These days, most organisations that undertake manufacturing work will have links with China. Of course, China is not just a destination for manufacturing; it is also rapidly becoming a consumer market that many brands are keen to participate in. Although China offers incredible opportunities for businesses, companies that do not take steps to adequately protect their brands may fall victim to counterfeiting and trademark squatting.
In contrast to Australia, which is a first–to use the mark jurisdiction, China's trade mark system is first-to-file. In the past, this has created a situation where brandjackers have been able to register marks such as Hermes, Chivas Regal and iPad, and hold out the genuine brand owners from their brands.
But China's trade mark landscape is changing. Amendments that came into force on 1 May 2014, require trade mark applications to be made in good faith. While China is home to entities that have been set up to prolifically apply for famous marks, now if entities become known as serial infringers, they may be be banned from applying in future, and may even face fines.
E-filing and multi-class applications have also been opened up and renewals can now be filed 12 months before a trade mark expires.
This has made the process more affordable for applicants who previously had to file multiple applications to secure protection across a number of classes. The new legislation has streamlined the process. Applications must now be assessed by the Chinese trade marks office within nine months, and appeals determined within 12 months.
The amendments have also introduced sound trademarks.
Opposition and remedies
The opposition process has also changed under the new amendments. Now, if an opposition is unsuccessful, it cannot be appealed. This change is controversial because a genuine owner that unsuccessfully opposes a bad faith applicant would be unable to appeal that decision. However, it's likely to be read in conjunction with the new requirement for all applications to be made in good faith, which is intended to assist genuine brand holders. Once the bad faith applications have been filtered out of the system, it's unlikely to be an issue in the long term, as the genuine brand owner will be able to use the bad faith provisions to challenge any new application.
China offers a number of avenues that are not available in Australia. For example, companies who have well-known brands or trade mark registrations can request the Administration for Industry and Commerce (AIC) to take direct action against the infringer. This approach is particularly useful for dealing with online counterfeiting as the AIC's Internet network department can have sites selling counterfeit goods taken down. The AIC also conducts raids on factories where counterfeit goods are being manufactured, and they can seize goods, issue fines and cancel business licences. Despite these broad powers, it's not a total solution for brand owners. The AIC doesn't award damages or costs. If the brand owner wants to recover damages and costs, those remedies must be pursued by a civil action through the courts. The new amendments have raised the range for damages to US$80,000 to US$500,000, with the possibility of multiplying the damages by up to three times if there is also a bad faith element.
Exceptions to infringement
In Australia, where something is deceptively similar, there is a requirement that there is an element of confusion for the infringement claim to be made good. A similar provision has now been included in the Chinese legislation. The amendments have also created an exception to infringement for well-known marks, which is similar to the honest concurrent use provision in Australia. If the owner of the work has used a mark and has a high level of use and recognition in China before the registered trade mark, that may be a sufficient exemption to infringement.
Whether use by an Original Equipment Manufacturer (OEM) of a trade mark not owned by it constitutes infringement has long been debated. In Shenda vs. Jolida, the Shanghai courts held that OEM trade mark use constitutes an exception to infringement. This meant that the genuine overseas owner (who had not registered its trade marks in China) would not be infringing the rights of the brandjacker (who registered those trade mark rights in China), if those goods were manufactured solely for the purpose of export, and would be able to export its OEM goods without fear of Customs seizure. However, the Guangdong courts have taken a contrary view and held that OEM trade mark use is infringing use.
The new law may clarify this inconsistency as it now stipulates that use of a trade mark occurs when that trade mark is used on goods, packages, containers or in trading documents, advertising, exhibitions or any other business activities "which identify the source of the goods". This is because, arguably, OEM use may not be considered by the courts to be "use" by the OEM as the products manufactured by the OEM are not sold by the OEM in China, and therefore do not identify to consumers in China "the source of the goods".
The full impact of these amendments, particularly those around enforcement and damages, may not be known until new cases come through the system. Nevertheless, organisations that are currently doing business in China, or expect to enter China in the next few years, should file a trade mark application as soon as possible to ensure protection. Brand protection in China requires companies to think broadly about how they intend to do business in the future, what brands they will use and how those brands will be used. Logos, plain English word marks and Chinese character word marks should all be registered.
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.