China amends Trademark Law against Bad Faith Applications without Intent to Use

By Christine Yiu, Alison Wong, Yang Li

04-2019

They say it is the Spring of IP in China.  We say it is hot as summer with the speed at which laws and guidelines are being passed. Over the last six months China has built a new national level Patent Appeal Court, passed the Foreign Investment Law, amended the Technology Import and Export Regulations, and on 23 April 2019, the Standing Committee of the National People's Congress ("NPC") passed a decision[1] to amend the Trademark Law and the Anti-Unfair Competition Law.  

The amendments to the Trademark Law will become effective from 1 November 2019. We have included reference translation of the new provisions at the end of this article.

1. Bad faith application without intent to use

A new provision is added to Article 4 which provides that "Any bad faith trademark applications without intent to use shall be dismissed." Articles 33 and 44 are amended correspondingly such as Article 4 can be invoked in an opposition action before the CTMO or an invalidation action before the TRAB. Closely connected to that, bad faith trademark applicants could face administrative penalty by the authority including warnings or fines. Courts could also impose punishments if a trademark litigation is initiated in bad faith (Article 68).

Article 19 is also amended to impose an obligation on trademark agencies to censor bad faith applications. A trade mark agency should not accept instructions if it knew or ought to know that the applicant's trademark filings are in bad faith as provided under Article 4. Violation of Article 4 by trademark agencies could be subject to a warning, a fine or even criminal liability if the case reaches the criminal threshold (Article 68).

Foreign as well as domestic brand owners have long suffered from the problem of trademark squatting which flooded the register. As of the end of 2018, there are in total 180.49 million valid trademark registrations in China, and just in the year of 2018, China received 7.371 million new trademark filings. Contributing to the millions of applications are those filed by squatters and those filed by legitimate brand owner in a defensive registration plan to fend off the endless applications in nearby classes which get too close for their comfort. For example, Alibaba (baba reads as papa in Chinese) has famously filed a whole family including Ali-mama, Ali-brother, Ali-sister, or Ali-granpa. When the draft amendments were submitted to the NPC for review, the first draft of Article 4 originally read as "any trademark application without intent to use shall be dismissed." which would cut both ways of squatting activities as well as defensive filings.  In fact, it might be easier for an infringer to get through the requirement than for a legitimate brand owner to submit evidence of use in related business that they do not operate in. The bad faith requirement is added later on to address this. [2]  The real challenge now is to define what bad faith means in order to sieve the grain from the kernel correctly.  Otherwise, inconsistent application of the rules would cause more harm than good.

The Beijing High Court Guideline made an attempt to characterise "bad faith". Commenting on Article 4, the Beijing High Court said an applicant with no real intent to use could be found breach of the provision if the application also falls within one of the following:

  1. a mark which is identical or similar to trademarks belonging to multiple entities which enjoy certain level of reputation or a relatively strong distinctive features, and such circumstance is serious;

  2. a mark which is identical or similar to trademark(s) belonging to another person which enjoys a certain level of reputation or a relatively strong distinctive feature, and such circumstance is serious;

  3. a mark which is identical or similar to another person's commercial logo(s) other than trademark, and such circumstance is serious;

  4. a mark which is identical or similar to the name of a well-known place, tourist attractions, architectures, and such circumstance is serious;

  5. a mark which is one of a large number of trademark filings without justifiable reasons.

Trademark owners must note that the above grounds (1) to (2) hinge on the existence of a prior mark already registered in China. There are no standalone grounds based on overseas reputation with no prior use.

2. Statutory damages increased to RMB 5 million

Premier Li said in July 2018 that punishment against bad faith infringement must be severe enough to "let them bankrupt". Many said now is the best time to bring enforcement actions in China, as we observe a consistent increase in the amount of damages being awarded. Article 63 of the 2019 amendments further increases the maximum amount for statutory damages amount from RMB 3 million to RMB 5 million, and increases the punitive multiplier from three to five.   This is often said that infringement would not stop unless the infringing costs are higher than the litigation costs. This amendment purports to reverse the costs account, and alleviates the pain of brand owners who often spent more than the infringer in bringing enforcement actions.

