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Comment: How to protect yourself from brand squatters

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Many of the West’s biggest brands are losing out to trade mark squatters in China where the “first to file” system of trade mark registration allows those with no rights in a particular brand to legally register the brand name, depriving the brand owner of the opportunity to exploit/maximise its brand in China.

For example, Chivas Brothers has recently lost a battle in the Chinese courts and failed to stop a clothing retailer from selling garments bearing its Chivas Regal whiskey logo.

Similarly, Nike is currently battling with a Chinese sports company which registered the Chinese language and Chinese character versions of its JORDAN trade mark (Qiaodan). Unfortunately, Nike had registered only the English language version of JORDAN in China (and not the Chinese language version or the Chinese character translation of the brand), which, it seems, is an all too common pitfall.

The victims of trade mark squatting range from high street names to the very top end of the luxury consumer market – anyone with a brand to protect who may have plans to expand into the Chinese market should take heed and act quickly in ensuring that their brand name is adequately protected in China.

Trade mark squatting on the rise

Unlike in the UK where trade marks are registered on a first to use basis (which allows the first person who uses a mark to register it as a trade mark), in China the first person to register a trade mark in a particular class of goods is the rightful owner of the trade mark irrespective of whether they have ever used the mark or have any prior association with the mark.

Once registered, it is notoriously difficult and expensive to prove that a trade mark was filed in bad faith as Hermès has recently learnt. Although Hermès had filed its French brand name in China back in 1977, it did not register the Chinese character equivalent and it has recently lost a court case against a clothing company which was found to have validly registered the Hermès Chinese brand name.

Unless a brand owner is able to provide sufficient evidence that the brand was such a global phenomenon that it was already famous to Chinese consumers at the time that the Chinese registration was made, there is unlikely to be any finding of bad faith on the part of the Chinese registrant.

Against this backdrop, it is not surprising that there has been a stampede to register the biggest Western brand names in China. The LA Times recently reported that 600,000 trade marks were registered in China in 2011 (three times more trade marks than were registered in the US, the next biggest contender for trade mark registrations).

These trade mark squatters then either manufacture Chinese goods under the foreign brand name for the Chinese market or offer to sell the trade mark back to the brand owner in exchange for whatever price tag they name. The Western brand owner is then left with two equally unappealing options – pay up or adopt a different brand name for the Chinese market. To avoid this predicament, brands should be aware of and bear in mind the following tips:

Practical considerations

• Register your brand at the earliest opportunity. Think about not only the English brand name but any Chinese versions of the brand name (which may be more popular in the local market than its English equivalent). Register both versions and the Chinese character translation as soon as possible. The cost of securing registration of a trade mark for a single class of good/services will cost approximately £1,200, assuming no objections. So even if you do not intend to expand into China in the immediate future, protective registrations are likely to be a good investment.

• Subscribe to a trade mark watching services that will monitor trade mark applications in any territory that you are considering expanding into. It will then notify you if anyone applies to register your brand name (or a similar brand name) in that territory. In China, you have a three-month window to oppose a Chinese application before the trade mark is registered. This is likely to be a much quicker and cheaper route to challenging a registration than battling through the courts once the trade mark has been granted.

• Start gathering evidence and collating documentation about the brand’s reputation in China (sales figures, advertising spend, consumer awareness, press articles) to show that the brand is well known in China. Chinese courts often refuse to find any bad faith on the part of the Chinese registrant on the basis that there is insufficient evidence that the Western brand was well known in China at the time the squatter filed the trademark application, so start gathering evidence now. And if you intend to challenge a trade mark which has already been registered, make sure the evidence dates back to the date of registration.

Andrew Shufflebotham is Head of Retail & Consumer, and a partner, at law firm Addleshaw Goddard

Published on Monday 28 May by Editorial Assistant

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