In practice, there are many brand rights holders (brand owners) using trademarks in China that they have never registered there because they are either engaging solely in original equipment manufacturing (OEM) or engaging in commercial activities for many years through agents. It is only when a trademark has been pirated for a period of time and the brand owner is impeded commercially or legally by the piracy that the owner realises how the trademark had actually been pre-emptively registered. Then it has to consider how to respond.
Before getting commercially involved in China, the ideal scenario would be to determine the IP strategy in advance. However, there is always a gap between reality and ideal scenarios. When a trademark has been pre-emptively registered by someone else, the brand owner finds itself struggling with how to resolve the issue after the horse has bolted. It has become a far from ideal scenario that requires attention and a response.
Current situation and harm
In most cases, after securing the trademark rights, the pirate will seldom immediately take action against the brand owner on the basis of its trademark registration due to him or her being well aware that their pre-emptive registration itself is illegitimate. The advantage for a brand owner is that if the pre-emptive registration is promptly discovered, it will give the brand owner a certain amount of time to manoeuvre and respond without gravely affecting its business interests. However, from another perspective, such a circumstance will paralyse some brand owners to a certain extent, leading them to disregard the existence of the pre-emptive registration or the effect that it can give rise to. Once the pirate’s trademark registration exceeds five years, or his business has reached a certain threshold, the pre-emptive registration will have a more serious impact on the brand owner, and it will be more difficult for the brand owner to recover the pirated trademark.
A brand owner who did not previously discover the pre-emptive registration, or had done so but was negligent in taking action, will often become anxious and wish to take immediate action against the pirate to recover its trademark. This feeling is understandable, but a rush to send a lawyer’s letter or take other action against the pirate may not only prove unhelpful but also result in a counterattack from the pirate as the brand owner reveals its intent; for example, carrying out customs recordal of the pirated trademark to seize goods exported by the brand owner, directly lodging a complaint concerning the brand owner’s production and sales acts or going as far as instituting a trademark infringement action. Without thorough preparation, the brand owner will usually be responding passively and find itself at a disadvantage in the face of the pirate’s counterattack. In some cases, the brand owner may even attribute this to lax IP protection by the competent authorities.
Circumstances and motive
How should a brand owner that disregarded or was negligent in defending its rights initially and then finds itself in a passive position after the counterattack by the pirate respond?
Such a brand owner will often be in a rush to act, intending to immediately wrest back the trademark that rightly belongs to them. It is likely to adopt a common formulaic action plan: invalidating the other party’s trademark, or directly instituting legal action against the pirate. However, in practice, the motives of different trademark pirates actually vary substantially. If a formulaic action is directly taken without discrimination, it will often result in failure. Accordingly, it is only after conducting an in-depth investigation and understanding and analysing the motives of the pirate will it be possible to tailor an effective plan that is appropriate for the actual situation.
Generally speaking, the motives of pirates can be broadly divided into two types: the first is the hoarding of trademarks and selling them at a high price to make money, and the second is preparing to use the pirated trademark for the corresponding goods or services with the purpose of misleading consumers to derive a commercial benefit from it. For a brand owner, the commercial benefits derived by a pirate from the second type and the harm to brand goodwill arising from it may be the greater harm.
As the circumstances discussed in this column mainly concern the late discovery by brand owners of the pre-emptive registration of their trademarks, instances where certain trademarks have been registered for five years or more, conventional means such as invalidation and cancellation usually prove unsuccessful; and approaches such as lawyer’s letters or litigation may also result in a passive situation where the other party counter-attacks with customs seizure or lodges an infringement complaint.
The brand owner can only hope to achieve the desired effect by formulating a tailored plan that considers the specific circumstances of the case and the motive of, and feedback from, the pirate. If the pirate conducts business activities using the pirated trademark, it will have additionally infringed other rights of the brand owner: copyright infringement or unfair competition, for example.
The brand owner may, while guarding against a counterattack by the other party, wrest back the pirated trademark by fixing evidence of other infringement by the pirate and negotiating with it. After the evidence is fixed, action can be escalated based on how the negotiations are faring so as to exert greater pressure on the pirate. The author has used such a plan in some cases where he successfully helped the brand owner in recovering the pirated trademark.
Of course, a one-size-fits-all solution is not up to the task of responding to a complex reality. Anonymous purchase or business arrangement are also good options, depending on the specific circumstances of the pirate. Among the cases handled by the author, there was one in which the pirate and the brand owner ultimately agreed on commercial co-operation and smoothly arrived at a solution.
In conclusion, the best way to protect the rights of a brand owner is to plan the IP strategy and its protection at the initial stages. It goes without saying that when reality does not permit prior planning, it is important not to act hastily based on anxiety when pre-emptive registration of a trademark is discovered. A relatively more ideal result can be arrived at only when a tailor-made plan is made after achieving a sufficient understanding of the motive of the pirate and conducting in-depth investigation and analysis.
This article was originally published in China Business Law Journal.