Impact of reputation when unregistered trademarks face domain squatting

In an internet era, when some international brand owners declare they will explore the Chinese market, they may then find professional squatters rushing to register everything from trademarks to domains containing the brands in China, with the aim of selling them to the real brand owners later at a sky-high price. While based on prior trademarks registered outside China a pirated general top level domain (GTLD) like a .com or .net domain is easier to recover, a pirated Chinese trademark or .cn national TLD is difficult to challenge under current Chinese laws. The New Trademark Law, effective from 1 May 2014, may bring some hope for combating bad-faith trademark applications. Before we see the effect, a recent .cn domain name dispute arbitration heard at the Hong Kong International Arbitration Centre (HKIAC) cast some light on anti-unfair competition rights to protect brands when prior trademark rights are not registered in China.

A non-typical case

After negotiations to buy back the pirated domains came to a deadlock, one of the world’s largest brand owners explored the chance of recovering the domains through domain name dispute arbitration. Among the pirated domains, two contained a mark to which the brand owner owns trademark registrations in several jurisdictions – but not in China. The brand owner has globally promoted its service using that mark as a brand name and abbreviation of its unique service name online, but not specifically to the Chinese market.

We assisted the brand owner in filing a domain name dispute arbitration complaint with the HKIAC. According to article 8 of the Measures of the China Internet Network Information Centre for Resolving Domain Name Disputes (CINIC Complaint Measures), the brand owner/complainant submitted abundant evidence to support claims that:

1. the disputed domain names are identical with, or confusingly similar to, the names or marks to which the complainant has prior civil rights or interests by having used the names or marks in business promotion globally including to China, and registered the related trademarks and domains in many jurisdictions;
2. the cyber-squatter/respondent has no legitimate rights or interests over the pirated domains or the major part of the domains; and
3. the respondent registered and offered to sell the pirated domains for high prices in bad faith.

Precedents cited

Although the CNIC Complaint Measures do not explicitly define “name or mark in which the complainant has civil rights or interests”, most arbitration decisions and court judgments suggest that trademarks and trade names that seek protection in China need to be registered in China prior to the registration of the disputed domains. The respondent rebutted along this line and also claimed he had legitimate rights or interests to the mark by using the mark to some extent.

In this case, the three arbitration panelists followed most precedents, holding that as regional rights, trademarks registered outside China are insufficient to challenge pirated .cn domains or claim for protection of prior trademark rights in China. But interestingly, the panelists then held that the ample evidence submitted by the complainant showed its extensive use of the mark as a brand name and the unique name of service it creates and promotes worldwide, and from that has also obtained a certain reputation in the Chinese market. Therefore, even though not registered in China yet, the complainant enjoys rights and interests to the mark that are protectable as the unique name of famous goods/service under article 5 (2) of the Law Against Unfair Competition.

Jointly considering this and the civil law principle of honesty and good faith, the respondent’s rebuttals to justify its domain name registration are untenable, and the bad faith accusation by the complainant sounded more reasonable. Therefore, the panelists ordered the pirated domains to be transferred to the complainant.

Unique names

Notably, according to article 3 of the Regulations for Prohibiting Counterfeiting the Unique Names, Packaging and Decoration of Famous Goods and article 4 of the current Trademark Law, unique names of famous goods are distinct from generic names that have obtained a certain reputation in the relevant market and have not been registered as trademarks, and such protection also applies to services.

The grounds to win the case are by no means typical – similar cases are rare among all the .cn domain dispute cases heard by the HKIAC in the past 10 years – but the following observations could be considered to combat similar bad faith trademark/domain application/registrations:

1. 1. in general, the efforts for acquisition, use and protection of intellectual property (IP) rights to brands can mutually support each other, especially regarding trademarks;
   2. it is easier and more cost effective to have IP rights registered in China as early as possible, rather than taking action after they are pirated, although aggressive enforcement action could also discourage profit-driven pirates;
   3. right owners need to preserve evidence regarding use/promotion of the marks in relevant markets, clearly showing whether the marks are used as trademarks or product names, when, where and how the marks are used, etc. Such evidence will be helpful to support/obtain/protect their IP rights;
   4. the HKIAC decision set a precedent for the brand owner of this case to protect its currently unregistered mark in China by claiming exclusive rights to the unique name of famous goods/services under the Law Against Unfair Competition. Understandably, the burden of proof for claiming such rights in court proceedings, or for claiming the status of an unregistered well-known trademark, would be much heavier than that in the arbitration case;
   5. the HKIAC decision could also help the brand owner procure trademark registrations and curb similar pirating of that mark in China.

Sophisticated pirates

IP pirates and infringers are becoming increasingly sophisticated in China. In such a situation, an overall IP protection strategy with comprehensive prosecution and enforcement actions, as well as close collaboration between business and legal units regarding promotion of goods or services, are always advisable to effectively curb the threats from these pirates and better protect the legitimate rights and interests of the brand owners.