Knobbe Martens Olson & Bear LLP - Intellectual Property Law

The Importance Of Protecting Your Marks In China

Jonathan A. Hyman
Trademark Partner
Knobbe Martens, Los Angeles Office

Much has been written about the importance of the emerging Chinese market which has motivated many U.S. companies to try to break into the lucrative market. Whether your company is looking to sell or manufacture its products in China, you should familiarize yourself with China's trademark laws and how they differ from the U.S. trademark system before embarking on such ventures. Moreover, as it is estimated that 20 percent of all consumer products in the Chinese market are counterfeit, whether or not your company is in China or plans to be in China, you should consider protecting your companies IP rights in China now before someone else does so.

Trademark laws are relatively new to China and were adopted in 1982. During the first 14 years, trademark applications averaged 100,000 a year. Last year new trademark filings in China reached 400,000. According to information released from the China Achievements Exhibition for Intellectual Property Protection, by the end of 2005, almost 2.5 million trademark applications were filed in China, of which only 442,000 applications were filed by applicants from other countries. China was number one in trademark filings for the past 4 years and shows no signs of slowing down.

China was the number one country of origin of counterfeit products seized by the United States Customs Service in 2006 accounting for 81% of the domestic value seized (up from 69% in 2005). As manufacturing counterfeit products is a profitable business model, there is no shortage of people willing to engage in this activity. In addition, the value of the Chinese market has created an environment rich in trademark pirates whose sole purpose is to register the trademarks of others in the hopes of extracting a royalty or payment form the rightful owner. While China has made great strides in bringing its trademark laws in line with WTO rules, U.S. companies still face many challenges in protecting their trademarks.

China is a "first-to-file"' system, in which, generally, the first to file an application and obtain a registration is the owner of the mark (as opposed to the "first-to-use"' system used in the U.S. in which the first to adopt and use a mark is the owner). Unlike the U.S. system, there is no requirement to show use or ownership in China before registration. Thus, unscrupulous applicants can obtain registrations for marks which they have not and will never use, other than to sell back to their rightful owner.

Much like the U.S., China's trademark laws allow registration of trademarks, service marks, collective marks and certification marks. China's requirements for obtaining a trademark registration are also similar to the U.S. in that the mark must be distinctive and cannot be confusingly similar with an existing registration. A mark can be letters, designs, or combinations thereof. However, unlike the U.S., the product shapes, sounds and scents are not registrable under current Chinese trademark law. In addition, a trademark cannot currently be registered for retail or wholesale services at present, although as an alternative, an application can cover such services as "sales promotion for others" or "export-import agencies."

Like the U.S., the Chinese Trademark Office uses the Nice Classification of Goods and Services. However, you cannot file a multi-class application. Separate applications must be filed for each additional class of goods or services. A registration in China will only cover mainland China. Separate applications will need to be filed to protect a mark in Hong Kong, Taiwan, and Macau.

Unless an application is filed through the Madrid Protocol, you must engage an authorized local agent to file an application. Whether an application is filed through the Madrid Protocol or directly in China, if a refusal is issued, an authorized local agent or attorney will need to be engaged to respond. China is party to the Paris Convention, so you can use the 6 month priority period to file applications claiming priority to your U.S. filing date.

Before filing an application, you should have a local attorney conduct a trademark search to determine if a third-party has already filed an application or obtained a registration for the same or a similar the mark. Having this information before an application is filed is helpful, as it allows you to develop a strategy for dealing with third-party marks before the prosecution of the application commences.

Typically, prosecution of an application can take eighteen to twenty-one months, barring any major issues. If an application does not receive a refusal, it will be published for opposition. Unlike the U.S.'s one (1) month, extendable opposition period, China has a three (3) month opposition period that is nonextendable. If an opposition is filed, it could take several years for a decision to be issued. A decision can be appealed to the People's Court. Typically, a decision from People's Court could take an additional two to three (2-3) years.

If no opposition is filed, a registration certificate will issue. The initial term of protection for a registered trademark is ten (10) years from the registration date. This initial term can be renewed for additional ten (10) year terms. Unlike the U.S., proof of use is not required to renew a registration in China. As maintaining a registration only requires submission of the appropriate filings and payment of the renewal fee, trademark pirates can easily renew marks which they do not own. Once the mark is registered, you should use "Registered Trademark" (in Chinese characters) or the ® registration symbol with the mark.

