With China becoming an increasingly important market for South African companies, the proposed changes to Chinese trade mark law that were recently announced are of great importance. There has long been a perception that trade marks in China are difficult to protect, that the system favours locals, and that foreign companies often come off second best. This perception may not necessarily be fair, but there have certainly been a number of worrying reports of trade mark hijackings over the years, in other words cases of major international brands being registered by locals, and then offered back to the true owners for exorbitant prices. Major UK retailers like Sainsbury's, John Lewis and Topshop were victims of this practice.
The case that made the biggest headlines, of course, involved Apple. As part of its pre-launch clearance exercise for the iPad brand, Apple bought various trade mark registrations for the mark including, it believed, one that covered China. But the company that sold these trade mark registrations to Apple in fact didn't own the Chinese registration. As a result, Apple found itself in the unenviable situation of having to negotiate with a company that did own a Chinese trade mark registration for iPad after it had already launched the product in that county. Needless to say, Apple ended up having to pay a very high price for the registration.
The 'first to file' system that applies in China and a number of other countries says that the person who first files the trade mark application gets the registration. The harshness of this rule can be tempered in various ways, for example by giving protection to marks which - although not yet used in the country - are in fact well known there. Another way is to require good faith and penalise bad faith. This is the solution that the Chinese authorities seem to have opted for.
Although Chinese law does already allow for the cancellation of trade mark registrations that were obtained in bad faith or are for marks that are well known, these proceedings tend to be difficult and expensive. The authorities have therefore now created a general good faith requirement for trade mark filings, which means that every trade mark application must be filed in good faith. On top of that, it will in future also be possible for an aggrieved party to oppose a trade mark application if the party filing the application knew or should have known of the trade mark because of some relationship with the aggrieved party.
To further discourage bad faith applications, there will in future also be penalties for trade mark agents (attorneys) who act in bad faith. And there will be a significant increase in the damages that can be awarded for trade mark infringement, including the option to award triple damages in cases where there is bad faith, and penalties of up to 500% of the profits earned from the infringement.
Further changes include a move to multi-class filing, in other words a system whereby you can cover more than one class of goods or services in one application. This is a good thing, because the cost of filing one application covering various classes is generally cheaper than the cost of filing separate applications in those same classes. Another change is that there will be time limits within which the authorities must examine and complete trade mark applications, which will expedite and bring more certainty to the whole process.
These changes are due to come into effect in May 2014, and they are very welcome. But they don't change the simple fact that if you have any interest in doing business in China your best bet is to get your trade mark registered in that country as soon as possible.
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