What is Bad-Faith Trademark Registration in China

National People’s Congress 2018 that took place in the month of March, has made Chinese Trademark Office as a part of the State Intellectual Property Office (SIPO). Legal experts say the onus is on companies looking to do business in China to understand how China’s trademark law works, as it differs greatly from that of the United States.

Trademark Applications in Numbers-

As China is quickly emerging one of the top-destinations for lucrative business prospects, companies from all over the globe want to start a business over here and apply for China trademark registration.

  • According to the source, 3,586,000 applications for trademark registration were filed in China in the first six months of this year
  • As of June 30, 2018, 31.5 million total trademark applications had been filed
  • 19.4 million trademarks had been registered
  • 16.8 million trademarks remained as valid registrations
  • 2018 will have increased by nearly 25% from the previous year

The Problem of Bad-Faith Registrations in China-

As for trademarks, the volume of applications has consistently grown in the past 15 years. One of the consequences of this growth is the proliferation of so-called ‘pre-emptive trademark applications’, filed in bad faith. Bad faith refers to the filing of a trademark belonging to the owner of a renowned overseas company with the intention of making a profit out of it. This process commonly involves a Chinese company first registering the trademark of a foreign firm in China with the express intention of selling it back to the overseas company at a high price. Foreign companies are facing the growing problem of bad faith trademark registration in China. In practice, so called “bad-faith registration” is greatly motivated by the profits yielded from the difference between the inflated price charged by the trademark holder and the cost of registering this trademark.

The notable thing is that, in China, it completely legal for the owner of a registered trademark to sell it. In fact, in China there is an officially approved internet-based platform for selling trademarks. There is no security of your trademark in China if it is not registered. However, the good news is, Chinese Trademark office made few significant changes in order to stop the harmful practice of bad faith and offer greater protection to the foreign brands.

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Still Haven’t Registered your Trademark in China? See the Consequences

China has been one of the remarkable economic success stories of the past decades. Nobody believed that China would be able to grow its GDP at an average of 10% per year and expected to outsmart the United States of America to become world’s largest economy by 2025. Fueled by massive government spending on developing manufacturing sector, this Asian country has become the number one manufacturing hub on the planet. China has become the decadent destination for the foreign companies to source products and stetting up manufacturing plants.

This country has witnessed a massive overseas investment and as the foreign brands set up factories and sharing their technical knowledge, the Chinese labors have developed their skills greatly. The scale, speed, and efficiency of Chinese manufacturing outstrips every other country. Whether it is the American multinationals like Apple, GE, AT&T, General Motors, Coca Cola, P&G or the SME’s – they all have outsourced their production house to China and transferred technology.

However, the down is, as foreign companies shared their expertise and know-how with the Chinese manufacturing houses, numerous manufacturing contractors started to produce counterfeit products of their clients and when the company (the original one) finds about the entire matter, it is already too late. The long-standing court battles between Apple and Proview Technology Shenzhen over the iPad trademark in China is a well-known story. Just think, the brand like Apple had a hard time securing its trademark, so what about small companies with limited financial strength have to endure. If you manufacture products in China and still haven’t registered your trademark, I am afraid to say you are taking a huge gamble with the security of your brand.

Take a look at the risk factors of not registering your trademark in China

A threat to the credibility of your brand

It takes years for a company to build their image and earn trust from their clients and customers. It is a hard process for any company to take their product to a stage where it can be termed as a “Brand”. Not registering your trademark in China will give unauthorized parties a scope to use your trademark without authorization. This can immensely harm your image, your brand, your business and your bottom line. You can lose your credibility and trust from your loyal customers and they will shift to a different company. Regaining the credibility after losing it once is next to impossible.

Takedown request for infringing listings will not be granted

The domestic Chinese e-commerce sites like Taobao and 1688.com will not takedown infringing listings of your product from their sites if you don’t have a Chinese trademark registration. In this situation, your registered trademark in the US or in the EU will not come to your rescue. Without a registered trademark, if somebody else starts using a similar name to yours in your industry, you have very little power to stop them.

Fall victim of Trademark Squatters

This is an area where even the most prudent and prepared business person may get fooled while doing business in China. Trademark squatters exploit the loopholes of Chinese trademark registering system and pre-registered the trademarks of international brands before they enter China, and the moment the company enters China, the squatters try to sell them back their own trademark for exorbitant sums to earn profits. It has become quite a common practice in China.

Your goods could be seized by custom

If you’re manufacturing in China only for export and your trademark is not assigned, your goods could be seized by customs for breach of trademark law. It could jeopardize your entire investment, effort and energy of your China sourcing. There is a possibility that you may find yourself in a tricky situation. You have to pay hefty damages and fight out a long legal battle.

Final Thoughts

There are significant advantages associated with registration and numerous risks for those who choose not to register their trademarks. Without a trademark registration, a brand is vulnerable to misuse by third parties with limited available recourse. Registering a trademark in China remains the best and most cost-effective method of protecting a brand and allows you to enforce your trademark by filing law against infringers.

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