China: New Trademark Law, Three Years On

Last Updated: 19 December 2017
Article by Unitalen Attorneys At Law

This article is published in Managing IP Trademark Times - Barcelona 2017 on May 19, 2017 ( Article Link).

On January 4 2017, the Trademark Office (TMO) published the revised Trademark Examination and Review Standard (the Revised Standard); followed by the Provisions of the Supreme People's Court on Trial of Administrative Litigations Involving the Granting and Affirmation of Trademark rights (Judicial Provisions) entering into effect on March 1 2017. Dan Chen of Unitalen Attorneys at Law shares her observations on the highlights.

Have you found something notably new in the area of trademark examination?

Dan Chen: In the 2013 revision of the Trademark Law, the sound mark was introduced into China's trademark system. Based on the last three years' experience, the Revised Standard has provided detailed guidance on the examination of sound mark applications in both registrability determination and similarity test for the first time. In terms of prohibitive provisions, according to the Revised Standard, a sound mark must not be identical with or similar to the Chinese or foreign national anthems, military songs, or "the International", and shall not include religious music, or sounds having a negative effect such as horrifying or violent sounds.

In terms of inherent distinctiveness, a sound mark shall be considered as devoid of distinctive character if it directly indicates the contents, target consumers, functions or other characteristics of the designated goods or services, for example, the sound of playing a piano used as a trademark for a musical instrument, or kids laughing sound used as trademark for infant powder milk. At the same time, pitch or rhythm that is too simple or common, a complete song or a lengthy piece of music, or a direct singing of advertising words or common phrases in plain tones will also be considered as lacking distinctiveness and therefore cannot be registered as a trademark. As to the examination on trademark similarity, it is important to note that, in addition to the comparison between the audio effects, the Trademark Office also compares the verbal elements contained in a sound mark with prior word marks.

Do the two documents provide strengthened measures to tackle trademark squatting?

Dan Chen: Yes, there are several provisions in the Revised Standard that can be beneficial to trademark owners.

First of all, Paragraph 1 Article 44 of the New Trademark Law prescribes that, where a registered trademark was acquired by fraud or any other improper means, the Trademark Office shall declare the registered trademark invalid; and any other organization or individual may apply to the Trademark Review and Adjudication Board for invalidation of the registered trademark. This has been frequently adopted as a miscellaneous provision in trademark opposition or invalidation proceedings, but the rule of thumb on its application was not very clear in the past. In the Revised Standard, the circumstances constituting "registration acquired through other improper means" are specified as (1) registering many trademarks which are identical with or similar to highly distinctive trademarks of others, (2) registering many trademarks which are identical with or similar to others' business names, entity names or the special names for well-known products, and (3) registering a large amount of trademarks with obvious lack of use intention. Further definition has been given to "obvious lack of use intention" as having neither actual use nor intention to use and merely aiming at selling the mark, seeking a royalty fee or compensation. These specified provisions will significantly improve the applicability of Paragraph 1 Article 41, and turn it into a powerful weapon against those professional squatters even if the trademark owner may not be able to prove its prior use of the mark in China.

Secondly, with respect to the application of Paragraph 1 Article 15 of the New Trademark Law concerning trademark agents or representatives attempting to register a trademark without authorization from the trademark owner, the Revised Standard and the Judicial Provisions broaden the application scope to those registration attempts taking place during the negotiation stage before an agency or representative relationship is formed and after termination of the relationship. In addition, where there is a certain relationship such as kinship or investment relationship between the trademark applicant and the agent or representative of the trademark owner, they may be presumed to be in collusion, and hence fall into the scope of Paragraph 1 Article 15 as well. These specified provisions will help ensure a safer business environment for trademark owners facing the risk of disclosing their trademarks to potential business partners. At the same time, however, trademark owners still need be mindful of preserving evidence from the very beginning, and are expected to put more efforts into background investigation, in order to dig out any potential link between its agent/distributor and the trademark applicant.

We have seen more and more successful opposition andinvalidation actions based on the prior-copyright claim. Will this trend be loosened or tightened under the two documents?

Dan Chen: In my opinion, both documents deliver the same strong message that prior copyright will remain an effective tool in trademark opposition or invalidation proceedings. At the same time, however, certain borderlines have been drawn to avoid abuse of such rights. In terms of examination scope, for example, the Judicial Provisions require courts to conduct thorough examination on (1) whether the object at issue constitutes a copyrightable work, (2) whether the petitioner is the legitimate copyright owner or an interested party entitled to claim the copyright, and (3) whether the trademark at issue constitutes infringement of the petitioner's copyright.

