China starts to combat bad faith Trade Mark registrations

China has a first-to-file trade mark regime, making it imperative that businesses apply for registration at the earliest opportunity. If this is not done, it will cause all sorts of problems for businesses as the Chinese system does not recognise trade marks registered in other jurisdictions and will grant protection to those who file first in China.

It has been reported that, as of the end of 2018, there are 180.49 million registered trade marks in China, and in 2018 alone, China received 7.371 million new trade mark filings.

One of the biggest issues brand owners have faced in China over the years is third parties securing trade marks for their well-known brand and then asserting those rights against the relevant brand owner. In one particular case in which we are aware, a third party registered a well-known brand as a trade mark and then recorded that right with Customs. Customs then seized the genuine branded products on the border and prevented the export of those products bearing the trade mark out of China.

Another problem faced by brand owners is being unable to secure a registration for their brand because of an earlier right, which means it is then difficult for the brand owner to use the trade mark in China and prevent third parties from using an identical or similar brand in China.

However, recent amendments to trade mark law in China (which take effect from 1 November 2019) now mean that applicants need to have an intention to use the trade mark in China when filing the application. If they do not, then the trade mark can be challenged.

China has also introduced some other changes which are highlighted below briefly.

Bad faith

China has introduced the concept of 'intent to use' which is now a requirement of the trade mark application procedure. Essentially, this means that when filing an application in China, the applicant must have an intention to use the trade mark. If not, the trade mark application or registration can be challenged on the ground of bad faith.

In addition to this, bad faith trade mark applicants could face administrative penalties and the Courts can impose sanctions if trade mark litigation is initiated in bad faith.

This ground will be available in trade mark oppositions and invalidation proceedings and so it will be possible to challenge the trade mark through the application process or after it is registered. This is a welcome step forward, as historically, such marks could only be challenged after three years from registration on the ground that the trade mark has not been used by the proprietor. The problem with non-use cancellation is that it only applies to marks registered for over 3 years.

The new law also makes trade mark agents accountable to some degree as there is a requirement that a trade mark agent shall not accept client instructions for a trade mark application if it knew or ought to know that the application was filed in bad faith (i.e. with no intent to use). It is hoped that this new law will assist somewhat in regulating trade mark agents and will restore the credibility of the Chinese trade mark industry.

The Beijing High Court Guidelines have attempted to define "bad faith" where the applicant does not have an intention to use the mark in the following circumstances:

1. a mark which is identical or similar to trade marks belonging to multiple entities which enjoy a certain level of reputation or a relatively strong distinctive features, and such circumstance is serious;
2. a mark which is identical or similar to trade mark(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 a trade mark, 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 trade mark filings without justifiable reasons.

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

Presently, it is not clear if the provisions will apply retrospectively but we understand that other trade mark provisions in the past have been applied retrospectively.

Other provisions

There are a number of other interesting provisions which have been introduced following these changes including:

1. Statutory damages for deliberate infringements have increased from RMB 3 million to RMB 5 million with punitive damages increasing from 3 times to 5 times the actual loss of the rights owner or the illegal profit earned by the infringer. It is recognised in China that infringements will not stop unless the damages exposure is high and the infringer risks bankruptcy.
2. New measures to assist with preventing the manufacture and sale of counterfeit products. For instance, the Courts can order that the counterfeit goods must be destroyed at the request of the rights owner even if the goods have had their labels removed, and materials and tooling which is mainly used for manufacturing counterfeit goods must be destroyed with no provision for compensation and they will be forbidden to enter commercial channels, again with no provision for compensation. The Chinese authorities recognise that destroying the moulds used to manufacture counterfeit goods is an effective weapon to combat counterfeit products.

Charlene Nelson, Chartered Trade Mark Attorney, said "These amendments bring a welcome change in direction from the Chinese Government and will assist brand owners in addressing issues in China. Traditionally, China has been a difficult jurisdiction for brand owners with a number of trade mark squatters filing applications for well-known marks and limited options for brand owners to overcome this at an early stage. On the other hand, brand owners need to reconsider their Chinese trade mark strategy especially if they have a number of trade marks filed for defensive purposes which are not likely to be used."

We recommend that brand owners review their protection in China. For more information contact Charlene Nelson at [email protected] or Paul Cox at [email protected].