China

Last week, new revisions were officially adopted into the People's Republic of China Trademark Law. Beginning November 1, 2019, trademarks that are filed in “bad faith” can be wiped from the books. Trademark agencies responsible for representing those bad faith actors will also be subject to a fine.

Taking a stronger hand with trademark squatters may go a long way towards enticing previously reluctant U.S. technology companies to take advantage of the Chinese marketplace, which from a regulatory perspective has been akin to the Wild West. However, many could just as easily hold back to ensure that the country's latest attempt to woo commerce is more than just an empty gesture.

“The real questions is going to be, what's going to happen? Because things do need to get clarified,” said Eric Giler, CEO of the IP protection group Ciprun Global.

One of the major problems companies seeking to bring their trademark into China are facing—and something that the country's new trademark revisions seek to remedy—is “squatting.” A bad actor will file a trademark with the intent of using it to either extort money or use as the basis for a lawsuit against companies with legitimate interests.

Mitigating that behavior could have significant value to U.S. tech companies operating at a limited size and scale.

“I think it will be particularly [helpful] to smaller companies who don't have the resources to fight against the trademark trolls in China. They now go over there with more confidence that their trademarks will not be already taken by somebody who has no intent to actually use them,” said Kory Christensen, a principal specializing in intellectual property at Polsinelli.

Still, companies eyeing China may not want to buy a plane ticket until they have an opportunity to see how the law is enforced. Per Christensen, the courts in China have traditionally sided with their own domestic companies in disputes with American entities over trademarks.

Fortunately, the revisions to the trademark law taking hold in November would allow an entity to challenge a trademark suspected of being made absent an intent for use during the application phase, which would potentially cut down on the number of expensive lawsuits.

But the question still remains as to what exactly constitutes “bad faith?” Giler thinks it's something that people will be able to recognize when they see it.

“Let's say you and I are in China and we're going to trademark the Puma sneaker brand, but neither you nor I work in the sneaker business. … Probably people would look at that and say that's not good faith. That's bad faith,” Giler explained.

Frank Ryan, global and U.S. co-chair of the intellectual property and technology practice at DLA Piper, is waiting to see the law in action, citing consistent regulatory application as key to China successfully attracting attention from foreign tech companies. However, don't expect a uniform reaction across the industry.

“I think you'll see everything on the spectrum, from 'OK, let's press this right away,' to 'let's see how the application proceeds,'” Ryan said.

To be sure, the trademark revisions are not the first move that China has made within the last year to address problems related to intellectual property abuse. In January, the country enacted a new e-commerce law that holds online platforms responsible for failing to “take necessary measures” to prevent the sale of counterfeit goods.

Still, the trademark law revisions may represent an effort to address an even more pressing issue. According to the 2018 Annual Report on Intellectual Property Cases compiled by the Supreme People's Court (SPC) and reported by China Law & Practice, the number of IP cases docketed by the SPC spiked from 897 in 2017 to 2018 1562.

Those statistics might come as less than welcome news to tech companies, many of whom have little to no choice but to eventually take the plunge into the Chinese market.

“The tech market in general in China is expanding so rapidly that for many of these tech businesses, having a successful operation there is important,” Ryan said.