Trademark Squatters: 1; Apple: 0

Move over, Apple. There’s a new IPHONE in town. Of course, that town is in China and, oddly enough, that IPHONE is a line of purses and wallets, but still…

In 2002, well before the seminal device’s 2009 release, Apple applied to register the IPHONE trademark in China in class 9 for electronics – which was eventually granted in 2012. In 2010, Xintong Tiandi was able to register the IPHONE trademark in class 18 leather goods. Thus beginning a protracted and, as of now, futile effort by the technology giant to protect some uses of the IPHONE trademark in the world’s second-largest market.

In late May, the Beijing Municipal High People’s Court rejected the tech giant’s appeal to prevent the registration and use of the IPHONE trademark by Xintong Tiandi. Although Apple plans on asking for a retrial, the current ruling deals a significant blow to Apple’s IPHONE trademark rights in China.

The Court held that the Chinese company’s use of IPHONE neither harmed Apple’s interests nor caused consumer confusion. To add insult to injury, it also held that Apple could not prove that the IPHONE brand was well-known in China at the time of Xintong Tiandi’s application.

Unfortunately, trademark squatting is not at all uncommon in China. Under the country’s “first-to-file” system, trademark rights are typically granted to the earliest applicant. In contrast, the United States uses a “first-to-use” system, where first users of trademarks acquire rights.

“First-to-File” opportunists can rather easily register marks, then, when the legitimate owner of the brand attempts to do business in China, the squatters step in and essentially ransom the trademark. Owners face three equally annoying options: pay up, rebrand or take legal action. In true-squatter situations in which the squatters are not using the marks, cancellation proceedings at the Chinese Trademark Office can be used to cancel registrations that may be holding-up legitimate applications for trademark registration.

If China is an important market for your business, consider actively filing trademark applications. Filing early and for a variety of classes in China can allow expansion into other product areas. It can be less costly in the long-run to aggressively file and then let registrations go abandoned if they are not being used, compared to dealing with trademark squatters that try to take advantage of your brand’s goodwill by filing their own applications.