BackgroundForeign IPR owners have traditionally found theintellectual property landscape in China challeng-ing. This is compounded by questions over the ob-jectivity of Chinese courts when IPR owners areconsidering whether and how to enforce rights inChina. Although statistics of the IP courts do gen-erally show a relatively equal chance of successfor foreign claimants vis-à-vis their domesticcounterparts, foreign IPR owners shy away fromlitigation in China.

An exception is where foreign IPR owners aresued by Chinese plaintiffs. Despite a generallynon-litigious culture, there is an increasing trendof litigation as Chinese plaintiffs become more ag-gressive in protecting their rights and bad faith ac-tors try to hold IPR owners to ransom.

The article aims to highlight a few ways toprevent, as well as to defend against, such litiga-tion.

China adopts a “first-to-file” trade mark reg-istration system which affords trade mark rightsto those who file first. Trade mark squatters willtherefore look for weaknesses in the portfolio offoreign IPR owners, especially against those yet to 52

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Litigationstrategy – how todefend againstChinese plaintiffsAnna Mae Koo and Ann Xu of Vivien Chan & Coadvise on how to defend your brand in China

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enter the Chinese market, andpre-emptively register theirmarks. These trade mark squat-ters will then attempt to sell therights thereof to those respectiveforeign IPR owners at substan-tial costs, or threaten to sue thecompanies for trade mark in-fringement if they continue touse them. More sophisticatedtrade mark squatters may notonly file in the same class ofgoods and services but also in arange of popular goods, likeclothing and produce merchan-dise, under the same trade mark.

What arguments can for-eign IPR owners rely on when aregistered mark owner enforcestheir mark against them?

Defence arguments andlitigation strategies

Challenge the use of theregistered mark by theregistered ownerOne of the strategies that can beadopted by the brand ownersagainst trade mark squatters isto challenge the use of the markby the registered mark owner. Ina recent notable trade mark ruling, the TreasuryWine Estates (TWE), the owner of the famous Pen-folds wine brand, successfully challenged the reg-istration of the lucrative 奔富 (Ben Fu) trade markwhich had been registered by a trade mark squat-ter in the Beijing High People’s Court. The rulingwas successful for TWE on the ground that theregistered owner had failed to show genuine useof the trade mark for wine or related activities.

The Guangdong Higher People’s Court took asimilar stance in a case involving the sportswearbrand New Balance, holding that if the trade mark

had not been in commercial use,no damages would be awardedto the plaintiff since the generalpublic would not associate thetrade mark with the goods orservices provided and hence noconfusion was caused. In thiscase, however, the registeredmark owner was able to showsufficient commercial use,which caused New Balance tolose the case.

Establish prior reputation ofthe unregistered mark inChinaAnother possible defence againstregistered trade mark owners isto argue that even though amark is unregistered, the markhas already established a strongreputation in the Chinese mar-ket and therefore has already ac-quired trade mark rights via thewell-known mark status.

However, there are certaincaveats when using this argu-ment. First of all, foreign IPRowners must not confuse globalreputation with reputation inmainland China. Generally, onlythe latter will be accepted by the

Chinese courts, and mainland China excludesHong Kong, Macau and Taiwan. A notable exam-ple would be the automaker Ferrari initiatinglegal action against a registered owner for theirglobally known mark. The Court held againstFerrari and concluded that its mark is not consid-ered “well-known” because Ferrari had failed toprovide sufficient evidence of advertising and pub-licity of the device mark in China.

Secondly, foreign IPR owners should notethat a large portion of Chinese consumers do notassociate brand recognition with English namesand instead will generally only recognize the Chi-nese transliteration of the mark. As such, foreignIPR owners often have to prove the use of the Chi-nese version of the unregistered mark but not theEnglish one. A classic example is the Pfizer fa-mous trade mark battle in China over the 伟哥(Weige) mark, which is the Chinese translitera-tion of Viagra. Here, the Supreme Court found thatthe English trade mark Viagra and the Chinesemark Weige are two different marks. AlthoughPfizer was able to show that a vast amount ofmoney and resources was spent in the promotingand marketing of Viagra around the world, theissue was not whether Viagra had achieved famein China but whether (a) Weige had achievedfame in China, and (b) whether Chinese con-sumers associated Weige with Pfizer as the owner54

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Anna Mae KooAnna Mae Koo is a solicitor at Vivien Chan& Co, where she practices non-contentious,contentious and transactional intellectualproperty law. She was a Prince Philipscholar at the University of Cambridgewhere she graduated with an MA in law.Anna Mae is a Techstars mentor, and is in-volved in the litigation committee of theInternational Bar Association and the in-ternet committee of the InternationalTrademark Association. She is consistentlynamed an intellectual property rising starin Euromoney Legal Media Group’sWomen in Business Law Awards. AnnaMae advises on portfolio management andenforcement for the likes of American Air-lines, Dreamworks, Yves Saint Laurent, etc.

“Foreign IPR owners mustnot confuse globalreputation with reputation inmainland China. Generally,only the latter will beaccepted by the Chinesecourts”

of the trade mark. Pfizer was notable to prove this, and thereforelost the case.

Another issue is that the ev-idence of use, promotion andmarketing of the unregisteredmark by the brand owner shouldbe dated before the filing or theregistration date of the mark. Inthe New Balance case, the courtrejected New Balance’s claimsthat it had acquired prior rightsover the mark or prior reputa-tion in China partly because theevidence submitted was datedafter the filing or registrationdate of the registered mark.

