The China trademark law: a review of the newly published amendments

December 2013 | PROFESSIONAL INSIGHT | INTELLECTUAL PROPERTY

Financier Worldwide Magazine

The long anticipated amended PRC Trademark Law was published late summer and will come into effect on 1 May 2014. The amendments are a result of many rounds of public comments, particularly in the last year.

In this article, we highlight some of the main changes, which, among others, will: impose an obligation to uphold the principle of good faith on new filings and trademark agencies; raise the compensation ceiling for trademark infringement to RMB 3 million (about US$500,000), or six times the previous limit, and raise administrative fines up to five times the illegal business turnover,with relevant measures for repeat infringers; include sounds as registerable marks and offer multi-class applications; prohibit use of well-known marks as an advertising tool; introduce new timelines in processing oppositions and reviews; introduce a locus standi requirement for oppositions based on relative grounds; remove the right for opponents to appeal unfavourable first instance oppositions; and include an invalidation procedure.

Honesty and good faith

It is clear from the many additions relating to good faith that it is a priority for the China Trademark Office to curb the number of bad faith filings. In this spirit, the new law adds several articles in this regard throughout, some of which are outlined below. Particularly, as a cornerstone, it states that “trademarks shall be registered and used by the principle of honesty and credibility”. In practice, this should enable right owners to claim against others’ acts of bad faith, provided it will be treated as a formal basis for oppositions/invalidations. It remains to be seen how this provision will be applied in practice.

Trademark hi-jacking. Another addition is that an application for trademark registration will be rejected when the trademark applied for is identical or similar to the same or similar goods of another person’s trademark that has been used earlier though not yet registered. It will also be rejected when the applicant has a contractual or business relationship, or any other relationship, and thereby knows of (constructively or otherwise) the existence of the said person’s prior mark. This should function as an added tool for brand owners in dealing with trademark hi-jacking by business partners such as distributors and manufacturers.

Trademark agency obligations. Continuing on in the spirit of good faith, several articles have been added in an effort to regulate the practice of trademark agencies. The new law provides that where a trademark agency violates the principle of honesty and credibility, and impairs the lawful rights and interests of its clients, it will bear civil liability and be punished by the Trademark Agents Industry Organization. It further provides that trademark agencies must follow the principle of good faith, respect confidentiality, explicitly advise their clients where the trademark may not be registerable, and not agree to handle a trademark application where it knows or should knowthat the client’s application is an attempt to hijack another person’s trademark.

Improper use of unregistered trademarks. The amended law provides the Administration of Industry and Commerce (AIC) with the legal basis to determine fines for certain improper use of trademarks– in particular, where an unregistered trademark is falsely represented as registered. The local AIC can order that the use of the trademarks is halted and that the user rectifies the situation within a specified time limit. Where the illegal gains exceed RMB50,000, a fine up to 20 percent of the illegal gains may be imposed; where there are no illegal gains or the illegal gains are less than RMB 50,000, a fine up to RMB 10,000 may be imposed.

Trademark infringement acts expanded. The definition of trademark infringement has been expanded in the amended law by providing that ‘intentionally’ facilitating trademark infringements, or helping others to conduct activities which infringe the exclusive trademark rights of others, is regarded as infringement. This arguably expands the scope to include indirect infringement.

Furthermore, the new law confirms that ‘likelihood of confusion’ is necessary when assessing the use of a similar mark in respect of same or similar goods. It affirms the understanding under the TRIPS agreement and also under the ‘Supreme People’s Court on Several Issues Concerning the Application of Law to the Trial of Cases of Civil Disputes over Trademarks’ (2002).

Oppositions. The new law clarifies that a registered trademark shall have no retroactive effect on others’ use of identical or similar marks on the same or similar goods during the period of opposition, i.e., from the expiration date of CTMO’s preliminary publication of the trademark to the date on which the TRAB issued the decision to approve the registration. However, a user who maliciously uses the trademark will be liable to compensate for any losses suffered by the registrant.

