In recent years, China has become an increasingly attractive marketplace for foreign businesses. However, businesses often face the challenge of protecting their intellectual property rights, particularly in the area of trademarks. This is due to the issue of bad-faith trademark squatting in China, where certain entities exploit the country's first-to-file trademark system in order to unlawfully profit from the reputation or goodwill of other right holders.

This article will discuss new developments in the judicial practice in China and how they enable foreign right holders to utilise civil litigation to combat bad-faith trademark squatting in China.

The Chinese courts ruled bad-faith trademark applicants (and their agents) liable for unfair competition

In June 2021, the Xiamen Intermediate People's Court in Fujian Province, China, ruled that the bad-faith application for the "InSinkErator" series of trademarks constituted unfair competition against the trademark rights holder, Emerson, and ordered the trademark applicant, its legal representative and the trademark agency to cease applying for registration of trademarks identical or similar to "InSinkErator", and to jointly bear compensation liability of RMB 1.6 million. This ruling has great significance in combating malicious trademark registration and overcoming the defects of the trademark registration system.

Similar judgments have been rendered by Chinese courts in other cases. For instance, in the "BRITA" case heard by the Minhang District People's Court in Shanghai in 2020, the court supported the plaintiff's claim of unfair competition, stating that the defendant had committed unfair competition by maliciously registering a large number of trademarks and raising invalidity and opposition procedures to the plaintiff's trademarks.

There was also the "Bayer" case heard by the Yuhang District People's Court in Zhejiang Province in 2018, as well as the guiding case "ELLASSAY" published by the Supreme People's Court (SPC), in which these courts applied similar principles and reflected the courts' support for the rights holders' claims of unfair competition against the bad-faith applicants.

The significance of utilising civil litigation to curb bad-faith trademark squatting

Time and cost-effectiveness

The significance of utilizing civil litigation to curb bad-faith registration of trademarks, particularly for foreign rights holders, is to reduce the time and financial cost of resolving the issue of bad-faith trademark registration through (cumbersome and lengthy) administrative procedures.

Cessation of repetitive applications

More importantly, the civil judgments prohibit the bad-faith registrant from continuing to apply for registration of trademarks identical or similar to those of the rights holders, which can undoubtedly reduce the bad-faith registration from the source and has a strong deterrent effect on other malicious registrants.

Damages can be claimed against bad faith applicants

In the above civil cases, the Chinese courts not only ruled against the bad-faith registrants to stop the continued use and registration of the trademarks, but also supported the rights holders' claims for damages. This is another advantage of civil litigation, as it is not possible for rights holders to obtain compensation in administrative proceedings.

In this way, the cost for malicious trademark registrants is no longer just the registration fees at the time of application, but also the compensation for losses caused to the rights holders.

Practical tips to combat bad-faith trademark registrations in China

1. Take full advantage of civil litigation to combat repetitive bad-faith registrations.

Rights holders can consider choosing a competent court to engage in civil litigation to demand that bad-faith registrants, and their agents, cease using the maliciously registered trademarks, stop applying for similar or identical trademarks, and compensate for losses.

2. Utilise prior rights as basis of rights to bring a civil action.

Rights holders' prior rights in China can serve as the basis for claims of bad-faith trademark registration. The said prior rights may include design patents, copyrights, trade name, or unregistered trademarks that have been used and have a certain degree of influence and popularity in China.

3. Demonstrate bad-faith in trademark hoarding or prior relationship with rights holders.

It can be considered as a blatant violation of the principle of good faith if the registrant hoards trademarks in bad faith, and if the registrant has a previous relationship with the right holder, such as cooperation or agency, and then pre-empts the right holder's trademark.

In particular, the court will take a negative view of a bad-faith registrant bringing a frivolous civil infringement action against the genuine right holder.

Implications of new developments in Chinese trademark law and judicial practice

In response to the growing concerns of foreign right holders, various measures are adopted in China to strengthen trademark protection. This can be seen in possible amendments to the current Trademark Law (currently under public consultation), which expressly prohibits the registration of trademarks in bad faith.

On top of that, the Chinese judiciary has adopted a more proactive approach to combating bad-faith trademark registration as said, demonstrating its commitment to improving the trademark protection landscape.

The recent developments in Chinese trademark law, coupled with an increasingly proactive judiciary, have opened new avenues for foreign rights holders to combat bad-faith trademark squatting through civil litigation.

By taking advantage of these developments and seeking the assistance of experienced legal counsel, foreign businesses can better protect their intellectual property rights in the burgeoning Chinese market.

For more information on intellectual property litigation, visit the IP Litigation & Strategy page or get in touch with our global team for support.