Author: Xu Lin

In recent years, with the introduction of multiple provisions against the malicious registration of trademarks, and the active rejection and strict control of such registrations during trademark examination, the phenomenon of trademark squatting has been relatively curbed and reduced. However, many prior right holders still have to spend considerable cost to monitor and address situations where their brands are maliciously squatted. Filing trademark oppositions, invalidations, administrative litigations, and dealing with subsequent actions like malicious complaints or free riding takes time and effort. The cost of rights protection for prior right holders is far greater than the cost of infringement for trademark squatters.

The "Draft Revision of the Trademark Law of the People's Republic of China (Draft for Comments)" (“Revised Draft”) released by the China National Intellectual Property Administration in early 2023 added a new provision on civil litigation for compensation of malicious squatting, clarifying that prior right holder may file civil lawsuit against malicious trademark squatter and claim damages. Although there is no such provision in current laws and regulations, and the expression of the related clause in the Revised Draft is relatively general, there have been many cases in practice in which the illegality of malicious trademark registration and the civil liability for compensation have been upheld in civil litigations. This article intends to explore the legal issues and practical suggestions involved in filing civil claims against malicious trademark squatting from the perspective of judicial practice.

I.Legal issues involved in claiming damage through civil litigation against trademark squatting.

1.Is the prior right holder entitled to file a civil lawsuit solely based on trademark squatting?

Usually, it is considered that trademark squatting shall be resolved through administrative procedures. For example, the Beijing High Court made it clear in the Second Instance Ruling ((2021) Jing Min Zhong No. 497) that “Mere applications for registration do not constitute civil infringement, the dispute arising from which does not fall within the scope of civil litigation. …Therefore, disputes arising within trademark granting procedure by the copyright owner where the claim is against a trademark applicant for filing the copyright owner’s work as trademark. should be resolved through opposition and other remedy procedures stipulated in the Trademark Law."

In most other civil litigation cases in which the court confirmed the illegality of malicious trademark squatting and liability for compensation, the infringement activities also include trademark squatters’ using the registered trademark in business activities, committing trademark infringement, or initiating malicious complaints or lawsuits and other actions by citing the registered trademarks. For example, in the case of MTG Co., Ltd. v. Zhejiang Pusu Electric Co., Ltd. et al. ("MTG Case"), the plaintiff claimed that the defendant had committed both trademark infringement and malicious trademark registrations. In the case of Paula's Choice, LLC of the United States v. Chongqing Kaimenhong Trading Co, Ltd., ("Paula's Choice Case"), the court found that the defendant not only engaged in malicious trademark squatting, but also abused its rights by issuing infringement warning letters to the plaintiff's product sales platform, causing the plaintiff's economic losses and goodwill derogation.

In the groundbreaking case of Emerson Electric Company v. Xiamen Hemeiquan Drinking Water Equipment Co., Ltd. et al. ("Emerson Case"), the plaintiff's claim only targeted the defendant's trademark squatting behavior without any other infringements. The court upheld the claim, but still considered the fact that the defendants "used the squatted trademark in business activities such as the company's website and had the intention of engaging in unfair competition by exploiting other's well-known brands."

2.Applicable laws and regulations

In view of the fact that the current Trademark Law does not provide legal basis to file civil claims for malicious trademark registration, principle provision of Article 2 of the Anti-Unfair Competition Law[1]is invoked in most of the previous cases, such as the Emerson Case, the MTG Case, and the case of Brita Co., Ltd. et al. v. Shanghai Kangdian Industrial Co., Ltd. ("Brita Case") , Shante Electronics (Shenzhen) Co., Ltd. v. Guangdong Taiqifeng Electronics Co., Ltd. et al. ("Shante Case").

