Is your business at risk from international trademark squatters?

Author: Fred D. Zemel|February 9, 2016

China saw a rapid rise in trademark filings in 2015, suggesting that multinational brands are continuing to expand their operations there. By comparison, established economies, such as the United States, saw only a slight rise in registrations.

Is your business at risk from international trademark squatters?

China saw a rapid rise in trademark filings in 2015, suggesting that multinational brands are continuing to expand their operations there. By comparison, established economies, such as the United States, saw only a slight rise in registrations.

According to a new report by Thomson CompuMark, China registered 1.7 million new trademarks in 2014, which represents a 71 percent increase over 2013 figures. Overall, China published more trademarks in 2014 than all the other top 10 trademark registrars combined. The top ten list for 2014 trademark volume included the United States, France, Turkey, Brazil, Japan, South Korea, Germany, Canada and the Russian Federation.

As the report notes, trademark filings and economic activity often go hand in hand. “Trademark filings continue to be a strong indicator of global economic trends,” said Mark Frost, general manager of Thomson CompuMark, in a statement. “Trademark activity surfaces important trends, such as where businesses are placing emphasis in their international growth strategies, what industries are building out brand portfolios, and the overall health of the global economy.”

Other studies have reached similar conclusions regarding trademarks and other intellectual property filings in China. In its annual report, the World Intellectual Property Organization (WIPO) also found that China was driving the growth in IP filings. According to WIPO’s 2015 edition of the World Intellectual Property Indicators, China had highest trademark filing activity the world for 2014, experiencing growth of 18.2 percent. By comparison, the United States saw filings increase 6.7 percent.

Trademark Challenges in China

For companies that are considering Chinese trademark registration, it is important to understand that China’s intellectual property laws are very different from those in the United States. Under the country’s “first to file” system, trademark rights are generally bestowed on the first entity to file an application. By comparison, U.S. trademark registrants must show that they have used, or planned to use, the mark in commerce.

Under the Chinese first-to-file system, there is incentive for brand counterfeiters and hijackers to pursue trademark rights ahead of U.S. companies. Many international corporations, including Tesla, Pfizer and Apple, have expanded into China only to discover that so-called trademark “squatters” had already secured trademark registrations for their brands. As a result, they have been forced to enter protracted legal battles or pay significant sums to buy back their trademarks.

In 2014, China enacted trademark reforms intended to curb such predatory practices. Key changes included increasing the potential penalties for trademark infringement to six times the previous limit; making it easier for owners of “renowned” trademarks to prohibit others from registering their trademarks or using similar one; and expressly imposing principles of good faith in trademark registration and use.

The Chinese trademark reforms are a good start. However, the bottom-line is that if you plan to enter the Chinese market, it is advisable to act quickly to protect your brand. To start, an informal search of China’s online trademark database can alert you to any potential squatters. The next step is to consult with an experienced IP lawyer that also has experience in the Chinese market.