Even the Well-Known and Famous Fall to Trademark Squatting in China, but There is Hope

China is a hotbed for trademark squatting – getting a Chinese registration on a well-established mark already registered in the United States or elsewhere, usually for the purpose of exploiting the mark or extracting money from the real owner. This is made easy by China’s first-to-file trademark registration system which awards ownership of a trademark to the first person to file an application for the mark regardless of another party’s prior use or the applicant’s intent to use the mark. In a first-to-file country like China, the squatter’s registration will block the true owner’s ability to register and use the mark in China.

Many famous brands have been victims of trademark squatting in China, including Apple, which recently lost ownership of its famous IPHONE mark in China for use in connection with handbags, mobile phone cases and other leather goods due to a squatter’s prior Chinese registration. Although this loss of rights seems unjust, especially given the popularity of the Apple brand, the results of trademark squatting can be worse, and in fact they have been for New Balance. In 2013, a Chinese court ordered New Balance to cease the use of the mark Xin Bai Lun (the Chinese translation of New Balance) and pay 98 million CNY (at the time, roughly $15.8 million) in damages to the owner of the mark, Zhou Lelun, for violating his trademark rights. Adding fuel to the fire, New Balance was also required to publicly apologize to Mr. Zhou for the harm. On appeal, a higher court affirmed the infringement but did lower the amount of damages to 5 million CNY (roughly $740,000) based on actual damages instead of lost profits.

Many ask how this could happen in a country that recognizes protection for well-known marks. The problem with well-known status in China is that evidence of the notability of a mark in other countries holds little value in the determination of status in China. In order to acquire well-known status, the trademark must be well known in all or most of China, well known prior to the squatter’s bad-faith filing, and in use in China for three to five years before the bad-faith filing. Although new laws in China have attempted to limit bad-faith registrations without legitimate intent to use the mark, the full effect of such laws is not clear at this point. Even though these laws may eventually help mitigate the extortionate effect of bad-faith registrations, there has been no evidence that they will limit the blatant theft of U.S. brand names by Chinese companies.

The limitations of well-known status in China have also affected the rights of famous celebrities to protect their names in China. However, a recent decision favoring Michael Jordan suggests that this trend may be changing. In December, China’s highest court, overruling contrary lower court decisions, cancelled several trademarks for the Chinese translation of JORDAN that were owned by the Chinese sportswear company Qiaodan Sports. This decision will now allow Michael Jordan to secure some ownership rights to his name in China.

In order to really understand the significance of this victory, it is important to know the background of this long-standing battle. In 1993, Nike expanded its Air Jordan brand to China and registered JORDAN (in the Roman letters used in the English language) but no Chinese versions thereof. In 2000, Qiaodan Sports filed and secured a registration for JORDAN in Chinese characters (pronounced QIAODAN) for apparel and footwear. Over the next five years, Qiaodan Sports registered almost 80 trademarks related to Michael Jordan and the Air Jordan brand. By 2015, Qiaodan Sports used these rights to reach annual sales of around $500 million US. Michael Jordan did not sit back and let this happen. Instead, between 2012 and 2015, he fought vigorously to stop such use by filing over 65 cancellation actions against Qiaodan Sports’ registrations, but with no success. Each of these failed actions underlined the importance of being the first-to-file.

Although there is no doubt that the most recent JORDAN decision is a step in the right direction, it does not completely protect famous foreign celebrities from trademark squatting. Despite ruling against Qiaodan Sports’ right to use JORDAN in Chinese characters, the court did not invalidate registrations owned by Qiaodan Sports for the Pinyin (the official system for writing Chinese words in the Roman alphabet) version of JORDAN, indicating that there was not sufficient evidence to conclude that consumers associated this version with Michael Jordan. This conclusion emphasizes the need for celebrities and trademark owners alike to carefully consider registering and marketing not only the English version of their name or mark, but also the rendering of their name or mark in Chinese characters and other Chinese versions of their name or mark (literal translations or phonetic translations used by consumers in China).

Another important lesson learned from Michael Jordan’s trademark battle is that it is imperative for trademark owners to be watchful of their marks in China and to act fast if they discover a trademark squatter. Under Chinese trademark law, a third party has five years from the date of registration to file an invalidation action. Although Michael Jordan timely filed invalidation actions in the recent case, many of Michael Jordan’s previous requests for invalidation were time-barred. Therefore, given the procedural filing deadline enforced by Chinese courts, as well as the difficulties involved in assessing and financing protection of all potential Chinese variations of a mark, we encourage trademark owners to use trademark watch services to identify issues early so that timely action can be taken.

On the heels of the Michael Jordan case, another limitation on celebrity trademark rights was suggested in a Chinese decision related to Donald Trump. In the Trump case, the court invalidated a squatter’s registration for TRUMP in connection with construction services but failed to revoke a registration for mining and drilling. This decision indicates that celebrity rights may only be effective against trademark squatters who attempt to exploit their name in connection with the specific products and services for which the celebrity is famous.

The recent rulings in both the Michael Jordan and Donald Trump cases signal that foreign celebrities do have some right to protect their name in China provided they act fast. These decisions may also be helpful to well-known U.S. companies that are continuously fighting with trademark squatters, but only time will tell. In the meantime, the only sure way to prevent a trademark squatter from exploiting your marks in China is to file for registered protection early and widely.