China clamps down on pirate trademark ransoms for famous brands

Early signs of change in ‘bad faith’ intellectual property registrations

A string of cases involving famous trademarks have recently made headlines in China. True, the cases of Facebook, upmarket grocer Fortnum & Mason, former basketball player Michael Jordan, MGM Studios and Esso were clear victories for the genuine owners of the foreign marks. But that is only half the story.

The successful prosecution of these five international trademark cases follows statements by China’s Intellectual Property Office declaring its intention “to implement IP [intellectual property] strategy and accelerate to building China into an IP power house”.

What makes these high-profile cases particularly interesting is the shift in the reasoning behind the judicial decisions in China. The Chinese courts and trademark authorities have, for the first time, started to focus on clarifying the element of “bad faith”.

Chief judge Su Chi of the Beijing IP court said recently: “ Bad faith registrations are malicious — they disturb the market and distort the trademark system.” Bad faith refers to the filing of a trademark belonging to the owner of a famous foreign brand with the intent to profit from it.

The changes occurring in Beijing are an early but significant sign that efforts are being made to halt the tide of bad-faith filings. Chen Xuemin, a trademark lawyer in Beijing, explains: “Local trademark pirates would typically register the names of famous brands or celebrities long before the real owners extended their businesses to China.”

The local squatters would then lie low and wait until the original owners decided to enter the Chinese market. For example, the official records in the China Trademark Office revealed that the respondent in the Fortnum & Mason case had filed more than 40 other marks, including Harrods, Godiva, the Belgian chocolatier, Royal Doulton, the tableware manufacturer, and Whittard of Chelsea, the tea and coffee retailer.

Upmarket grocer Fortnum & Mason in London was the subject of a trademark case © Getty

How the owners of foreign marks fight back against the pirates who hold them to ransom is fascinating to witness. Some have waged a headlong battle against the injustice by filing suits in China. However, as they have discovered, such actions can be tortuous, lengthy to resolve (the Fortnum & Mason case took 12 years) and can lead to the original company losing out.

Under pressure to enter the Chinese market, other owners have in effect resorted to buying back their own trademark registration from the local pirates. Large sums of money, sometimes in the millions of dollars, are said to have exchanged hands to resolve the problem, according to lawyers who have represented certain foreign brands. But just as handing over blood money to hostage-takers leads to more kidnappings, such pay-offs in turn incentivised the local pirates to expand their get-rich-quick schemes and file even more well-known foreign trademarks. The process became self-perpetuating.

The phenomenon of trade piracy of famous foreign marks is not new, of course. Over the past two centuries, pirates would travel long distances to international trade shows and observe which brands were becoming famous. They would then hasten home to their local country, file for the identical trademark, sit back and wait for the original owner to enter their market before holding them to ransom.

Etienne Sanz de Acedo, head of the International Trademark Association, says: “In today’s world classic trademark pirates do not have to travel abroad to observe international fairs but can literally sit at home and retrieve the necessary [information] online via the worldwide web.”

In an interesting twist, China is becoming a venue not only for local intellectual property litigation but also for international non-Chinese companies to pursue their IP claims. The ramifications could be significant from an IP perspective as this could mean that a number of cases, involving conflicts between non-Chinese litigants, could be heard in China, something that would previously almost have been unheard-of.

China’s recent actions signify the country’s express intent to become an international IP player, a development that will transform the global landscape for trademarks and intellectual property.

International brands will be keeping a close eye on the ways in which courts and tribunals in China deal with the prevention of trademark piracy.

Frederick Mostert, who is a director of the Walpole Group, which promotes British luxury brands, and a former president of the International Trademark Association, has also been an IP consultant to Fortnum & Mason


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