At the same time, the Revised Standard makes it clear that the petitioner's trademark registration certificate alone or the copyright registration certificate dated later than the filing date of the trademark at issue cannot constitute sufficient proof of prior copyright. In the past, it had been a very common practice for the opposition/invalidation petitioner to apply for copyright registration after starting the opposition/invalidation proceeding. In light of this new evidence requirement, copyright owners shall either keep a complete record of prior creation or publication of the work (not necessarily in China) or take actions to obtain copyright registration as early as possible.

With regard to the use of a registered trademark, have there been any new requirement or trends?

Dan Chen: While the New Trademark Law describes trademark use as use of a trademark on goods, packages or containers of the goods or in trading documents, and use of the trademark in advertising, exhibition or any other business activities, to the extent to identify the origin of the goods, the Revised Standard further confines trademark use as use of a trademark in commerce and specifies several typical circumstances that do not constitute trademark use in the context of the Trademark Law, namely, (1) publication of trademark registration information or declaration of trademark ownership; (2) use of a trademark other than in the public business field; (3) use of a trademark merely on gifts; (4) mere transfer or license of trademark rights without actual use; and (5) symbolic use of a trademark merely aiming at maintaining registration.

In our representation of trademark owners who are victims of trademark squatting, we frequently find trademark squatters carrying out symbolic use of the preempted trademarks in an effort to keep the registration valid for sale. In the past, the Trademark Office would maintain a trademark registration so long as the registrant submitted one piece of valid use evidence. Under the new rules, petitioners of non-use cancellation will be able to challenge such a single piece of evidence as being symbolic use merely aiming
at maintaining the registration, and hence improve the chance of success. However, it is still not clear whether, at the stage of examination by the TMO, this test of symbolic use will be implemented ex officio and directly lead to the cancellation of a registered trademark.

Which would you consider the most typical trademark cases in the past year?

Dan Chen: Selected among the 2016 top 10 IP litigations by the Supreme Court, the series of administrative litigations of Michael Jordan vs TRAB and Qiaodan Sport are of significant importance for understanding the protection of person name rights against trademark squatting. These Supreme Court verdicts reflect the same standard as in the Judicial Provisions that the protection of person name rights includes not only the official name but also the pen name, stage name and translated name, to the extent that such name has enjoyed a certain level of reputation, that a corresponding relationship has been established with the natural person, and that the relevant public use it to refer to the natural person.

Another 2016 top 10 IP litigation case concerning affirmation of trademark rights, namely the administrative litigation of Chateau Lafite Rothschild & TRAB vs Lafei Manor, plays a guiding role in the determination of similarity between a foreign trademark with a high level of reputation and the Chinese name pre-empted by others. During retrial of the case, the Supreme Court discussed various issues including composing elements of trademarks, degree of similarity in whole, the distinctiveness and reputation of the relevant trademarks, and most important of all, the determination of a stable corresponding relationship. Last but not the least, the civil litigation between Maco, a Chinese company well-known for industrial adhesives and glues, against Xiujie Xinxing over trademark infringement has set a new record for the highest amount of indemnity ordered by Beijing IP Court, which is Rmb10 million ($1.5 million). In this case, Maco determined the amount of damage based on the profit acquired by the defendant through infringement activities, and provided evidence collected through public information channels at their best, which included the defendant's scale of operations, unit sales profit of infringing goods, production volume, sales period, number and geographical coverage of the defendant's retail stores. With regard to sales profit, Maco requested the court to take into account of the unit price difference and the gross margin of the alleged infringing products. As for the sales volume, although there is no exact number, Maco was able to prove the monthly production of one type of the alleged infringing goods as 10,000 tons. Based on this, in combination with other factors such as the defendant's scale of operation, the number of retail stores and geographical coverage, Maco made the reasonable deduction that the three types of alleged infringing products had a total monthly sales volume over 10,000 tons. The defendant challenged the objectivity of this evidence, but refused to provide the bookkeeping records and information of the relevant business activities despite the court's order. In the end, the Beijing IP Court granted full support to Maco's petition and ordered the defendant to compensate Maco with Rmb10 million.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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