Invalidations. In certain cases, the pre-existing right owner or interested parties may, within five years from the date of registration, request the TRAB to declare the registered trademark invalid. Where the registration was made in bad faith, the owner of a well-known trademark is not bound by the five-year time limit. Unfortunately, despite lobbying efforts, the five-year exception still only applies to well-known marks.

Heavier punishment. Where the trademark infringement is committed in bad faith, and the circumstances are serious, the amount of compensation can be no less than one time and no more than three times the amount determined according to the above assessments. The amount of compensation includes the reasonable expenses paid by the trademark right holder for stopping the infringement.

Fines and damages

It is clear that the Chinese authorities are striving toward an environment that strives to deter trademark infringement. Notably, a big change compared to the current law is the increase of statutory damages to six times the current RMB 500,000. If the losses of the trademark right holder, benefits of the infringer or royalties of the trademark are all hard to determine, the court may, on the basis of the circumstances of the infringement, determine the amount of compensation to be up to RMB 3m.

Civil damages. The amended law explicitly outlines the order in which compensation should be determined in infringement cases: (i) actual losses caused by the infringement; (ii) benefits acquired by the infringer through the infringement, if it is hard to determine the trademark right holder’s actual losses; and (iii) if it is hard to determine the losses of the trademark right holder or the benefits acquired by the infringer, the calculation should be based on a reasonable multiplied amount of the royalties of the trademark in question.

Administrative (AIC) penalties. Where illegal turnover exceeds RMB 50,000, a fine not exceeding five times the illegal turnover may be imposed. Where no illegal turnover exists or the illegal turnover is less than RMB 50,000, a fine of no more than RMB 250,000 may be imposed.

Repeat infringers. As another sign that deterrence is a focus, the amended law includes a new provision that allows for heavier punishments for repeat infringers,i.e., if an operator engages in infringing activities more than two times within five years, or if other serious circumstances exist, a heavier punishment can be issued.

Exemption from compensation. The new law adds circumstances under which an infringer is not liable for damages. Those include circumstances where a party unknowingly offers for sale goods that infringe a trademark. In such a case she must be able to identify the supplier and prove that she has obtained the goods lawfully. Exemption from compensation can also occur in cases where a defendant claims non-use of the registered trademark by the trademark right holder. In this case the court may require the right holder (plaintiff) to show loss or provide evidence of actual use of the infringed trademark within the last three years. The addition of loss as a possible basis should be welcomed by IP owners as the previous draft only allowed for use of evidence. If the right holder does not provide evidence of actual use, and also fails to prove its losses, the defendant will not bear liability to compensate.

Since this is now provided directly in the new Trademark Law, the courts will, as of May 2014, strictly observe this provision when determining damages in trademark infringement cases. This is likely to affect the filing and enforcement strategies of most brand owners.

Litigation

Burden of proof. One change that may reduce litigation costs for trademark holders and improve their position is the added power that courts now have to request materials from the infringer. Once infringement is established, and if the right holder has tried to provide evidence, but the books and materials relevant to the infringement are controlled by the infringer, the court can order the infringer to provide the books and materials in order to determine the amount of compensation. If the infringer refuses to provide, or provides false books or materials, the court may determine the amount of compensation by referencing solely the evidence provided by the right holder.

Trademark applications

The amended law explicitly allows for e-filings and multi-class filings. Where necessary, the CTMO will also be able to ask applicants to provide explanations or corrections to their applications. This option is not available under the current law in force.

In terms of registerable scope, the new lawallows sound marks to be eligible for registration while single colours, scents and moving images are not registerable. Signs identical with, or similar to, the national anthem, military emblem, military song of the People’s Republic of China, or identical with the names or symbols of China’s central state organs cannot be used or registered as trademarks.

Timing. New time limits for examination of certain cases have been included to shorten the registration process. For example, trademark applications (and applications for cancellations) should be examined by the Trademark Office within nine months of receipt of the filing.

Renewals of trademark registration will be possible to make within 12 months before the renewal deadline, with a six month grace period. This should assist IP owners who also have to renew customs recordals which historically could lapse before confirmation of the renewal of the trademark registration.

