Tackling bad faith squatting of foreign trademarks in China

What are the difficulties foreign companies face when coping with repeated instances of bad faith squatting? And how can trademarks be protected from bad faith squatters? We will explore potential answers through an introduction and analysis of the lawsuits involving "无印良品" and "AESOP".

Ryohin Keikaku Co., Ltd. ("Ryohin Keikaku") began pursuing its trademark strategies in China in 1999, but failed to designate the core Chinese mark "無印良品" (“MUJI”) for its Class 24 goods. In April 2000, the Hainan Nanhua Industrial Trading Co. filed a Class 24 application for trademark no. 1561046 "无印良品" with the China Trademark Office ("CTMO"). This was published on January 2001 upon preliminary examination. Ryohin Keikaku made a trademark opposition against the application, and the trademark battle between the two parties has continued for the last twenty years.

When the disputed mark was assigned to Beijing Cottonfield Textile Co., Ltd. ("Beijing Cottonfield") in 2004, Ryohin Keikaku attempted to prevent registration through a variety of tactics, including opposition, opposition review, three-year non-use cancellation, invalidation, and administrative litigation, but the battle over trademark no. 1561046 "无印良品" continues.

In 2009, Beijing Cottonfield filed a Class 24 application for registration of trademark no. 7494239 "无印良品" as a continuation application based on trademark no. 1561046 "无印良品". The opposition and invalidation proceedings undertaken by Ryohin Keikaku against the continuation ended with a decision by Beijing High People's Court's on 21 May 2021 under which Beijing Cottonfield's continuation was upheld for Class 24 registration.

In the series of administrative and judicial proceedings initiated by Ryohin Keikaku against Beijing Cottonfield's mark "无印良品", the arguments are submitted mainly in accordance with the provisions of Articles 13 and 31 of the Trademark Law (amended in 2001), requesting cross-class protection for "無印良品" as a well-known trademark. Ryohin Keikaku also submitted that the disputed mark constituted "registering by improper means a trademark that is first used by others and has certain influence".

According to Articles 13 and 31, Ryohin Keikaku's prior mark "無印良品" needed to demonstrate its popular recognition. Given that well-known marks have a wider scope of protection, doing so requires higher proof of popularity and more stringent evidence. In contrast, protection for an unregistered mark used in priority and its influence is restricted to goods that are the same or similar to those covered by the prior use.

In practice, a great deal of evidence is required to prove the prior use and popular recognition of a prior mark in Mainland China. Since Ryohin Keikaku's mark "無印良品" had not been widely used in China before the application date for "无印良品", the evidence supplied by the company related mainly to relevant media reports, and the use of the "無印良品" mark in Japan, the United Kingdom, Taiwan, Hong Kong and other jurisdictions. Most of the evidence supporting its popularity in Mainland China dated from 2004 onwards, later than the application date for "无印良品", and thus were not accepted. This resulted in a court judgment unfavourable to Ryohin Keikaku.

So far, Beijing Cottonfield has opened a number of "无印良品" stores nationwide, as well as "无印良品" flagship stores on several online platforms, where it widely uses the "无印良品" mark for Class 24 goods. To date, there have been more than fifty civil lawsuits between Ryohin Keikaku and Beijing Cottonfields involving trademark administrative litigation, trademark infringement, unfair competition, commercial defamation and other aspects of the disputed mark. These lawsuits have been expensive and time-consuming for both parties. As it does not own the exclusive rights to the "無印良品" mark for Class 24 goods, Ryohin Keikaku is restricted from using this mark in China.

Much like the "无印良品" case, the core mark "AESOP", which belongs to Emeis Cosmetics Pty Ltd ("Emeis") was also squatted in bad faith in China.

On 25 January 2006, WANG Zhongwei (a natural person) filed application number 5140243 for the registration of an "AESOP'S" mark for Class 3 goods with the CTMO. The mark was published on the 27 January 2010 upon preliminary examination, and Emeis made an opposition on 27 April 2010.

Through proceedings, which included opposition review, administrative litigations of the first and second instances and retrial, Emeis received a favourable final judgment from the Supreme People's Court ("SPC") in 2018. Accordingly, the application filed by WANG Zhongwei for registration of "AESOP'S" was rejected.

During the above proceedings, which were similar in nature to those undertaken by Ryohin Keikaku, Emeis submitted that the disputed mark constituted "registering by improper means a trademark that is first used by others and has certain influence".

To prove this, the company furnished coverage of AESOP-branded cosmetics in the media and on websites such as People.cn and the Nanguo Morning News, publicity information for AESOP cosmetics and related purchase channels posted on popular BBS forums such as Tianya.cn and bbs.pku.edu.cn, and evidence supporting the cross-border shopping by Chinese consumers of AESOP cosmetics through purchasing agencies and online platforms.

