In response to international complaints about its trade mark system and the prevalence of trade mark squatting, China has implemented amendments to its trade mark laws, which came into effect on 1 May 2014. However, these changes are unlikely to help protect businesses against trade mark squatters. Businesses should still seek to register their trade marks in China. Tim O’Callaghan and Katherine Lee discuss.

China has long been notorious as a ground for trade mark squatting with many high-profile brands such as Ferrari, Apple, Tesla and Pfizer falling victim to squatters. The latest victim has been Treasury Wine Estate with its Penfolds brand, as reported by the Australian Financial Review. The Chinese market usually only operates on the Chinese-equivalent names of brands rather than the original brand name itself, making registration of a Chinese transliteration or translation of the brand essential for brand recognition. As a “first to file” (rather than “first to use”) convention country, if entities in China register the Chinese-equivalent name of foreign companies’ trade marks first, international companies can end up being forced to pay large sums to obtain the Chinese registration of their trade marks. It doesn’t matter that the Chinese entity has never used the mark.

The amendments

Good faith requirement

Trade mark applications are now required to be filed in “good faith”. The requirement seems to be aimed at the common strategy of target trade mark squatting, which is often done in bad faith. The good faith requirement also extends to trade mark agencies, in that it is expected that agents are to refuse any applications for unregistered trade marks that are known to be used by another person (i.e. the rightful owner) and which has a certain reputation. Businesses should now be aware that while this amendment is targeted at trade mark squatters, the protection would not extend to those trade marks that have not attained the requisite level of reputation (with such level being unspecified at this stage).

Restriction on oppositions

Previously, oppositions to trade mark registrations could be brought by any party on grounds relating to either the intrinsic qualities of the trade mark (‘absolute’ grounds) or the rights held by third parties (‘relative’ grounds). Now, opposition proceedings can only be brought by the owner of a prior right or an interested party, and only on relative grounds. This amendment is likely targeting bad-faith oppositions.

Additionally, the Chinese Trade Mark Office may allow the immediate registration of a trade mark if the opposition is denied. If the opposition is denied, then the only option available to the opposing party would be to instigate an ‘invalidation’ procedure after the registration is granted. The consequence of this is that existing squatters can be allowed registration while the invalidation procedure is undertaken. While these changes may be favourable for companies looking to register their trade mark and who find no existing pending applications for their trade marks, these amendments are unfavourable for companies whose trade marks have already been applied for in China by squatters.

Recognition of existing prior rights

Trade mark applications will not be accepted in China if they infringe on another party’s existing prior right. Before the amendments, evidence of an owner’s prior use of a trade mark in China would be insufficient to block a trade mark registration. This measure appears to be aimed at preventing bad-faith registrations trumping later registrations by the true owner of a brand. However, for an owner to use the defence of ‘prior right’ against squatter registrations, the trade mark must have attained certain reputation in China, which, for less well-known companies, may be a difficult threshold to meet.

What should you do?

Businesses which are considering expanding their market in to China should ensure that legal due diligence is conducted to check whether any registration of interested trade marks are pending in China. If there are any pending registrations, an opposition should be commenced immediately. A strong opposition is paramount, as a denial of the opposition by the Trade Marks Office will result in probable registration of the trade mark. Where there are no pending registrations, businesses should take swift action to register their trade marks in China, to avoid future issues with trade mark squatters.