China's new Trademark Law has been issued and will become
effective on May 1, 2014. Important changes in the areas of
anti-piracy, prosecution, enforcement, well-known mark
determination and usage, opposition, and cancellation have been
made. Foreign companies and their counsel should be aware of these
changes so that rights and interests are not prejudiced and
opportunities are not missed.
The significant changes include:
- Strengthened protection against piracy
- Shortened trademark prosecution times
- Sound marks and multiple class trademark applications made available
- Strengthened well-known mark protection
- Narrowed legal standing for oppositions and invalidation
- A mark proceeding to registration if the opposition fails at the first level of adjudication at the Trademark Office
- Increased fines, compensation, and statutory damage against infringement
Anti-Piracy
Article 7 of the new Trademark Law was added for attacking
trademark piracy. Article 7 provides that the "application for
registration and use of a trademark shall be based on the principle
of good faith." This new Article 7 was copied from Article 4
of China's Civil Code and hence was already existing law.
Further, the existing Trademark Law already has provisions against
piracy or bad-faith trademark registration. Specifically, Article
32 provides that: "The trademark application shall neither
infringe upon another party's prior existing rights, nor be an
improper means to register a trademark that is already in use by
another party and enjoys substantial influence."
Article 19 of the new Trademark Law adds provisions prohibiting
trademark agents from assisting clients engaging in trademark
piracy: "The trademark agency knows or has already known that,
where the client applies for a trademark that falls into Article 15
and Article 32 hereof, the trademark agency shall not accept the
entrustment...."
As mentioned above, Article 32 prohibits trademark piracy or bad
faith trademark registration. Article 19 should to some extent
discourage trademark agents from advising clients to pirate third
parties' well-known marks.
In the last few years, although there have been a handful of cases
where the Chinese Trademark Office and the Chinese Trademark Review
and Adjudication Board examiners refused the registration of
pirated marks, many rightful owners failed in opposition and
cancellation proceedings usually because the rightful owners had
not submitted evidence meeting the high evidentiary standards
required by the examiners.
It remains to be seen whether the new articles will indeed result
in examiners vigorously attacking piracy. The changes in the
opposition and cancellation procedures (in particular, applications
proceeding to registration upon oppositions failing at the first
review by the Chinese Trademark Office) will be counterproductive
to anti-piracy unless examiners have the political will to refuse
registration of pirate applications.
Prosecution
Sound marks are now registrable, but additional items related to
the Chinese government (including the Chinese national anthem, the
logo and theme song of the People's Liberation Army, and the
names and logos of Chinese Central Government agencies) have become
unregistrable.
The new Trademark Law allows a trademark application to cover more
than one class of goods and services.
Currently, the timeline for most trademark cases, notably
oppositions, cancellations, and reviews and appeals before the
Chinese Trademark Office and the Chinese Trademark Review and
Adjudication Board, can be a lengthy one. The new Trademark Law
sets out specific time limits for the completion of cases. This
should improve the length of the various trademark prosecution
proceedings.
Assignment
The assignment provision in the Implementing Regulation to the
existing Trademark Law has been moved to the new Trademark
Law.
Assignment of China-registered marks or pending applications
requires approval by the Chinese Trademark Office. The assignor and
assignee must enter into an assignment agreement and jointly file
an application for approving the assignment with the Trademark
Office. The filing of the application is not merely an act of
recordation; it is a genuine approval process. After an assignment
of a mark has been approved, the assignment will be gazetted. The
assignee will then enjoy the exclusive right to use the mark from
the date of gazetting.
The Trademark Office can reject an assignment on one of the
following two grounds: (i) not all of the assignor's identical
or similar marks covering identical or similar goods or services
are being assigned simultaneously; and (ii) "such assignment
may cause mistaken recognition or confusion or have other negative
effects."
The risk associated with the first ground may be averted by
conducting due diligence and appropriate searches.
The second ground involves undefined terms that can be
subjectively interpreted by the Trademark Office. In this regard,
it is noteworthy that a document titled "Opinion Concerning
the Question of the Use of Trademarks by Chinese-Foreign Joint
Ventures and the Assignment of Trademarks to Foreign Parties,"
issued on February 2, 1993, stipulates that the assignment of
geographical indications to non-PRC entities is considered as
something that would have a "negative effect." In the
Opinion, the Trademark Office states that the "joint use of
trademarks in joint ventures with foreign businesses and the
assignment of marks (to foreigners) should be studied in earnest
and handled with great care." This discretion of the Chinese
Trademark Office allows it to refuse approving assignment of
important marks owned by Chinese parties to foreign parties.
In the decade-long dispute between Danone and Wahaha, Wahaha
signed a contract transferring its Wahaha mark, which was appraised
at 100 million RMB, to the joint venture invested in by Wahaha and
a Singapore company (which in turn was owned by Danone and a Hong
Kong company). However, the Chinese Trademark Office refused to
approve the trademark assignment on the grounds that the mark was a
well-known mark of a Chinese state-owned enterprise. The assignment
of the mark was consequently ineffective even though the parties
signed the transfer contract.
