Trademark applications – malicious behaviour and its countermeasures

Malicious or bad faith behaviour is intolerable in a civilised state or society. Malicious acts in trademark applications are no exception and they are therefore prohibited by trademark laws around the world.

In China, applying for trademarks by copying, imitating or translating the famous brands of others, applying for trademarks with no intention to put them to genuine use, and filing excessive amounts of trademark applications beyond normal production and operation requirements, still occurs in many industries. Malicious behaviour in trademark applications not only severely damages the application orders and fair competition, but it can also harm the interests of other prior rights holders. Although the provisions on the prohibition of malicious trademark applications and registration under the Trademark Law (effective from late 2019) have gradually begun to take effect, it takes time to fundamentally eradicate this behaviour and supporting measures are therefore essential.

This chapter summarises and analyses different types of malicious behaviour found in trademark applications in China and sheds light on how to deal with it.

Malicious behaviour

In China the following specific acts found in trademark applications are regarded as bad faith or malicious behaviour:

• applying in multiple classes for the registration of excessive amounts of trademarks not intended for genuine use;
• applying in one or multiple classes for trademarks copying, translating, imitating or altering the registered well-known trademarks of others;
• applying in one or muliple classes for trademarks copying, translating, imitating or altering the unregistered well-known trademarks of others;
• applying for trademark registration in respect of the identical, similar or dissimilar goods or services of others’ trade names, trademarks or their translations, domain names accessed in business activities of contacts, negotiation, cooperation, distribution or services;
• applying in one or multiple classes for trademark registration of the names of Chinese or foreign celebrities, famous or popular buildings, geographical names, scenic spots, historical figures or characters in literary works;
• applying in one or diverse classes for trademark registration of certain terms or expressions, actions and images of celebrities;
• applying in one or multiple classes for trademark registration of the trademarks of others in a language other than its registered or applied-for language;
• applying in one or multiple classes for registration of a combination of two or more registered well-known trademarks held by the same or different registrants;
• applying in one or multiple classes for trademark registration of recent or ongoing natural or political phenomena or events or terms;
• applying in one or more classes for trademark registration by imitating or altering designs or logos of international, national or regional organisations or associations; and
• applying in one or diverse classes for registration of popular words, terms, role names, icons, images or actions related to fashion, science and technology, sports, diet and culture (including music, fine arts, films, television, literature, dance, drama and games, among others).

Once a registrant is held to be filing trademarks in bad faith in proceedings such as opposition or invalidation, the registrant’s other marks become vulnerable to being invalidated or having their registration stopped under Chinese law and practice.

According to the China National Intellectual Property Administration (CNIPA), once bad faith is found, the transfer of such application or registration will not change the malignity of its original applicant or registrant.

Case study

There have been many cases in which registrants were held to have filed the disputed trademark in bad faith because they were considered by the court to have engaged in malicious behaviour.

Case 1

A Chinese individual, Liang, who was working for the Chinese distributor of a foreign functional food-and-drink brand, set up two commercial entities in Hong Kong and filed hundreds of trademarks with the CNIPA (then the Chinese Patent and Trademark Office) that copied or imitated diverse functional food-and-drink brands outside China. Liang realised that China was set to become a huge market for such products and that some of those foreign brands had distributors, sales and a reputation in China but without any filed or registered trademarks. Liang’s two commercial entities had no physical office or commercial activities in Hong Kong, and Liang himself was the sole shareholder and chief executive of the two Hong Kong entities.

Liang was able to register these marks with ease. The foreign trademark owner then realised the importance of the trademark registration and filed its own applications. However, the applications were refused because of Liang’s ‘squatting’ registrations that had been registered first. The trademark owner contacted Liang to request a possible trademark transfer and offered Liang the opportunity to name his price.

Woodbolt Distribution Inc was one victim of Liang’s malicious behaviour. As a US dietetic-supplements manufacturer and supplier, Woodbolt was using CELLUCOR and CELLUCOR COR-PERFORMANCE as trademarks to promote and sell its products in China long before Liang had filed those marks for registration. In 2010, Liang was working for Beijing Hundreds Colour Stars when the business began selling CELLUCOR products in China as a distributor of Woodbolt. Soon after the distributorship was terminated, one of Liang’s Hong Kong entities registered CELLUCOR COR-PERFORMANCE in connection with nutritional supplements in China under Class 5.

During negotiations to sell the mark, Liang, via his attorney, requested $770,000. To gain more leverage in the negotiations, in 2016 Woodbolt initiated an invalidation action before the CNIPA against Liang’s squatting trademark, but lost. Liang saw this as a chance to push up his price and threatened to terminate negotiations if Woodbolt took any further action against the mark. Woodbolt did not want to be blackmailed and stopped negotiations. Nevertheless, the story ended well, as the Beijing IP Court found in Woodbolt’s favour and the mark was removed from the register on the grounds that Liang was held to be engaging in malicious behaviour in his trademark applications. Following this landmark ruling, Liang’s business of squatting trademarks collapsed and many of his other squatting marks registered under his name or the name of either of his two Hong Kong entities were removed from the register on the grounds of bad faith registration, even though some of the marks had been successfully transferred.

