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Tesla, Apple, Sotheby’s, Penfolds, and Michael Jordan are just a few of the many notable names that have grappled with China’s notorious “trademark squatters,” battles that had long proven unsuccessful—until now. This week marked the first time a Chinese court ruled in favor of a foreign brand against a squatter, indicating that recent legal reforms may have made a significant difference in the way trademark issues are treated in China for international companies.
The case, filed by American menswear brand Michael Bastian and ruled on by the Chinese Trademark Review and Adjudication Board, was a landmark victory for foreign brands in China. In a practice all too commonly encountered by new entrants to the China market, a Chinese company had trademarked Michael Bastian’s English name and Chinese transliteration in 2007. Often, Chinese trademark “squatters” file hundreds of names with the Chinese copyright office before brands have the chance (or funds, or guts) to enter China. The squatters then attempt to extort “settlements” from brands that would otherwise have to navigate China’s notoriously labyrinthine legal system—settlements that many opt to pay out to save the trouble.
The main reason for these disputes has been China’s “first-to-file” system, which gives legal rights to the first company to register a brand name. This differs from the U.S. system, which requires that those registering prove how they will use the name. Major brands that weren’t quick enough to register their names in China previously found themselves out of luck, and even faced lawsuits filed by the squatters once they entered the market.
In May 2014, the Chinese government overhauled its IP policy with a sweeping new trademark law. This new law enacted a variety of new protections, including a stipulation in Article 32 that prohibits “bad faith” trademark registration. In the case of the Michael Bastian ruling, the squatter had registered over 100 names that were the same as or similar to foreign fashion designers, causing the board to rule that it was “evident that [the squatter] carried ill intentions.”
The ruling offers a glimmer of hope for international brands that the new trademark law will help battle these squatters. Previous high-profile lawsuits by foreign companies were unsuccessful, leaving many forced to take extreme measures to preserve their business in China—Apple paid one company $60 million in a settlement over the use of the iPad name in China, while 3.1 Phillip Lim had to change its logo for the Chinese market. It remains to be seen whether the favorable ruling will be repeated in future brand-squatter cases, but it certainly sends a message to those hoping to extort money that they no longer have free reign.