Global Trademark Challenge- Trademark Squatting


  • Introduction

Trademarks are protected as intellectual property to allow traders or business owners to build brand loyalty and goodwill for their products or services. The method of awarding registration for such trademarks are therefore divided on the basis of two major factors- first-to-use and first-to-file. First-to-use countries are those that provide protection to trademarks based on which proprietor used the mark first even if they hadn’t registered it whereas first-to-file countries provide protection to trademarks based on the first party to seek protection through registration.


Countries such as China, Japan and Germany are first-to-file countries whereas countries like USA, Canada and Australia are first-to-use countries. Globalization and liberalization have now created a unified international marketplace where parties can conduct trade past their territorial limitations. Hence, companies planning to expand their business or operations to a different country other than their origin country have to consider these factors strongly to avoid any future challenges.


  • What is trademark squatting?

Trademark squatting refers to the practice of registering a globally known or a famous trademark in a country where the brand has not yet started its operation or registered the mark. This is done in order to extort money from the global brand or to free-ride on the goodwill of that company. This concept is similar to that of cybersquatting where well known domain names are purchased with slight changes in order to cause confusion in the minds of the customers of the well-known brand.


The concept of trademark squatting is based on the general principal of territoriality. The trademark law is majorly governed by this principal. This was recognized in the Paris Convention’s Article 6(3) which states that "a mark duly registered in a country of the Union shall be regarded as independent of marks registered in the other countries of the Union, including the country of origin." In short, it means that a mark can only be enforced in the place where it is registered, the same protection would not expand across boundaries.

Therefore, companies facing issues with trademark squatters are often forced to purchase the registered trademark from the registered proprietor for huge sums of money. This forms a niche area of trademark disputes. China follows the “first-to-file” principle strictly, hence most of the trademark squatting disputes arise in their jurisdiction[1]. The following are a few of many trademark squatting cases arising in China.


Apple’s iPhone v. Xintong Tiandi’s iPhone[2]

IPhone,China was a local leather goods company that sold handbags and wallets under the mark “iPhone”. Apple sued the company and claimed that the selling of handbags under the mark of “iPhone” infringed their trademark. The Beijing Higher People’s Court rejected the claim made by iPhone and stated that they did not have the monopoly over the term across all classifications of goods and services. They had only registered the term for the sale of hardware and software products and the infringing mark was used to sell leather goods, these two categories did not overlap each other. Hence, it was held that Apple could not enforce its rights over the Chinese company as they were not the first to register the mark for the sale of leather products.


Apple’s iPad v. Proview’s iPad

Apple had planned to create a product called iPad long before the term was registered. This provided a window of opportunity for Proview to register the same name in China, Taiwan and some other Asian countries before the introduction of Apple’s iPad. In 2009, Apple offered Proview, Taiwan a sum of $47,000 for purchasing the rights over the trademark iPad in Asia. Apple assumed that Proview, Taiwan and Proview, Shenzhen both had sold their rights to them, but this was not true.

Proview, Shenzhen sued Apple in 2010 for using the mark “iPad” in China. The Court held that since Shenzhen branch was a party owned subsidiary of Proview, Taiwan and had numerous Chinese shareholders, the two companies were not the same entity. Due to this, Apple had to pay a whopping sum of $60 million to settle the trademark infringement suit.


Pfizer’s Viagra v. Guangzhou Viamen Pharmaceutical Company’s Weige[3]

Pfizer began to sell its pharmaceutical product, Viagra, in the US from 1996. The application for trademark registration of the term was filed in China by late 1996. However, the translation of the term Viagra, i.e., “Weige” was not proposed to be trademarked until late the 2000s as the permission to sell the drug in China was received only in October of that year. The drug was already being sold in China, illegally in hotels, parlorus, etc, by vendors under the Chinese transliteration of Viagra, i.e., “Weige”.

After numerous lawsuits and appeals, Pfizer lost the right to use the trademark “Weige” which was estimated to have gained value up to $125 million. The majority of Chinese speaking population relates to Pfizer’s infamous Viagra to “Weige”, but the same term cannot be used by the company to conduct business in China.


  • Loss caused by trademark squatters

If global brands are not diligent with trademark registration or trademark watch, they could end up losing access to potential markets completely. China, in particular, happens to harbour numerous professional trademark squatters as registration of a trademark does not require proof-of-use. Further, China follows goods and services classification strictly, hence, the concept of trademark dilution is not recognized in its full force as witnessed in the “iPhone” trademark suit.[4] It is possible that a competitor can bid a higher amount to purchase the trademark from the trademark squatter than the original owner, causing irreparable loss and damage to the original owner and their future business. After registration, a trademark squatter can distribute products and services under the mark to customers of the original owner. This could result in earning excessive profits as they can free-ride on the goodwill of the original owner as seen in the Pifzer’s Viagra case.


