The golden rules of trademark strategy

The increasing amount of damages and settlements in recent high-profile trademark cases in China have raised concerns about doing business in one of the fastest growing economies in the world. The emerging new record of the damages involved in these recent cases has inspired hijackers to set higher goals. But this is not because China's IP protection system has got worse. The reality is that infringers and hijackers have become more sophisticated and have accrued a lot of knowledge on how to use the Chinese legal system to their advantage.

International brand owners need to continue adapting and understanding the Chinese system to protect their IP in China, particularly in view of the new trademark law in effect on May 1 2014. A look at some of the high-profile disputes covered in the media shows that brand owners need to focus on early registration, picking the right Chinese brand name, registering their marks broadly and aggressively defending those registrations.

Race to registration

Many international players have had to pay healthy sums to secure their trademark registrations in China. Being a first-to-file jurisdiction, the Chinese trademark system does not require use or intent to use before filing a trademark application. This creates room for hijackers to file identical or similar trademarks in any class they like. Trademark registrations are perceived as valuable economic assets not only by genuine brand owners, but also hijackers. It is common knowledge that a brand name is registered in China before the owner launches its products in the market. Before marching into the China market with ambitious business plans, brand owners should understand the local system, and properly secure their trademarks before it is too late.

Secure a Chinese name

It has always been an important part of the branding strategy to devise a Chinese name to win recognition among Chinese consumers in China. This is particularly true for new brands upon their first entry to China.

The US electric carmaker, Tesla Motors, was forced to launch its first all-electric battery car in China without a Chinese name for the car and for its Chinese website. Tesla found that the Chinese name they chose – 特斯拉 (Te Si La) – which was already quite popular among Chinese consumers at the time, had been hijacked by a local businessman in China. With the registrations already granted, the trademark owner even had a Chinese website for electric cars using the registered Te Si La trademark. Attempting to acquire the trademark, which Tesla considered was the best known Chinese translation for Tesla to Chinese consumers, Tesla had been negotiating with the hijacker for an assignment of the mark since 2006. It was not until early 2014 that Tesla was finally able to declare victory after beating the hijacker in court.

Fighting over the Chinese name of prestigious international brands is old news. The French winemaker Castel Frères had a similar experience, only they had to pay a much higher price. The dispute over its Chinese name Ka Si Te has lasted for almost eight years and is still going.

When they entered into China in 1998, Castel's name and trademark was transliterated as “卡斯特” (Ka Si Te). The unregistered name was later registered by a Chinese company in 2000 and then assigned to an individual named Li Daozhi in 2002. Li established and developed his own wine business under the brand Ka Si Te in Chinese, and even bought three chateaus in France.

Since 2005, Castel has tried all possible measures to invalidate as well as acquire Li's Ka Si Te trademark, including non-use cancellation, invalidation and offer to purchase, but with no success.

In 2009, Li and his company, Panati Wine (Shanghai), brought a lawsuit against Castel for Castel's use of Ka Si Te before Wenzhou Intermediate People's Court. The court ruled in favour of Li and his company, and awarded damages of over US$5 million to Li and his company in early 2012. Castel filed a re-trial with the PRC Supreme People's Court, which was accepted by the court in December 2013.

Broaden the portfolio

China adopts the Nice Classification system to divide goods and services for trademark registrations into 45 classes. Taking into account the local market, the China Trademark Office (CTMO), under the State Administration for Industry and Commerce (SAIC), further divides each international class into subclasses. Goods and services fall under the same class but different subclasses are generally considered dissimilar. The sub-classification system creates loopholes for hijackers to register identical or similar trademarks in the same class but different subclasses. Under current trademark prosecution practice, these trademark applications in different subclasses are likely to be granted registration.

Brand owners should file trademark applications in a broader scope of specifications covering the relevant (or even all) sub-classes.

For brand owners with devices or even cartoon figures in their trademarks, it is advisable to register copyright in the mark with the local copyright protection bureau, the China Copyright Protection Center (CPCC). A prior copyright registration of the brand can bolster defence against trademark hijackers. Depending on the actual case, three-dimensional trademarks and design patents can also be useful.

Exercise offence and defence

The notoriety of trademark hijacking in China has familiarised brand owners with the idea of defensive trademark filings. Even with a comprehensive trademark portfolio that covers the core brands and a wide range of goods and services, brand owners need to actively maintain their portfolios. It is a continuous battle.

In a recent decision issued in November 2013, the CTMO ruled to cancel Burberry's iconic tartan pattern trademark for leather products. The decision was a result of a non-use cancellation filed by a domestic Chinese company, Polo Santa Roberta, claiming Burberry had not used its trademark for a consecutive period of three years. Burberry claims that it has filed a review of the cancellation with the PRC Trademark Review and Adjudication Board.

