Trade marks in China: a different world

China’s trade mark laws work differently from most other places – here’s how!

You can lose your trade mark rights in China if you’re slow to register

The owner of a trade mark has the right to register it. In Australia as well as most other countries, the owner will be the first user of the mark for the relevant goods or services. If someone else tries to register that mark, action can usually be taken to prevent this, or to cancel or revoke the resulting registration. This is called a ‘first to use’ system.

In contrast, China has a ‘first to file system’.

This means that the owner is the person or business who first files the relevant trade mark application rather than the person or business who first uses it. If a foreign trade mark is not already registered in China, almost anyone else can register the mark and use it to manufacture and sell products in China even if the foreign trade mark owner has already sold those goods in China under the mark.

Such ‘trade mark squatting’ or ‘trolling’ is damaging to the ‘true’ trade mark owner for a variety of reasons:

  • it can delay or prevent market entry by the foreign trade mark owner
  • it can cause confusion where the troll commences selling competitive goods in China
  • it can involve your legally manufactured, official goods, being held up or even confiscated by the Chinese Customs Service, delaying or preventing Chinese-manufactured goods from being sold abroad
  • it can result in unauthorised goods (legitimately manufactured in China) making their way into other countries, including Australia;
  • it involves legal fees that could easily have been avoided
  • it exposes foreign trade mark owners to the risk of having to pay damages for the use of their own trade marks, or to purchase those rights from trolls.

Tesla: A Case Study

A Chinese businessman by the name of Zhan Baosheng applied to register the English word ‘TESLA’ in China in relation to cars (among other things) in September 2006. This was three years after the US electric car manufacturer Tesla Motors was founded, but before it had entered the Chinese market. TESLA Motors had not registered its trade marks in China at the time.

Mr Zhan subsequently registered other trade marks, including the TESLA logo, and secured Tesla-related domain names in China (including tesla.com.cn and teslamotors.com.cn).

Mr Zhan offered to sell the IP to Tesla, but reportedly refused an offer of approximately US $325,000. The parties entered into litigation in which Mr Zhan sought approximately USD 3.9 million in damages, and ordered that the US company stop all marketing and shut down its Chinese showrooms, service centres and supercharging facilities. The parties eventually agreed to settle, and Tesla purchased the domain names for an undisclosed sum.

If you don’t give your brand a Chinese name, the Chinese will do it for you!

If a foreign business doesn’t actively present its brands in a way that’s readily understood by the Chinese market, Chinese people will use that brand in ways that make sense to them – often in ways that the brand owner doesn’t like.

Pre-filing searches are doubly important in China

In most countries, if a trade mark examiner objects to the registration of your trade mark, then a report is issued explaining why this is the case. You’re then usually given two or three opportunities to overcome these objections over many months or even years.

For example, in Australia the examiner might refuse to register your mark because a similar mark has already been registered in relation to similar goods and services. You might overcome that objection by deleting overlapping goods and services from the application.

On the other hand, if a Chinese trade mark examiner rejects your application, it’s very common for this to be done fully and finally without any prior consultation. Depending on how you applied to register your mark, you might first hear about this 18 months after you filed the application – perhaps after you’ve already commenced selling or manufacturing your goods in China.

For this reason, it’s very important for you to conduct pre-filing searches and to obtain advice regarding your prospects of successfully registering your mark before you commence either the trade mark application process or meaningful commercial activities in China.

Your Australian trade mark can be relevant in China

Sometimes you can ‘jump the queue’ in China by claiming the ‘filing date’ of an existing Australian trade mark application. In other words, if you file your trade mark in Australia on 1 January, and then China on 30 June in the same year, the Chinese Trade Marks Office (CTMO) can treat it as having been filed in China on 1 January of that year.

To do this, the Chinese application must have the same goods and services as claimed in the Australian application. However, the CTMO is much more restrictive in how it will allow goods and services to be described than IP Australia is. It may reject your application if it doesn’t recognise a particular way for describing your goods or services. Make sure that your trade mark lawyer or attorney is thinking about these issues when drafting your Australian application.

The Madrid Protocol is often best avoided

It’s common for Australian businesses and their trade mark advisors to use the ‘Madrid Protocol’ process when filing to protect trade marks overseas. The advantages are seemingly obvious:

  • the application is made in English, without the need for a Chinese translation
  • the application is based on an existing Australian mark, with the goods and services already being specified in the correct international classes
  • it can be done simultaneously with applications in other countries that are also part of the Madrid Protocol.

However, there are a few problems with using this approach in China. For example, China’s unique ‘sub-class’ system for classifying goods and services can bring Madrid Protocol registrations unstuck. Chinese examiners will allocate your goods and services to sub-classes without any knowledge of your goods and services, and often with a limited grasp of English. This may result in your goods and services being placed in the wrong sub-classes or can limit your trade mark in unanticipated ways.

These problems can be avoided by drafting a Chinese application and filing it directly with the Chinese Trade Mark Office (CTMO).

Case Study: iPhone

In 2002 Apple registered the word ‘IPHONE’ in China in class 9 in relation to computer hardware and software. As mobile phones are in a different sub-class from computer hardware and software, a Chinese company (Hanwang Technology) was able to register ‘I-PHONE’ to cover mobile phones. Apple had to purchase this trade mark from Hanwang Technology.

Although Madrid Protocol Applications are theoretically as valid and enforceable as marks filed directly in China, in practice they are treated as ‘second class citizens’. For example:

  • Courts and administrative bodies in China require the submission of a national trade mark certificate issued by the Chinese Trade Mark Office before they will deal with them. These are not automatically issued for applications filed through the Madrid Protocol. Without such a certificate, you may not be able to start or defend court proceedings, or deal with Chinese Customs as the owner of the mark.
  • It can take the CTMO up to 12 months to record renewals or assignments (i.e. transfers) of your Madrid Protocol registration in its system. This creates a long period in which you can’t prove your ownership or entitlement to your mark.

Furthermore, locally filed Chinese applications are usually examined much more quickly. By law, they must conclude the examination of domestic applications within nine months, as opposed to eighteen months for Madrid Protocol Applications.

And don’t forget Hong Kong

China’s ‘one country, two systems’ policy means that you’ll need to register your mark separately in Hong Kong if you wish to have the exclusive right to use it there.


 

David Kwei is a principal intellectual property lawyer at Epiphany Law.

He loves advising about IP in a way that empowers his clients to make better IP decisions when he’s not around. He’s also passionate about finding new ways to operate the modern law firm to deliver efficiencies to clients and work-life balance to staff.

His practice encompasses brand protection and enforcement (trade marks) in Australia and overseas, copyright advice and enforcement, licensing and commercialising IP-based businesses, contract drafting and advice.