Trademark Squatting: A Dying “Trade”?

I attended an excellent IPWatchdog webinar this past week on trademark squatting, presented by Ai-Leen Lim of AWA Asia. You should watch the whole thing, but here are some thoughts and takeaways.

Trademark squatting is one of the biggest problems when it comes to intellectual property rights (IPR) protection in China. Basically, squatting occurs when someone registers a trademark without the intention of using it, but rather hoping to extort the real brand owner. Squatting is conceptually different from the situation where a counterfeiter registers a trademark to facilitate its counterfeiting activity. However, because squatters are opportunistic, they’re often open to selling the trademark to counterfeiters, meaning there is some overlap between the issues of squatting and counterfeiting. Likewise, counterfeiters often engage in the extortionate selling of trademarks they legally own to the real brand owners.

As China has a first-to-file trademark system, the fact that the brand owner used the trademark first is usually of no consequence. China does extend protection to what it terms “well-known trademarks,” but it is very hard for a trademark to attain “well-known” status.

In some ways, squatting is worse than counterfeiting. Though the latter is problematic for many reasons, it at least generates some economic activity, whereas squatting does not. Furthermore, for impacted brands, squatting places them in the infuriating position of having to pay to use what it considers to be its own trademark.

As Ai-Leen pointed out, China has been taking steps to tackle squatting. Most notably, in 2019 the Trademark Law was amended, to provide, “A bad faith application for trademark registration for a purpose other than use shall be rejected” (Art. 4). However, even before the amendment, there was already a trend of hostility toward bad faith applications. For example, Ai-Leen noted that the success rate for oppositions almost doubling between 2015 and 2019 – the year the amendment was adopted.

It is not just the China National Intellectual Property Administration (CNIPA) that is turning its guns on bad faith applications. China’s courts are also becoming increasingly hostile toward squatters, and against bad trademark actors generally. Take for example the Brita case. This case did not involve the classic squatter that opportunistically amasses potentially valuable registrations, but rather an actual Shanghai company targeting the Brita brand. As we explained in China Trademarks: Going After Bad Faith Squatters in Good Faith?

Although it might be cold comfort for Brita, the defendant in this case was not really a serial squatter: Its bad faith applications were targeted at Brita. The Shanghai court’s move could signal a determination by the Chinese authorities to take a stronger line against bad faith applicants, not just the squatters with registration “mills.”

Also of note is the fact that the court was explicitly not moved by the fact that the trademark system ultimately worked (not least because Brita was diligent with its trademark filings in the first place!). It gave weight to the fact that the defendant’s actions were a time-consuming hindrance to Brita and took a dim view of the defendant’s procedural “abuse.” If the Shanghai court’s reasoning takes hold among its sister courts, then China’s efforts against trademark squatting might finally get some teeth.

It wasn’t that long ago that conversations with clients facing a squatting issue soon turned to a discussion about negotiating a purchase with the squatter. Though in some cases the amounts were not obscene, the fact that clients were paying to get back “their” trademark stung — the realization that they could have avoided the issue altogether if they had been more diligent about retaining China counsel or simply filing a trademark application didn’t help. Moreover, in some cases the sums were obscene. For some clients a rebranding was an option, but for others the choice was a stark one between paying off an extortionist and giving up on the China market.

But the times are a-changing. Squatting is still a problem and dealing with it is not straightforward, but there are some small signs of increasing focus on the problem on the part of the Chinese authorities. And while negotiation remains a part the China trademark toolkit, oppositions (before registration) and invalidations (after registration) on bad-faith grounds are increasingly promising avenues, as is civil litigation.