The cancellation application is actually one part of the drama that the domestic Chinese company brought in this enduring fight. It can be traced back to more than eight years ago, across China to Hong Kong and Taiwan over Polo Santa Roberta's use of bags bearing patterns similar to that of Burberry's tartan pattern. As a response to Burberry pursuing it for infringement, Polo Santa Roberta filed the non-use cancellation against Burberry's international registration for the tartan pattern in China. Withstanding the unfavourable decision from the CTMO, Burberry stated in a recent interview that it is confident that its trademark registrations will be maintained in the review proceedings.

In a non-use cancellation action, the trademark owner needs to produce valid evidence of actual use of the trademark within the immediate past three years from the time when the cancellation was filed. An evidence chain that proves the manufacturing, distribution and circulation of goods bearing the trademark in the Chinese market is necessary to support the actual use of the mark. For trademarks that are filed for defensive purposes, the owner may consider refiling the applications three years after the registration is granted.

Deal with innovative hijackers

Ever-increasing domain name strings create another market for hijackers. With an existing up and running company website (mostly using a .com string), brand owners could overlook other domain name strings, which leaves popular strings such as .cn, .com.cn vulnerable to hijackings. It is possible for brand owners to recover hijacked domain names based on their registered trademarks. Nonetheless, a proactive registration strategy avoids many inconveniences and saves significant costs.

Apart from brand owners, celebrities have also fallen victims to name hijackings. In 2012, the legendary US basketball player Michael Jordan filed a lawsuit in China against a Chinese company, Qiaodan Sports. The Chinese company has registered for the rights to use the name Qiao Dan in 1997, and has since been using Qiao Dan as its trade name. Qiao Dan is the Chinese translation of Michael Jordan, who is indeed widely known in China by that name. The Fujian-based company sells athlete-branded basketball shoes and jerseys in its 5,715 retail outlets in China and is preparing to raise Rmb1.1 billion (US$175 million) in a public listing in Shanghai. The company posted profit of Rmb341.5 million on Rmb1.7 billion in revenue for the first half of 2013.

With registrations granted in 1998, Qiaodan Sports has been using its Qiao Dan trademarks on its products. Michael Jordan first filed his lawsuit in Beijing but the case was rejected. He subsequently re-filed the case with the Shanghai No 2 intermediate court in March 2013. The case is still pending. According to the first-to-file principle used for trademark registrations in China, Qiaodan Sports is the legitimate owner of the trademark upon registration.

Another NBA player, Jeremy Lin, also encountered similar problems. Before Lin became famous, Wuxi Risheng Sports Utility, which makes about one million basketballs, volleyballs and soccer balls a year, registered Lin's name as a trademark in classes 25 and 28 in July 2010. The company successfully registered Lin's Chinese name, Lin Shuhao (林书豪), and initials (Jeremy S H L). Both marks were granted registration in August 2011.

On February 13 2012, Jeremy Lin himself also applied to register the trademark Linsanity, a word the media invented from insanity when Lin took the world by storm in 2011. It is reported that the applied trademark covers all varieties of clothing, including under clothing, action dolls, drinks and backpacks. As the matter currently stands, if Jeremy Lin chooses to use his own name, Lin Shuhao, as a trademark in China, he will still have to take up a licence from the Wuxi trademark owner.

Prepare for the new trademark law

The new PRC Trademark Law, which comes into effect on May 1 2014, will create new challenges for brand owners. For example, the new law removes the opponent's right to file a review against the CTMO's decision in an opposition if the initial opposition does not prevail. Furthermore, according to the latest draft implementing regulations, the time limit to file supplemental submissions and evidence has been substantially reduced from three months to 30 days. The new law provides for multi-class applications, which makes filings less costly. This equally applies to hijackers – the cost for hijackers to hijack trademarks is lower under the new law.

The changes in the new law are aimed at modernising the trademark process, strengthening trademark enforcement and making trademark squatting and counterfeiting more difficult. Simultaneously, it yields opportunities for hijacking. Brand owners should review the strengths and weaknesses of their portfolios, and act promptly to close any gaps before the new law comes into effect. Brand owners should also start compiling evidence books in the face of the 30-day limit for supplemental submissions. Penalties and damages have also been substantially increased under the new law. Brand owners should take advantage of this and plan ahead for a proactive enforcement campaign.

Protecting trademarks in China was never an easy task. Brand owners need to be more cautious with the new law, and adjust accordingly when it comes into full effect.


Horace Lam, Head of IP China, DLA Piper, Beijing


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