3. Destruction of counterfeit goods and moulding

Article 63 also adds a remedy in court proceedings to order destruction of counterfeit products, material and tools for manufacture counterfeits. It prohibits redistribution of counterfeits even after the infringing mark is removed.

Destruction of manufacture moulding is one of the most effective ways to stop repeat infringements.  The actual implementation would be challenging however, as it would impose on the execution judges the challenge to identify where the tooling is and to determine whether it is "used predominantly" for the counterfeits. Infringers would of course argue otherwise, and try to cause more pain in the execution process on top of the existing issues.

There are still 6 months away for the new amendments to take effect.  It is expected that amendments to the Implementation Rules of the Trademark Law will follow to provide more certainty.

Article

2014

2019

4

Any natural person, legal person or other organization that needs to obtain the exclusive right to use a trademark on its goods or services shall file an application for trademark registration with the Trademark Office.


The provisions regarding the goods trademarks in this Law shall apply to the service marks.

Any natural person, legal person or other organization that needs to obtain the exclusive right to use a trademark on its goods or services shall file an application for trademark registration with the Trademark Office. Any bad faith application for trademark without intent to use shall be dismissed.

The provisions regarding the goods trademarks in this Law shall apply to the service marks.

19

The trademark agency shall deal with application for trademark registration or other trademark-related matters as authorized by clients in the principle of good faith and in accordance with laws and administrative regulations. The trademark agency shall be liable for keeping clients' trade secrets disclosed in the course of agency confidential.

Where the trademark that a client applies for registration cannot be registered in accordance with this Law, the trademark agency shall explicitly notify the client.

Where the trademark agency knows or should have known that the trademark applied by a client falls into any circumstance under Articles 15 or 32 of this Law, the trademark agency may not accept the engagement.

Except for the application for trademark registration on behalf of clients, the trademark agency may not apply for registration of other trademarks.

The trademark agency shall deal with application for trademark registration or other trademark-related matters as authorized by clients in the principle of good faith and in accordance with laws and administrative regulations. The trademark agency shall be liable for keeping clients' trade secrets disclosed in the course of agency confidential.

Where the trademark that a client applies for registration cannot be registered in accordance with this Law, the trademark agency shall explicitly notify the client.

Where the trademark agency knows or should have known that the trademark applied by a client falls into any circumstance under Articles 4, 15 or 32 of this Law, the trademark agency may not accept the engagement.

Except for the application for trademark registration on behalf of clients, the trademark agency may not apply for registration of other trademarks.

33

Within three months from the date of publication of a trademark after preliminary examination, where any prior right owner or interested person believes the published trademark in violation of the provision of Articles 13(2), 13(3), 15, 16(1), 30, 31 or 32 of this Law, or where any person believes the published trademark in violation of the provision of Articles 10, 11, 12 or 19(4) of this Law, an objection may be raised to the Trade Office against the published trademark. If no objection is raised upon expiration of the prescribed time limit, the trademark shall be approved for registration with issuance of a certificate of trademark registration and publication of the trademark.

Within three months from the date of publication of a trademark after preliminary examination, where any prior right owner or interested person believes the published trademark in violation of the provision of Articles 13(2), 13(3), 15, 16(1), 30, 31 or 32 of this Law, or where any person believes the published trademark in violation of the provision of Articles 4, 10, 11, 12 or 19(4) of this Law, an objection may be raised to the Trade Office against the published trademark. If no objection is raised upon expiration of such prescribed time limit, the trademark shall be approved for registration with issuance of a certificate of trademark registration and publication of the trademark.

 

44

The Trademark Office shall annul any registered trademark against the provision of Articles 10, 11, 12 or 19(4) of this Law or that is registered by fraud or other improper means. Other organizations or individuals may request the Trademark Review and Adjudication Board for invalidation of the registered trademark.

