Bad Faith Trademark Filings

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(Author: Troy Rice and Joe Simone; Source: SIPSO

The scenario is by now all too common:

    • A third party applies to register the brand owner’s mark – often an identical copy of the brand owner’s logo, a plain word mark, or a clear imitation thereof.

 

    • The application covers goods or services that are of key interest to the brand owners or perhaps of entirely no interest, and for which the brand owner has not yet obtained registration in China.

 

    • The pirate may also have filed for a number of other famous foreign brands, thereby making him a serial pirate.

 

    • The application is published for opposition and the brand owner is made aware of this through watch services or their local agent seeking to drum up business.

What should a brand owner do in this scenario? This is regrettably a question asked of China trademark advisers nearly every day.

Standard strategies

The standard advice is certainly to simply file an opposition to the mark within the three-month deadline. Ignoring such applications is also an option, particularly where the goods or services covered are entirely unrelated to the trademark owner’s business. But refraining from any action at all may just embolden the pirate and lead to a slippery slope of further filings by it or other pirates.

In cases where the true owner of the mark has not filed applications before in China and does not have a history of sales in the country, he will typically be advised that the chances of success in an opposition are poor, and that the pirate will be able to prevent the brand owner from selling its goods in China or even producing goods in China for export elsewhere. Thus, the trademark owner will often be advised to approach the pirate for a purchase of its mark, typically for $100,000 and upwards.

While the factual circumstances in bad faith piracy cases and the potential solutions may vary widely, below are some best practices that brand owners will find useful in dealing with most such cases.

Know your enemy

Conduct online research to determine who the applicant is – if a company, obtain a copy of its business records to see who the shareholders and legal representative are, and to which other companies they are connected. Pirates often play shell games with applicant identity, using third-parties as a front for the real business behind the pirated application.

Research into pirates often reveals that the pirate or a connected business is advertising the sale of goods bearing the pirated mark on B2C trade platforms, such as Taobao.com. Competent investigators, with a PRC notary in tow, are often able to obtain taped admissions of bad faith on the applicant’s part, and to verify whether the goods offered are real or counterfeit. If counterfeit, advice should be obtained on enforcement options.

Research may also reveal that the pirate has had business relations with the trademark owner or its business partners, such as distributors or factory suppliers, thereby providing grounds for opposing under Article 15 of the recently-revised Trademark Law.

Investigations may also disclose that the applicant is a trademark agent. Fortunately, the revised Trademark Law prohibits trademark advisers from filing trademark applications other than for marks intended for use in their normal scope of business.

Oppose on time and with robust arguments and evidence

The PRC Trademark Gazette is published on the 6th, 13th, 20th and 27th of each month. The opposition-filing deadline is three months after publication. Therefore, a mark published on May 6 would have an August 6 opposition deadline.

Under the revised Trademark Law, which enters into effect on May 1 2014, the right to appeal an adverse Trademark Office decision has been eliminated, and thus it is strongly advised that the evidence and arguments filed in the case of first instance be as robust as possible. If a negative decision is issued, the pirate will obtain a registration certificate and likely become much more aggressive in dealings with the trademark owner.

File new applications

Consideration should also be given to filing a fresh application for the pirated mark covering the exact goods or services covered by the pirate’s application to prevent the pirate or others locking the trademark owner out by taking advantage of China’s first-to-file policy for trademarks.

Negotiate or ignore?

If the mark and goods or services covered are of critical importance to the trademark owner’s business, consideration should of course be given to approaching the pirate to negotiate a purchase of the opposed application. This should be done carefully and creatively so as to keep price expectations down.

Where the goods or services covered are not of critical concern, consideration can be given to letting the opposition ride. If a negative decision is issued in a year’s time, consideration can be given to monitoring the use of the mark through online searches or on-site visits by investigators, and with an eye towards cancelling the future registration for non-use or perhaps on other grounds, such as the revocation of the pirate’s business licence (assuming it is a corporate entity).

More often than not, pirates have no plans to use pilfered marks. But it is clearly advisable to verify this through investigations, rather than assuming a pirated mark will not be used.

Other best practices: prevention

The PRC Trademark Office offers free online searches of the register, and it is best practice to conduct searches of key marks in all classes every three to six months to identify potential incidents of piracy, which can help ensure access to a wider range of options for stopping pirated applications from even being published. Searches can also help in tracking down the identity of parties responsible for counterfeiting and other active infringements in the market.

In parallel with actions against registry pirates, it is normally advisable to conduct an audit of the victim brand’s registrations in China to ensure that adequate filings have been made to forestall future incidents of piracy and, at the very least, ensure that all relevant marks – including Chinese-character marks and logos – have been registered for the goods and services of core interest.

Finally, marks in stylised fonts and/or containing original design elements can be protected in China under copyright principles. Consideration should therefore be given to filing applications for copyright registration with the Copyright Protection Center in Beijing for use in future trademark oppositions and other enforcement actions. A potentially lower-cost alternative is to file for registration with the US Copyright Office (though US authorities typically refuse applications for works that appear to be primarily intended for use as trademarks).

 

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