China Tackles Bad-faith Trademark Registrations

In Insights

4 June, 2019

The China National Intellectual Property Administration has published Draft Regulations in an effort to tackle bad-faith trademark applications. In this article, we take a closer look at the (i) Draft Regulations for Regulating the Application for the Registration of Trademarks, (ii) revisions to the PRC Trademark Law (wef November 1, 2019) and (iii) recently issued Guidelines from the Beijing Higher People’s Court on the topic.

Trademark Regime

China has a first-to-file trademark regime, making it imperative that businesses apply for registration at the earliest opportunity. There is a classification and sub-classification system that is peculiar to China. China divides each Class into sub-classes/parts/paragraphs and treats each sub-class/parts/paragraphs as a discrete unit. A trademark registration gives the owner rights in the covered sub-classes/parts/paragraphs, but virtually no rights in any other sub-classes/parts/paragraphs within the same Class and good and services falling within the same Class but in different sub-classes are considered dissimilar.

It is therefore necessary to register under as many categories and sub-categories as financially possible. Enterprises should always think ahead and register under strategic categories.

Trademark squatting is rampant in China. Businesses are vulnerable because of the first-to-file system rather than the first-to-use. Owners can never assume that by registering a trademark elsewhere, it will be recognised in China as well. The Chinese system does not recognise trademarks registered in other jurisdictions and will grant protection only to those who file first in China, regardless of the use or intent to use.

Squatters exploit the differences in legal systems and register international brands predicting their entry into China. Once they enter China, the squatters try to sell them back their own trademark to earn profits. Some squatters even use the reputation of an international brand to set up their own companies and make a profit on the original brand’s value.

Relying only on the Madrid Protocol (International Registrations) is not advisable either. When you file a Madrid application (typically based on a western style description of your claim of goods/services), your list of items goes straight to a China Trademark Office examiner, who will decide from your list which sub-classes the items should go in without consultation.

The sub-classes decided by the examiner based on their understanding of your goods/services description may not fully or correctly cover the sub-classes where they should fall intoand in any event, even if the China Trademark Office grants the territorial extension, you will face challenges in enforcing your trademark rights against infringers or bad faith applicants due to the fact that you might not have blocked off all sub-classes in your registration. It is advisable for trademark owners to consult local counsel and file supplemental national applications to register their trademarks in all relevant Classes and sub-classes to secure optimum protection, if the international registration is found insufficient to protect their rights in China.

Draft Regulations

In response to this bad-faith application regime, the China National Intellectual Property Administration (CNIPA) published Several Provisions for Regulating the Application for the Registration of Trademarks (Draft) on February 12, 2019.

The Draft contains eight articles concerning the types of bad-faith applications, measures that can be taken according to the PRC Trademark Law, additional measures that go beyond the scope of the Trademark Law and guidance for IP authorities to report and supervise bad-faith applications.

Articles 1 and 2 clarify the purpose of the Draft and reaffirms the principle of good faith established by the PRC Trademark Law.

Article 3 sets out eight clauses under which applications for marks can be deemed abnormal:

  1. Applying a trademark registration that is familiar to the relevant public and passing off the business reputation of another;
  2. Pre-emptively applying for a trademark registration that has been used by others and has obtained a certain influence, and improperly extracting the business reputation of another;
  3. Pre-emptively applying for a trademark registration that is the same or similar to that of another, when one knows or should have known of the existence of the other’s prior rights;
  4. Applying repeatedly for trademark registration with obvious improper purposes;
  5. Applying for a large number of trademark applications within a short period of time that obviously exceeds reasonable limits;
  6. Applying for a trademark registration without genuine intent to use or without an actual need to obtain exclusive trademark rights on goods or services;
  7. Engaging in other acts when applying for trademark registration that violate the principles of honesty and good faith, infringe upon the legitimate rights and interests of others or disrupt the market order;
  8. Helping others or trademark agencies with trademark applications using the actions mentioned in items 1 to 7.

Article 4 clarifies the legal consequences of abnormal trademark applications for trademark registration. This article lists the punishments and consequences of filing abnormal applications and is designed to warn off potential bad-faith squatters and to educate the public. The Draft allows the China Trademark Office, part of the CNIPA, to issue an office action to an applicant requesting evidence and explanation to support the legitimacy of the filing.

Article 5 provides additional measures beyond the PRC Trademark Law to tackle abnormal acts when applying for trademark registrations. The applicants of abnormal trademarks will be published on the CNIPA’s website and in the China IP Daily. The information will also be recorded on the national social credit platform. In addition, the departments responsible for intellectual property (at all levels) will not give any subsidies, support or rewards for abnormal applications. Article 5 also implores reimbursement if abnormal acts are identified after a subsidy, support or reward has been granted. If the circumstances are serious, the applicant or its affiliates shall be banned from receiving subsidies, support or rewards for a period of five years, and if a crime has been constituted, criminal responsibilities shall be affixed.

For trademark agencies that are engaging in abnormal trademark applications, the CNIPA will conduct an interview for rectification with the Legal Representatives of such trademark agencies and the trademark association will take self-regulatory measures against the agencies and the relevant trademark agents. Furthermore, the number of abnormal trademark applications will be deducted from the statistics of the number of trademark applications made by the CNIPA.

Article 6 states that before engaging in the measures listed in Article 5 the parties involved are to be granted an opportunity to present their opinions when necessary.