In order to receive the rights to the trademark, companies may need to file lawsuits against trademark squatters. The cost of filing and defending such a suit, finding and gathering evidence, attorney fees, etc, are additional. There is no guarantee of receiving the rights to use the trademark even if lawsuits are filed, hence, the risk undertaken is immense.[5] Additionally, the whole process is time-consuming; any negotiations to counter the shortcomings of the adversarial process is similarly expensive.


  • Protection from trademark squatting

Trademark owners can protect their mark from trademark squatters by taking precautionary measures. This includes identifying the needs of the business, the goal, probable expansions, etc. The company must identify in which countries they need to register their mark. This decision must be taken by considering countries where the goods or services are sold, products or parts for the products are manufactured, location research and development facilities, locations where the products pass through during shipping, and places where the company might expand its business in the future and where counterfeiting is likely to be a problem.[6]


The registration must cover core goods and services, goods and services that may be sold as a part of expansion, goods and services that are intended by the company to be blocked for third party registration, etc. Companies must also consider the history and culture of the country in which they wish to register their trademark to avoid problems of transliteral trademark squatting.[7]


In order to deal with professional trademark squatters, lawsuits have to be fought methodologically. The trademark owners must show that there existed bad faith in registering the mark by squatters. This could be achieved by:

  1. Proving that no bona fide business is being conducted under the registered mark by the squatter.

  2. The squatter has numerous other bad faith filings under its name.

  3. The squatter has set up multiple shadow companies in order to avoid suspicion of bad faith filings.[8]

First-to-file countries do not value the weightage of global presence in comparison to other first-to-use countries, hence, proving a global presence, though necessary, might not be sufficient to win a lawsuit against a trademark squatter.


  • Conclusion

With the advent of e-commerce and global media platforms, businesses are no longer limited to their physical or territorial boundaries. This creates a need for global brands to protect their brand image across the world before other persons take advantage of their growing goodwill to locally earn profits.


In countries such as India, the concept of trans-border reputation and the common law remedy of “passing-off” is recognized. Hence, it is harder to maliciously register well-known trademarks in these jurisdictions; even if registered, it can easily be opposed. In contrast, countries that are “first-to-file” offer an apt environment for carrying out a lucrative business through trademark squatting.


The past several years have witnessed changes in the legal system of such countries against trademark squatters and in favour of original owners. Though, there are positive improvements in that regard, companies must be precautions while conducting business. The sole sustainable measure against trademark squatters is diligence and future business planning.


Sources

[1] David Pierson, Trademark Squatting in China Doesn't Sit Well with U.S. Retailers, L.A. TIMES, Mar. 28, 2012, http://articles.latimes.com/2012/mar/28/business/la-fi-chinatrademark-squatting-20120328.

[2] The Guardian, Apple loses 'iphone' leather goods case in Chinese court, https://www.theguardian.com/technology/2016/may/04/chinese-court-rules-against-apple-allowing-iphone-handbags#:~:text=A%20Chinese%20court%20has%20ruled,selling%20goods%2C%20state%20media%20reports.&text=We%20will%20take%20the%20'iphone,of%20'iphone'%20consumers!”

[3] 7 Daniel Chow, Lessons From Pfizer's Disputes Over its Viagra Trademark in China, 27 MD. J. INT'L L. 82, 83 (2012),

https://digitalcommons.law.umaryland.edu/cgi/viewcontent.cgi?article=1581&context=mjil

[4] Kitsuron Sangsuvan, Trademark Squatting, https://repository.law.wisc.edu/api/law_fileserve/search?mediaID=21420

[5] Tiantai Law Firm, China Business Law Journal, https://law.asia/strategy-legal-actions-initiated-trademark-squatters/

[6] Don't Sit and Wait: Stopping Trademark Squatters, USPTO, https://www.uspto.gov/learning-and-resources/newsletter/inventors-eye/dont-sit-and-wait-stopping-trademark-squatters

[7] How to Protect Your Business from Trademark Squatters in China, China Business Review, https://www.chinabusinessreview.com/how-to-protect-your-business-from-trademark-squatters-in-china/

[8] Viven Chan & Co, Trademark squatters get smarter in China – a look at the latest tactics, https://www.iam-media.com/trademark-squatters-get-smarter-in-china-look-latest-tactics

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