It is highly recommended that you enter your company's marks in a watching services to monitor third-party applications. The watching service will notify you if any third-party applications are published for opposition so you can take appropriate action. A watching service could be coordinated through your U.S. counsel. However, it is helpful if local agents or attorneys review the watching service as many marks may be in Chinese characters or have a local meaning of which U.S. practitioners may not be aware. In addition, the Chinese translations and transliterations (and sound-a-likes) of English language marks should also be watched.

Like the U.S., Chinese trademark law has use provisions requiring that a mark be used after it is registered. If a trademark is not used within three (3) years of registration it is subject to cancellation for nonuse by third-parties. This could be dangerous if your company obtains a defensive registration before it enters the Chinese market. If the your company relies on a mark which cannot satisfy the use requirements, a trademark pirate can challenge the registration on the ground of non-use. Some trademark pirates register marks on goods and services unrelated to the real owner's primary business. The registrant can then use the registrations to sell goods with the mark or as bargaining leverage to obtain a payment from the U.S. company. To combat this practice, some U.S. companies register their marks for all goods and services whether or not they will ever use the mark on those goods and services purely as a defensive measure. However, this could be a costly and inefficient strategy.

If a third-party obtains a registration for your mark, you can file a cancellation action before Trademark Review and Adjudication Board ("TRAB"). The cancellation action can be based on the ground that the registration was obtained in bad faith or fraud, the mark is a well-known mark, or on nonuse if the mark has not been used for a three (3) year time period.

If an opposition or cancellation action against a third-party who registered your mark is unsuccessful, the your company may be forced to purchase the application or registration. If you obtain a mark from a trademark pirate, you should obtain a written assignment (preferably containing provisions restricting the pirate from registering any of your company's other marks) and record the assignment with the Chinese Trademark Office.

Even if you are simply manufacturing your products in China for export, you should register your marks in China (as well as any other country in which your goods are manufactured). This is because a registration in China can be used to block exportation of your products. In most countries, like the U.S., trademark registrations can only be used to block the importation of goods. If the you are not able to cancel or otherwise obtain a registration from a trademark pirate (such as through purchasing it), your goods could be held hostage. If this happens to your company, you may be able to overcome this issue if you can manufacture your products without labels and add the labels once they are exported outside of China.

It is not uncommon for a manufacturer or licensee (or their family members) to register the marks of the licensor or true trademark owner. Oftentimes the manufacturer or licensee does this innocently to protect its investment in the event the licensor or trademark owner has not registered the mark in China. Sometimes the manufacturer or licensee registers the mark to obtain leverage over the rightful owner. If a manufacturer registers your mark and you want to engage a new manufacturer, the original manufacturer could use the registration to pressure the you to continue to use him as your manufacturer. A licensee registering a licensor's mark is on shakier ground, as a registration can be canceled based on bad faith if the licensee registers the mark without the licensor's authorization.

If you engage a Chinese manufacturer or licensee, you should ensure that your manufacturing and license agreements include provisions preventing and restricting these entities from registering your marks and providing for assignment of any registrations obtained in the manufacturers' or licensees' name. It is also recommended that a local agent or attorney review any such agreements to ensure compliance with Chinese law.

Chinese Customs regulations ban the import/export of infringing products if the mark is registered with Chinese Customs. A custom's registration is valid for seven (7) years and is renewable for additional seven-year terms. If you have knowledge of when shipments of infringing products will be imported or exported, you can notify Chinese Customs. If infringing products are found they can be seized or destroyed (or the infringing mark can be removed). In addition, fines and penalties can be assessed. Recently, Chinese Customs introduced a new software system called the Enforcement System for Customs Protection of IPR, which will make it easier to share information with the various customs offices. In addition, Chinese Customs has created a "blacklist" of exporters, whose shipments will be subject to greater scrutiny.

If you discover an infringer in China, you can pursue the infringer by engaging the local Administration for Industry and Commerce ("AIC"). The AICs can carry out raids, question infringers, seize evidence, including books and records, and destroy infringing goods if necessary. AICs are typically able to act quicker and less expensive then an action filed in the People's Court. You can also pursue a legal action against an infringer in the People's Court. Over the years, People's Courts have become much more active in protecting trademark rights and punishing infringers. An action in the People's Courts could render an injunction, damages, and render penalties against the infringer. However, an action in the People's Courts could be more expensive and time consuming. In addition, the you should also contact the U.S. Mission in China or the Department of Commerce in Washington for assistance.

Knowing the rules in China is an important step in protecting your company's rights. However, a successful plan for trademark enforcement in China requires vigilance and registration of your marks.