By Ding Xianjie King and Wood Mallesons’ IP group

Trademark squatting has been a common occurrence in China for many years, and even been a kind of “business” by trademark squatters, which has caused huge troubles to brand owners. It is not the case, as ordinary people might think, that all types of trademark squatting can be regulated by the explicit provisions of existing laws, otherwise the phenomenon would not be so difficult to eradicate. Articles 13, 15 and 32 of Chinese Trademark Law are commonly used by brand owners to fight against trademark squatters, but the applicability of these articles is not always workable:  Article 13 is based on well-known status of prior trademark and the criteria for recognition are strictly, Article 15.1 is only applicable to the representative or agent who forestalls registration of its principal’s trademark, while Articles 15.2 and 32 can only be used when the trademark is already used in China and only prohibit others from registering the mark on same or similar goods/services. Even though the criteria for identification of similarity based on similarity groups are sometimes not so strictly followed, the applicability of Article 30 is still based on the similarity of goods or services, which has limited effects on combating trademark squatting based on Article 30. Recently, with the intensification of the fight against trademark squatting, Article 4 and Article 44.1 of the Trademark Law have also been frequently applied by the administrative and judicial organs. However, in the actual decision, these provisions are often applicable to the behavior that hoards a large number of trademarks without the purpose of use and disturbs the order of trademark administration. Therefore, crafty squatters can still find certain loopholes in the increasingly stringent application of the law so as to profiteer in the future, e.g., only to register a small volume of marks which have little use in China and on dissimilar goods or services. Meanwhile, these trademark squatters are well versed in the practice of trademark law and take advantage of the provisions of the law to maintain the validity of their grabbed trademarks by continuously filing applications to avoid three-year non-use. The legitimate brand owners, when expanding their business beyond its orginal scope to dissimilar goods or services, are often hindered by the squatted trademark registrations and are helpless in face of the craftiness of these squatters even if evidence proves that the latter are aware or should be aware that the trademarks belong to the brand owners. In short, the brand owner will find it difficult to prevent the squatters who register limited numbers of trademarks on dissimilar goods or services, if the brand owner cannot prove the well-known status of its mark.

Now, one of the loopholes these crafty squatters can exploit may be about to be plugged.

Recently, the Trademark Review Department of the China National Intellectual Property Administration(CNIPA) held, in the “Decision on the Request for Invalidation Declaration of the “LOVESAC” Trademark under No. 17962803″ and the “Decision on the Request for Invalidation Declaration of the “LOVESAC” Trademark under No. 17962891″, that the registrant of the disputed trademark, knowing the existence of the applicant’s trademark, should reasonably avoid applying for this mark, and thus supported the brand owner’s request for invalidation of the trademark registrations of the squatter, even the goods or services are dissimilar.

In the two cases, the brand owner filed oppositions but failed, then the brand owner immediately filed invalidation petitions, and finally received the favorable decision s from CNIPA. The whole procedure took three and a half years and the background of the cases was as that: The brand owner is the inventor of beanbag and combination sofa while the legal representative of the trademark squatter had been a OEM manufacturer of the brand owner’s products in China. In July 2010, the legal representative, in his personal name, forestalled registration of the brand owner’s trademark on sofa, furniture and other goods in class 20. Upon negotiation, the trademark registration was transferred back to the brand owner in March 2012. Three years later in September 2015, the trademark squatter applied for registration of the same mark in the name of its company on goods such as furniture coverings of textile in class 24 and services such as sales promotion for others and provision of an online marketplace for buyers and sellers in class 35. After the disputed trademark was preliminary approved and published, the brand owner filed an opposition and after that filed invalidation according to Article 15.2 (“aware of the existence of the trademark of another person due to other relationship”), Article 32 (the brand owner’s trademark “has been used and has a certain influence”), Article 30 (the disputed trademark and the brand owner’s prior trademark constitute same trademark on similar goods and services), as well as Article 7, Article 10.1(7) and (8) and Article 44.1 of Chinese Trademark Law.

During the proceeding of the invalidation petitions filed after the unfavorable opposition, the squatter defended in its response that all the legal grounds for invalidation were not applicable to these two cases, despite admitting that in 2010 it had engaged in OEM manufacturing for the brand owner as an affiliated company and acknowledging the trademark assignment. Obviously, the trademark squatter was fully aware of and took advantage of the loopholes in Chinese trademark law and examination practice that regulate such conduct, and emphasized the dissimilarity between the brand owner’s products and the goods and services in its registrations.

