Foreign Trademarks Squatted in China: Prevention and Remedies

Trademark squatting — the practice of registering a well-known foreign trademark in China by someone other than the rightful owner — has been a persistent challenge for international brands operating in or seeking to enter the Chinese market. Despite improvements in China's trademark legal framework in recent years, the problem remains significant. Foreign companies that fail to register their trademarks early in China risk losing the exclusive right to use their own brand name in the world's largest consumer market.

The Scope of the Problem

Trademark squatting in China is not limited to small businesses or obscure brands. Global luxury houses, technology companies, food and beverage chains, and even government entities have been victims. Squatters often register trademarks in bad faith, anticipating that the rightful owner will eventually need to purchase the mark at an inflated price or will be blocked from entering the market. Some squatters register marks proactively as a business model, building portfolios of thousands of foreign trademarks and waiting for the brand owners to discover the conflict.

China operates a first-to-file trademark system, meaning that the first party to file an application for a mark generally obtains the exclusive right to use it — regardless of whether that party is the true owner. This system creates an inherent vulnerability for foreign brands that delay registration in China, often because they have not yet commenced business operations in the country.

Legal Framework for Combating Squatting

China's Trademark Law provides several avenues for combating trademark squatting. The most relevant provisions are those addressing bad-faith applications. Article 4 of the Trademark Law, as amended, provides that a trademark application filed "not for the purpose of use" shall be rejected. This provision targets squatters who accumulate registrations without any genuine intention to use the marks.

Article 32 protects "prior rights," allowing the owner of an unregistered mark that has achieved a certain level of recognition in China to oppose or invalidate a squatter's registration. The mark must have been used in China and must have acquired sufficient reputation to qualify for protection. This typically requires evidence of sales, advertising, media coverage, or consumer recognition within China.

Article 45 provides that a registered trademark may be declared invalid if the registration violated the provisions on prior rights and the owner of the prior right files a request within five years of the registration date. For marks registered in bad faith, this five-year limitation does not apply, and the owner of a well-known mark may challenge a bad-faith registration at any time.

Practical Steps for Protection

Foreign companies should take a proactive approach to trademark protection in China. The single most effective measure is to file trademark applications in China before entering the market. A trademark registration in the company's home country does not provide any protection in China, where territoriality principles apply. Filing early — before any public disclosure of the brand's expansion plans — reduces the risk of squatting.

When selecting a mark for registration in China, companies should consider both the English-language mark and a Chinese-language equivalent. Chinese consumers often identify foreign brands by their Chinese names, and failing to register the Chinese version leaves a gap that squatters will exploit. The Chinese name should be chosen carefully — ideally with input from local branding professionals — to ensure it is distinctive, pronounceable, and culturally appropriate.

Monitoring the trademark register is another essential practice. China publishes trademark applications for opposition, and brand owners should monitor these publications for potentially conflicting marks. Professional trademark watching services can alert brand owners to applications that may infringe their rights, allowing them to file oppositions within the three-month opposition period.

What to Do If Your Mark Has Been Squatted

If a foreign company discovers that its mark has been squatted in China, several options are available. The first line of defense is to file an opposition if the application is still pending. If the mark has already been registered, the company may file an invalidation request with the China National Intellectual Property Administration (CNIPA). Both opposition and invalidation proceedings require evidence of bad faith on the part of the squatter and evidence of the brand owner's prior rights or prior use.

If CNIPA's decision is unfavorable, the matter may be appealed to the Beijing Intellectual Property Court and subsequently to the Beijing Higher People's Court. Administrative litigation in these cases typically takes one to three years. The cost and duration of litigation underscore the importance of early registration as a preventive measure.

In appropriate cases, the brand owner may also pursue a civil action for trademark infringement or unfair competition against the squatter, particularly if the squatter is using the mark in commerce. Successful civil actions can result in injunctions, damages, and an order for the transfer or cancellation of the squatted registration.