• The court held that bad-faith trademark squatting constitutes unfair competition in violation of Article 2 of the Anti-unfair Competition Law

• This is the first time that a Chinese court has found that pure trademark squatting, without actual use, can constitute unfair competition

• The court went one step further by stating that bad-faith trademark squatting also constitutes a general tort

Background

As a tradition around World IP Day, Chinese courts at various levels release a list of landmark IP cases to highlight the past year’s work and best judicial practice. In April this year, the Fujian High People's Court released the “Top 10 Cases on Judicial Protection of IP Rights in 2021”. In particular, a case in which the court found that bad-faith trademark squatting constitutes unfair competition and a general tort attracted particular attention. The court also granted damages based on the legal fees that plaintiff Emerson Electric spent in opposing bad-faith trademarks.

This update provides a case brief and comments as to how this case may help rights owners tackle bad-faith trademarks in the future.

The Emerson case

Emerson sued:

• two companies;

• the companies' actual controller, Wang Yiping ('Wang');

• and the trademark agency Xiamen Xingjun Intellectual Property Affairs Co Ltd ('Xingjun').

Emerson has owned the English trademark INSINKERATOR and its Chinese counterpart in China since the 1990s, and various series trademarks. The trademarks were recognised as well-known trademarks in China as early as 2010. 

From 2010 to 2019, Wang and his companies squatted famous brands and trademarks of third parties, including 48 trademarks identical or similar to Emerson's trademarks. Emerson proactively defended its rights by filing opposition and invalidation actions, as well as administrative litigations. The defendants continued to apply for more trademarks, even after an administrative judgment acknowledged that the applications were made in bad faith. Xingjun acted as the defendants' trademark agency. However, unlike the defendant in the Bayer case, Wang and his companies did not put the trademarks to use, nor did they harass 

Emerson with complaints or unreasonable demands. Emerson brought a civil action demanding that the defendants stop filing further bad-faith trademarks and pay damages of Rmb5 million. 

The court ruled in favour of Emerson at two instances, holding that bad-faith trademark squatting constitutes unfair competition in violation of Article 2 of the Anti-unfair Competition Law and a general tort in violation of Article 6 of the Tort Law (now a chapter in the Civil Code). The underlying rationale was that such trademark squatting had forced Emerson to defend itself by filing opposition and invalidation actions and even litigations, which cost Emerson huge resources and interfered with its normal business activities. 

Wang was found to be personally and jointly liable with his two companies, as he used the companies as tools in filing the badfaith trademarks. The total amount of damages was set at Rmb1.6 million, considering the defendants' persistent malicious behaviour and the fact that Emerson had spent over Rmb1.3 million in bringing opposition and invalidation actions, as well as the present civil lawsuit, to defend itself.

Why does this case matter?

Traditionally, bad-faith trademarks, regardless of how contemptible they are, can only be dealt with by filing opposition and invalidation actions with the China National Intellectual Property Administration. This takes time and provides little deterrence. Rights owners may resort to civil actions only when an infringing trademark use is involved.

Holding trademark squatters civilly liable is something that rights owners have been asking for, as it is more of a deterrent if squatters have to pay for civil damages, compared to just losing one trademark and the official fees. There are a handful of successful precedents, where bad-faith trademark squatting was found to constitute unfair competition: one representative case was brought by Bayer ((2017) Zhejiang 0110 Civil First Instance No 18627) and the other by Brita ((2017) Shanghai 0112 Civil First Instance No 26614). However, both cases were built on the premise that the defendants had made some sort of bad-faith trademark use - either by using the registered trademarks to free-ride on the genuine owner’s goodwill, or by filing complaints as harassing tactics.

The Emerson case is the first one in which a Chinese court has established that pure trademark squatting, without actual trademark use, can constitute unfair competition. The court even went one step further by saying that it also constitutes a general tort. Although China is not a case law country, landmark cases such as this one may open a new way of tackling badfaith trademarks if more courts adopt this approach. From the perspective of regulating the trademark agency business, this case also made a meaningful breakthrough as the court found that the agency aided and abetted by knowingly providing services for a malicious trademark squatter.

This judgment is still deemed to be aggressive by many and, therefore, it might not be easy to build a similar case before other courts in China. Nevertheless, if a rights owner ever encounters a defendant with such a classic trademark squatting behaviour, backed up by solid evidence, it would not hurt to try the Emerson approach.

(2022年6月9日 首发于 WTR Update)