Licensing and assignment

A few provisions have been added in this regard. Registrants will be required to, at the time of assignment, assign all of the registered trademarks that are similar to the trademark to be assigned in respect of the same or similar goods.Where the assignment may result in confusion or other adverse effects, the law now explicitly provides that the CTMO should not approve the assignment and must notify the applicant thereof in writing.

A notable addition in the new law is that a trademark licence contract without recordation with the CTMO cannot be used against third parties in good faith. This is an interesting addition, particularly from the point of view of the recently issued foreign exchange regulations, which, if the transaction is less than US$50,000, will no longer require recordation in order to be able to remit foreign currency. How these requirements, or lack thereof, will play out in practice will be of interest going forward.

Procedures

Oppositions. Opponents will no longer be allowed to file reviews with the TRAB for unsuccessful oppositions. Instead, IP owners will need to go through an invalidation process. In practice this will mean a real risk of trademark infringement until the mark is invalidated or revoked. Opponents are also required to have locus standi either by being the owner of a prior mark or be an interested party in respect of opposing the mark on the basis of relative grounds. Otherwise, they will need to rely on the invalidation procedure.

Invalidations. The amended law introduces an invalidation procedure for certain cases. Where a registered trademark violates provisions in the Trademark Law that explicitly stipulate that it cannot be registered or used as a trademark, or the registration of a trademark has been acquired by fraud or other unfair means, the CTMO should declare the registered trademark invalid (instead of cancelling the registered trademark as provided by the current law). Other entities or individuals may also request the TRAB to declare the registered trademark invalid.

Despite efforts by industry to lobby for an extended invalidation appeal period, there are only 15 days as of receipt of the CTMO’s decision within which an appeal can be filed to the TRAB. The TRAB in turn is required to make itsdecision within nine months from receipt of the filing. This time limit can be extended for three months. Following this, the TRAB’s decision can be appealed to a court within 30 days of receipt of the decision.

A registered trademark that has been declared invalid is deemed to be non-existent from the beginning.A decision to invalidate will have no retroactive effect on any judgment, decision or agreement issued or entered into prior to the invalidation declaration of the trademark.

Cancellations. The circumstances under which an entity or individual may request the CTMO to cancel a registered trademark are reformulated in the new law. These are: (i) if a registered trademark has become a generic name of its designated goods;or (ii) if a registered trademark has not been used, without proper reasons, for an uninterrupted period of three years.

In this regard, cancellation of a trademark used on goods that are roughly or poorly manufactured, or on goods of bad quality which pass off as those of good quality, so as to deceive consumers, will no longer be explicitly provided for in the amended law.

Trademark use

An added article provides that the use of a trademark includes the use of the trademark on goods, packages, containers or in trading documents, advertising, exhibitions or other business activities, which identify the source of the goods.

In terms of fair use, a trademark owner will have no right to prohibit the (fair)use by another personof: (i) generic names, design or models, or geographical names, or those that directly show the quality, main raw materials, functions, intended purposes, weight, quantity or other characteristics of the goods in question; (ii) signs incorporated in a registered three-dimensional trademark that are the shape, which result from the nature of the goods themselves, or the shape of goods which is necessary to obtain a technical result, or the shape which gives substantial value to the goods; and (iii) where another person has been using an identical or similar trademark that has a certain reputation on the same or similar goods prior to the application for registration for a trademark – in such cases, the proprietor does not have a right to prohibit that person to continue using his trademark within the original use scope, but may demand the user add proper signs to distinguish the source of the goods.

Summary

Clarification of the amended provisions is still needed and should be provided in the not too distant future by the Supreme People’s Court. In conclusion, we are of the opinion that the amended Trademark Law will have a positive effect for most brand owners; however, only time will tell how the changes will be applied in practice.

Deanna Wong is a partner at Hogan Lovells. Ms Wong can be contacted on +86 10 6582 9488 or by email: deanna.wong@hoganlovells.com.

Deanna Wong

Hogan Lovells