A recent decision of a local Chinese court may provide another reminder of the importance to foreign IP owners of filing first in China.  The facts are as follows:  Castel Group, a quite famous French wine producer, was sued by a local Chinese merchant in May for using the Chinese “Ka Si Te (卡斯特)” mark, which is a phonetic translation of the famous “Castel” mark.  The Chinese plaintiff had registered the Chinese “Ka Si Te” mark first in China, and then sued Castel Group in the Wenzhou Intermediate People’s Court on three accounts of infringement and requested damages up to US$31 million. 

What has made this case unique is not the case itself, but the court’s decision to freeze the Castel Group’s valuable “Castel” trademark at the initial stage of the lawsuit until the case is decided.  Under Chinese laws, plaintiffs may obtain ex-parte property preservation orders in order to prevent defendants from transferring property and money while a case is pending.  Normally property preservation have been taken the form of freezing bank accounts or real property.    In this case, the court, in response to an application from the Chinese plaintiff, directly applied a property preservation order on Castel Group’s “Castel” trademark in China, meaning that the “Castel” mark cannot be licensed or assigned to any third party while the case is pending.  More importantly, the “Castel” mark may be subject to auction if the court decides in favor of the local Chinese trader and Castel Group otherwise does not comply with the court’s order requiring it to pay damages.  As a matter of fact, it is believed to be the first case where a Chinese court has applied a property preservation order to an intangible asset. 

This case’s impact could be significant.  It is yet another example of the importance for Western brand owners to adequately register their trademarks in China.  Despite the clear fact that China is a “first to file” country, meaning that whoever files first will most likely gets the trademark, many western brand owners still fail to register their trademarks in China as early as possible.  On top of that, many have failed to protect the Chinese language version of their marks.  Keep in mind that most Chinese people only speak or read Chinese, and thus it is imperative that foreign brand owners should have a Chinese language version of their marks and, just as importantly, register the Chinese language version.  Had Castel Group done so, it would have not been sued for using its “own” mark. 

In addition, those companies that do not have significant assets in China used to be less concerned about litigation risks in China.  However, even they very often have trademarks in China.  Now they could face risks of losing their valuable intellectual property (trademarks or even patents) if they end up losing legal battles in China, whether for trademark infringement or for other causes of action.  The flipped side of the story is that foreign plaintiffs may find this new development helpful when they seek to recover damages against Chinese defendants.