Trademark Trolls in China: Reasons and Solutions of the Serious Market Disturbing Problem

• Author: Feng Shujie
• Pages: 259-292

2019] TRADEMARK TROLLS IN CHINA 259

TRADEMARK TROLLS IN CHINA:

REASONS AND SOLUTIONS

OF THE SERIOUS MARKET DISTURBING PROBLEM

FENG Shujie

Abstract

In r ecent years, trademark trolls have become a serious problem that disturbs the Ch inese

market. Though trademark trolls are concomitant with the trademark registration system, their

overspreading in China is due to particular social and legal factors: the proactive trademark

protection policies which value trademark certificates over the goodwill of trademarks that have

developed over time; damages, in recent years, to trademark infrin gements which have

increased drastically in an unjustified manne r; and, trademark infringement dispute settlement

procedures before administrative and e-commerc e platforms that are inequitably favorable to

trademark holders. The Chinese legislature and courts , cognizant of the seriousness of the

problem, have started to take measures against trademark trolls. The 2013 Chinese Trademark

Law permits prior legitimate users of a tradema rk to continue its use within the initial scope

even if the tradem ark has been registered later by a third party. Further, th e 2018 Chinese E -

Commerce Law doubled the amount of dama ges granted to the victim in cases of bad faith

complaints on e-commerce platforms. The Chinese cou rts have qua lified th e e xistence of

trademark trolls as an abuse of righ ts or unfair competition, an understanding which may give

rise to liability against tra demark troll entities. In addition, a declaratory judgeme nt of non -

infringement is available if the vic tim simply needs to get rid of the uncertainty or risk in the

face of threats from trademark trolls. Fina lly, the victim can also file an opposition or

invalidation action in cases of trademar k squatting by trademark troll entities.

I. INTRODUCTION

Trademark rights can be acquired either through use or through

registration.1 In common law jurisdictions, such as the United States,

trademark rights are recognized on the basis of using a trademark by

an individual or enterprise in commerce. The scope of the rights

depends on the commercialized products or services and the

geographical area covered by the use of the trademark.2 Where two

trademarks are used in the same area, prior use prevails in cases of

conflicting trademark use. The advantage of the trademark use system

is that the legal rights correspond to and are justified by the legitimate

interests of the trademark user’s goodwill. The disadvantage of such a

system is that conflicts may often arise when the same or similar kinds

of products from different users of the same or similar trademarks

meet each other in a new commercial zone. In most countries of the

1 WORLD INTELL. PROP. ORG. (WIPO), WIPO INTELLECTUAL PROPERTY HANDBOOK 77 (Gene va,

2nd ed. 2004), https://www.wipo.int/about -ip/en/iprm/.

2 MARY LAFRANCE, UNDERSTANDING TRADEMARK LAW 32–42 (LexisNexis, 2nd ed. 2009).

260 TSINGHUA CHINA LAW REVIEW [Vol. 11:257

world, trademark rights come from registration. Any individual or

enterprise can file an application to the trademark office for the

registration of a sign which was chosen on designated goods or

services. This application will be examined and published for

registration if the conditions of registration are satisfied. This system

includes the following advantages: the examination procedure can

prevent, to a large extent, conflicting trademark applications; while the

publication procedure permits enterprises in the same industry to

avoid filing or using conflicting trademarks. The disadvantage is that,

as use is not a condition for trademark registration, a trademark

currently used but not registered by company A (hereinafter referred

to as “Company A”) may be registered as a trademark by company B

(hereinafter referred to as “Company B”). As a result, Company A

must stop its use and possibly even pay damages to Company B as

unregistered trademarks are, in general, not protected in the trademark

registration system. This may happen whether Company B registers

the trademark in good or bad faith. Good faith registration means that

Company B was not aware of the trademark use by Company A when

it filed the trademark registration. However, bad faith registration

means that Company B has applied for the trademark registration

despite being aware of the trademark use by Company A. This is called

trademark squatting or trademark piracy.3 If a trademark squatter sues

the prior trademark user in order to obtain a profit, they are considered

a trademark troll. 4 A simple trademark registration grants the power

to not only prohibit others from using a trademark, but also to receive

damages. Some trademark trolls recognize this as a business: they

invest in the registration of a large number of trademarks, and then

keep watch on the market for the opportunity to sue others and gain

profits.

3 WIPO, supra note 1, at 90; Shujie Feng, Why the Deficiency in Fighting Trade mark Piracy in

China?, 2 EUR. INTELL. PROP. REV. 2 (2014).