However, there are exceptions in practice. For example, in the Paula's Choice Case, the court, based on Article 6 paragraph 1 of the Tort Law[2], ruled that the defendant infringed the plaintiff's civil rights and interests and shall bear civil liabilities including paying damages. In the case of Jingtian (Shenzhen) Food and Beverage Group Co., Ltd v. Guangdong Bairun Tea Co., Ltd, et al. the court held that Article 2 of the Anti-Unfair Competition Law is a principle clause and shall not be applied. Moreover, since the defendant's malicious application for or transfer of the trademark had already been addressed in the administrative procedure and subsequent administrative litigation, the plaintiff's claim that the defendant's malicious trademark registration constitutes unfair competition was not upheld. In practice, many judges hold the view that Article 2 of the Anti-Unfair Competition Law, as a principle clause, shall not be invoked in specific cases.

3.Determination of bad faith

To determine the bad faith of trademark squatting, according to the previous cases, the courts usually consider the following factors:

(1)Impropriety in the acquisition of rights: for example, in the case of Suzhou Shikang Protective Products Co., Ltd. vs. Shanghai Yuanshi Information Technology Co., Ltd. et al. concerning unfair competition, the court determined that the defendant maliciously registered the plaintiff's trademark by utilizing their cooperative relationship, and was fully aware of the impropriety in the acquisition of the rights."

(2)The popularity and influence of the prior rights: for example, in the Paula's Choice Case, the court ruled that the plaintiff's trademark enjoyed certain popularity and influence, and the defendant's registration for the related trademarks constitutes the malicious registration of the trademark which the plaintiff had previously used and enjoyed certain influence.

(3)The squatted trademark has been determined as similar to a prior trademark or as infringing upon a prior right; the registration has been rejected or declared invalid, or even determined as "with obvious intention to copy, plagiarize or imitate a prior trademark of others" in administrative procedure (Shante Case); or, after the squatted trademark is rejected or invalidated, the registrant continues to apply for registration of an identical or similar trademark.

(4)The trademark squatter applies for a trademark not for the purpose of actual use, but intends to hoard trademarks with the intention of unfair competition to take advantage of the plaintiff's brand reputation. For example, in the MTG Case, the court ruled that, "considering the classes and quantity of the trademarks applied by the three defendants, it is obviously beyond the need of the normal business operation", and "it can be ascertained that the three defendants have the intention of hoarding trademarks and conducting unfair competition to take advantage of the plaintiff's brand reputation".

(5)The trademark squatter intends to profit by filing complaints, selling the trademark, or other means. For example, in the unfair competition dispute between Bayer Consumer Care Holdings Co., Ltd. et al. v. Li Qing et al., the court ruled that the intention of the defendants to register the related trademark was not to use the trademark to conduct normal business, but to profit by filing complaints, selling the trademark, or other means.

(6)The trademark squatter used the registered trademark to hinder the plaintiff from exercising its trademark rights: for example, in the Brita Case, the court affirmed that the defendant "maliciously registered the trademarks identical or similar to the plaintiff's registered trademarks in the relevant classes, and based on this, used procedures such as trademark opposition and invalidation to interfere with and impede the plaintiff's normal exercise of trademark right."

4.Calculation of the statute of limitation

In cases where the prior rights holders initiate civil litigation, trademark squatter usually has squatted multiple trademarks. Defendants often argue that the statute of limitations should be calculated separately for each trademark application. However, in the Emerson Case, the court determined that "it is not appropriate to separate each trademark registration action and examine independently, but all registration acts should be examined and judged as a whole." The court used the application date of the last squatted trademark as the starting point for calculation of the statute of limitation.

Considering that the starting point for the statute of limitations should be calculated from the date when the rights holders know or should have known that their rights were infringed, the author thinks that it remains a matter for discussion whether the application date of the last squatted trademark should be regarded as the starting point. Usually, the prior rights holder is unable to discover the existence of the squatted trademark on its application date. Furthermore, administrative procedures such as trademark opposition and invalidation are time-consuming. With the validity of the squatted trademarks yet to be determined, the prior rights holder generally would not rashly initiate a civil litigation. Civil courts may also refuse to accept cases if the validity of the squatted trademarks is uncertain. Therefore, the author opines that the starting point of the statute of limitations should be the date 1) when the decision or judgment rejecting or invalidating the squatted trademark takes effect, or 2) the application date for the last squatted trademark, whichever is later.

