The issue of “trade mark squatters”, where a company or individual registers a company’s trade mark in a country before that company has expanded into that market, is prevalent in China, as is the case in many other countries where a first-to-file system operates. Because China uses a “first-to-file” system, it is possible that a third party may have already registered a desired trade mark in China while a business was busy establishing its brand in the EU or the US.

Enforcement of registered marks is increasingly practicable in China. However, what if a foreign business has not registered its desired trade mark, or has not actually used the mark in China? Does this preclude enforcement in China? Many businesses hesitate to step into the Chinese market due to uncertainty with regard to enforceability of their intellectual property rights. China has historically had a poor reputation for enforcing intellectual property rights. The outcome of the following case suggests this may be changing.

In July 2016, the world leader in indoor skydiving tunnels, SKYVENTURE LLC, won the rights to the trade mark SKYVENTURE following a battle with the Chinese company, Chengdu Overseas Chinese Town (Chengdu OCT). SKYVENTURE LLC currently sells wind tunnels under the brand SKYVENTURE and operates (either itself or through licensees) wind tunnels under the brand IFLY, a brand it started using in 2006. Some tunnels continue to operate under the SKYVENUTRE brand as well. SKYVENTURE LLC’s flagship tunnel brand name, SKYVENTURE, for which no application for registration had been filed in China, was preemptively registered as a trade mark by Chengdu OCT in 2013 for entertainment-related services in class 41 similar to those offered by SKYVENTURE. SKYVENTURE LLC filed an invalidation action against Chengdu OCT in 2014 with the Trade Mark Review and Adjudication Board (TRAB), and on receiving an unfavourable decision of the TRAB, appealed that decision to the Beijing Intellectual Property (IP) Court in 2015, claiming that Chengdu OCT’s registration of the trade mark was filed in bad faith and infringes its existing prior rights.

In 2016 the Beijing IP Court overturned the TRAB’s decision, finding that Chengdu OCT's trade mark application for the SKYVENTURE mark was filed in bad faith: although SKYVENTURE LLC had not actually operated its business in China prior to Chengdu OCT’s application, the public could still be misled into thinking that Chengdu OCT’s trade mark was associated with SKYVENTURE LLC.

SKYVENTURE LLC owns, operates and partners with 44 highly profitable indoor skydiving tunnels around the world, none of which was in China at the time the case was heard. A tunnel under the IFLY brand has since opened in Chongqing. Although SKYVENTURE LLC had not actually operated its business in China, the Legal Team representing SKYVENTURE LLC was able to locate a number of media reports about SKYVENTURE LLC’s indoor skydiving activities in countries other than China, which were used as guides by and for Chinese nationals intending to travel abroad. This evidence helped successfully prove that SKYVENTURE LLC’s trade name had been known to relevant members of the Chinese public, prior to Chengdu OCT’s application for the mark.

SKYVENTURE LLC featured a promotional video on its website which, among other things, showed an image of the company’s CEO and listed company contact information. Chengdu OCT went so far as to post this video on its own website. The Legal Team also had Chengdu OCT’s web pages notarized, and this evidence turned out to be 'key' in proving Chengdu OCT’s bad faith.

China's revised Trademark Law stipulates the principle of good faith as a complement to the first-to-file system. This was instrumental in the successful prosecution of this case. The revised law and its implementation in this case demonstrate a shift in attitude and approach by Chinese courts, particularly where the foreign business in question had not yet started using its trade mark in China, yet its trade mark has been preemptively registered by a third party in bad faith.

This decision sets a strong signal that China is taking the protection of intellectual property rights seriously. Foreign businesses can 'take heart' from this case. While the 'best practice' remains for new entrants / potential entrants to file their trade marks in China as soon as possible – indeed well in advance of entering the Chinese market. However, should their mark already be the object of a trade mark squatter, all may not be lost – in such situations, it is essential (and indeed possible) to collect convincing evidence of the squatter’s bad faith before taking any action.