Many brands are deeply concerned about their products being copied by a local company when they enter the China market. Quite frankly, nowadays the greater concern for foreign brands regarding local companies should be outcompeted by a local company that is more nimble and has a better localised product for the market rather than being copied. As for intellectual property concerns, it is far more likely that a bad faith trademark application will be a threat to your success in China than a copycat product.
Bad faith trademark applications (AKA trademark squatting) have delayed or derailed the China entry of countless brands. The issue affects both local Chinese and international brands and occurs when a trademark of an existing brand is registered with the purpose of benefiting from the reputation of the established brand, or seeking to extract money from the brand itself in exchange for the name.
Why Does This Happen?
Trademarks, like all intellectual property rights, are territorial. Having a trademark in a company’s home jurisdiction, or anywhere else, including Hong Kong, does not grant any rights to that mark in mainland China.
Unlike many other countries that have ‘first-to-use’ or hybrid trademark systems, China’s ‘first-to-file’ system means that the first company or individual to register a mark owns it, regardless of who is first to use the mark commercially. This means that you can be a well-established brand in your home market and globally, or even already trading in China, but you will be infringing someone else’s IP if an entity or an individual have registered your name first and you use that name in China
In part this can explain why the Chinese Trademark Office is the world’s busiest, accounting for over 50% of global trademark applications. For the squatters, bad faith applications can be a very lucrative investment and commercially savvy professional squatters will search for upcoming brands and register any potential marks as soon as they can.
How Do I Protect My Brand?
This means that the best way to protect your name against trademark squatting is to register your marks as early as you can during your market entry process.
Even if China is not a priority market for your brand right now, defensive applications are a good idea considering the possibility of bad faith applications between now and when you decide you would like to sell to China. Any brand with an international or large domestic presence is at threat from the squatters.
There are four ways you will you will find out if your brand name has fallen victim to a bad faith application:
- A search reveals that the mark has already been registered in your chosen category
- Your trademark application is rejected due to an existing mark
- You engage a trademark monitoring service and it notices a bad faith application has been filed
- Action is brought against you by the squatter for trademark infringement
Should this happen to you, you have three options:
1 Fight your cases through the system
There are two choices available here through either the administrative or judicial routes. It would not be worth going into more details about the options here as, assuming this is a straightforward case of a bad faith application, there is nothing the courts can do to help you. The trademark squatter has not broken any laws in China. Despite any moral indignation you have, they haven’t legally done anything wrong. The best you can reasonably hope for is that if the mark owner cannot provide any evidence of use within three consecutive years, the mark can be made available again.
Conclusion: Probably a waste of time and money. Even if you decide to wait it out, can you afford to wait three years to enter the China market?
2 Re-brand for China
There is nothing stopping you from simply rebranding for China with a different name. As long as you can find a new suitable name that is trademarkable, then the bad faith applicant cannot stop you from selling with a new name. This route would require there to be no mention of your original brand name any any of your packaging or Chinese marketing material.
Conclusion: A potential option for some companies, but far from ideal forconsumer brands that are looking to build a global name.
3 Buy the mark from the squatter
You can negotiate with the mark holder either directly or through an intermediary to buy the mark back from them and hope for this scenario is probably why they registered the mark in the first place. They can legally transfer you the mark upon agreement of a price and you need never be bothered by them again. However, even for a small brand with zero name recognition in China, you are probably looking at $10,000 or more to buy your mark from the squatter.
Conclusion: Far, far, far more expensive than registering the mark would have been, but unfortunately the most realistic option for brands facing this situation
Bear In Mind
Wherever you trade internationally, you cannot expect any country to have the same rules as your own. This is true regarding many areas of international business and includes trademarks, which are territorial by nature. Contrary to popular opinion, China has a well developed and constantly improving intellectual property system that does not generally discriminate against foreign companies. However, you must engage with this system on its own terms.
Beyond speaking to lawyers, you may also consider seeking advice from your national embassy’s IP team in China if you have specific thorny IP issues. Many countries have an IP attache based in China and have their own bilateral national agreements with China to enhance IP protection that your brand may be able to benefit from.
And of course, ADN is a registered trademark agent in China experienced in registering marks for consumer goods brands directly with the China Trademark Office. We can check whether a mark has already been taken free of charge. Please get in touch if you would like more information.