Why Brands Need to Protect Metaverse Trademarks in China

By Josh Gerben, Esq.

China is quickly becoming the epicenter for the future of trademark rights in the metaverse. Both Goldman Sachs and Morgan Stanley have projected that the metaverse in China could become a market worth more than $8 trillion. In addition, China’s economy is powered by young consumers who embrace the notion of a new virtual world.

Don’t wait to protect your metaverse branding and trademarks in China. Controlling your company’s brand in the metaverse will be essential for gaining advantages or fighting any potential infringement that may spring up in this new space.

Existing trademark registrations may not protect brands in the metaverse

The door is open for metaverse trademark infringement in China, particularly for well-known brands. The reason we’re seeing such an influx of metaverse filings from the world’s largest companies is that while they may own trademark registrations for their existing products or services, they do not own similar registrations for their digital counterparts.

For example, iconic clothing brands may own trademark registrations to protect their physical goods but be completely exposed in China to squatters registering their brands for digital goods. Without new trademark filings to cover digital goods, there’s no assurance that they will control their branding and their presence in the metaverse.

Nike has acted by aggressively filing new trademark applications that indicate its intent to produce and sell branded “virtual” footwear, apparel, and accessories specifically in the metaverse. The company has ensured that it can monitor and enforce its brand within the new space, and has also significantly strengthened and broadened its overall brand protection.

Trademark squatters in China may exploit holes in trademark protection

Larger, dominant brands have the financial and legal resources to protect their trademarks. However, the issue also affects lesser-known brands that have an eye on expansion to China.

Companies of all sizes are prime targets for trademark squatters, who file bad faith applications in order to block ownership by the actual trademark holders; sell those applications for profit; or compete in the virtual marketplace by creating counterfeit goods or actually utilizing the brand.

Regardless of company size or brand recognition, the benefits of trademark registration for “virtual and digital goods” in China are clear:

• discouraging registration of your brand name, or similar infringement, by squatters or other parties.
• building your brand name in the virtual world, and preventing other parties from taking unfair advantage or even damaging your reputation.
• preventing unauthorized use of your brand by virtual counterfeiters.

In fact, this is also a good time to look into the future, anticipating potential trademarks that would be strictly used in the metaverse but not in the physical marketplace. These brands will need protection as well, even though they might not be utilized immediately.

Trademark squatters in China have become more sophisticated over the years

Trademark squatters have adopted sophisticated techniques, including:

• setting up companies and recruiting employees to legitimize possession of the marks.
• creating shadow companies that incorporate the names of famous brands in foreign jurisdictions and use them to hold the marks in China.
• filing malicious, frivolous complaints against the trademark holder as leverage to sell the trademarks at a higher price.

But squatters also have advantages that are inherent within the system.

China’s trademark registration system rewards those that are “first to file” trademark applications

China utilizes a “first-to-file” trademark policy: The first registrant who applies for a brand or trademark will have exclusive rights, regardless of who might have used it first. While this benefits new businesses that may not be able to show the trademark in use at the time of registration, it also opens the door for bad faith registrations.

In contrast, trademark rights in the U.S. generally are granted to the first user of the mark in commerce, rather than the first to file. That’s why it’s important to move quickly to file metaverse trademarks in China.

While you do have options when it comes to fighting bad faith registrations, the best defense is always a good offense. Beating a bad faith registrant to the trademark office is the easiest solution.

It can end up costing tens of thousands of dollars (if not more) to fight a squatter in China, whereas filing a trademark application now to protect your brand in the metaverse is likely to cost under $2,000.

Squatters could take advantage of China’s subclasses to obtain metaverse-related trademark registrations on existing brands

The second advantage for squatters and other bad-faith actors is their awareness of China’s subclass policy for trademarks.

China’s trademark laws follow a trademark system that is used in 80 countries. This system requires a trademark application to identify which class (or classes) of goods and services they will be offering using the trademark. This classification system makes it possible for brands such as DOVE (for soap) and DOVE (for chocolate) to co-exist.

That said, each “class” in China is divided into subclasses based on the features of the goods or services being trademarked. Under Chinese law, each “subclass” is considered as a distinct category from the main class, as a subset of goods or services.

For example, a trademark registration for a class that applies to clothing, headwear, and footgear might also have to include any related subclasses, such as socks, gloves, belts, or shoes.

Under that scenario, a squatter or third party could create a conflict by registering the mark in the same class using subclasses not specified under the original application.

Experienced international trademark attorneys understand the nuances of the subclass system, and the importance of specifying a broad scope of usage, including goods and services that might become available as the business expands.

It is important to file trademarks for all the goods and services you may offer in any country in which you plan to do business

Trademark and brand protection begins at home. In the U.S., that means not only having a federally registered trademark for the traditional marketplace but specifically for the metaverse.

Once a U.S. trademark application is filed, you should quickly follow up with a metaverse trademark application drafted specifically for China and filed through the China National Intellectual Property Administration (CNIPA). In fact, when filing any new trademark applications, companies should be sure to include all countries in which the company operates (or may operate).

Any application should start with a thorough search of existing trademarks, followed by vigilant monitoring for possible infringement. For that reason, the CNIPA provides an online search tool (select “English” from the menu in the upper right-hand corner).

If a squatter files for your trademark in China, you may file an opposition to the Chinese trademark application

If you do discover a squatter has attempted to register your trademark in China, you may be able to file a formal opposition against that application. In China, you are entitled to oppose any trademark application if you feel it is in conflict with your own mark, or if you have prior rights. The process begins by filing a complaint with the CNIPA. However, any foreign opposition must be filed through a trademark agent in China within three months after the publication of the trademark.

Supplementary evidence can be provided during an additional three-month period. After that, the CNIPA will forward your opposition and any evidence to the opposed party within 30 days from receipt of the notification. The opposed party then will have a three-month period to present evidence contesting your opposition.

The CNIPA is ultimately responsible for making a decision; however, if it finds in your favor, an appeal process is available to the opposed party.

Implementing a sound strategy on metaverse marks in China

Much like the early days of the Internet, there are competing visions for what the metaverse will actually look like as it evolves. Whichever scenario emerges, there is no doubt that China will play a pivotal role. That’s why establishing and protecting your metaverse trademarks in China is no longer just a high priority – it’s a necessity.

We have relationships with foreign counsel and experience with an array of enforcement matters to get your mark registered and defended in China. If you would like to learn more about protecting your metaverse trademarks in China, please reach out to one of our attorneys today.

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Josh Gerben, Esq.

Josh Gerben, Esq. is the founder and principal of Gerben IP. In 2008, Mr. Gerben started the firm to provide high-quality trademark services at reasonable prices. Today, he is recognized by the World Trademark Review as a top trademark filer, having registered over 7,500 trademarks. The contents of this blog are for informational purposes only and may not be relied on as legal advice.