China’s decades-long march toward a more capitalist economy has led more U.S.-based companies to consider offering products in the world’s largest country. This shift has surfaced a unique challenge for such retailers and manufacturers, which comes with China’s “first-to-file” trademark system. Unlike the U.S. and many other jurisdictions, which gives preference to the first entity to use a trademark in commerce, the first entity to file a trademark application in China typically becomes the owner of that trademark.
Trademark Squatters in China
Because of China’s first-to-file system for trademarks and other types of intellectual property, bad actors are motivated to closely monitor the USPTO (U.S. Patent and Trademark Office) and search for emerging brands. Before these brands attempt to break into the Chinese market, so-called “trademark squatters” will file an application with the Chinese government. As a result, the owner of the brand’s U.S. trademarks—the true trademark owner, for all intents and purposes—is second in line for Chinese registration.
Trademark squatting in China and other first-to-file countries comes quite close to legalized extortion. Owners of U.S. trademarks who want to expand operations to China must often pay hefty fees in order to actually use their brand in the country. Trademark squatters often register the trademark of someone else’s when the foreign company sets up manufacturing facilities in China.
What About Litigation?
Unfortunately, lawsuits are far from guaranteed to restore justice for true trademark owners. Court proceedings having to do with China and trademarks are often expensive and last for a while. After all, the law in China essentially allows trademark squatting. For these reasons, U.S. companies and trademark owners should not rely on the legal system to save them from unfair IP practices.
What Should American Companies Do?
If you’re considering selling products in China and your company owns trademarks, the worst thing you could do is start selling them before paying attention to your IP strategy. Even if you don’t plan on selling in China for a few years, it’s still worth nailing down registration of your IP in every jurisdiction you plan to operate in. Being proactive is rewarding, as registering trademarks and other IP in China is relatively easy (and inexpensive). This goes for all companies no matter the home country.
If you have already encountered a trademark squatter, don’t lose hope. You might be able to work out an arrangement to co-exist with the owner of the Chinese trademark. If you have to pay money, skilled legal counsel can help you come to a mutually agreeable compromise. Aftermarket Law has extensive experience registering and protecting IP in China. We would be honored to provide you with proactive and precise legal representation. Contact our team today to schedule a time to talk.
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