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Market Insight Protect your brand

Three people most likely to steal your trademark in China

April 06,2017 | Andy Clayton

Who they are and how to protect yourself

 

Trademark lawyers may not be a well loved bunch, but there is one moment where - maybe undeservedly - they come in for more abuse than than normal, and that is when delivering a very particular piece of bad news: "We're sorry to report that your trademark has already been registered in China", followed by a detailing of a registration of what is unmistakably your own beautifully crafted logo.

 

This is a painful moment. For example, we had a client who had to shut down a China business worth hundreds of thousands of pounds for 2 years while such a dispute was resolved. In other situations, we've had clients who have had to put multi-million pound China market entries on hold whilst such a situation was taken care of. In the most high profile cases, large companies such as Apple have had to make multi-million dollar compensation payments to re-acquire their trademark in China.

 

So who is behind creating these situations? We are often asked - disbelievingly - "could it really happen to me?" In short, yes it can, and here's who would be likely to do it to you, to quote Blofeld - 'The architects of your pain'

Employees

Happy senior man.jpeg

It may be hard to believe, but it is not uncommon for ex-employees, particularly disgruntled ones, to exploit IP registrations missed by the company, and essentially hold their ex-employer to ransom. In some cases we have heard of, even serving employees have tried to pull this trick.

 

Dealing with unhappy ex-employees who have some form of leverage over you, such as a trademark filing, is particularly painful. Whereas you may think that this would qualify as a dismissable act that would strengthen your case against them, this is not how it works. They can claim a reasonable case to ownership of the brand in China, and any legal action against them for trademarking rights would in any case be separate to a labour dispute, if such a dispute existing.

 

Such cases, like divorce, are also often exacerbated by bad feeling on both sides. There may be an emotional background, or complexity of relationship, that exacerbates feelings of wrongdoing on both sides, preventing a compromise agreement. 

 

Often, one of the best things that can be done in these situations, before legal proceedings, is to give the individual face. This may mean friendly or conciliatory approaches from senior / top management. Sometimes getting the family involved can help. In other situations a tough hard line is the only approach. Each case is different, and depends on the characters involved. Either way, sound legal advice is paramount.

 

Agents and distributors

Closeup portrait handsome happy smiling young business man, confident student, entrepreneur, giving handshake, isolated white background. Positive face expressions, emotions, feelings, attitude.jpegProbably the most common category we see, is where a company that was in business with a western brand, maybe an agent or re-seller, spots the opportunity to claim IP assets before the brand has filed it them themselves.

 

Such situations can be challenging because they may be hard to fight in court, as the company may be able to make a strong, legitimate claim to use of the brand in China. If they are well resourced, they may also pose the threat of actually using the brand to develop their own products and services, rather than just squatting on it.


Resolution may be less fraught than with ex-employees, and can be aided by the fact that the company may want things in return that the western brand is in a position to provide, such as dealership rights, or preferential access to stock or a certain market. 


Professional Trolls

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The combination of the current Trademarking rules in China (which you can read more about here) has created an environment well suited to the nemesis of any brand owner - the 'Trademark troll'.

 

Up and down the country, there are offices with teams trawling the world for brands they expect to enter the Chinese market, and speculatively registering their brands, (not entirely dissimilar to the domain name squatters during the dotcom boom in the late 90's)


These can be tough negotiators, often play for time, and hold out for just one thing: a high price. On the other hand, they are a committed seller, and usually want to do a deal, as repugnant as dealing with them may feel.


How to protect yourself

 

File first to protect your Trademark before any market entry moves


The old adage, 'Prevention is better than the cure' certainly applies here. Always act early to protect your assets before any market entry moves.

 

When thinking about IP protection in China, look a little wider than trademarks. There are other important assets and registrations that can be hijacked, and should be claimed ASAP, including:

  • .cn URL's

 

  • WeChat, Weibo and ecommerce site accounts (even if you're not planning to use them yet)

 

  • Patents

 

  • Non-descriptive business name

 

  • English and Chinese brand names

 

  • Product category registrations

 

  • Customs registrations

 

A good rule of thumb here is, if it can be used to represent your business in any any shape or form, claim it.

 

If you're entering China and find your trademark has been stolen

 

Firstly, keep a pragmatic mindset and a willingness to do a deal.

 

Many Western business people, when faced with this type of behavior, react, understandably with outrage.


We regularly hear things like: “This is just not right”, “We cannot deal with these people, they do not share our values.” Or “We will not deal with pirates.”. Understandable though these sentiments are, the only approach that makes sense is one of cool pragmatism.

From the other parties perspective, they have done nothing wrong. They are exploiting a legitimate grey area in the law, and have every right to do so.
They may even want an ongoing business relationship, and view it as a tactic to gaining leverage in a relationship, an approach western companies often view with surprise.

 

Should I still enter the market?

 

One particularly interesting conundrum that arises in such situations is, if your trademark has already been claimed in China, whether it is better to enter the market, and thereby prove use of the brand locally, or pause in- market activity, to avoid potential legal clashes with other claimants. The current legal situation around this is unclear, as there are cases that support both approaches. 

 

For example, within China a claim was made against the Internet giant Tencent for use of the name 'Wechat', by a company that had previously registered that name. The case was eventually ruled in favour of Tencent, on the basis that, of the two claimants, they were the one that could be shown to have actually made use of the brand. This type of precedent encourages a more robust market entry framework, whereby market grabbing trumps first to file TM claims.

 

What does the future hold?


There appears to be an evolution of underway of IP and trademark law in China. In particular, the 'first to file' principle is starting to be eroded as more cases unfold where 'true' global brand owners have been able to win back their rights, as the Tencent example above illustrates.

 

For foreign brands, this development benefits larger companies more, where 'global' use of the brand can more definitely be proven (not to mention the resources for a protracted legal fight). We can hope that cases will gradually emerge where national or regional brands are able to obtain such favourable rulings also.

 

As always, the evolution of this type of law will move in stock with what is of most benefit to Chinese businesses. The past 4-5 years have shown improvements in enforcement of IP law, in response to a critical mass of Chinese businesses requiring it. No doubt, the same contingent will lead to continued evolution of trademark filing and claiming rights in China.

 

For the time being though, you'll need to ensure your brand assets are suitably protected before any entry, or risk costly remedial action further down the line.

 

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