China: Upcoming Changes In Chinese Trademark Law

Last Updated: 1 August 2014
Article by Ekkehard Heinze and Axel Kockläuner

On 1st May 2014, comprehensive changes to Chinese trademark law will come into force in the People's Republic of China. We have compiled the most important changes for you

I. Preliminary remark

Chinese trademark law, which came into force in 1982, has so far been amended three times, namely in 1993, 2001 and 2003. Additional amendments were then agreed on in 2013, which will come into force on 1st May 2014.

In addition to several changes to the process, various regulations will be introduced that are meant to prevent mala fide (bad faith) trademark applications, and strengthen the rights of the trademark owner in the event of trademark infringements.

The most important changes for you are as follows:

II. Trademark applications possible for several classes

Previously, it has been necessary when filing a national Chinese trademark to apply for a separate trademark for each goods or service class.

Under the new regulations, it will be possible to claim protection for several goods and service classes with a single trademark application. With this amendment, Chinese trademark law approaches the majority of other legal systems, especially German and EU practice as well as the system of international registrations.

This has the initial advantage that costs will be reduced. In addition, you will benefit from a simplified registration process.

III. Adoption of official notices in the registration process

The current practice in the registration procedure provides that the auditor of the Chinese Trademark Office can only enact procedural notices if the list of goods and service does not correspond to the requirements for the classification – while the application must be rejected in the event of other defects. This rigid system often leads to the rejection of trademarks owing to small defects.

In the future, it will be possible for the auditor to issue an official notice in the application procedure in order to draw attention to defects of the application as regards form and content. With this notice, you will then have the opportunity to explain the issues raised or to remedy the complaint.

As in most cases this approach will mean that the formal rejection can be avoided and a subsequent appeals procedure can be obviated, this will also simplify and accelerate the procedure and reduce costs.

IV. Streamlining Administrative Procedures

So far there are no specific regulations regarding the duration of application, opposition, nullity and cancellation proceedings, including the respective appeal procedure. The Chinese trademark law to date only provides that this process occurs in a "timely" manner. Currently, for example, the duration of an application process lasts about 12 to 18 months, or even longer.

These procedures should be significantly streamlined with the amendments now adopted. In the future, mandatory time limits will apply for the processing of trademark applications, as well as for additional procedures (including appeal proceedings related to this), which can only be extended in individual cases. Under the new regulations, the following normal time limits will apply:

  • Application procedure, nullity proceedings or cancellation proceedings: 9 months
  • Opposition proceedings: 12 months
  • Appeal procedure for rejection, nullity or cancellation proceedings: 9 months
  • Appeal procedure for opposition proceedings: 12 months.

The criticisms of many applicants regarding the current long processing times is taken into account with this amendment (and the employment of additional personnel). The phases of legal uncertainty will thus be substantially shortened.

Attention: The appeal period remains unchanged for decisions unfavourable for you. This time period is still only 15 days from the receipt of the notification of the official decision. Compliance with this short time period will still pose a great challenge for the trademark applicant and their legal representatives.

V. Mala fide (bad faith) applications

To protect against mala fide applications, several new provisions will be introduced into Chinese trademark law:

Initially, the registration and use of a trademark should be subject to the principle of honesty ("good faith"). This new regulation aims to prevent registrations of trademarks by mala fide applicants. However, it remains to be seen how this provision will actually work in practice.

In addition, the previously valid regulations will be expanded by a standard, which is used to protect the licenser or business partner of the applicant. In accordance with this, the owner of an older (in China) designation used, such as the licenser or business partner of the applicant of a trademark, can object to the application of a confusable trademark if the applicant was made aware of this designation through contractual, business or other relationships.

Another new regulation will allow the trademark owner to proceed against use of their trademark as a name of a Chinese company. This instrument is, in particular, meant to prevent deception of the market participants.

Overall, it is to be expected that the new regulations will significantly strengthen the position of foreign companies on the Chinese market vis-à-vis their local sales partners and licensees or even "trademark pirates."

VI. Right of prior use

To date, Chinese trademark law accepted no right of prior use for those who used a trademark name for certain goods or services with regard to those who applied for the same, or a confusingly similar designation, as a later trademark registration. Incidentally even in German trademark law, there is not such a right of prior use.

In the future, those who have used a trademark (in China) for certain goods or services may also continue to use this for their goods and services if a third party later applies for an identical or confusingly similar trademark. This, however, only applies under the condition that the trademark has achieved a high level of awareness through its use.

The right of prior use therefore only results under the prerequisite of a particularly long and intensive use, and is practically limited to those goods and services for which this use takes place.

VII. Sanctions for trademark Infringements

As a result of the current law change, numerous new regulations and sanctions for combating trademark infringements will be introduced. This applies, in particular, to official punishment proceedings as well as for trademark infringement proceedings before courts of law.

The following applies for official punishment proceedings: If the competent authority determines a trademark infringement, they can set higher fines than before. The amount of these fines depends on the profits achieved and on the frequency of trademark infringements. If the profit is over 50,000.00 RMB (approximately equivalent to 6,000 EUR), a penalty of up to five times the profit achieved can be imposed on the trademark infringer. If no profits were made, or if the profit falls below 50,000.00 RMB, a penalty of up to a maximum of 250,000.00 RMB (approximately equivalent to 30,000 EUR) can be imposed on the trademark infringer. If the trademark infringer is a so-called repeat offender who has committed more than two trademark infringements within five years, or if there are other grave circumstances, higher penalties can also be imposed.

In trademark infringement proceedings before courts of law, the calculation of damage compensation that the trademark infringer must pay to the trademark owner takes place either based on the loss incurred by the trademark owner, or based on the profit that the trademark infringer achieved through the trademark infringement. If neither the loss of the trademark owner nor the profit of the trademark infringer can be determined, the damage compensation can be calculated based on a normal license.

In the future, compensation payments of up to 3 million RMB (corresponding to nearly 400,000 EUR) can be set. This is a much higher amount than under the current regulations.

One must take into account, however, that in trademark infringement proceepage dings, where the so-called usage grace period has expired and the infringer has claimed non-use, the use of the infringed trademark in a manner such as to preserve the rights attached must be proven for the last three years. If the owner of the infringed trademark cannot prove use, or if he cannot prove that he had suffered losses due to the trademark infringement, he shall not receive any damage compensation.

Other changes affect the burden of proof allocation in infringement proceedings. If a trademark infringement exists, the court may assign the infringer to issue accounting documents and other materials in order to determine the sum of indemnity. If the infringer refuses to issue these documents or provides false information, the court can set the damage compensation based on the requests and evidence of the trademark owner. This reduces the barriers for the trademark owner to prove the amount of the damages incurred.

Overall, these new regulations may lead to deliberate trademark violation being curtailed and also the requirements for proving damage being significantly reduced. The future maximum sums of indemnity can represent very severe penalties according to the Chinese price level.

VIII. Conclusion

It is expected that the application, opposition, nullity and cancellation proceedings as well as the related appeal procedure will be significantly streamlined and made more cost-effective. It is also expected that the registration process will be much more transparent than before.

The unlawful acquisition of trademark law-related positions of power by sales or licensing partners or trademark pirates will, in general, be more difficult; in other words, it will be easier for owners of established trademarks and company designations to inhibit their abusive registration by third parties in China.

The increase in penalties and sums of indemnities in the event of trademark infringements also appears quite suitable for more effectively combatting trademark piracy cases in China.

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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