Article 7 requests any department responsible for intellectual property to promote the development of intellectual property rights in China. This includes actively guiding the public and trademark agencies to apply for registrations in accordance to the law. It also states that a report may be filed to the CNIPA when an organisation or individual discovers abnormal acts in relation to an application for a trademark registration with the CNIPA requested to promptly handle the report.

Article 8 sets for a date for when the Regulations shall come into effect (this remains blank at this time as the Regulations are in draft format).

Public Consultation

The Draft was open to public consultation until March 14, 2019 with Chinese and foreign industry associations submitting recommendations to clarify key provisions.

The International Trademark Association (INTA) submitted their comments on March 14. Overall INTA commends the initiative to deal with bad-faith registrations. However, the Association noted some ambiguity in the Articles in the Draft.

Specifically, INTA suggested there be a clearly-defined criteria and processes for determining abnormal trademark applications. It also requested that Article 3 be clarified to include parties who file bad faith applications in small quantities. With INTA members observing that a large proportion of cases involving bad faith applications in China are under these circumstances.

The American Intellectual Property Law Association (AIPLA) also submitted comments on the Draft. It is interesting to note that Association requested that the defensive trademark applications by Chinese and foreign enterprises to protect widely-recognised, well-known and familiar marks not be considered bad faith trademark applications under Article 3 of the Draft.

The AIPLA also notes it hopes that the Draft will be successful in combatting bad-faith trademark applications that defensive trademark applications were no longer necessary in China.

Revision to the Trademark Law (wef November 1, 2019) 

In addition to the Draft Regulations, the PRC Trademark Law was revised this year with a focus to curb and tackle bad faith filings. The revised law was promulgated on April 23, 2019 and it will become effective on November 1, 2019.

The revision adds clear language to Article 4 of the law that applications for trademark registration that are malicious and not filed for the purpose of use shall be refused. The updated Article 4 is referenced throughout the law including in Article 19.3 with respect to trademark agencies, stipulating that the trademark agencies shall not accept filing instructions if they know or should have known that the trademark application entrusted by the client is a bad faith filing violating Article 4. The amended Article 4 is also referenced in Article 33 in terms of raising objections to the Trade Office against a trademark that has been published after a preliminary examination within three months from the date of announcement.

Article 44.1 states that the Trademark Office shall annul any registered mark if it violates Article 4. Lastly, Article 68 states the circumstances under which the trademark agencies and the relevant responsible persons shall be punished and the updated Article 4 has also been referenced. Article 68 has also assessed that in the event of any malicious application for trademark registration, administrative penalties such as giving a warning and imposing a fine shall be given depending on the specific circumstance. In cases where a lawsuit has been maliciously lodged regarding a trademark, the People’s Court shall impose penalties in accordance with the law.

This amendment provides a clear legal basis for cracking down on malicious registrations in the course of trademark application, opposition, invalidation and trademark agency proceedings. Currently to oppose a bad faith trademark application, the prior right owner is required to firstly prove they are the prior right owner/interested party with qualified evidence so the opposition can be accepted by the China Trademark Office. This can be challenging for trademark owners who have not used their own marks in China or have not entered into the China market as they may fail in oppositions due to lack of evidence. When the revised Trademark Law becomes effective, owners can oppose bad faith applications violating Article 4 withoutthe requirement to prove their prior rights.

New Beijing Higher People’s Court Guidelines

On April 24, 2019, the Beijing Higher People’s Court issued Guidelines for the Trial of Trademark Rights Granting and Verification Cases. The Guidelines are already effective. In the Guidelines, the Court stipulates the application of Article 4 of the Revised Trademark Law as:

If any trademark applicant obviously lacks the true intention of use and is under any of the following circumstances, this applicant may be determined to violate the provisions of Article 4 of the Trademark Law:

  • applying for registration of the trademark identical with or similar to that of various subject with certain popularity or higher distinctiveness, which is regarded as a serious circumstance;
  • applying for registration of the trademark identical with or similar to that of the same subject with certain popularity or higher distinctiveness, which is regarded as a serious circumstance;
  • applying for registration of the trademark identical with or similar to any other commercial signs other than trademarks of others, which is regarded as a serious circumstance;
  • applying for registration of the trademark identical with or similar to any name of place, scenic spot, building and others with certain popularity, which is regarded as a serious circumstance;
  • applying for registration of a large number of trademarks without good reasons.

If the trademark applicant above claims the true intention of use, but fails to present the relevant evidence, this claim shall not be supported.

The Guidelines provide for the courts to apply the relevant provisions (including Article 4) of the PRC Trademark Law to specific cases and they apply toall the trademark administrative litigations handled by Beijing IP Court and the Beijing Higher People’s Court.

Comment

Bad-faith applications disrupt the economic order of a marketplace and put tremendous strains on trademark management. It is clear from the Draft Regulations, the Revised Trademark Law and the Beijing Court’s Guidelines that bad-faith applications have become an urgent topic in China.

The shifts in legislation are a clear and positive sign of a country that is increasingly recognising the true value of intellectual property. It is unclear at this stage to what extent the Draft Regulations will evolve from its current format. It is hoped that there will be greater clarity throughout the Articles.

Considering the substantial number of trademark applications in China – 7.371 million in 2018, it is increasingly important for trademark owners to file for registrations as early and as comprehensively as possible.

China is a unique market and requires special attention in terms of intellectual property rights. Owners require a strategy that not only builds a robust portfolio, but one which actively maintains that portfolio with on-the-ground support in China, ready to respond and act upon threats as well as infringements.

All information mentioned in this article is current at the date of publication of this article and available from public sources. Nothing in this article constitutes legal advice and should not be construed as any form of advice.

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