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Bad Faith and Trade Marks in China

Keltie LLP

K2 IP Limited

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Great WallAs IPcopy discussed back in 2013, Trade Mark Squatting has long been a concern of European businesses considering entering the Chinese market. Too often, European brands which have not registered their trade marks in China at the earliest possible stage, find that their trade marks are already registered to third parties without a legitimate interest in the mark by the time China features as a potential market in their business plans.

This can cause significant disruption to businesses as these earlier ‘bad faith’ applications act as bars to their own applications. Further, whilst trade mark registration is not a legal requirement to trade in China, many businesses find that their Chinese partners will actually request it as a condition to operate. The consequences of having one’s trade mark application refused in China because of an earlier bad faith application are, therefore, compounded, as walking away and trading without a registered mark may not be a viable option.

In 2014, however, China introduced new Trade Mark Laws which are intended to make it easier to deal with third party ‘squatters’.  Now applications must comply with principles of ‘honesty’ and ‘good faith’. Agents also have new responsibilities to tell their clients when they know that the trade marks that they wish to register are identical or similar to those of a third party and must refuse to act if they believe that their clients are applying in bad faith.

These are positive steps which have been welcomed by European businesses but a report commissioned by the UK IPO suggests that there is still some way to go.  Four in ten of those businesses surveyed which were affected by bad faith trade mark applications were dissatisfied with the time it took to get a resolution, with positive decisions only being taken at the appeal stage, and six in ten said that their brand reputation was damaged in China as a result. Several businesses questioned as part of the IPO’s report had been forced to adopt a new trade mark in China pending the outcome of a bad faith action and others had withdrawn from the Chinese market altogether; certainly not what businesses hoped for! However, it should be emphasized that many of the businesses interviewed were still in the process of dealing with actions commenced under the old laws.

What is certain is that it remains vital for any business with an idea that China might be an important territory, either for export or manufacturing purposes in the future, to register their trade marks (in both English and Chinese characters) in China as soon as possible. Early protection should avoid having to take action against third party ‘squatters’ on the grounds of bad faith. Other recommendations from the report include:

  • Registering with a trade mark watching service;
  • Registering the trade mark with Chinese customs and monitoring Chinese ecommerce sites;
  • Ensuring there are clear agreements with Chinese partners about the use of the mark to prevent its misuse;
  • Maintaining accurate records and evidence of the use of the trade mark in China; you never know when it might be needed to support a bad faith action!

The impact of China’s new Trade Mark Law is being discussed at Managing Intellectual Property’s “IP in Asia” forum. Keltie’s Joanne Hopley will be speaking at the Paris event on 21 June and Sean Cummings will be speaking at the London event on 23 June.

Joanna Lucas Munce 15 June 2016

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