As mentioned in the invalidation decisions, the CNIPA found that the brand owner’s beanbags and furniture products does not constitute similar goods to those in Class 24 or similar services to those in Class 35, and therefore the invalidation ground under Article 30 was not upheld. As the brand owner’s trademark in China was principally used in OEM only for export, so the trademark had not been intensively used in Chinese market. Besides, the CNIPA was of the view that Article 32 and Article 15.2 of the Trademark Law should be applied only on the premise that the goods or services are similar, while the designated goods and services in classes 24 and 35 were less relevant to beanbag/furnature goods in terms of function, manufactur, raw materials, service model and consumers, etc., and no evidence proved that the brand owner had used his trademark in those goods and services in China before. Hence, the grounds for invalidation under Article 15.2 and Article 32 of the Trademark Law were also not supported. In addition, the CNIPA also held that Article 7 of the Trademark Law as a principle provision cannot apply to specific cases, and that Article 10.1(7) and (8) can be only applied to the situations where the trademark itself is deceptive and it has an adverse impact on public interests and public order, which is also not applicable to this case, and therefore did not support the grounds for invalidation under those provisions. Therefore, it can be seen that the squatters do have a shrewd understanding and well utilized Chinese trademark law and practices.

However, the CNIPA held that, based on the trademark assignment, the registrant obviously has known the trademark of the brand owner and should have reasonably yield to the prior trdemark when filing application for a new trademark. Therefore, the disputed trademark was applied with the obvious intention of copying and plagiarism, and does not have the legitimacy of a registered trademark. Such improper registrations not only lead to the relevant consumers’ misunderstanding of the source of the goods or services, but also disrupt the normal order of administrative procedure for trademark registration, therefore undermine the market environment of fair competition, and violate the principle of honesty and credibility, which constitutes the situation of “obtaining registration by other improper means” under Article 44.1 of the Trademark Law. Finally, the disputed trademark registrtions are declared invalid.

As stated by the CNIPA in its invalidation decision, “obtaining registration by deception or other improper means” provided for in Article 44.1 of the Trademark Law primarily refers to two situations when the registrants of disputed trademarks apply for registration of trademarks. Firstly, the registrants have falsified or concealed the truth or submitted forged application documents or other evidentiary documents to the competent trademark administrative authorities in order to obtain trademark registration by deception. Secondly, the registrants have disturbed the order of administrative procedure for trademark registration, so it harmed the public interest and improperly used public resources by other means than deception or obtained improper benefits otherwise. The cases also do not appear to be directly consistent with the above situations. In other similar cases, Article 44.1 usually regulates the behaviors of massive registrations and hoarding trademarks. In the response to our invalidation petitions, the squatter also argued that it only owned 96 trademarks in its name, which had not harmed the public interests or occupied resources unlawfully.

However, the CNIPA found the facts that the legal representative of the registrant had registered the trademark as early as 2010 and transferred the trademark to the invalidation applicant (i.e., the brand owner) after the parties had reached an agreement. Besides, “the respondent is clearly aware of the applicant’s ‘LOVESAC’ trademark” and the disputed trademark was identical with the applicant’s English trademark and trade name in terms of letter composition. In addition to the disputed trademark, the respondent also registered “LOVESEAT”, “LUCKYSAC” and other trademarks similar to the applicant’s “LOVESAC” in other classes. Accordingly, the CNIPA held that the respondent “should reasonably avoid this trademark known to it when filing applications for new marks. Therefore, the disputed trademark was applied with the obvious intention of copying and plagiarizing other people’s trademarks, and does not have the legitimacy of a registered trademark.” “Such improper registrations will not only lead to the relevant consumers’ misunderstanding of the origin of the goods, but also disrupt the normal order of administrative procedure for trademark registration, and therefore undermine the market environment of fair competition, and violate the principle of good faith,” therefore, constituting the situation of “obtaining registration by other improper means” under Article 44.1 of the Trademark Law.

Similar viewpoint was in some court judgment, but it is seldom seen in CNIPA’s invalidation decisions that the trademark registrant knowing another’s trademark should reasonably avoid the mark, no matter on similar goods/services or not. It is relatively rare to include this kind of squatting into the situation of “obtaining registration by other improper means” under Article 44.1 of the Trademark Law. We understands that this view and the application of the law reflects the strengthening of the current efforts to combat trademark squatting. However, the spirit expressed herewith should go beyond that and be a reflection of the principle of good faith that should be obeyed in trademark registration. Article 7 of the Trademark Law provides that “application for registration and use of trademarks shall comply with the principle of good faith”. In the actual cases, however, the provision of this article is often regarded as a principle clause and not directly applied. In the cases actually, the principle was indirectly applied by the application of Article 44.1 of the Trademark Law, “obtaining registration by other improper means”, which closed the loopholes in the legal practice that may be exploited by the trademark squatters and would play a rather positive role in the suppression of trademark squatting.