The Trademark Office shall give a written notice to the party concerned on invalidation of a registered trademark. The party concerned who is dissatisfied with the decision may file a petition with the Trademark Review and Adjudication Board for review within fifteen days upon receipt of the notice. The Trademark Review and Adjudication Board shall make a decision within nine months after receiving the petition, and give a written notice to the party concerned. In case of any delay due to certain special circumstances, the prescribed time limit may be postponed for three months upon approval of the administration for industry and commerce under the State Council. The party concerned who is dissatisfied with the decision of the Trademark Review and Adjudication Board may file an appeal with the people's court within thirty days upon receipt of the notice.

Where other organizations or individuals request the Trademark Review and Adjudication Board for invalidation of a registered trademark, the Trademark Review and Adjudication Board shall give a written notice to the party concerned upon receipt of the request, asking the party concerned to submit responses within a prescribed time limit. The Trademark Review and Adjudication Board shall make a decision on maintaining or invalidating the registered trademark and give a written notice to the party concerned within nine months upon receipt of the request. In case of any delay due to certain special circumstances, the prescribed time limit may be postponed for three months upon approval of the administration for industry and commerce under the State Council. The party concerned who is dissatisfied with the decision of the Trademark Review and Adjudication Board may file an appeal with the people's court within thirty days upon receipt of the notice. The people's court shall notify the counterparty of the trademark invalidation procedures for participation as a third party.

The Trademark Office shall annul any registered trademark against the provision of Articles 4, 10, 11, 12 or 19(4) of this Law or that is registered by fraud or other improper means. Other organizations or individuals may request the Trademark Review and Adjudication Board for invalidation of the registered trademark.

The Trademark Office shall give a written notice to the party concerned on invalidation of a registered trademark. The party concerned who is dissatisfied with the decision may file a petition with the Trademark Review and Adjudication Board for review within fifteen days upon receipt of the notice. The Trademark Review and Adjudication Board shall make a decision within nine months after receiving the petition, and give a written notice to the party concerned. In case of any delay due to certain special circumstances, the prescribed time limit may be postponed for three months upon approval of the administration for industry and commerce under the State Council. If the party concerned is dissatisfied with the decision of the Trademark Review and Adjudication Board, it may file an appeal with the people's court within thirty days upon receipt of the notice.

Where other organizations or individuals request the Trademark Review and Adjudication Board for invalidation of a registered trademark, the Trademark Review and Adjudication Board shall give a written notice to the party concerned upon receipt of the request, asking the party concerned to submit responses within a prescribed time limit. The Trademark Review and Adjudication Board shall make a decision on maintaining or invalidating the registered trademark and give a written notice to the party concerned within nine months upon receipt of the request. In case of any delay due to certain special circumstances, the prescribed time limit may be postponed for three months upon approval of the administration for industry and commerce under the State Council. The party concerned who is dissatisfied with the decision of the Trademark Review and Adjudication Board may file an appeal with the people's court within thirty days upon receipt of the notice. The people's court shall notify the counterparty of the trademark invalidation procedures for participation as a third party.

 

63

The amount of compensation for infringement of the exclusive right to use a trademark shall be determined based on the right owner's actual losses as a result of infringement or the infringer's gains from infringement if difficult to determine the actual losses. If both the right owner's losses and the infringer's gains are difficult to be determined, the amount of compensation for infringement may be determined as reasonable times of the royalties of the trademark. If the malicious infringement is serious, the amount of compensation may be more than one time and less than three times of the amount of compensation determined above. The amount of compensation shall cover the reasonable costs incurred by the right owner to stop infringing conducts.

For the purpose of determining the amount of compensation, where the account books and information regarding infringement are held by the infringer while the right owner puts to the proof as practical as possible, the people's court may order the infringer to submit the relevant account books and information; if the infringer refuses to submit such account books and information or submit false account books and information, the people's court may award the amount of compensation with reference to the right owner's claim and proof.

Where it is difficult to determine the right owner's actual losses as a result of infringement, the infringer's gains from infringement or the royalties of the registered trademark, the people's court shall award the amount of less than RMB 3,000,000 in damages based on the circumstance of infringement.

