Transfer Pricing Associates

Bad Faith Registration in China

post Tuesday November 27, 2012


In 2009, an European company that has been operating under its trademark worldwide tried to register in China, only to find out that a Chinese company based in Shenzhen already owned the rights to its trademark. The EU company could not file for cancellation of that trademark for nonuse, as the Chinese company had been operating under that trademark and had several products of similar nature. The EU company was in turn sued, by the Chinese company, for an amount equivalent to 4.5 million EUR. The EU company as a result had to discontinue its operations worldwide under their existing brand and had to file for a completely new trademark.  This is an extreme case of bad-faith trademark, nevertheless companies need to be aware of such situation which arise particularly when trying to open operations in China.

In the past decade more and more companies have been relocating to, or starting operations in China due to the large cost savings it offers, specifically for manufacturing companies. However the process of registering one’s trademark does pose to be a problem, especially because of bad faith registrations which have become more prominent.
What are bad-faith registrations? It is when a Chinese company registers a trademark for a foreign company with the intent of selling it back to that company at a higher price. This has become a regular complaint of European SME’s seeking to penetrate the Chinese market as it could also disrupt their business.  In China, it counts that the first to file for a trademark, owns the rights over that trademark and thus the company owning the trademark of your company could intercept your trade if he so chooses to. It is also important to note that it is within the owner of the trademark’s legal rights to sell it. In fact, there is a legal platform in China designed for trademark owners to sell their trademark.  Despite the difficulty in objecting against filed trademarks, the Trademark  Law of China does provide companies the opportunity to bring action against the bad faith trademarks if evidence is provided where the seller would face high compensation claims. There is however a time limit to these bad-faith trademarks as it must be used within three years after its filing, if not then it will be revoked.  Nevertheless, the chances of success when bringing action with the argument of bad faith trademark filings, are case specific.
In the case of the trademark platform, the third parties planning on buying trademarks should review the legal background of the trademark before buying it, as they may not be able to use it if it had been previously purchased in bad faith.

In order to avoid such issues, it is important to file for a trademark as soon as possible and consider a broad application, so not just that immediate product class but also the packaging, advertising or merchandising. Also file for the Chinese version of the trademark name. Last but not least it is important to have a thorough understanding of the Trademark Law of China to know your rights and what you can do in case of infringement

Source: Intellectual Property Office
Image: Free Digital Photos

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