China Trademark Law amended: bad faith indicia set out and infringement compensation increased

Published 08 November 2019 by Liuming International

Introduction & background

The China Trademark Law underwent its Fourth Amendment on April 23, 2019 (“Amendment”). The Amendment is intended to regulate filings so that bad faith trademark filing is more difficult. It also provides for increased compensation for trademark infringement. The Amendment became effective on November 1, 2019.

On October 11, 2019 the document “Several Rules in the Administration of Trademark Filing and Registration” (“Implementing Rules”) was issued by the China National Intellectual Property Administration of the State Administration for Market Regulation to implement the changes needed by the Amendment. These will become effective on December 1, 2019. Implementing Rules are very important as they set out the formal guidelines for how the law is to be practically administered.

These changes are both good and bad news for those doing business with China. The good news is that the China Trademark Law now has more specific measures to restrict “bad faith” trademark filings and statutory compensation for trademark infringement has been increased. The bad news is for the victims of rent seeking trademark opportunists that have registered foreign trademarks. They may be subject to claims for the increased statutory compensation.

The recent decision of the China Supreme Court that OEM manufacturing in China solely for export can infringe a China trademark should be of particular concern. (Our article about this is here).

 

The changes to the China Trademark Law

Changes to the China Trademark Law brought about by the Amendment and its Implementing Rules include guidelines for detecting bad faith registration and increased compensation for infringement:

 

Bad faith

Applications for a trademark with no intention to use may be regarded as a bad faith filing and rejected.

The trademark examiner is required to consider the following factors to determine whether the application is in good faith with the intention to use the applied for trademark:

  1. How many trademarks have been applied for by this applicant and/or its affiliates and in which class(es)? How many of these trademarks have been transferred by the applicant and/or its affiliates to others?
  2. The industry the applicant is engaged in and the operational status of the applicant in it.
  3. Precedents: including administrative decisions, verdicts and judgements in which the applicant was held to be filing trademarks in bad faith or infringing the trademark rights of others.
  4. Is the applied for trademark similar to any famous or well-known mark? If yes, how similar are they?
  5. Is the applied for trademark similar to any celebrity’s name, enterprise trade name, short name or other business logo? If yes, how similar are they?
  6. Other factors the trademark examiner believes to be relevant.

Trademark examiners who believe that a trademark application is not filed for use, can reject the application directly and also impose an administrative penalty on the applicant. Punitive actions can include, a warning, an administrative fine of three times the illegal income but not more than RMB 30,000. If there is no illegal income, not more than RMB 10,000.

 

Consequences of infringement

The cap on statutory compensation for trademark infringement is raised to RMB 5 million. In the prior version, the cap was RMB 3 million.

Punitive damages for repetitive or serious trademark infringements are higher, and can be 1 to 5 times the compensation amount. In the prior version, punitive damages were 1 to 3 times the compensation amount.

Counterfeit products shall be destroyed if requested by the trademark owner, rather than being sold by the counterfeiter after removing the relevant trademark.

 

Trademark agents

Trademark agents will be under stricter supervision. Trademark agents must not facilitate bad faith trademark filings and will be punished for breach.

 

Commentary

These changes to the China Trademark Law are a step in the right direction. The practical context of the huge numbers of China trademark applications – 7,310,000 in 2018, cannot be ignored. Training staff to understand and implement the changes, particularly as they apply to bad faith registrations, is a challenge yet to be met. It is too soon to know how effective the guidelines for examiners will be in practice.

The changes are a direct response to two important issues in the current China trademark system: rent seeking opportunists registering foreign trademarks to extort the offshore owners; and insufficient compensation for trademark infringement.

 

Bad faith

China has a first to file trademark regime. An applicant for a China trademark is currently not required to prove use or intended use of the mark when the application is filed. As a result numerous rent seeking opportunists have registered foreign trademarks as their own in China. This has been a serious issue for a long time and adversely impacts China trade.

There have been many signs that the authority responsible for administering the China Trademark Law is determined to tackle “bad faith” trademark filings. For example, an official of the China National Intellectual Property Administration recently said in a public speech that in 2018, about 100,000 abnormal trademark applications were rejected by the China Trademark Office at the registration and opposition stages.

The changes to the China Trademark Law made by the Amendment and the new Implementing Rules are expected to play an important role in limiting new bad faith trademark filings. But it remains to be seen if the examiners can or will follow the steps set out in the Implementing Rules to identify bad faith filings.

How, for example, will they determine the status of an applicant in their particular industry? Or similarity to “any celebrity’s name, enterprise trade name, short name or other business logo? Training to understand the requirements and additional time to review each application thoroughly would be required.

The Amendment and Implementing Rules are prospective in operation and have no direct effect on trademarks already registered. They do however, strongly suggest the “official” indicia of bad faith filing. This will be useful in challenging a trademark registered under the previous incarnation of the China Trademark Law.

Some bad faith applications will be identified by examiners. It seems likely, however, that these “bad faith” indicia will have their greatest impact in the preparation of oppositions to registration during the gazettal period. Similarly, they can play an important role in challenges to an already registered trademark. Activity in these areas of trademark work will probably increase dramatically.

Unfortunately too many foreign applicants abandon their claims too soon. Far too many winnable cases are lost by being abandoned too soon by foreign applicants.

The present changes with their indicia of bad faith registration provide an additional path to challenge an existing China trademark by establishing that it was registered in bad faith.

 

Compensation

In 2013, China raised the cap for statutory compensation to RMB 3 million (from RMB 500,000). Now, only 6 years later, the cap for statutory compensation has been increased to RMB 5 million. This provides stronger trademark protection for legitimate business operators. It also substantially increases the potential costs of counterfeiters in trademark infringements.

Unfortunately, the increase in statutory compensation in the China Trademark Law may have unintended consequences. The increased compensation will be also available to rent seeking opportunists that have already registered foreign trademarks in China. If the accused infringer cannot defend itself it will face the risk of the higher compensation amount.

The 2013 version of the China Trademark Law (and continuing) provided that an alleged trademark infringer could have a defence if the trademark owner had not used the trademark in the previous three years. The court could then require the trademark owner to submit evidence of use.

If the trademark owner could not prove required use, the claim for compensation would fail.

 

Take-aways

  • Registering a trademark directly in China remains the most certain and cost effective means to protect a trademark.
  • The real force of the present changes is likely to be in founding arguments for opposition during the gazettal period and for objections to existing trademarks.
  • Examiners may identify some bad faith applications, and that will be welcome, but the sheer number of filings in China is a constraint at that level. China trademark applicants and owners should be proactive in challenging bad faith registrations and applications.
  • Increased compensation will be welcomed by trademark owners but may be a problem for victims of rent seeking opportunists.
  • The China Supreme court has ruled that OEM manufacture solely for export can infringe a China trademark. (Our article about this is here).
  • Ensure that you get advice about contested trademark matters from advisers with real court experience in trademark work. Abandoning a trademark application too soon is a costly exercise.
  • Only licensed Chinese lawyers can appear in a Chinese court.