Trademark squatting: light at the end of the tunnel?

Trademark squatting has long been a problem for many overseas trademark owners, and more so in recent years. However, there are encouraging signs that there may be light at the end of the tunnel.

Following the Trademark Office, the Chinese judiciary has openly acknowledged the problem. On December 3 2012 the Beijing Number 1 Intermediate People's Court held a press conference to report on its study into "the cause and characteristics of, and judicial response to, trademark squatting". Vice president Chen Rui, a supervisor of IP cases at the intermediate court and the leader of the taskforce, said that the courts should fully exert their judicial function by aiming to deter squatting activities when they interpret and apply the law. In exercising proper judicial discretion, the courts should admit evidence with a view to prohibiting trademark squatting. The aim is to achieve a strong IP protection in China through a fair, impartial and efficient judiciary system. To demonstrate the point, at the same time the court delivered judgment in six cases (involving six different marks which are considered to be well-known marks) against trademark squatters in the hope of educating the public about the importance of honest trading.

According to the court's report, the current "low-cost, high-yield" trademark registration system in China has provided a strong financial incentive for squatters. Trademark squatting has become an activity that involves professional squatters (individuals and corporations), and even lawyers and trademark agencies. Such a phenomenon not only contradicts the basic principles of honest trading, disrupts fair competition and damages legitimate business interests, but also hampers China's efforts to convert its economy from a manufacturing economy to a brand-building one, and blemishes China's image with regard to IP rights protection. The report acknowledges that the present remedies are not enough of a deterrent, and some academics even claim that trademark squatting and trading should be regarded as a legitimate business activity.

The report suggests that trademark squatting should be dealt with at all levels, including legislative, judiciary and administrative, and also through public education. The legislation should aim to deter trademark squatting and protect fair competition. The administration should reinforce its supervision of trademark agencies and prohibit companies from registering trademarks unrelated to their businesses. Furthermore, there should be publicity to correct the misconception that trademark squatting is a legitimate investment activity.

The report also suggests some specific measures to deal with trademark squatting, such as:

• expanding the scope of protection for well-known trade names;
• protecting the names of fictional characters in literary and artistic works;
• strictly applying the principle that a trademark will be cancelled after three years of non-use in order to increase the costs of maintaining a squatted mark; and
• determining that trademarks are well known from the perspective of an ordinary consumer.

Pending the amendment of the Trademark Law, the administrative authorities should implement the following changes:

• The Trademark Office should take the initiative to reject obvious trademark squatting applications;
• The office should specify what type of evidence of bad faith it would require and accept, and how trademark owners can prove the "adverse effect" of trademark squatting to support an opposition;
• The office's blacklist of trademark squatters should be made public to assist the true owners in preparing their oppositions;
• A system should be introduced to enable the true trademark owners to report a squatter and advise the office of the need to add the squatter to the blacklist;
• Where an applicant does not answer an opposition which alleges bad-faith squatting, the office should make an expedited and summary decision in favour of the opponent; and
• The evidence filed by alleged squatters should be carefully scrutinised to ensure its authenticity.

It is hoped that the dark age of trademark squatting in China will soon be over.

Kenny Wong, Mayer Brown JSM, Hong Kong