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Trademark Squatting Without Substantial Infringement May Violate Anti-Unfair Competition Law

Trademark squatting is a practice rife in China for all the wrong reasons. As China operates a first-to-file, rather than a first-to-use, system, companies are more susceptible to having their trademarks misappropriated. The journey from application to full registration and protection can take up to a year and a half – a loophole often exploited by trademark squatters. Unbeknownst to successful foreign brand owners who have not yet registered their trademarks in China, squatters may strike pre-emptively by filing applications ahead of the legitimate owners’ entry into China, with the intention of compelling them to buy their own trademarks back.

The case of Emerson Electric Co. (“Emerson”) v. Xiamen Anjier Water Angel Drinking Water Equipment Co., Ltd (“Xiamen Anjier”), however, represents a watershed moment in the uphill battle against trademark squatting, which has been a thorn in the flesh of many wronged brand owners. For the first time, a Chinese court has found that trademark squatting without any substantial use or malicious assertion (i.e., filing a malicious complaint or civil lawsuit against the rightful brand owner) violated Article 2 of Anti-Unfair Competition Law.

The noteworthy case concerns trademarks belonging to a renowned food waste disposal provider, Emerson. Their “In-Sink-Erator” trademarks and variations thereof were registered in the 1990s and 2006 respectively. The culprit, Xiamen Anjier, was a serial offender who, from 2010, had started filing applications for the “In-Sink-Erator” trademarks that closely resembled those of Emerson. In total, Xiamen Anjier and another affiliated company that was created to continue the trademark misappropriation had attempted to register 48 trademarks in 14 classes, which were identical or very similar to those belonging to Emerson.

In 2020, Emerson filed a lawsuit against Xiamen Anjier and associated parties, citing unfair competition, and seeking damages, injunctive relief and an order to rectify the negative effects by issuing a public statement in the media.

Key implications of case

1. Trademark squatting without substantial infringement is actionable under Anti-Unfair Competition Law

Xiamen Anjier claimed that they had merely filed applications to initiate the registration process, and that they had already filed for deregistration of the misappropriated trademarks and withdrawn all applications. It should also be noted that, bar the use of the “In-Sink-Erator” trademark on their website, Xiamen Anjier did not display the trademark on their goods or services. They argued that, since Emerson’s business operations were not adversely affected as a result of the minor infringement nor was there any consumer confusion, the dispute did not fall within the jurisdiction of Anti-Unfair Competition Law.

The court, one the other hand, held that Xiamen’s Anjier serial infringement had the consequence of forcing Emerson to safeguard their legitimate rights and interests, through lodging many invalidation petitions and oppositions as well as initiating civil proceedings, which had disrupted Emerson’s business operations to a material extent. Therefore, Xiamen’s Anjier trademark squatting was found to constitute an act of unfair competition.

2. The legal representative of Xiamen Anjier and the trademark agency that facilitated trademark squatting were found to be joint infringers

Mr Wang, the legal representative of Xiamen Anjier and another closely associated company claimed that he had not registered the trademarks in his own name and, because the companies were separate legal entities, he did not engage in joint infringement. The court, however, held that Mr Wang had in fact exerted an overriding influence over both companies, who simultaneously wore the hats of the legal representative, general manager, executive director and controlling shareholder. When the illegality of Xiamen Anjier’s actions was exposed, he then went on to establish a second company with the intention of using it as a vehicle to continue the infringement activities. Thus, he was found to be jointly and severally liable.

The trademark agency, Xiamen Xingjun, knowingly facilitated Xiamen Anjier’s trademark appropriation, who had helped the defendant file 47 of the 48 applications and continued to do so even after the infringement was uncovered in earlier legal proceedings. Xiamen Xingjun was found to have violated Article 19 of Trademark Law by failing to act in good faith and flagrantly flouting relevant rules and regulations and was, therefore, held jointly liable under the principle of contributory infringement.

3. The damages awarded and the injunctive relief granted by the court are significant

The court held that, although Xiamen Anjier had subsequently withdrawn all applications and deregistered the misappropriated trademarks, the low costs incurred for the defendant in the course of operating their trademark squatting enterprise were grossly disproportionate to the time and resources spent by Emerson on oppositions, invalidation petitions and legal proceedings. In addition to granting injunctive relief, the Court awarded Emerson RMB 1,600,000 worth of damages, taking into account Xiamen Anjier’s serial infringement and subjective malice as well as Emerson’s expenses.

The true reverberations of this case remain to be seen in subsequent cases concerning trademark squatting. Having said that, it symbolises a tentative step towards providing a cause of action for brand owners and acts as a wake-up call for squatters who have up until now believed that they can get off scot-free and unscathed.

 

 

 

 

 

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