CNN reports that trademark “squatters” in China are causing problems for US and other foreign companies that want to do business there. China has a “first to file” system for trademark ownership. This means that whoever has a trademark application approved first in China owns the rights to the mark.

Many other countries, including the US, have systems that require the actual use of the mark on goods or services in commerce, either before federal registration or within a specified period after a trademark application is filed.

The Chinese Trademark Office has no requirement that applicants either have used or intend to use the marks on products. When foreign companies want to enter the Chinese market, they often have to pay the squatters for their “own” trademarks. The only other options they have are fighting in the Chinese courts and/or rebranding the merchandise.

Some of the companies who chose this path include:

· Tesla is one company that chose to fight, after being sued for 23.9 million Yuan ($3.84 million USD) by a Chinese businessman with a history of filing trademark applications in China for well-known foreign brands.

· Pfizer also fought an 11-year trademark war in China after it failed to register the Viagra trademark before introducing the drug into China in 2000. It lost the case when it failed to prove that its product had become well-known to Chinese consumers under the name “Weige” (Mighty Brother).

· In 2012, Apple paid $60 million USD to a Chinese company for the right to use the iPad name in China.

· A French winemaker was forced to rebrand its products after losing a four-year litigation battle in China.

China’s new trademark law that took effect in May of this year is designed to discourage this kind of trademark squatting. Under the new law, trademarks must be registered and used “by the principle of honesty and credibility.” An application will be denied if the mark is identical to another party’s mark that has been used (although not yet registered) in China in connection with the same or a similar product if:

· The applicant has a contractual or other business relationship with the other party and knew or should have known of the other party’s previous use of the mark, and

· The other party (i.e., the foreign owner) challenges the Chinese party’s application.

However, this only helps the foreign trademark owners if the Chinese party registering the mark in China has some pre-existing business relationship with the foreign owner of the mark.

The lesson here is that if you’re planning to introduce a product in China, register your trademark there first. Be aware that you may have the expense of buying the right to your own mark, and consider whether that makes more sense than rebranding for the Chinese market.