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China’s Changing Trademark Environment. Why You Need To Register Your Trademark Now.

Posted in Legal News

By:  Steve Dickinson

Registration of trademarks in China has become essential for doing business in China. We have long advocated prompt China trademark registration with our clients. For companies that manufacture and export from China, registration of the English language trademark is essential. For companies that sell products and services in China, registration of the existing English language marks and also the Chinese language marks for the product is essential.

When we first began to push our clients on trademark registration, we were met with a lot of skepticism. However, as we anticipated, the tide has turned. Recent reports from China claim that China now has the largest number of registrations in the world, with over 1.0 million applications submitted per year. It has now become almost impossible to do business in China without a full portfolio of registered English and Chinese language word marks and logos.

Unfortunately, this flood of applications has had the effect of making trademark registration in China a much more difficult process. When we first started doing trademark registrations in the early 2000 period, about all that was required was to simply submit the application. Virtually every application was approved. In fact, at that time, the Chinese authorities were often criticized for approving too many similar marks. In particular, English language marks were almost always approved except when the exact word was used in the same class.

These days, it has become far more common to receive a rejection. This is true for both English language and Chinese marks. It is no longer appropriate to just assume that every application will simply be approved. Careful evaluation of every mark is required. Since rejections have become common, it is now extremely risky to build business under a new mark or brand before receipt of approval from the trademark office. Since the trademark office is very slow in its decisions, often taking years to make a decision, this can pose extreme difficulty for companies attempting to penetrate the Chinese market.

There are several reasons for this change in the trademark environment in China:

  1. The large number of applications means that there are simply fewer choices for available marks, particularly when the mark is a meaningful word.
  2. The trademark office takes a mechanical approach in determining when there is a conflict. Where the same words appear, the trademark office normally ignores meaning and simply finds a conflict. Thus the trademark office does not allow for adding more words to allow for differentiation. If there is any chance of conflict, the trademark office will find it. For example, if someone already has registered the name “Ace” in a particular class, the trademark office will likely reject “Ace Tool and Die Makers and Fabricators” in that same class.
  3. The trademark office also finds conflicts where words are similar but not identical. Since there are no clear rules on how much similarity is not acceptable, this makes the decisions of the trademark office difficult to predict. For example, registering “Alberta” in a class in which “Albert” has already been registered likely will be rejected.
  4. The Chinese language presents additional difficulty. Though there are over 40,000 unique Chinese characters, only about 2,500 characters are in common use. It is therefore difficult to find a succession of characters that is any way unique. Since there is no way to alter spelling/pronunciation to produce a difference, the opportunity to find a unique combination in Chinese that is also intelligible is difficult.
  5. The PRC trademark office has installed sophisticated search software. This search software fuzzy logic function is excellent and allows the trademark office to find more near matches than previously possible. These near matches then get rejected in situations that would never have been noticed in the past.
  6. As a matter of bureaucratic reality, where there is a close call, it is much safer for the trademark office to reject than to approve.  When a dispute arises, the Chinese courts have shown much more inclination to support trademark office rejections than to support approvals. Since the trademark office was severely criticized for allowing too many approvals in the past, the office has apparently decided to go as far as possible in the other direction to compensate.

None of the reasons for the difficulties with trademark registration are likely to change for the better in the near future. In fact, trademark registration applications will probably continue to increase, making the situation progressively worse, not better.

So what should be done? Since trademark registration is essential for China, foreign businesses must understand and adapt to the changed trademark environment. This requires at least the following:

  1. Trademark registration should not be treated as a mechanical process. Careful planning is required. In particular, a preliminary search should be undertaken and time must be taken to do the search carefully and to deal with the results in a practical manner.
  2. For word marks, the use of meaningful words should be avoided as much as possible. Coined words should be used whenever possible. Of course, a company that is using its existing U.S. name or mark often does not have a choice on the words that will be used. In such a case, the foreign party must understand that if a meaningful word is used there is a decent chance a conflict will be found and your trademark rejected.  This is also true of trademarks of common names. So for example, if your company is called “David’s ties” and someone has already registered David & Goliath in the same class, you will probably be rejected.  We are finding that common name registrations are getting more and more difficult.
  3. Even where the best search seems to show that there will not be a problem with registration, all registrants must understand that it has become difficult to predict how the trademark office will rule on any mark. This uncertainty means that it is not as good idea to build brand identity on a mark until after that mark has been formally approved by the trademark office.
  4. There are numerous ways to deal with trademark conflicts. This usually involves negotiation for a license or related agreement with the holder of the mark that has priority. Most foreign companies have a well-deserved aversion to entering into such discussions with parties in China. However, such negotiation will be increasingly important in the new trademark environment.
  5. Finally, some of the conflicting marks simply are not good marks. Some have never been used. Some have been filed with a bad intent. The Chinese trademark system has available a number of procedures for dealing with these bad marks. The procedures take time and money. However, they must be used in order to deal with these situations. Oftentimes, there simply is no other option.

Doing business in China is not for the faint of heart. Dealing with China’s changing trademark environment is one of the many challenges that must be overcome to reach success in an ever changing China.