This sort of malicious registration would not have occurred if Woodbolt had successfully registered the marks in China before entering the Chinese market.

Case 2

Worth Global Style Network (WGSN) is a global commercial giant in consumer and design trend prediction services. It is a style change forecaster. With more than 20 years’ experience and a network of more than 250 strategists around the globe, WGSN powers the most valuable brands across the world in consumer goods, fashion, beauty, lifestyle, interiors, and food and drink. WGSN provides services to Nike, Levi’s, Calvin Klein and Converse, among others.

As early as 2008 WGSN filed trademark applications for WGSN in connection with relevant goods and services in Classes 16, 35, 38, 41 and 42 before the CNIPA to help strengthen its brands and protect its business activities in China. Thanks to its commercial success and cooperation with Chinese entities, WGSN’s trademark and trade name – WGSN – became reputable in China in the field of design trend forecasting, including trend forecasting services for clothing and bags businesses.

Luo, a natural person who ran an Alibaba e-store, applied for and was registered in Classes 18 (bags) and 25 (clothing and shoes) for the exact stylised version of WGSN as shown on WGSN’s official website. WGSN sent Luo a cease and desist letter demanding that he stop his use of the mark and withdraw his trademark registrations within a certain period. Luo ignored the letter, giving no response. Left without an alternative, WGSN began invalidation proceedings before the CNIPA. The proceedings concluded that Luo’s WGSN marks are confusingly similar to WGSN’s prior unregistered trademarks in connection with trend forecasting services for bags, clothing and shoes. Luo’s WGSN marks were consequently removed from the trademark register.

Although justice was eventually served, it took WSGN many years and a considerable sum of money to achieve it. The case would not have arisen if WGSN had registered the mark in connection with bags and clothing. The Chinese Classification of Goods and Services is not so rigid that WGSN would have been unable to register the mark in connection with style trend forecast services for clothing and bags.

WGSN did not and would not register the mark in connection with bags and clothing as it did not use the mark in those business areas. Nevertheless, under Chinese practice it is advisable to register marks in order to close the loophole of the Chinese Classification of Goods and Services and block any applications in such classes, as it will save on costs arising from possible oppositions or invalidations.

Countermeasures

Suggestions for interested parties or stakeholders

It is impossible to entirely avoid being affected by any sort of malicious behaviour in trademark applications, no matter what preliminary or advance measures have been taken. However, there is always something that can be done. The following countermeasures are recommended for interested parties or stakeholders both inside and outside China:

• File trademark applications in respect of identical and similar goods or services, peripheral goods or services and associated goods or services that are of interest before making business contacts or starting a business. Parallel filings in China and the home state are also worth doing, as China is adopting a ‘first to file’ system for trademark registration.
• Sign a non-disclosure agreement in advance or add confidential information provisions to distributorship or licensing agreements or other cooperation agreements, stating expressly the ownership of the IP rights, including but not limited to the disclosed trademarks.
• Watch closely and take appropriate action, including negotiation, opposition or invalidation, to remove trademark applications or registrations from the register for conflicting goods or services as they occur.
• Register a stylised trademark as a copyright, file for an industrial design patent or seek other IP rights protection if applicable.
• Register a domain name for the trade name or house mark in advance if necessary.

Further suggestions

The following measures are recommended for administrative authorities and for legislation purposes:

• Increase the official fees for trademark applications.
• Introduce oral hearings into trademark opposition and invalidation proceedings or any other proceedings where a third party is involved.
• Rule against any party in opposition or invalidation proceedings who does not respond or defend itself with the necessary supporting evidence.
• If bad faith is found, order any party who loses in the opposition or invalidation proceedings to bear the official fees and even the attorney fees incurred by the opposite party.
• Penalise the malicious registrants, including but not limited to prohibiting the transfer of their marks filed or registered in bad faith.
• Punish lawyers and trademark agents who encourage or help applicants to maliciously apply for trademarks.

Comment

The development of e-commerce, along with the ability to post comments on goods or services via social media, is reshaping the public’s traditional views on trademark territorial protection. Some opportunists see this as a great business opportunity to ‘free ride’ on the existing reputation of business entities inside or outside China by maliciously applying for registration of their trademarks in China in connection with confusingly similar or dissimilar goods or services. Such malicious acts harm the interests of both the genuine rights holders and the relevant consumers.

There are provisions under Chinese trademark laws regulating malicious behaviour in trademark applications, but they are insufficient to prohibit all unethical acts. In order to better protect trademark rights and business interests in China, parties of interest and stakeholders are advised to take the initiative and proactively take all necessary measures available. In the meantime, legislation should not wait but should strive to set up the necessary policies to render malicious trademark applications costly and increasingly difficult or even impossible.