Shanghai Kangdian Industrial Co., Ltd. (上海康点实业有限公司). At one level, the case involved a straightforward case of trademark infringement: The defendant was selling filters bearing Brita’s trademarks. However, in its ruling, the court noted the defendant’s bad faith efforts to register marks similar to Brita’s.
Although it might be cold comfort for Brita, the defendant in this case was not really a serial squatter: Its bad faith applications were targeted at Brita. The Shanghai court’s move could signal a determination by the Chinese authorities to take a stronger line against bad faith applicants, not just the squatters with registration “mills.”
Also of note is the fact that the court was explicitly not moved by the fact that the trademark system ultimately worked (not least because Brita was diligent with its trademark filings in the first place!). It gave weight to the fact that the defendant’s actions were a time-consuming hindrance to Brita and took a dim view of the defendant’s procedural “abuse.” If the Shanghai court’s reasoning takes hold among its sister courts, then China’s efforts against trademark squatting might finally get some teeth, but don’t count on that.