In a landmark trade mark ruling from the Beijing High People's Court, Treasury Wine Estates ("TWE"), the owner of the 'Penfolds' wine brand, has successfully challenged the registration of the lucrative 'Ben Fu' trade mark which had been registered by a well-known 'trade mark squatter' in China. TWE had failed to register the trade mark, prior to the trade mark squatter's registration, despite having developed a strong reputation over 20 years in the Chinese market.

The decision is a significant development for Chinese trade mark law, which has recently strengthened laws protecting trade marks, and signals the possible protection of trade mark rights available to foreign companies in China who are affected by trade mark squatters.

In this update, Moulis Legal Senior Lawyer, Emily Murphy and Lawyer Macky Markar explain the Penfolds ruling and its potential impact for other foreign companies looking to protect their intellectual property in China.

Trade mark squatters cause havoc for foreign companies in China

The protection of intellectual property rights within China has historically proven a significant challenge for foreign companies. In particular, China utilises a 'first to file' trade mark registration system which affords trade mark rights to those who are first to file a trade mark. Foreign companies are often at the mercy of trade mark squatters who are able to claim priority by registering the trade mark of a foreign company before that company enters the Chinese market. Generally, the trade mark squatter will attempt to sell the rights to these registered trade marks to the foreign company at substantial cost.

While not unique to China, the 'first to file' system affords an advantage to trade mark squatters and has been a notoriously difficult issue for foreign companies to overcome when entering the Chinese market. As a consequence, it is not uncommon for foreign companies to rebrand their products at significant cost, or leave the market entirely.

Chinese court rules on Penfolds case

It is within this context that Australian company, TWE, which owns the 'Penfolds' wine brand, has struck a rare win for foreign companies after a long running trade mark dispute.

Despite operating in China for 25 years, and being known in China for more than 20 years under the name 'Ben Fu', a Chinese transliteration of the name Penfolds, the company failed to register 'Ben Fu' as a trade mark in China. Noted trade mark squatter, Li Daozhi, registered 'Ben Fu' as a trade mark in 2009, asserting rights over the trade mark. TWE have been embroiled in litigation for over five years in an attempt to cancel the Ben Fu trade mark, and be recognised as the owner of the trade mark.

The Beijing High People's Court ended the dispute, in TWE's favour, cancelling the trade mark on the basis that the registered holder failed to show genuine use of the trade mark for wine or related activities. Consequently, TWE will be able to claim control, and make use of the Ben Fu name across China.

Penfolds ruling a rare success for foreign companies

The Penfolds ruling, although only made recently, has already attracted significant attention within China and from the international community as it represents a significant win for foreign companies affected by trade mark squatters in China.

Successful trade mark litigation in China has been difficult for foreign companies, as was seen in the recent attempt by French wine merchant, Castel, who brought a similar trade mark case against the same trade mark squatter in 2013. In the Castel case, the Supreme People's Court upheld a decision of a lower Court that Castel had infringed the trade mark which had been registered first by Pastel Wine (which is owned by Li Daozhi) and ordered Castel to pay damages to the trade mark squatter.

The Penfolds ruling appears to show a shift in the attitude of Chinese courts towards trade mark squatters and an increase in willingness to afford protection to foreign companies.

Amendments to China's trade mark law to provide further protection

In light of the increased litigation relating to trade mark squatters, the Chinese government has taken steps to strengthen trade mark protections. Among other things, amendments were made to China's Trade mark Law in mid-2014 which aimed to address the prevalence of 'bad faith' registrations. Additional focus has been placed on the reputation of trade mark within China, prior to the registration. The courts will consider factors such as reputation of the trade mark in the relevant market sector and duration of trade mark prior to registration.

Before foreign companies become overly excited at the prospect of further protection, it should be noted that these new protections are in favour of trade marks that have established a prior reputation in China. New market entrants do not gain the same level of protection if their Chinese translated names have already been registered, regardless of their level of reputation outside the country.

Paving the way for better trade mark protection in China

Foreign companies have a number of options should a trade mark squatter assert rights over their trade mark, however, historically none of these options have been attractive. The company may pay the squatter to transfer the rights, may rebrand their product, pursue litigation, or leave the market entirely. These are costly alternatives, however if the Penfolds ruling is an indication of the application of Chinese trade mark law moving forward, litigation will be an increasingly useful mechanism for foreign companies to better protect their trade mark rights.

Getting in early and get specialist advice

This case provides some interesting legal considerations. It also confirms that from a commercial and practical perspective, if you are considering expanding operations internationally, it is critical that you consider your intellectual property strategy (IP) early. Such strategies should consider the application of relevant international conventions (such as the Paris Convention) which may affect the priority date of your application(s). As the Penfolds case highlights, an effective IP strategy should also consider the effect of translations and transliterations in relevant markets.