China economy: Wild West when it comes to securing trademarks

HONG KONG — Securing a trademark in the world's second-largest economy is a bit like grabbing gold rights in America's proverbial wild west: the rewards are huge, and it's first come, first served.

In the last week, three major global brands — Michael Jordan, Apple and Hermes — have gone to battle in Chinese courts to protect their names from rivals that claim to own them because they registered them first. While this is hardly a new problem, these examples highlight the difficulty foreign companies have had navigating China’s complex legal system.

“Under the US system, for trademark purposes, you need to show use or intent to use. In China it is purely first-to-file,” said Horace Lam, an intellectual property lawyer based in Beijing. Because there is no such thing as an international trademark, “this essentially means that you have all these hijacked marks.”

In the case of Michael Jordan, the basketball superstar waited years to file a lawsuit against the sports manufacturer Qiaodan (Jordan’s name in Chinese), which used his name and a knockoff of the “Air Jordan” logo to sell athletic gear without his permission.

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Experts say this is because previous attempts by Nike to stop Qiaodan had failed. But now Jordan’s lawyers hope Chinese courts will be more sympathetic, as they recently enforced claims by Chinese basketball players such as Yao Ming.

To win their case, Jordan’s lawyers will have to prove that the company used his name intentionally, in bad faith, and that he was famous at the time when his name was registered.

But even with such an egregious, open-shut case — Qiaodan uses Jordan’s No. 23 on much of its sportswear, and filed for over 100 trademarks related to the athlete, including the names of his children — some experts say the basketball star may have trouble regaining his rights.

“The case might not be as straightforward as people think,” Lam said. “Those trademarks have been used in China for some time. … I think it's not going to be an easy case, which means that maybe, he wants to license the name to [Qiaodan]. That company is very big, they're talking about being listed.”

So why is it so difficult to win trademark cases in China?

Partly, it’s that trademark system — which is less than 30 years old — requires far-sighted planning. If a company knows what brand names it wants in advance, it can simply register them first, at a cost of a few hundred dollars. But if a squatter gets there first, the cost to litigate or settle skyrockets, and Chinese courts tend to protect the original party.

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French luxury house Hermes ran up against this problem last week, losing its case to a menswear manufacturer that claimed the Chinese version of the company’s name; the court ruled that Hermes was not famous enough in China, and could not prove that the trademark had been registered illegally.

"Time and time again, I see even multinational, Fortune 500 companies, they make the simplest mistakes in China,” Lam said. "The issue is not so much the cost [to register a trademark] … The issue is, one, people don't know the system, and two, for some people, they probably did not have China on their radar screen at the beginning."

Pfizer stands as a landmark example. The pharmaceutical giant fought for 11 years to preserve its the Chinese name of its blockbuster drug Viagra, and lost.

Even after such precedents, major companies still make mistakes. Apple computer, the largest company in the world by market capitalization, is battling in court to prove that it properly bought rights to the "iPad" name from Proview corporation, which owned the trademark. Proview claims Apple bought the name from the wrong division of the company, and argues it is owed $2 billion as a result. Sales of the iPad were banned in some Chinese cities pending a final ruling in the case.

All this could have been prevented if Apple had done more due diligence in nailing down the trademark for what has since then become of the best-selling products in the world.

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With such high stakes at play, it's no surprise that “trademark squatting” is a big business in China.

The country’s extensive awareness of foreign brands through manufacturing creates endless opportunities for enterprising pirates to register unprotected trademarks and sell them or use them. According to a US International Trade Commission report last May, Chinese trademark theft and counterfeiting cost American businesses $48 billion in 2009.

"These squatters come in all shapes and sizes," said Stan Abrams, an intellectual property lawyer and professor at Beijing’s Central University of Finance and Economics.

"A lot of them out there just do domain names and trademarks. There was a notorious domain-name squatter years ago that had thousands of domain names. It's a business for some companies, and it's been around for a very long time," he said.

But has the situation improved? Somewhat. Experts say the country’s intellectual property law is up to World Trade Organization standards, and most large corporations have learned how better to protect their brands.

“Trademark is not the same kind of problem it used to be,” Abrams said. “When new product names and new company names are created, companies know what to do. It's not a mystery any more.”

What’s still lacking, however, is the willingness by authorities to punish offenders.

"It all comes down to enforcement," Abrams said. "If you have a good system of enforcement, people will get scared, period. It's not a question of whether they think it's right or wrong. It’s whether they think they are going to get caught."