The amount of compensation for infringement of the exclusive right to use a trademark shall be determined based on the right owner's actual losses as a result of infringement or the infringer's gains from infringement if difficult to determine the actual losses. If both the right owner's losses and the infringer's gains are difficult to be determined, the amount of compensation for infringement may be determined as reasonable times of the royalties of the trademark. If the malicious infringement is serious, the amount of compensation may be more than one time and less than five times of the amount of compensation determined above. The amount of compensation shall cover the reasonable costs incurred by the right owner to stop infringing conducts.

For the purpose of determining the amount of compensation, where the account books and information regarding infringement are held by the infringer while the right owner puts to the proof as practical as possible, the people's court may order the infringer to submit the relevant account books and information; if the infringer refuses to submit such account books and information or submit false account books and information, the people's court may award the amount of compensation with reference to the right owner's claim and proof.

Where it is difficult to determine the right owner's actual losses as a result of infringement, the infringer's gains from infringement or the royalties of the registered trademark, the People's Court shall award the amount of less than RMB 5,000,000 in damages based on the circumstance of infringement.

When hearing trademark disputes, the people's court shall, at the request of the right holders, order to destroy the goods bearing the counterfeit registered trademarks, except for special circumstances, and order to destroy the materials and tools used predominantly for manufacture of goods bearing counterfeit registered trademarks, without any compensation. In exceptional cases, the people's court shall ban the said materials or tools from entering commercial channels, and without any compensation.

Goods bearing counterfeit registered trademarks are not allowed to enter commercial channels after simple removal of counterfeit registered trademarks.

68

If a trademark agency has any one of the following conducts, the administration for industry and commerce shall order to make correction within a prescribed time limit, give a warning, and impose a fine of more than RMB 10,000 and less than RMB 100,000. The management and other persons directly in charge shall be imposed with a fine of more than RMB 5,000 and less than RMB 50,000. Those who commit crimes shall be held for criminal liability:
(i) to forge or alter legal documents, seals or signatures, or to use the forged/altered legal documents, seals or signatures in the course of dealing with trademark-related matters;

(ii) to solicit trademark agency business by slandering other trademark agencies, or to disturb the trademark agency market order by other improper means; or

(iii) to violate the provision of Articles 19(3) or 19(4) of this Law.

Where a trademark agency engages in the conducts specified in the previous paragraph, it will be recorded by the administration for industry and commerce in credit files; if the circumstances is serious, the Trademark Office and the Trademark Review and Adjudication Board may decide to stop accepting the trademark matters filed by the trademark agency and make a public announcement.

Where a trademark agency infringes clients' legitimate interests against the principle of good faith, the trademark agency shall bear civil liability according to law and accept the punishment imposed by the trademark agency industry organization in accordance with relevant regulations and rules.

If a trademark agency has any one of the following conducts, the administration for industry and commerce shall order to make correction within a prescribed time limit, give a warning, and impose a fine of more than RMB 10,000 and less than RMB 100,000. The management and other persons directly in charge shall be imposed with a fine of more than RMB 5,000 and less than RMB 50,000. Those who commit crimes shall be held for criminal liability:
(i) to forge or alter legal documents, seals or signatures, or to use the forged/altered legal documents, seals or signatures in the course of dealing with trademark-related matters;

(ii) to solicit trademark agency business by slandering other trademark agencies, or to disturb the trademark agency market order by other improper means; or

(iii) to violate the provision of Articles 4, 19(3) or 19(4) of this Law.

Where a trademark agency engages in the conducts specified in the previous paragraph, it will be recorded by the administration for industry and commerce in credit files; if the circumstances is serious, the Trademark Office and the Trademark Review and Adjudication Board may decide to stop accepting the trademark matters filed by the trademark agency and make a public announcement.

Where a trademark agency infringes clients' legitimate interests against the principle of good faith, the trademark agency shall bear civil liability according to law and accept the punishment imposed by the trademark agency industry organization in accordance with relevant regulations and rules.

In case of bad faith application for trademark registration, administrative penalties such as warnings and fines shall be imposed depending on the circumstances. If a trademark lawsuit is filed in bad faith, people's court shall impose penalties according to law.

 

Authors

Yang Li

Legal Manager
China

Call me on: +852 2248 6000
Wong-Alison

Alison Wong

Partner
China

Call me on: +852 2248 6000