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Latest Enforcement Trends in China and 2022 Must-Have Strategies

The development of e-commerce and social media has brought new threats to intellectual property (IP) owners in China, as Anna Mae Koo and Ann Xu explain.

Although the global pandemic has significantly impacted businesses around the world, it has expedited the development of the e-commerce market and facilitated the digital transformation of brands. Alongside this progression, infringement activities in the Internet environment have escalated. In addition, while the Chinese authorities strive to combat trademark squatting, perpetrators have learned their lessons and developed new tactics to stay under the radar. This article will navigate you through the latest enforcement trends in China and share our insights.

Soaring Infringements on Social Media Platforms

In China, the distinction between social media and e-commerce platforms is blurry. Chinese social media sites have always been equipped with e-commerce features, allowing customers to make purchases. Sales through livestreaming on these platforms, popular since COVID-19, are also becoming commonplace, with annual sales exceeding US $200 billion. With that, there are new forms of infringement taking place, including brand impersonations (i.e., the creation and operation of a social media account pretending to be a third-party brand and using it to conduct infringing activities) and the promotion and sale of infringing goods via livestreaming.

To tackle brand-impersonating accounts, brand owners may base their complaints on trademark registrations in China. For those who have yet to secure registrations, we have also successfully taken down impersonating accounts on WeChat by relying on prior copyright of house marks. China offers a copyright recordal system, which allows brand owners to voluntarily record copyrighted works. Certificates are issued in around two to four months, which serve as prima facie evidence of copyright in online complaints and enforcement actions.

For infringement taking place on livestreams, a common enforcement difficulty is that the infringing videos are unavailable after the event. Our in-house investigators can monitor infringing social media accounts, arrange for the timestamping of the infringing livestreams, and test purchases to preserve evidence for future enforcement actions.

To prevent malicious complaints, most platforms require examination reports detailing why the products in question are counterfeits, which often increases legal costs. If different online stores are promoting counterfeits from the same distributors, a cost-effective approach would be to first file administrative complaints against the distributors with the local Administrations for Market Regulation (AMR). We may then use these favorable decisions to demand that the platforms take down social media content concerning the infringing products without having to incur costs from purchasing the counterfeits and preparing examination reports.

Parallel Imports – A Recurring Concern

Following the rapid expansion of e-commerce platforms, parallel imports have come back to haunt brand owners. Parallel import refers to the import of branded goods into a market without the consent of the trademark owner in that market.

Unlike the PRC Patent Law which expressly provides that parallel imports are permissible, the PRC Trademark Law and the PRC Anti-Unfair Competition Law do not expressly regulate parallel imports. Based on previous judgments handed down by the courts, one may conclude that China adopts the international exhaustion principle, meaning that trademark owners cannot prohibit others who have purchased from them from reselling the products.

“Many squatters incorporate companies in Hong Kong SAR, China and other jurisdictions to create the false impression that they are foreign companies.”
Anna Mae Koo (pictured), and Ann Xu, Vivien Chan & Co

That said, the courts do impose certain restrictions. For instance, we have successfully assisted brand owners in tackling parallel-imported products with the product identification/tracking devices (e.g., barcodes) removed or destroyed by arguing trademark infringement.

In Fendi Co. Ltd. v. Pioneer Capital Outlets (Kunshan) Commercial Development Co. Ltd. (2021), the Shanghai High People’s Court handed down its retrial judgment which discusses the scope of fair use when promoting parallel-imported products. While importers may use the brand owners’ marks when promoting the parallel-imported products to indicate the origin, such use must be only to the extent that it is necessary and reasonable. The use of Fendi’s house mark on storefronts, brochures, shopping bags, and WeChat public accounts, etc. was found to have misled the public that the defendant was related to Fendi, which fell outside the scope of fair use and constituted trademark infringement and unfair competition.

We summarize below a list of factors that brand owners may look for when seeking to take actions against parallel importers:

  1. Whether the parallel-imported products are genuine;
  2. Whether the parallel importers or the parallel-imported products have obtained necessary licenses or permits for sale and distribution in China;
  3. Whether the product identification / tracking devices have been removed or destroyed;
  4. Whether the quality of parallel-imported products is substandard;
  5. Whether there are any unauthorized alterations to the products or the product packaging;
  6. Whether the manner of use of the trademark falls outside the scope of fair use and may mislead consumers into believing that the parallel importer is authorized by or otherwise related to the trademark owner; or
  7. Whether any other activities may cause consumer confusion or impair the source identification of the trademarks.

