Foreign enterprises ignore sound trademark strategies at their peril

In the administrative dispute where Hermès International, owner of the world famous French luxury brand “Hermès”, was dissatisfied with the dismissal by the Trademark Review and Adjudication Board’s (TRAB) of its application to cancel the Chinese-language homonymic trademark “愛瑪仕” (pronounced aimashi), whose registration was pirated by a certain domestic enterprise, the court ruled to uphold the TRAB’s ruling to dismiss the application in the first trial. The court held that the large majority of the documents submitted by Hermès were generated after the date of application for registration of the trademark “愛瑪仕”. Additionally, the court ruled that the relevant evidence presented by Hermès was insufficient to establish that its trademark was familiar to the Chinese public, and thus did not constitute an unregistered well-known trademark. This made it impossible to apply the protection of well-known trademarks provisions of the Trademark Law to the Hermès mark.

The product scope of the trademark “無印良品” (pronounced mujirushi ryohin in Japanese) that Ryohin Keikaku, owner of the famous Japanese miscellaneous goods brand, Muji, applied to register in China did not cover such goods as towels, hand cloths and other textiles in class 24 due to the trademark “无印良品” (pronounced wuyin liangpin in Chinese and using simplified characters that correspond to the traditional characters in the Japanese trademark) already having been registered for such goods in class 24 by a Chinese domestic enterprise.

Ryohin Keikaku submitted an opposition application to the Trademark Office and to the TRAB, and ultimately filed suit to the courts requesting a cancellation of the TRAB’s decision on Keikaku’s opposition claim. However, Keikaku failed in this endeavour. The appellant court held that the evidence failed to prove that the trademark “無印良品” had actually been used on goods in class 24 in China, or that the trademark was familiar to the public. Also, publicity and reports for the trademark had all occurred outside China, and thus it could not be established that the trademark had actually been used on goods in class 24. Accordingly, it was not possible to apply the provisions of the Trademark Law on malicious pirate registration and the handling thereof to afford it protection.

China strategy

In the two cases described above, the fact that the long enjoyed rights to the foreign brands’ corresponding Chinese-language trademarks were impossible to secure seems astonishing, but from the legal perspective, the result is unimpeachable. For a long time now, once a foreign enterprise’s trademark is the subject of a malicious pirate registration, a foreign enterprise will typically opt to apply the provisions of the Trademark Law regarding the protection of well-known trademarks (article 13) or the prohibition of malicious pirate registrations (article 31). However, in practice, where the relevant merchandise has not entered the PRC market, and where proper publicity campaigns have not been carried out in the PRC, the results of such after-the-fact remedies are far from ideal. A foreign enterprise will be unable to use its trademark to carry out relevant commercial activities on the mainland, or will be required to pay out extra costs if claims for the protection of their trademark rights fail.

With this in mind, a foreign enterprise should place great importance on its trademark strategy in China. It should fully understand China’s legal system in relation to the registration, use and protection of trademarks, and correctly familiarise itself with the trademark environment. Additionally, a foreign enterprise should treat its trademark strategy in China as a critical rung in its long-term brand development strategy, and formulate a trademark management and protection strategy that is both practicable and flexible, while simultaneously carrying out brand marketing and promotion in a planned, step-by-step manner.

Things to consider

A foreign enterprise needs to pay attention to several issues when formulating its trademark strategy in China. First, it needs to take full account of the differences in the trademark protection principles between China and other countries and regions, and not blindly rely on the fact of its brand being “famous” around the world, or in a particular region. For example, common law countries have adopted the principle of “prior use”, whereas the Trademark Law implements the “first to file” principle, in which they will not ask whether an applicant was the “first to use” the trademark one is attempting to register. In trademark protection practices, the PRC’s administrative and judicial authorities place even greater emphasis on “registration” and “filing” procedures, and on the preservation of such documents. Once the Chinese-language trademark corresponding to a foreign trademark that has registered under the prior use principle has been preemptively registered, or even pirated, the foreign trademark holder claiming prior use may face the risks of not having the right to use its own corresponding Chinese-language trademark, or even of being accused of infringement thereof. With respect to acts of a pirate registrant that are deemed “malicious/bad faith” or “improper”, the injured party may also have difficulties in adducing evidence.

Second, in practice, numerous foreign enterprises have entered the China market by licensing their trademarks to PRC domestic enterprises, without first registering such trademarks in China, placing them in a “protection limbo”. They should fully weigh the losses that could arise from a malicious pirate registration and make trademark registration a crucial task to be carried out in the early stages of entering China. Also, to the extent possible, they should wait to grant the licences until after completion of trademark registration, and then place such licences on the record. Additionally, they should consider formulating a sound trademark licence contract.

Finally, when a foreign enterprise applies to register the Chinese-language trademark corresponding to its trademark in the PRC, it is best to use a fabricated word (e.g. a Chinese transliteration of the foreign-language trademark, one that does not have an existing meaning in Chinese), so as to enhance the distinctiveness of its Chinese-language trademark and secure stronger protection for it.