4 “A trademark troll generally is defined as an entity that uses trademark law, without actua lly using

a mark in c ommerce, to extract licensing fees from others who are using the trademark. The trademark

trolls essentially attempt t o “hold up” those who are usin g the trade mark.” Mike Mireles, Trademark

Trolls: A Problem in the United States, 18 CHAP. L. REV. 815 (2014-2015); Brian L. Frye, IP as Metaphor,

18 CHAP. L. REV. 735 (2015 ); David H . Bernstein & Andrew Gilden, No Trolls Barred: Trad emark

Injunctions After Ebay, 99 TRADEMARK REP. 1037, 1064-65 (200 9); Leah Chan Grinvald, Shaming

Trademark Bullies, 2011 WIS . L. REV. 625, 628-29 (2011).

2019] TRADEMARK TROLLS IN CHINA 261

China’s trademark registration system dates back to 1982, when it

first adopted its modern trademark law.5 Unfortunately, some entities

have abused the system by taking advantage of the weaknesses of the

trademark registration system. Over the years, this has led to the

serious problem of trademark squatting, and subsequently the

presence of trademark trolls.6 On one hand, the Chinese Government

celebrates the skyrocketing amount of trademark applications and

registrations because such large numbers are considered to signify a

high level of intellectual property (hereinafter referred to as “IP”)

protection and economic prosperity.7 On the other hand, it is clear that

this perspective does not make sense in view of the economic bubbles

in the trademark applications. In fact, trademark squatting accounts

for a non-negligible percentage of the statistics. For example, a

Chinese trading company incorporated on 2 May 2018 filed 5,060

trademarks on 27 June and 5,753 trademarks on 27 July 2018. Here, it

can see that trademark trolls behave like a business in the sense that

they make important investments when it comes to trademark filing:

5,060 trademark filing represents an official tax of 222,047 USD and

5,753 filings for an official tax of 252,457 USD.8

Trademark trolls in China function primarily in two ways. The first

is by filing a lawsuit for trademark infringement requesting high

5 The Chinese Trademark Law (商标法) was adopted on 23 August 1982 and revised on 22 February

1993, 27 October 2001, and 30 August 2013 .

6 Liang Zhiw en (梁志文), Fansi Zhishi Chanquan Qingqiuquan Lilun—Zhi shi Chanquan Yaoxie

Celüe yu Zh ishi Chanquan Qingq iuquan de Xianzhi (反思知识产权请求权理论—知识产权要挟策略

与知识产权请求权的限制) [Re flection on the Requesting Rights of Intellectual Property—Intellectual

Property Trolls and the Limitation to Intellectual Property Rights], 4 QINGHUA FAXUE (清华法学)

[TSINGHUA U. L. J.] 124, 126 (2008); Cui Guobin (崔国斌), Shangbiao Xiechi yu Zhuce Shangbiaoquan

de Xianzhi (商标挟持与注册商标权的限制) [Trademark Trolls and the Limitation to Trademark

Rights], 4 ZHISHI CHANQUAN (知识产权) [INTELL. PROP.] 10, 38 (2015).

7 In 2017, there were in total 5,748 million trademark applications in C hina (an increase of 55.72%

as compared to the number of 2016), among which 5,539 million were filed by Chin ese entiti es

(accounting for 96.36%); During the period of 2013-2017, there were 15,846 million Chinese trade mark

applications (58.2% of the global tra demark applications) and 9,354 million registered C hinese

trademarks (55% of the global registered trademark s); China has been ranked No.1 in term of number of

registered trademarks in the world for 16 years. Guojia Shangbiaoju (国家商标局) [Trademark Offic e],

Zhongguo Shangbiao Pinpai Zhanlüe Niandu Fazhan Baogao (2017) (中国商标品牌战略年度发展报

告(2017)) [2017 Annual Development Report on China Trademark Strategy], http://sbj.saic.gov.cn/sbtj/2

01805/W020180513829986812509.pd f.

8 Liangtian Shenqing Wan Jian Shangbiao , Pinqiong Zaici Xianzh i Xiangxiang (两天申请 万件商

标, 贫穷再次限制想象) [More Than 10,000 Trade marks Were Applied Within Two Days; Poverty

Limits Our Imagination Again], IPCODE ZHICHANKU ( Aug 8, 2018), https://mp.weixin.qq.com/s/PTc10a

FBJ4Jtr6u_twQd3g [hereinafter 10,000 Trademarks Within Two Days].