New Maneuvers s by Squatters to Circumvent the CNIPA’s Rules

While the Chinese authorities have stepped up their game to combat trademark squatting, squatters have also developed different strategies to stay under the radar. Firstly, we have come across a squatter syndicate dissecting one of our client’s logos into four parts and filing applications for the same to circumvent the rules on determining similarity of marks. Upon registration, they may combine the marks, which as a whole are identical to our client’s logo, to facilitate their infringement activities. We successfully persuaded the China National Intellectual Property Administration (CNIPA) to consider all the related trademark filings and confirm the similarity of the marks.

Secondly, many squatters incorporate companies in Hong Kong SAR, China and other jurisdictions to create the false impression that they are foreign companies. Some even adopt company names incorporating the names of other brands seeking to legitimize their applications. While company records may not be freely open to the public in those jurisdictions, such records are generally accessible upon payment of a minimal fee.

\We regularly assist our clients in conducting background searches to identify the directors/shareholders of these seemingly legitimate companies. Actions against offending company names can be filed simultaneously to stop any unauthorized use of brand names as company names, and successful decisions may serve as evidence of bad faith in opposition/ invalidation proceedings.

“Brand owners who suffer significant losses may also consider commencing unfair competition lawsuits against malicious complainants.”
Anna Mae Koo, and Ann Xu (pictured), Vivien Chan & Co

Thirdly, it is common for squatters to assign the marks from one entity to another to keep the number of bad faith filings owned by each entity to the minimum. Good news for brand owners is that the CNIPA will consider the bad faith filing activities of the assignor and the related entities when determining bad faith. Also, in our recent favorable cases, we observed that a high number of bad faith filings is no longer a prerequisite to establish bad faith.

Considering the new tactics deployed by squatters, thorough analysis of their filing history and in-depth investigations to bring to light the related entities and individuals are now imperative when devising strategies against them. Brand owners should also review methods for trademark monitoring to ensure they effectively capture all possible variations of the monitored marks.

Malicious Online Complaints by Aggressive Squatters

With the introduction of the China’s E-Commerce Law, effective since 2019, e-commerce platforms are obliged to provide online complaint mechanisms for IP rights owners against infringing listings. However, this has now been exploited by squatters, who lodge malicious complaints against legitimate brand owners based on their bad faith registrations seeking to disrupt brand owners’ businesses and demand a large sum of money for settlement and/or assignment of trademarks.

When facing malicious complaints, it is crucial to review (1) the relevance of the complainant’s prior registrations and (2) assess the possibility of removing the prior registrations. While the former may seem obvious, we have come across cases where online platforms broadly construe the scope of the registered goods and accept the complaints, although the parties’ goods should be considered dissimilar according to the official classification.

It is worth noting that most handling officers have not received proper legal training. They may not be familiar with the laws and may be easily misled by complainants’ arguments. If the complainant does own a valid conflicting registration, we will have to invalidate such prior registrations using the bad faith argument.

While non-use cancellation action is an option if the complainants’ marks have been registered for more than three years, most malicious complainants are sophisticated and may have fabricated use evidence to resist any potential non-use challenges.

Further, brand owners should also file their own applications to block any potential re-filings by the complainants. Upon successful removal of the complainants’ prior registrations, we may negotiate with online platforms to reinstate the product listings.

Brand owners who suffer significant losses may also consider commencing unfair competition lawsuits against malicious complainants. The courts recognize that malicious complaints constitute unfair competition and may order complainants to cease making further complaints, pay monetary compensation, and/or rectify the adverse impact caused by their actions.

While remedies are available, our advice to brand owners remains: to have early registrations of house marks in both foreign language and Chinese equivalent. Prevention is always better than cure.

Anna Mae Koo is a partner at Vivien Chan & Co.She can be contacted at vivchan@vcclawservices.com

Ann Xu is a trademark attorney and heads the Beijing, China office at Vivien Chan & Co. She can be contacted at vivchan@vcclawservices.com

Video courtesy of Adobe Stock / Aleksandr Kurganov

Monday, May 2, 2022

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