7041862895_6192f3c764_zLast spring, we discussed Tesla’s problems securing trademark rights in its name in China. See our post here. The moral of the Tesla story was to seek trademark registration in China as early as possible. Now, Apple has lost a trademark battle in China that underscores the importance of the Tesla lesson and gives an additional twist.

Apple’s Battle

In 2002, Apple registered the IPHONE trademark in China for computer hardware and software and mobile telephones. In 2007, Xintong Tiandi, a leather goods maker, sought and obtained registration of the IPHONE trademark for leather goods, including phone cases. Apple, claiming that its IPHONE mark was famous and well known in China, challenged Xintong Tiandi’s IPHONE registration in the China Trade Mark Review and Adjudication Board, where it lost. Apple then took the fight to the courts in China and lost in the lower court. Apple appealed and The Beijing Municipal High People’s Court has ruled against Apple again, stating that Xintong Tiandi registered the IPHONE mark before Apple, thus giving it superior rights, and Apple’s IPHONE trademark was not sufficiently well known in China at the time Xintong Tiandi registered IPHONE for leather goods. As the first user of the mark, Xintong Tiandi had the greatest rights and Apple’s claims failed.

Given this final decision, in order to either use IPHONE on leather products itself or to prevent Xintong Tiandi from doing so, Apple will likely have to seek a license or buy the rights to the IPHONE mark for these goods. This is not the first time Apple has had trademark issues in China. In 2012 Apple paid some $60 million to end a similar dispute over the IPAD trademark. These lessons can be expensive.

First-to-File Rights

This new Apple situation demonstrates again the importance of seeking trademark registration in China. The Chinese trademark system is based on first-to-file rights. The first party to obtain registration of a mark will be considered to have the superior rights over any other users. In addition, unlike the United States, the Chinese system does not require that a trademark actually be in use in order to secure registration. While a China registration might become vulnerable to cancellation for non-use of the mark, it is possible in the first instance to register a mark for goods where there is no actual use. Playing this system, many parties, like Xintong Tiandi, register trademarks of others for unrelated goods solely to have superior rights to a mark. Then, if the owner of a trademark wants to expand into new areas or prevent others from using its mark it may not be able to. Ultimately parties like Xintong Tiandi here or Zhan Baosheng in the Tesla matter might stand to gain significant windfalls.

This same system works to the advantage of trademark owners. Because use is not required in order to initially secure registration, a business can register its mark in China for any goods or services, even if unrelated initially to core products. The problem Tesla had was that it failed to register the TESLA mark for automobiles early enough and when it expanded to China it was faced with the prospect of having to buy its trademark from a squatter to use it for its most important goods. Here, Apple is unable to prevent a squatter from using IPHONE for a peripheral product—leather phone cases—and may now have to purchase those rights. Accordingly, when considering China trademark protection, businesses should register early—even if they are not in the China market yet—and often—seeking registration for principal goods and services as well as related and ancillary goods and services.

Photo courtesy of United States Mission Geneva under Flickr Creative Commons License