Avoiding high damagesChinese Courts notoriously donot award a high amount of dam-ages in IPR cases. The infamous(and anomalous) US$48 millionChint v Schneider (2009) deci-sion was one of highest amountof damages awarded. Most attrib-ute the size of the damages tolocal protectionism and the factthat it was adjudicated in a localcourt. When defending againstChinese plaintiffs therefore,brand owners should be wary oflocal courts, and if possible, choose the more es-tablished IP Courts such as Shanghai, Beijing andGuangzhou to obtain a more objective judgment.

Reduction of damagesIf it’s not possible to avoid high damages, brandowners may seek to appeal lower courts’ decisionon damages. In the recent Castel and New Balancecases, the higher courts have been willing to sub-stantially reduce the amount of damages awardedby the lower courts.

In reducing the damages from US$14 millionto US$700,000 in the New Balance case, one of thekey considerations of the court was that the trademark squatter failed to provide any direct evi-dence of losses caused by the use of its trade markby New Balance. The court overruled the lowercourt’s decision by setting the damages payable tohalf of New Balance’s profits. The rationale be-hind this was that not all of the New Balance’sprofits could be attributed to the use of the regis-tered mark, and instead were also attributable toNew Balance’s other marks printed on the prod-ucts and to the intrinsic quality of its products.

Similarly, in the Castel case, where the trademark squatter sued Castel Freres SAS, a famousFrench wine producer, for trade mark infringe-ment, the Chinese Supreme People’s Court upheldthe lower court’s finding with regards to infringe-

ment but reduced the damagessubstantially, from US$700,000to US$73,000. The Court heldthat although the trade marksquatter had provided evidenceshowing Castel’s sales revenue,he had failed to provide suffi-cient evidence in relation to Cas-tel’s profits. In addition, theCourt held that the trade marksquatter failed to prove that all ofCastel’s sales revenue (amount-ing to US$4.6 million) was a di-rect result of the infringement ofthe registered owner’s mark.

In those two cases the Chi-nese courts would not award allthe revenues generated by thebrand owners to the registeredtrade mark owner. The regis-tered owner still needs to provethe causal link between the rev-enue generated and the use ofthe registered mark by the brandowner. Hence, brand ownersmay consider submitting evi-dence to prove that they have ac-quired goodwill in relation tosome other marks or brandsthey own to convince the Chi-nese courts that part of the rev-enue generated is independent

of the use of the registered mark to reduce the anydamages awarded to the registered trade markowner.

Be aware of the implications of filing non-usecancellation and opposition against the citedmarkMore likely than not, brand owners will initiateactions such as opposition, invalidation or non-use cancellation against the registered mark. How-ever, brand owners should be aware of thepotential implications of filing these actions on thesubsequent legal proceedings initiated by the reg-istered trade mark owner (if any), especially afterreceiving an unfavourable decision. As mentionedabove, the damages awarded in the New Balancecase (US$700,000) were substantially higher thanthe Castel case (US$73,000). One of the key rea-sons is that the court considered New Balance’sconduct of continuing to extensively use the reg-istered mark after losing its opposition procedureas wilful infringement. In contrast, Castel ceasedusing the registered mark when the BeijingHigher People’s Court handed down its final deci-sion in the non-use cancellation procedure and re-branded its Chinese name from 卡斯特 (Ka Si Te)into 卡斯黛乐 (Ka Si Dai Le).

After receiving unfavourable decisions whentrying to invalidate or oppose the registered mark,55

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Ann XuAnn Xu is a trademark attorney at VivienChan & Co with more than 20 years’experience in intellectual property cases inmainland China including trade mark,copyright and designs. She is consistentlynominated as an International Who’s WhoTrademark Lawyer by Business ResearchLtd. Ann regularly advises on prosecutionand portfolio management for clientsincluding James Bond, Playboy, Amway, etc.

brand owners should be cautious about continu-ing to use the registered mark as this may be seenas wilful infringement and evidence of bad faithby Chinese courts in any subsequent legal pro-ceedings, which may increase the possible dam-ages payable.

Strategic measures to considerApart from adopting the litigation strategies out-lined above, brand owners may consider takingthe following actions:

Register the marks in both Chinese and EnglishAs seen from the Viagra and New Balance cases,any goodwill and reputation established in con-nection to the English mark will not be consid-ered transferrable to the Chinese marks. To

maintain their brand in China, brand ownersshould consider developing and obtaining a Chi-nese mark simultaneously. If brand owners donot create a Chinese mark, consumers or themedia will themselves create a Chinese markand brand owners may lose control over theirbrand.

Consider rebranding earlierIn cases where the brand owners have not usedtheir mark in China for a sufficient period of timeand find that their Chinese mark has been regis-tered by others with genuine use, they should con-sider rebranding their Chinese mark. Althoughthis isn’t an ideal option, it could possibly elimi-nate potential legal risks for brand owners.

Think outside the litigation boxAs Chinese consumers become more sophisti-cated, public sentiment is turning against counter-feits and Chinese brands pretending to be foreignbrands. Foreign brand owners can take advantagethis and advertise accordingly to avoid the needfor litigation.

ConclusionWith the first-to-file system in China, trade marksquatting behaviour will likely persist. Variousstrategies can be adopted by brand owners includ-ing challenging the use of marks by the registeredowner, establishing prior reputation or the well-known status of unregistered marks, and manag-ing damages. However, more comprehensiveways to protecting IPR in China include deployinga defensive filing strategy in registering the marksin both Chinese and English, rebranding themarks at an early stage and alerting Chinese con-sumers about the differences between the brandowner’s marks and the registered marks.

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“After receiving unfavourabledecisions when trying toinvalidate or oppose theregistered mark, brandowners should be cautiousabout continuing to use theregistered mark as this maybe seen as wilfulinfringement and evidence ofbad faith by Chinese courtsin any subsequent legalproceedings”