Beware of “Trademark” Hijackers: International Firms Welcome Changes to Chinese Law

By Sherry Shen, Penn Law '16 The idea that China has not had the strongest track record in intellectual property law may be an understatement. In July of this past year, Apple paid a hefty settlement fee of $60 million dollars to Proview Technology so that it could use its own trademark for its latest version of the iPad in China – an example of a prevalent phenomenon in China known as trademark hijacking. Fortunately, in late August of this year, China made significant revisions in its trademark laws, which will be implemented on May 1, 2014. While many of the effects remain to be seen, experts are in agreement that these amendments are a significant step in the right direction.

Under current Chinese trademark law, international companies looking to protect their trademarks in China are beholden to China’s dubious “first to file system.” The “first to file system” works just the way it sounds: the first to file the trademark application gets the registration. This system, while not unique to China, has facilitated “trademark hijacking.” Trademark hijacking occurs when opportunists research foreign enterprises that intend to do business in China, then use this research to file applications for trademarks that are similar or identical to the established trademark held by the foreign enterprises. Under the rigid “first to file system,” these applications are normally granted. When this occurs, international companies (who are the true owners of the brand) will then have no choice but to buy back their own trademark, often at an exorbitant price, in order to legally sell their goods in China. The “trademark hijackers” are able to do this because the Chinese Trademark Office does not require applicants to submit supporting materials on first use or intent to use. Many well-known western retailers have fallen victim to this tricky practice including Schroeder KG, Sainsbury’s, John Lewis, Top Shop, and most notably technology goliath, Apple Inc.

These exceptionally visible examples highlight the importance of the new changes in Chinese Trademark Law that are going to be implemented in May of next year. Some of the more notable changes are:

(1)   Addressing Bad Faith Applications:  As Chinese law currently stands, registrations made in bad faith or for well-known mark are cancelled. However, the cancellation process is expensive and difficult to navigate.  One of the most important changes is a general good faith requirement for trademark filings, so that every trademark application must be filed in good faith.

(2)   Increase in Damages: Giving teeth to the good faith provisions, the new laws will impose penalties on trademark lawyers who act in bad faith. Penalties up to five-hundred percent of the profits earned from infringement can also be award to cases where the defendant is found to have made these applications in bad faith.

(3)   Direct Dispute Process: The institution of a dispute process may also undercut trademark hijacking by allowing an aggrieved party or true owner of the trademark to directly oppose a trademark application if it can show that the party filing the application knew or should have known of the trademark due to a relationship with the aggrieved party.

(4)   Co-Infringers/ Repeat Infringers: To further discourage bad behavior, the law has also increased penalties for those who assist infringement or serially offend. Under the new law, any person who deliberately assists an infringer now risks liability for the infringement. Further, anyone found to infringe repeatedly in a 5 year span will be subject to more severe punishments.

These are but a few of the more notable changes in Chinese Trademark Law. Additional changes to the law are aimed at making the application process more amenable towards non-Chinese parties, and also aim to approval time. Overall, many businesses welcome these changes to Chinese intellectual property law, which hopefully signal a recognition by the Chinese government of the dire need to address this deceitful practice.

To learn more about the coming changes in Chinese trademark law, the article below provides a more expansive discussion: