Beware the trademark trolls

For Kiwi exporters, trademark trolls – those who file trademark applications to own New Zealand exported brands – are everywhere. But any importers sitting back laughing should beware too, because trademark trolls are also coming for you. 

 

With the push by the Chinese Government to educate business people about Intellectual Property (IP), and the incentives they provide to help them secure IP rights, Chinese companies are becoming much more savvy. Unfortunately, so are the trolls.

 

They’re thinking beyond just owning export brands, they’re now also registering New Zealand trademarks that are being applied to goods manufactured in China for export to other countries. After securing the trademark rights, these opportunists are filing customs notices to detain any products leaving China which carry their registered trademark on the grounds that what is being exported infringes their trademark registration. 

 

Under Chinese law, this is legally correct, and the onus is on the brand owner to prove the troll’s trademark rights are invalid.

Many Kiwi companies manufacture in China, and some are certainly finding it difficult to get their branded products out of China and back to New Zealand, or any other country, because of red tape caused by trolls. While a container load of goods is stuck on the dock in China, stock can be running out in key markets, and distributors and customers will be clamouring for products. It can end up costing plenty in lost revenue and expenses. 

 

For example, a New Zealand company contracts Chinese factories to manufacture farm gates for it via an agent, to import back into New Zealand for sale. The Kiwi company didn’t consider it necessary to own its IP rights in China as it never intended to sell its products there. That sounds logical, but this is how the situation panned out when the agent-turned-troll, who was used to contract the manufacturing companies in China and maintain the relationships, saw an opportunity in the offing.

 

The relationship between the Kiwi company and the agent started to run into problems over the quality of the gates and the price. The agent decided to file a design registration for the gates, and a trademark application for the specific brand of the gates as security. When the Kiwi company decided to pull the pin on the relationship and find another agent in China, the agent filed a border control notice with Customs in Shanghai and the Kiwi company’s gates were impounded on the docks. The agent also warned the manufacturers that if they took orders from the Kiwi company, then they would be infringing his IP rights.

 

In the end the design registration was relatively easy to challenge because, similar to New Zealand’s requirements for design registration and patents, China requires that a design be novel for it to be registerable. However, the trademark issue was much more difficult to resolve due to China’s first to file trademark system. While we managed to negotiate a deal to have the gates released from Customs, it was certainly a costly and delicate exercise. 

 

The Kiwi company suffered damage to its reputation through not being able to maintain supplies and was forced to pay to have the goods released. It was a bitter pill to swallow to also have to continue using the agent, as he ‘owned’ the brand, as well as the relationships with the manufacturers. 

Going forward the Kiwi company has had to consider rebranding or leaving the products (and packaging) unbranded in China. Not a great option. 

 

 

While the laws in China have recently been tightened to give New Zealand companies the right to invalidate trademark registrations on the basis they were obtained in bad faith, this only works if you can establish a prior business relationship. It doesn’t work against opportunists – the sort who email you saying a third party has registered a bunch of domain names using your brand, and would you like to buy them for a tidy sum?  

 

Really, the key to combating trolls is to be aggressive with your IP strategy in terms of plugging any gaps. If you thought like a troll, you’d not just be filing in the class that covers your actual products, but other classes of goods that may be used on goods that are complementary to your products. Even if you have no intention of developing trademarks for products in those other Goods Classifications, it stops people from using your name on a variation of your core product. 

 

Also, the complex subclass system within each trademark class in China means that you need to cover off all of the subclasses to ensure no confusingly similar marks appear in the same trademark class.

 

 

In many ways trademark trolling has its basis in culture. The Chinese are well-known to be tough business people and tenacious negotiators, who spot opportunities and push everything as far as they can. To operate successfully in these markets you’ve got to understand and respect the culture, and appreciate that there’s no blanket approach to doing business in China. The culture differs so much in different regions. 

 

While we’ve moved on from ten years ago when Kiwis thought Asia was one country, refraining from using the general terms ‘China’ and ‘Chinese’, and using basic manners will go a long way to doing business successfully in China. 

 

For example, in China many business meetings happen over lunch or dinner. It’s not enough to use chopsticks – you need to know that you don’t play with them at the table, don’t hit the side of your bowl with them, and never, ever, stick your chopsticks upright in your rice.

 

Obviously making deals in China is far more complicated than that, it’s also about relationships. You can’t learn what you need to know unless you’re there spending time getting to know the people. Go in with the attitude of working together for mutual benefit, not dividing and conquering or getting the best end of the deal. If that’s not your area of expertise, hire the right people to help you – people who know the market and the players, who can look at the motivation of some of the moves in the negotiation game, and can give you an informed, neutral, honest opinion. 

 

The good news is that things are changing in China, and the Government’s focus on several issues, including IP and anti-corruption is helping change business culture. This should lead to fewer trolls in future. But for now, cover all the bases.