Yan GONG       Lin ZHU   

China has become an increasingly important market for brands around the world. The issue of “trademark squatters”, where a company or individual registers a company’s trademark in a country before that company is ready to expand into the market, is prevalent in China, as is true in many other countries where a first-to-file system operates.

 

Because China uses a “first-to-file” system for trademarks, it is possible that a third party may have already registered a desired trademark in China while a business was busy establishing its brand in the European Union or the United States. If China is a key market, it is advisable to file a trademark in China within the priority period after filing in the European Union or the U.S.

 

Enforcement of registered marks is increasingly possible in China; however, what if a foreign business has not registered its desired trademark, or has not actually used the mark in China?  Does this preclude enforcement in China? Many businesses hesitate to step into the Chinese market due to uncertainty with regard to enforceability of their intellectual property rights. China has historically had a poor reputation for enforcing intellectual property rights. The outcome of the following case suggests this is changing.

 

In July 2016, the world leader in indoor skydiving tunnels, SKYVENTURE LLC, won the rights to the trademark SKYVENTURE following a battle with a Chinese company, Chengdu Overseas Chinese Town (Chengdu OCT).   SKYVENTURE LLC currently sells wind tunnels under the brand SKYVENTURE and operates (either itself or through licensees) wind tunnels under the brand name IFLY, a brand it started using in 2006. Some tunnels are still operating under the SKYVENUTRE brand as well. SKYVENTURE LLC’s flagship tunnel brand name, SKYVENTURE, for which no application for registration had been filed in China, was preemptively registered as a trademark by Chengdu OCT in 2013 for entertainment-related services in class 41 similar to those offered by SKYVENTURE. SKYVENTURE LLC filed an invalidation action against Chengdu OCT in 2014 with the China Trademark Review and Adjudication Board (TRAB), and then sued the TRAB in 2015, claiming that Chengdu OCT’s registration of the trademark infringes its existing prior right and was filed in bad faith.

 

Chengdu OCT’s registration had initially been upheld by the TRAB before the Beijing Intellectual Property Court overturned the TRAB’s decision in 2016. The Court found that Chengdu OCT filed the application for registration of the mark SKYVENTURE in bad faith: although SKYVENTURE LLC had not actually operated its business in China prior to Chengdu OCT’s application, the public may still be misled into thinking that Chengdu OCT’s trademark was associated with SKYVENTURE LLC.

 

SKYVENTURE LLC owns, operates and partners with 44 highly profitable indoor skydiving tunnels around the world, none of which are in China at the time. A tunnel under the IFLY brand has since opened in Chongqing. Although SKYVENTURE LLC had not actually operated its business in China, we located a number of media reports about SKYVENTURE LLC’s indoor skydiving activities in countries other than China, which were used as a guide by Chinese people who intended to travel abroad. This helped successfully prove that SKYVENTURE LLC’s trade name had been known to the relevant Chinese public prior to Chengdu OCT’s application for registration of the mark.

SKYVENTURE LLC featured a promotional video on its website which, among other things, showed an image of the company’s CEO and listed company contact information. Chengdu OCT went so far as to post this video on its own website. . We had Chengdu OCT’s web pages notarized, and this evidence turned out to be key in proving Chengdu OCT’s bad faith.

 

The revised China Trademark Law stipulates the principle of good faith as a complement to the first-to-file system. This was instrumental in the successful prosecution of this case. The revised law and its implementation in this case demonstrate a shift in attitude in the Chinese courts, particularly when we consider that the foreign business in question had not started using its trademark in China, yet its trademark has been preemptively registered by a third party in bad faith.

 

Foreign businesses can learn from this case. It is strongly recommended that new entrants to the market file their trademarks in China as early as possible. Should there already be a trademark squatter, it is important to collect evidence of the squatter’s bad faith before taking any further action.

 

This decision sets a significant precedent enforcement of intellectual property rights is regarded as a serious matter in China.