Although the global pandemic
has significantly impacted businesses around the world, it has expedited the
development of the e-commerce market and facilitated the digital transformation
of brands. Accompanying such a development is the escalation
of infringement activities in the internet environment. In addition, while the
Chinese authorities strive to combat trademark squatting, squatters have learnt
their lessons and developed new tactics to stay under the radar. This article
will navigate you through the latest enforcement trends in China and share our
insights.
Soaring Infringements on Social Media
Platforms
In
China, the distinction between social media platforms and e-commerce platforms
is blurry. Chinese social media platforms have always been equipped with
e-commerce features, allowing customers to make purchases directly from their
platforms. Sales through livestreaming on these platforms, popular since
COVID-19, is also becoming commonplace, with annual sales exceeding US$200
billion annually. With that, there are n new forms of infringement taking
place, including brand impersonations (i.e. the creation and operation of a
social media account pretending to be a third-party brand and using it to
conduct infringing activities) and the promotion and sale of infringing goods
via livestreaming.
To
tackle brand impersonating accounts, brand owners may base their complaints on
trademark registrations in China. For those who have yet to secure
registrations, we have also successfully taken down impersonating accounts on
WeChat by relying on prior copyright of house marks. China offers a copyright
recordal system, which allows brand owners to voluntarily record copyrighted
works. Certificates are issued in around 2-4 months, which serve as prima facie
evidence of existence of copyright in online complaints and enforcement
actions.
For
infringement taking place on livestreams, a common enforcement difficulty is
that the infringing videos are not available after livestreaming. Our in-house
investigators can assist in monitoring infringing social media accounts and
arranging for timestamping of the infringing livestreams and test purchases to
preserve the evidence for future enforcement actions. To prevent malicious
complaints, most platforms may require examination reports detailing why the
said products are counterfeits, which often increases legal costs. If different
online stores are promoting counterfeits from the same distributors, a
cost-effective approach will be to first file administrative complaints with
local Administrations for Market Regulation (AMR) against the distributors. We
may then rely on the favourable decisions to demand the platforms to take down
social media contents concerning the infringing products without having to
incur costs to purchase the counterfeits and prepare examination reports.
Parallel
Imports – A Recurring Concern
Following the
rapid expansion of e-commerce platforms, parallel imports have come back to
haunt brand owners. Parallel import refers to the import of branded goods into
a market without the consent of the trademark owner in that market. Unlike the
PRC Patent Law which expressly provides that parallel import is permissible,
the PRC Trademark Law and the PRC Anti-Unfair Competition Law do not expressly regulate
parallel imports. Based on previous judgments handed down by the PRC Courts,
one may conclude that China adopts the international exhaustion principle,
meaning that trademark owners cannot prohibit others who have purchased from
them from reselling the products. That said, the PRC Courts do impose certain
restrictions. For instance, we successfully assisted brand owners in tackling
parallel-imported products with the product identification / tracking devices
(e.g. barcodes) removed or destroyed by arguing trademark infringement. In Fendi Co., Ltd. v. Pioneer
Capital Outlets (Kunshan) Commercial Development Co., Ltd. (2021), the
Shanghai High People’s Court handed down its retrial judgment which discusses
the scope of fair use when promoting parallel-imported products. While
importers may use the brand owners’ marks when promoting the parallel-imported
products to indicate the origin, such use must be only to the extent that it is
necessary and reasonable. The use of Fendi’s house mark on storefronts, brochures,
shopping bags, and WeChat public accounts, etc. was found to have misled the
public that the defendant was related to Fendi, which fall outside the scope of
fair use and constituted trademark infringement and unfair competition.
We summarise below
a list of factors that brand owners may look for when seeking to take actions
against parallel importers: -
1.whether the parallel-imported products are genuine;
2.whether the parallel importers or the parallel-imported products have obtained necessary licenses or permits for sale and distribution of the products in China;
3.whether the product identification / tracking devices have been removed or destroyed;
4.whether the quality of parallel-imported products is substandard;
5.any unauthorised alterations to the products or the product packaging;
6.whether the manner of use of the trademark falls outside the scope of fair use and may mislead consumers into believing that the parallel importer is authorised or otherwise related to the trademark owner; or
7.any other activities which may cause consumer confusion or impair the source identification of the trademarks.
