Expanding your business into China is exciting, but it’s not without its challenges – especially when it comes to protecting your brand. One of the biggest risks is trade mark squatting, where opportunists register trade marks to profit off established brands.

Let’s explore how this happens and what you can do to protect your business.

What is trade mark squatting?

Trade mark squatting occurs when someone registers a trade mark without any genuine intention of using it in commerce.

Their goal? To hold it hostage until a legitimate business needs it, hoping to sell or license it for a profit.

These squatters are quick to spot valuable brands, often scouring trade fairs and foreign trade mark registers to find their next target.

Why is China a hotspot for trade mark squatting?

China’s “first-to-file” trade mark system makes it a prime location for trade mark squatting. Unlike Australia, where the first user of the trade mark is the owner, in China, the first to file an application usually secures the rights to the trade mark – even if someone else has been using it in the marketplace.

This system can lead to major headaches for international brands entering the Chinese market.

Squatters may register a trade mark identical to your brand or even create a version in Chinese characters that phonetically or literally translates your brand name.

As Chinese consumers generally assign their own translation or transliteration to foreign brand names, squatters can easily slip in before you’re aware of the translations value.

Playing catch-up: The expensive consequences of not securing trade mark protection

Many well-known brands have faced legal issues in China because they did not secure early protection for their trade marks.

New Balance, Dior, Starbucks, and Tesla have all paid dearly to secure their rights in China.

A prime example of the complicated landscape in China is the case of Apple and its “iPad” brand. Prior to the launch of the iPad in 2010, Apple discovered Chinese company, Proview Technology, had already registered the “IPAD” trade mark in China. Despite Apple’s global use of the brand, Proview’s earlier filing meant that Apple faced legal risks in marketing the iPad in China. As a result, Apple pulled iPads from shelves in China during a crucial stage of its market rollout while it sought to resolve the issue.

What followed was a drawn-out legal battle, ultimately leading to a $60 million settlement to secure the trade mark rights. This case shows just how high the stakes can be when trade mark protection isn’t properly secured in China.

How to fight back against bad faith filings

While challenging bad faith filings in China is possible, it’s often a long and expensive process. Even large companies like New Balance and Tesla have struggled to find satisfactory solutions through legal channels. However, there’s some good news: recent changes to the China National Intellectual Property Administration’s (CNIPA) practice demonstrate its commitment to tackling bad faith filings.

The CNIPA will closely scrutinise trade mark applications filed by suspected trade mark squatters (for example, applicants that file for dozens or even hundreds of applications at a time). The CNIPA will require these applicants to show they genuinely intend to use the trade mark. If they can’t, their application may be rejected – offering hope for those looking to genuinely protect their brands.

Thinking about expanding into China? Here’s what you need to know

If you’re planning to do business in China, securing trade mark protection should be top of your to-do list. This means registering your brand name, logo and even a Chinese language version of your mark well before you enter the market.

Our IP team at Source can help you develop a solid filing strategy and manage your trade marks from filing through to registration.

Once registered, it is best practice to keep a watch on subsequent trade mark filings, to ensure that you are aware of concerningly similar trade marks.

Already trading in China and don’t have trade mark protection? It’s not too late – get in touch with us, and we’ll help you secure your brand in this crucial market.