The SPC found that the evidence documented in this case proved that Emeis' mark "AESOP" had certain popularity through publicity of cosmetics-related goods before the application date of the disputed mark, and thus the respondent's application for registration of the mark ''AESOP'S" for cosmetics-related goods was against the provisions of Article 31 of the Trademark Law and should be rejected.

As can be seen from comparison between the two cases, the key to Emeis winning their case lay in the provision of plentiful evidence proving the popularity of its prior mark in China. This came chiefly from online sources, domestic media reports, online comments from domestic users, and evidence of cross-border shopping by domestic consumers through purchasing agencies and online platforms.

In contrast, when Ryohin Keikaku's mark was squatted in 2001, online brand publicity, marketing and sales was not common. Ryohin Keikaku’s evidence was considered insufficient to prove its use directly in China, and its main sources of evidence only proved that the company had the relevant products made by domestic manufacturers for export. As a result, it was not easy to prove that the international reputation of the "無印良品" mark would have been known to the relevant public in China.

In the end, after exhausting all avenues, Ryohin Keikaku still failed to prevent Beijing Cottonfield from enjoying the trademark right to "无印良品" because it did not obtain the trademark right to "無印良品" in China early enough, either through prior right based on prior use and reputation, or through the prior application or registration of the right. If in 1999 Ryohin Keikaku had filed a registration application for "無印良品" for Class 24 goods in China, it would not have left room for trademark squatting to take place, and would not have lost the initiative in subsequent trademark administrative litigation.

In view of the above, Chinese governmental authorities have taken a series of measures to combat the increasingly severe problem of bad faith squatting by amending laws, introducing relevant policies and carrying out special campaigns. The amendment to Article 4 of the Trademark Law in 2019 added that "any bad-faith trademark application not for the purpose of actual use shall be rejected", which is substantive to opposition and invalidation. Accordingly, whether an application now constitutes bad faith squatting is examined at an earlier stage and throughout the whole process of trademark application. Articles 4 and 44(1) of the current Trademark Law go far enough in restricting both the squatting well-known trademarks and hoarding trademarks.

Over the past three years, the National Intellectual Property Administration ("CNIPA") has rejected over 150,000 cases of bad faith trademark squatting and hoarding. In 2016, the CTMO set up a mechanism for blacklisting trademark applicants in cases of bad faith squatting and opposition. In 2020, the SPC further strengthened monitoring of applicants, agencies and relevant entities engaging in bad faith trademark squatting and is considering adding bad faith litigants to the National Credit System. In March 2021, the CNIPA carried out a special campaign ("Blue Sky") to combat bad faith squatting. These actions demonstrate the government’s determination to curb bad faith trademark squatting.

Nevertheless, the practice is still common in China, particularly regarding niche brands that are well-known abroad but have not yet entered China, or new brands and products launched by companies that already have a presence.

Once a trademark is targeted, especially when the applicant has not squatted or hoarded any trademark in bad faith before, the proprietor will face many difficulties in enforcing its trademark right, as well as an unpredictable outcome.

As demonstrated by the above-mentioned cases, amassing evidence plays a significant role in winning trademark administrative litigation against bad faith squatting. In cases where evidence of trademark use, product sale and related publicity in China are not sufficient, the proprietor may amass other forms of evidence. A wide variety of evidence can be gathered, especially electronic data like emails to domestic partners and consumers electronic transaction records and information posted on online platforms including social media and forums, with probative value being improved through notarisation, confirmation in writing by the party involved, authentication by electronic depository platforms, or by technical means such as trustworthy timestamps or blockchain for tamper-proofing.

As for extraterritorial evidence, further supporting evidence can be collected to prove that the proprietor's trademark would be known to the relevant public in China through the internet and the media. Meanwhile, comprehensive investigation should be carried out into the trademark squatter as well as any natural persons, companies and agencies associated with them, combined with investigations into business size, operating conditions, previous instances of trademark squatting, infringing acts and other factors, so as to assert malicious intent.

In addition, even if the squatter of a core mark alleges infringement, the real proprietor still has a chance to take the defence that it is the prior user of the mark, so as to seek continuous use of the squatted mark, or allege that the infringer's act of obtaining and exercising the trademark right in bad faith runs against the principle of good faith, and constitutes an abuse of rights, etc.

In conclusion, the keys to tackling bad faith trademark squatting are to file a trademark application in China as soon as the brand is determined, so as to prevent squatting from the very beginning, and to prepare for unexpected needs. Trademark applications should include as many classes of goods and services as possible to cover all bases and increase the scope of protection for defensive trademarks, so as not to give those with malicious intent the chance to squat in the first place.