A Remedy Against Cybersquatting?

Recent amendments to China’s Anti-Unfair Competition Law have given brand owners a stronger tool to combat cybersquatting.

The story was previously published in Asia IP magazine: ​

According to the World Intellectual Property Organization (WIPO), in a statement released earlier this year, 2017 saw a record number of Uniform Domain-Name Dispute-Resolution Policy (UDRP) filings against cybersquatting. Cybersquatting is not only a reality for generic top-level domains (gTLDs) and new gTLDs, but it is also a common practice frequent in the People’s Republic of China’s country code top-level domains (.cn and. Addressing an infringer of a .cn or a domain through cease and desist letters is often ineffective, leaving the trademark owner with the option of either going for a CNNIC ccTLD Dispute Resolution Policy (CNDRP), or purchasing the domain back from the infringer, which could be costly. However, with the recent amendment to China’s Anti-Unfair Competition Law, the illegality of cybersquatting is now reaffirmed. Offenders risk harsher penalties than before, increasing infringers’ incentives to comply with the request from the trademark owner.

With more than 772 million internet users in China 2017, it is no surprise that cybersquatting is also occurring under .cn and TLDs. China’s first-to-file approach to domain names facilitates an environment where cybersquatters constantly scout for good “squatting” opportunities. This is understandable since, for most cybersquatters, the worst-case scenario would probably consist in the cybersquatter merely losing rights to the domain name and wasting the registrar subscription fee, which does little to prevent cybersquatters from registering a domain name in bad faith. This is in stark contrast to the United States’ legislation where the Anti-Cybersquatting Consumer Protection Act provides plaintiffs with the opportunity to apply for statutory damages ranging from US$1,000 to US$100,000 per domain name. Hence, in contrast to China, a US-based cybersquatter is often more willing to cancel the registration due to the risk of having to pay damages to the trademark owner, and in some cases the cybersquatter will even transfer the domain back to the trademark owner free of charge. Due to this, however, few cybersquatters are indicating that they are US citizens in the WHOIS database.

So what can a trademark owner do in case a third party has registered their trademark as a domain name under a cn. or TLD? First off, the trademark owners should decide how important ownership of the domain name is. If ownership is secondary, and the domain is pointing towards infringing content, a take down notification to the hosting provider, together with a notification to the registrar, should suffice. After the infringing content has been taken offline by the hosting provider or that the domain subscription has been canceled by the registrar, the domain should be placed under observation until it expires. It can then subsequently be bought when available again for registration for a defensive purpose.

However, if ownership is of importance, there are several steps the trademark owner can take to secure the domain name. The first option is the least time consuming, though unfortunately often the least successful. It constitutes of the trademark owner making clear to the cybersquatter that their actions are infringements, which are actionable under Chinese law. The trademark owner can point out, or merely threaten, to take legal steps in case the cybersquatter does not reply. If the trademark owner at all receives a reply to this, it is likely that it is an impolite message including an offer to buy the domain, often similar to the cost of CNDRP. Such a reply is, however, not completely worthless, as it can be useful as evidence proving bad faith in a subsequent CNDRP filing.

The second option is to request the registrar to cancel the domain name registration due to the infringement and subsequently try to buy the domain when the redemption period is over. It can be hard to prove the illegality of the domain to the registrar, if the domain is not pointing towards a website with illegal content and/or where the domain is not used for phishing. The third alternative is to file a CNDRP. This option comes with an attached cost (the total fee ranges from Rmb8,000 (US$1,170) to Rmb24,000 (US$3,500), dependent on the number of disputed domain names and panellists), and several requirements must be met.The domain must be registered in bad faith, the cybersquatter must not have any rights to the name, the domain must not been in control of the registrant for more than two years and, fourthly, the complainant must have the trademark registered in China.

Where undertaking a CNDRP is too expensive, and where warning letters or registrar take downs have not led to the desired outcome, the trademark owner is left with the option of purchasing the domain, hopefully at a lower price than the CNDRP cost. However, in most cases, purchasing the domain from a cybersquatter is undesirable, as this would incentivize further cybersquatting. In this situation, and in the light of the new amendment to China’s Anti-Unfair Competition Law, the trademark owner should make it clear that the cybersquatter could be subject for hefty fines.

Substantial amendments to the Anti-Unfair Competition Law, passed last November, came into force on January 1, 2018. Regarding the fighting of cybersquatting, this amendment is interesting for two reasons. First, Chapter 2, Article 6, of the new law states that the following is considered to be confusing and thereby constituting unfair competition: “Unauthorized use of the distinctive part of another’s domain name, website name or webpage which has gained a certain degree of influence.” This indicates that registering a similar or identical domain name as an already existing website is an act of unfair competition. Interestingly, the same applies to using any well-known website feature in a confusing fashion.

Further, the amendment is interesting in that it also enhances the punishment for business operators engaging in unfair competition. Article 18 states that: “If an operator violates the provisions of Article 6 of this Law and commits a confusing act, the local Administrations for Industry and Commerce shall order it to stop the illegal act and confiscate the illegal goods. If the illegal business amount is more than Rmb50,000, a fine of not more than five times the illegal business amount may be imposed concurrently; if there is no illegal business operation or the illegal business amount is less than Rmb50,000, a fine of not more than Rmb250,000 may be imposed. If the circumstances are serious, the business license will be revoked.”

In other words, the local Administrations for Industry and Commerce may impose fines of up to Rmb250,000. In the previous version, no maximum amounts were described for IP-related infringements. In light of the new amendment, one could argue that the Chinese system compares favourably to the US. The US statutory damages system is dependent on the threat of the trademark proprietor suing the cybersquatter, while in China complaints may be made to the AICs, in general, at no extra cost.
(Rmb50,000 is approximately equivalent to US$7,315. Rmb250,000 is approximately equivalent to US$36,575.)

The new amendment changes the game in favour of the trademark owner. When sending a cease and desist letter to the registrant of a .cn and/or a domain, it is therefore important to include a reference to the Anti-Unfair Competition Law. It should, however, be noted that even though the new amendment came into effect on January 1, 2018, this year, no guiding case law has been settled and it is therefore unclear to what degree the AICs will respond to cybersquatting complaints. Nonetheless, this should not stop the trademark owner from referring to the Anti-Unfair Competition Law in their cease and desist. In addition, they should be ready to not only “talk the talk” but also to “walk the walk” – i.e., reporting the cybersquatter in accordance with the Anti-Unfair Competition Law.

Thomsen Trampedach is committed to helping clients protect their trademarks online in China. The firm has both Chinese and Chinese-speaking staff, and further assists large Chinese corporations with Online IP management in the rest of the world.