5.Determination of Joint Infringement

In practice, trademark squatters often register different trademarks through multiple companies. There are also cases where several companies cooperate with one of the companies applying for trademarks and licensing the trademarks to other companies to commit infringements. Only by holding these companies and their actual controllers accountable for joint liability can the trademark squatting be deterred effectively. In the MTG Case, the court found that "Qicai Company, Quandu Company, and Jideng Company registered the "ReFa" and "黎珐" trademarks. Zhizhi Company and Shemu Company were responsible for online sales, and Pusu Company was responsible for production. … The defendants divided their work and jointly carried out the alleged trademark infringement and unfair competition, constituting joint infringement."

In addition, trademark agencies that knowing trademark applicant's intention of squatting may also be required to bear liability as one of the defendants in civil litigations. In the Emerson Case, the court held that the agency despite knowing that the client was maliciously squatting the trademarks of others, still accepted the entrustment. Its behavior constituted aiding infringement, and it should jointly bear legal liability.

6.Determination of amount of damage

As mentioned above, in the previous civil litigations that determined the illegality of malicious trademark squatting and confirmed liability for compensation, in most cases the trademark squatters also committed trademark infringement, used the registered trademark to launch malicious complaints, and other behaviors. Therefore, the courts usually took all factors into consideration and determined the amount of compensation as appropriate. In addition to the commonly considered factors such as trademark popularity, infringement circumstances, scale of infringement, losses caused, bad faith, etc., for trademark squatting, the fees paid by the prior rights holder in filing opposition, invalidation, and administrative litigation to stop the squatting are mainly considered. Reasonable costs for civil litigations are also considered.

II.Suggestions on filing civil claims for malicious trademark squatting

Based on the analysis of the legal issues involved in the above cases, we recommend that prior rights holders make the following preparations when filing civil claims for malicious trademark squatting:

(1) Collecting as much evidence of infringement by the trademark squatter as possible in addition to the squatting of trademarks and make the claims in the same case, to avoid the case from being rejected or dismissed by the court.

(2)Before the relevant clauses of the Revised Draft take effective, the provisions of Article 2 of the Anti-Unfair Competition Law can be referred. However, in cases where Article 2 of the Anti-Unfair Competition Law may not be supported, it is suggested invoking the provisions of Article 1165 paragraph 1 of the Civil Code regarding tort liability as a supplement.

(3)To prove the squatter's bad faith, evidence can be collected from various perspectives, including the impropriety of the right acquisition, the popularity of the prior trademark, the determination and assessment of squatting in prior administrative proceedings, the squatter's intent in applying for the trademark, and subsequent actions such as malicious complaints or trademark infringement after obtaining the trademark.

(4)Paying attention to the statute of limitation and sue as early as possible based on sufficient evidence collection.

(5)For infringements committed by multiple parties, clarifying the relationship and digging deep into the actual controllers behind the scenes. If most of the squatted trademarks were filed by entrusting the same trademark agency, the right holder may also consider suing the agency at the same time to hold it responsible for aiding infringement.

(6) Diligently collecting evidence on costs when prior right holders take actions such as filing opposition or invalidation of the squatted trademarks. The contracts, bills, invoices, and payment vouchers in the related case should be clear and able to corroborate each other.

III.    Conclusion

In addition to the measures previously known to all such as early registration, enhanced monitoring, and timely protection of rights, the new clause in Revised Draft and the cases mentioned above undoubtedly provide rights holders with another weapon against the persistent problem of malicious trademark registration, which can make squatters pay a real price for their actions. In addition to the civil litigation, prior right holders may also consider filing administrative complaints against trademark squatters and their agencies to deter squatting. As of the completion of this article, several cases regarding civil litigations and administrative complaints against trademark squatting that our team has represented are still pending. We hope to share and discuss more related issues and discoveries with you in the future.