China: Your company name may not be yours
Even if you're not yet doing business there, experts advise U.S. brands to quickly register trademarks or risk losing them to local 'pirates.'
By Parija Bhatnagar, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) - U.S. brands, beware!

It doesn't matter if you're already in China, about to take your business there, or have no interest in going East just yet -- experts strongly suggest that companies quickly register all their brands in China anyway or else risk becoming the victim of local "trademark squatters."

Stephen Baker, trademark attorney with law firm Baker & Rannells, said international trademark squatting is similar to "cyber squatting," or the domain-name grab that occurred when people first started to recognize the power and popularity of the World Wide Web .

Companies that didn't rush to register their brand names as their Internet address often found that someone else had already anticipated the move and registered the same address ahead of them. In some cases, these "cybersquatters" were able to exhort large sums of money from corporations and individuals who wanted to get back their domain name.

"Trademark piracy is the same thing. Opportunists in China and elsewhere think they can make a lot of money by registering well-known U.S. and international brands in their country," said Baker, adding that his firm is currently involved in multiple trademark piracy cases in China.

He gave an example: "We currently have a cancellation proceeding underway in China where a Chinese national filed to register a trademark that belonged to an alcohol beverage company with presence in the U.S. (and) a division in Europe," he said.

According to Baker, the company's U.K. unit went to register its trademark in China only to find that it had already been registered, which in itself isn't illegal in China.

"We're going after the registrant on the grounds that they had the trademark but never used it during the ownership period. So we want it cancelled on grounds of abandonment," said Baker.

News flash: There's no such thing as an international trademark

While trademark squatting isn't specific to China -- Baker listed ongoing cases in Jordan, Nigeria, Korea and Australia, as well as the United States -- observers admit that the issue does take on an added dimension of complexity in China.

One reason is China's status as a manufacturing hub for a large number of international brands. Secondly, China's fast-growing economy has given risen to a sizeable population of middle-class consumers with a thirst for branded goods.

Pamela Church, an intellectual property lawyer and partner with law firm Baker & McKenzie, said it's critical for U.S. brands who already source from China to register their trademarks there simultaneously.

This is crucial, she said, because U.S. companies may not be aware that there's no such thing as an international patent or trademark. This leaves "unprotected" trademarks vulnerable to legions of trademark pirates in China who are hunting the globe in search of buzzworthy brands that they anticipate will look to enter lucrative international markets.

According to Church, China has a "first to file system" regarding trademarks. In other words, if a local Chinese registrant files for a U.S. trademark that's not already registered, he or she then legally owns the brand, and has the right to manufacture and sell the branded product in China.

"So many branded products are manufactured in China and suppliers already have product knowledge and know how to use the brand," said Church. "If your trademark isn't protected, the manufacturer can acquire the trademark and start selling it in the local market and other markets without the brandholder's consent."

Maybe this isn't a big problem if you're a small company without any immediate plans to expand internationally, said Robert Eisen, partner with Baker & McKenzie.

But, if this same company at a later stage does decide to go to China and launch a brand that is already registered by a "pirate," then the company becomes the "infringer" and could find itself being sued by the local registrant or having to negotiate to buy its trademark back.

"And if you're already a successful international brand and you lose your trademark protection in China, your brand can also take a hit from cheap counterfeits leaking from China into other markets," Eisen said.

What should U.S. companies do?

Owen Smigelski, an intellectual property attorney with San Diego-based Achtel Law firm, recommends U.S. brandholders immediately file their trademark particularly in those countries where trademark squatting is springing up more frequently.

"Over the past couple of years we've certainly have had more clients pursuing trademark issues in southeast Asia versus earlier," Smigelski said. "I think with the Olympics coming up, China is also looking very attractive for lots of international brands and they should be aware of trademark issues."

It's relatively inexpensive to register the trademark, typically under $1,000, he said, while trademark litigation can run into thousands of dollars.

Baker & McKenzie's Church also advised that companies register all the trademarks in their portfolio as well as their Chinese translation and transliteration for all-round protection against trademark pirates.

Additionally, people familiar with the Commerce Department's thinking on the issue suggest U.S. companies carefully vet their partners in China and enter into a registered contract with local businesses.

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.