What is Trademark squatting?

Chinese individuals or companies who unlawfully acquire and hold the trademarks of others are commonly referred to as trademark squatters. These individuals or entities take advantage of the Chinese IPO's online database, which has been operational since 2005, and the first-to-file principle. In China, trademark rights are granted to the first person or entity to file for registration, regardless of prior use by others.

Other individuals have taken advantage of the situation by acquiring the trademarks of foreign companies, not with the intention of extorting money, but rather to exploit them for commercial purposes. These individuals, have adopted a business model centered around producing counterfeit goods that they can freely sell within China (and other countries where the foreign company has not registered its trademark) without facing any consequences from the legitimate brand owner. This is possible because the squatters legally possess the trademark rights in China. Depending on the level of brand recognition and their own profit motives, these squatters may choose to sell similar or different types of products compared to the genuine brand owner. It is not uncommon for these squatters to register multiple foreign brand names in China.

When you enter the China Market

Upon entering China and embarking on business endeavors, the rightful brand owner will encounter three alternatives: 1. acquiesce to the demands of the squatters, 2. undergo a re-branding process, or 3. engage in legal proceedings. Pursuing litigation within China is arguably the least favorable course of action. It could potentially require several years to arrive at a conclusive verdict, and throughout this duration, the business landscape can undergo significant transformations. Moreover, pursuing legal action might prove to be entirely futile, given the uncertain nature of China's judicial system and the lack of assured success.