The Penfolds decision highlights the value of timely trade mark registrations that support the different ways in which a particular brand will be marketed in China.

Since entering the Chinese market Treasury Wine Estates has distributed Penfolds wines, including its prestigious Grange, under the name Ben Fu because of its rough translation to ‘chasing prosperity’.

But the brand was never registered as a trade mark in China and this allowed Li Daozhi, a local wine distributor, to register the mark in 2009.

This registration was only revoked earlier this year when The Beijing People’s High Court held that Li Daozhi had failed to demonstrate any genuine use of the mark in relation to wine making and related activities. The ruling comes in the wake of the Supreme People’s Court’s decision in Michael Jordan’s ongoing dispute with Qiodan Sports.

What does this mean for brand owners looking to sell their products in China?

Trade mark squatters and fine wines

China uses a ‘first to file’ system of registration which means that the person who files the first trade mark application, and not the first user of the mark, is the owner of the trade mark. Li Daozhi previously took advantage of this system and registered a mandarin transliteration of Castel. In that case the French winemaker, Castel Frere, was then found to have infringed what it believed was its own trade mark and was forced to abandon its brand in China.

In contrast to the Treasury Wines case, Castel’s earlier attempt to have the squatter’s registration cancelled was unsuccessful because Li Daozhi was able to produce evidence of his use of the mark.

These disputes demonstrate that in China there will typically be multiple marks that brand owners may need to consider registering. As a result of this a foreign entrant should consider registering not only a direct translation of their existing mark but also a conceptual transliteration of the mark (such as Ben Fu) or a phonetically similar version that may not have a literal meaning in Mandarin (such as Qiodan).

A bitter finish?

Where a trade mark squatter successfully registers a mark in China, foreign entrants are forced to either attempt to recover the mark or to sacrifice their reputation and rebrand.

Cases such as Castel have drawn criticism for allowing competitors to anticipate a brand’s entry into China and to then hold their trade marks for ransom. However, the ‘first to file’ approach is rooted in China’s civil law heritage and has generated administrative efficiencies for the China Trade Mark Office. From this perspective, the issue of trade mark squatters may not necessarily be a question of fairness but the result of unfamiliarity with a foreign legal system.

Ultimately, the Treasury Wines decision highlights the value of timely trade mark registrations that support the different ways in which a particular brand will be marketed in China.

While recent decisions may indicate a change of heart towards foreign brand owners, it is still evident that an effective and proactive trade mark filing strategy is necessary to preserve the strength of international brands in China.