New Manoeuvres By Squatters to Circumvent the CNIPA’s Rules
While the Chinese authorities has stepped up its game in combatting
trademark squatting, squatters have also developed different strategies to stay
under the radar. Firstly, we have come across a squatter syndicate dissecting
one of our client’s logo into four parts and filing applications for the same
so as to circumvent the rules on determining similarity of marks. Upon
registration, they may combine the marks, which as a whole is identical to our
client’s logo, to facilitate their infringement activities. We successfully
persuaded the CNIPA to take into account all the related trademark filings and
confirm similarity of marks.
Secondly, many squatters incorporate companies in Hong Kong and
other jurisdictions to create false impressions that they are foreign
companies. Some even adopt company names incorporating names of other brands
seeking to legitimise their applications. While company records may not be
freely open to the public in those jurisdictions, such records are generally
accessible upon payment of a minimal fee. We regularly assist our clients in
conducting background searches to identify the directors/shareholders of these
seemingly legitimate companies. Actions against offending company names can be
filed simultaneously to stop any unauthorised use of brand names as company
names, and successful decisions may serve as evidence of bad faith in
opposition / invalidation proceedings.
Thirdly, it is common for squatters to assign the marks from one
entity to another to keep the number of bad faith filings owned by each entity
to the minimum. Good news to brand owners is that the CNIPA will consider the
bad faith filing activities of the assignor and the related entities when
determining bad faith. Also, in our recent favourable cases, we observe that a
high number of bad faith filings is no longer a perquisite to establish bad
faith.
In light of the new tactics deployed by squatters, thorough analysis
of their filing history and in-depth investigations to bring to light the
related entities and individuals are now imperative when devising strategies
against them. Brand owners should also review modus for trademark monitoring to
ensure it is effective to capture all possible variations of the monitored
marks.
Malicious Online Complaints by Aggressive
Squatters
With the
introduction of the E-Commerce Law effective from 2019, e-commerce platforms
are obliged to provide online complaint mechanisms for IP right owners against
infringing listings. However, this has now been exploited by squatters, who
lodge malicious complaints against legitimate brand owners based on their bad
faith registrations seeking to disrupt brand owners’ business and demanding a
large sum of money for settlement and/or assignment of trademarks.
When facing
malicious complaints, it is crucial to review (1) the relevance of complaint’s
prior registrations and (2) assess the possibility of removing the prior
registrations. While the former may seem obvious, we have come across cases
where online platforms broadly construe the scope of the registered goods and
accept the complaints, although the parties’ good should be considered
dissimilar according to the official classification. It is worth noting that
most handling officers have not received proper legal training. They may not be
familiar with the laws and may be easily misled by complainants’ arguments. If
the complainant does own valid conflicting registration, we will have to
invalidate such prior registrations using the bad faith argument. While non-use
cancellation action is an option if the complainants’ marks have been
registered for more than three years, most malicious complainants are
sophisticated and may have fabricated use evidence to resist any potential
non-use challenges. Brand owners should also file their own applications to
block any potential re-filings by the complainants. Upon successful removal of
the complainants’ prior registrations, we may negotiate with online platforms
to reinstate the product listings.
Brand owners who
suffer significant losses may also consider commencing unfair competition
lawsuits against malicious complainants. The Courts recognise that malicious
complaints constitute unfair competition and may order complainants to cease
making further complaints, pay monetary compensations and/or rectify the
adverse impact caused. While remedies are available, our advice to brand owners
remains to be early registrations of house marks in both foreign language and
Chinese equivalent. Prevention is always better than cure.
© Vivien Chan & Co., Newsletter issue 04, April 2022
All Rights Reserved
About Us
Vivien Chan & Co. is a full-service law practice with offices in Hong Kong (1985) and Beijing (1993). We are consistently recognized as a premier law firm for and in Greater China. With over 35 years of doing business in Greater China, our Hong Kong and China teams have an in-depth understanding and knowledge of the legal culture and market dynamics.
