China recently implemented amendments to its trademark law with the hope of curbing trademark squatters once and for all. These amendments include Articles 4 and 44 of the 2019 Amended China Trademark Law adding new grounds for oppositions and invalidations based on the lack of bona fide intention to use the mark, and Articles 63 and 68 providing administrative penalties and increased monetary damages against filings made in bad faith.
While some trademark squatters responded by ceasing their illegal activities, others did not. Unfortunately, those squatters who ignored the law escalated their activities by rerouting their filings to Hong Kong or submitting bad faith take-down notices against genuine product listings. Should brand owners find themselves being victimized by China-based squatters, the following list of “do’s and don’t’ s” can provide a path to effective enforcement.
Squatters Using Shell Companies Incorporated In Hong Kong Professional trademark squatters set up shell companies in Hong Kong to hold trademarks that are adopted in bad faith.
What To Do: Brand owners should always conduct a background search in both mainland China and Hong Kong against a newly identified squatter. The Government of the Hong Kong Special Administrative Region provides a Cyber Search Center for the public to obtain information on all companies incorporated in Hong Kong. Brand owners can find shell companies affiliated with the squatter by searching the Cyber Search Center database. The search is most effective if it includes key words from both the squatter’s company name and the brand owner’s word mark. The search should also include the “Directors Index” to uncover any common ownership and managerial control between the squatter in mainland China and the shell company in Hong Kong. To use the search results during enforcement proceedings, the results must be preserved as evidence through notarization. Unlike U.S. courts, Chinese courts generally do not accept screenshots or printouts from Internet archives as admissible evidence.
Once the evidence of bad faith is preserved, brand owners should take swift action to remove such shell companies from the Hong Kong Company Registry. If the shell company has been incorporated for less than a year, and if the brand owner has a registration in Hong Kong for the same mark, the brand owner can file a complaint with the Hong Kong Company Registry for the shell company to change its company name.
What Not To Do: Brand owners face a number of enforcement pitfalls with respect to Chinese squatters. For example, failure to conduct a background search in Hong Kong may provide the squatter with a potential “defense” against claims of trademark infringement. Specifically, if a squatter is sued in mainland China for trademark infringement, the squatter can move to dismiss the case on the ground that it is a Hong Kong company and therefore not subject to personal jurisdiction in a Chinese court. Moreover, if the parties’ trademarks have co-existed in Hong Kong for an extended period, potential affirmative defenses such as laches and acquiescence may apply. Further, because the amendments to China’s trademark law ask the Chinese courts to look at the number of trademark applications filed by the squatter in mainland China to determine bad faith, the squatter can simply assign the filings to its Hong Kong shell company and avoid appearing to own an excessive number of applications.
Another common mistake is to file a complaint in a Chinese court naming both the squatter in China and its Hong Kong shell company as defendants, when the shell company has not been effectively removed from the Hong Kong Company Registry. Service of such complaint on the shell company frequently fails due to an inaccurate address provided in the Hong Kong Company Registry. The squatter therefore can assert defenses such as licensed rights from the shell company (an existing and potentially testifying licensor), making the brand owner’s chances of success in the court action much less favorable.
Bad Faith Take-Downs of Genuine Product Listings As it is free and increasingly easy to submit take-down notices with major E-commerce platforms, trademark squatters can quickly cause damages to brand owners by filing bad faith notices seeking to remove genuine product listings.
What To Do: Many E-commerce platforms in China have policies regarding misrepresentation. These policies generally require users not to misrepresent who they are, what rights they own, and the function and origin of their products.
If the bad faith take-down was submitted to a retail web site, such as Alibaba websites and JD.COM, the brand owner can counter the notice and raise a false advertising or misrepresentation claim with the retail website owner.
These counter notices must be filed within the specific time frame set by the individual retail or social media website company. Because these time frames are often very short (e.g. 3, 5 or 7 business days), it is helpful for brand owners to have copies of their trademark registration certificates handy. We also recommend that brand owners apply to register essential contents of their product listings (e.g. images, videos, audios, etc.) as copyrights with the China Copyright Center. After all, having sufficient and robust rights in place is the best way to protect listings of the genuine products.
Once the counter notice is filed, brand owners should always remember to ask the e-commerce retailer to disclose the identity of the squatter who submitted the wrongful take-down notices. If the misrepresentation breaches any terms of service with the website companies, the brand owner can additionally request that the squatter’s account be terminated or disabled.
Information relating to the name and address of the squatter can be used in subsequent court actions for unfair competition, interference with business, and trademark infringement. Recently, a Zhejiang Province District Court found that a squatter’s bad faith takedowns of genuine COPPERTONE product listings on TAOBAO.COM owned by Bayer Consumer Care amounted to unfair competition. The squatter was ordered to pay Bayer Consumer Care US$100,000 in damages.
What Not To Do: It is imperative that a brand owner assist any licensees or distributors in filing counter notices. Allowing the squatters to prevail in bad faith take down requests not only hurts the business, but also weakens the brand owner’s trademarks for lack of enforcement. On the other end of the spectrum, escalating the situation with the squatter on a public website can be harmful to the brand owner’s goodwill. Therefore, hiring skilled outside counsel to work on these matters with the internal legal teams of E-commerce companies often proves to be the most balanced approach.