Lessons from Apple’s failure to prevent small rival protecting “iPhone” name in China

Apple has failed to stop a Chinese company, Xintong Tiandi Technology, from registering the name “IPHONE” as a trade mark for leather products. This should serve as a reminder to foreign companies of the importance of careful consideration of their Intellectual Property (IP) strategies before launching products in China, and of taking extra steps to register and protect their IP there at an early stage.

Apple filed for a trade mark registration for the name “iPhone” for electronics goods in 2002. Xintong Tiandi Technology applied for trade mark registration for “IPHONE” for leather products in China in 2007, the year when the first generation Apple iPhone was released in the US and other countries, but not in China. In 2009, Apple’s iPhone was released in China and in 2010 Apple started legal action in an attempt to stop the Chinese company from protecting the name “IPHONE”.

As the leather goods in Xintong Tiandi’s application were not similar to the electronics goods for which Apple had registered its trade mark, Apple had to rely on the special broader protection granted to “well-known” trade marks in China. This failed because Apple was unable to prove that its iPhone was well-known in China before Xintong Tiandi Technology applied for the trade mark in 2007.

Key message

The important message from the case is that foreign companies must register IP in China in order to be able to enforce IP rights, and trade mark rights only extend to the specific goods covered by a registration. As China operates under a “first to register” system, it is critical companies carefully consider strategies long before putting products on the Chinese market.

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Formulating an appropriate strategy is not always straightforward. For example, it is easy to conclude from this case that obtaining broad registrations for trade marks is optimal, and Apple should have registered its iPhone brand not only for electronic goods, but also for related products such as leather cases. In practice, however, it is questionable how far you should seek to extend brand protection beyond your actual commercial interests. Although the cost of including additional product categories in a trade mark application is relatively low, a broader scope of protection can significantly increase the risk that your application will conflict with other parties’ trade mark rights, resulting in conflicts that could relate only to peripheral product areas in which you have limited or no genuine commercial interest.

The special protection granted to “well-known” trade marks extends the rights in a trade mark registration beyond merely identical and similar products, and so can be a powerful tool for famous brands. However, Apple’s case shows that it only applies to trade marks that are genuinely well-known in China before the filing date of the allegedly conflicting mark. As a result it can often not be taken for granted by foreign companies, even for names with enormous recognition outside of China.

IP enforcement in China

Many foreign companies believe that the courts in China tend to decide in favour of local companies, and it is easy for sceptics to relate that to Apple’s case. However, in recent years, a significant number of foreign companies have succeeded in IP legal actions before the Chinese courts.

Rights owners can choose to use China’s judicial (courts) procedure or an administrative procedure to enforce their rights. The administrative procedure can sometimes be more efficient and cost-effective, particularly for cases involving counterfeiting and clear-cut infringement.

The judicial enforcement system has improved significantly since it was first established more than 30 years ago and the creation of specialised IP courts in Beijing, Shanghai, and Guangzhou in 2014 has given foreign companies more confidence in the system. The IP court in Shanghai last year started an English website to create more transparency for foreigners. The chances of a successful outcome in litigation are improving all the time, especially in the regions of the new specialist IP courts.

Overall, failure to engage with China’s IP system at an early enough stage is what often lands foreign companies in hot water. With the legal system offering increasingly robust protection of IP rights no matter who owns them, the well-worn lottery slogan “you’ve got to be in it to win it” has perhaps never been more apposite. If you do not have registered IP rights in China then you cannot claim the improving protection that the regime offers.

Daniel Chew is lead partner of major European intellectual property firm Haseltine Lake’s China group, while Michael Conway is an associate trade mark attorney, also of Haseltine Lake.

Also, while the patent lawsuit has predominantly been the preserve of big businesses, we rounded up four cases that prove that powerful brands don’t always have the sway to stop international rivals from infringing on patents.

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