Given this discretion of the Chinese Trademark Office, it is
important that acquisitions are strategically planned to avoid
risks posed by the discretion. This change should be noted by
foreign companies and their counsel, particularly those engaging in
mergers and acquisitions in China.
Well-Known Mark
In the past 10 years, there have been misuses of the well-known
mark system in China. For example, some companies have commenced
fake litigation or cases to acquire well-known mark determination.
The Chinese courts and trademark authorities were usually reluctant
to make a determination on whether a mark should be accorded
well-known mark status. As a result, the Chinese courts and
trademark authorities tended not to make a determination if
possible, deciding the cases on other grounds, for example.
Now, however, Article 14 of the new Trademark Law provides that
well-known mark determination should be made as needed. In an
attempt to counter misuses of well-known marks, the new Trademark
Law prohibits any use of well-known mark designations on products,
packaging, or containers, or in advertisements or other commercial
activities.
It remains to be seen whether the new Trademark Law will actually
result in the Chinese trademark authorities and courts making
determinations of well-known mark status in cases where such
determination is needed.
Standing in Opposition and Invalidation Proceedings
Aside from registrability issues, the new Trademark Law no
longer allows parties that are not prior right holders or
interested parties to file oppositions or invalidations.
Oftentimes there is a need for third parties to file oppositions
or invalidations. For example, to prevent retaliation, a party may
wish to have oppositions or invalidations filed in the name of an
unrelated third party in order to keep its identity confidential.
Once the new Trademark Law comes into effect, that option will no
longer be available.
Opposition
An important change to the Trademark Law is that if an
opposition fails at the Trademark Office level, which is the first
level of review for an opposition, the mark would immediately
proceed to registration. This is a drastic change from the current
Trademark Law, where the opponent in such a situation may appeal to
the Trademark Review and Adjudication Board and apply for judicial
review at two levels of court.
Unless the Chinese Trademark Office examiners are willing to take
up the fight against pirates, this change will fuel piracy as the
registration of a pirated mark would embolden the pirates to hold
legitimate right holders for ransom.
A key strategic point for foreign companies and their counsel to
note is that this change elevates the importance of the evidence
for supporting oppositions. It is very important that sufficient
use, fame, and other evidence for supporting oppositions is
produced for oppositions.
From the perspective of the World Trade Organization document
"Agreement on Trade-Related Aspects of Intellectual Property
Rights," to which China is a party, it is unclear whether the
removal of the appeal and judicial review rights under the new
Trademark Law is a violation of Article 41 of that Agreement:
... 4. Parties to a proceeding shall have an opportunity for review by a judicial authority of final administrative decisions and, subject to jurisdictional provisions in a Member's law concerning the importance of a case, of at least the legal aspects of initial judicial decisions on the merits of a case....
Infringement
The new Trademark Law has in general increased the fines against infringers:
Article 60 ... Where the infringement is confirmed, the administrative department for industry and commerce shall order the infringer to cease such infringement, confiscate and destroy the infringing goods and tools used in producing such goods or forging logos of the registered trademark. In the event of illegal business revenue of over RMB 50,000, a fine up to five times of the revenue may be imposed; in the event of no illegal business revenue or illegal business revenue of less than RMB 50,000, a fine up to RMB 250,000 may be imposed; in the event of trademark infringement of more than two times within five years or other serious circumstances, a heavier punishment shall be given. Where a seller with no knowledge of its infringing goods can prove the legality of acquiring such goods and point out the provider, the administrative department for industry and commerce shall order the seller to cease selling its goods....
Normally, compensation to right holders is calculated based on
the loss suffered by the right holders or (if the loss suffered is
hard to determine) the gain reaped by the infringers. If such loss
and gain are hard to determine, compensation may be calculated
based on a multiple of the license fees. For seriously malicious
infringers, compensation may be one to three times the compensation
calculated under the above methods. The statutory damage against
infringers increased to RMB 3 million.
The increased fines, compensation, and statutory damage should
still lack deterrence value against infringement in light of the
cost of enforcement and the huge profit from infringement. It is
said that it is less risky and more profitable to engage in
intellectual property infringement than to traffic narcotics.
Conclusion
It is expected that the implementing regulation to the new
Trademark Law will be issued soon to provide details on the
implementation of the provisions of the new Trademark Law.
In the meantime, infringement and piracy continue to be rampant in
China. Whether the new Trademark Law with its increased fines and
statutory damages and the incorporation of the good faith principle
from the Civil Code will be useful for fighting piracy would depend
on whether the trademark authorities in China have the political
will to seize on the opportunity to fight piracy and
infringement.
Nevertheless, the important message to foreign companies and their
counsel is that bolstering their trademark portfolios is critical.
If foreign companies' trademark portfolios are strong, then
foreign companies would not need to be at the mercy of pirates and
the narrowed standing for oppositions and invalidations, and they
can effectively fight infringement.
The new Trademark Law ostensibly provides opportunities to obtain
well-known mark status determination. Obtaining well-known mark
status is another very useful tool to fight piracy and
infringement, and foreign companies should consider seizing
opportunities in this regard.
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.