China: Reflections On The Status Of Protection Of Trademarks In China

Why We Cannot Always Blame It On China
Last Updated: 19 March 2014
Article by Paolo Beconcini

Foreign brand owners perceive the Chinese trademark system as unjust, and the trademark law as inadequate to protect foreign brands – all to the advantage of younger and aggressive Chinese companies and individuals. There are indeed reasons for such a negative perception of the trademark and, more generally, the legal and enforcement systems in China. For years, inadequate legislation has allowed unfair practices such as trademark grabbing. The strict "first to file" principle in intellectual property prosecution in China, the lack of specific provisions on bad faith and preventive registrations, the lack of any legal relevance of prior use of a trademark, together with an often inconsistent jurisprudence, have offered to throngs of Chinese competitors, individuals and criminal organizations a free ride on foreign trademark rights that were left unregistered in China. The problem is that, until now, there have not been effective remedies to prevent or even solve the problem of trademark grabbing in China.

Legal Changes in the immediate future

This situation seems about to change. The new Trademark Law that will enter into force in May 2014 and the most recent jurisprudence have introduced a series of provisions and interpretations of the law which at first look seem finally to provide remedies against the plague of trademark grabbing. Most remarkable deterrent against trademark grabbers will be the resort against them to cancellations for bad faith registrations. In particular, the judgment is setting a standard for the practical definition of bad faith in article 7 of the new Trademark Law: not using a registered trademark and trying to sell it away, is evidence that the trademark registration (the act of grabbing) had been done in bad faith and with illicit intent. This principle, taken in its broadest sense seems indeed to constitute the best deterring tool in case of trademark grabbing. Grabbers or squatters, are not normally involved in the stolen brand's business, therefore will unlikely use that brand for the goods or services on the designated classes. Making money is their major goal and selling the stolen pray is the most direct way for the grabbers to earn a profit. This judgment is indeed a very positive development.

Can't always blame it on China

Therefore, not all the alleged shortcomings of trademark protection in China are attributable to a malicious political will, as many foreign companies seem to believe. Many other factors have contributed to the perception of the trademark system as faulty.

Some of these factors are not related to legal inadequacies, but rather to profound conceptual differences as to the protection of IP rights in the Chinese legal system and therefore on lack of proper knowledge of the Chinese legal system. For example, China does not recognize protection of trade dress. Therefore, signs, patterns and three-dimensional designs or marks must be registered either as trademarks (if distinctive and functioning to identify a product's origins), design (if their esthetic value is the object of protection) or both. By virtue of the "first to file" rule in both patent and trademark laws in China, failure to secure both such rights will result in the complete lack of IP protection. Even securing a trademark but not a design may, in some cases, result in an inefficient protection scope or even in legally improper use of the right and its surprising loss, as we have seen in the recent cancellation of the Haymarket trademark of Burberry due to non-use as a trademark.

Another factor to be considered is the speedy evolution of commercial practices due to use of the Internet, which has often put the whole legislative and judicial system under the heavy pressure of adapting quickly to these continuous and rapid changes. In this respect, it must be acknowledged that since 2001, the year of China's accession to the WTO, the field of IP in China has seen one of the largest proliferations of new legislation and has rapidly adapted its laws and legal practices to such changes. China has taken its WTO/TRIP obligations seriously and has started enacting laws and regulations which comply with the required international standards of legal protection. At the same time courts' IP chambers have set up their own websites where their jurisprudence is publicly available, judges have joined in educational activities and information exchanges with the public, and exchanged experience with other judges from foreign jurisdictions. This allows the Supreme People's Court to collect knowledge and experience, and issue interpretations and opinions each year addressing disputed legal issues, thus allowing courts to interpret the trademark law in an evolving way. The result is that amendments to the law have somewhat been, in most cases, anticipated by the judicial practice. Though some gray areas remain—inasmuch as real life business practices and technology normally outpace the law—the Chinese legal system now has the instruments and the cultural means to adapt the written law to the evolving forms of infringement and enforcement.

Conclusion of our reflection

In summary, blaming the Chinese legal system for failing to protect their trademarks in China is only part of the story, and often becomes an excuse for managers to divert attention from their own responsibilities. A review of many trademark cases that have gained notoriety abroad shows how unprepared the foreign company actually was, and how ill-considered its actions in China. If there is indeed reason to put some blame on China's real political will to protect foreign companies' IP rights, there is as much reason to criticize foreign companies for their poor performance.

The best way to cure all these ills is to develop and share knowledge among foreign companies and their management. Knowledge and education are a key factor in improving the performance of foreign companies IP exploitation strategies in China. This does not mean however, that foreigners must learn more about Chinese legal and business thinking, but also that their Chinese staffs, especially in MNCs should well learn the thinking of their foreign colleagues to better adapt and implement them in a successful business strategy in China.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Paolo Beconcini
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