How the use of opposition can be more effective if applied to a restricted number of cases and how alternative solutions may sometimes be more appropriate against hostile trademark filings
Trademarks are the legal embodiment of brands. They are a company asset and important business vehicle in today's global market. There is no company today who is not aware of the importance of investing resources to build up brand value and to protect it.
Whereby large foreign companies and MNCs have been securing trademark portfolios in China for several years, making China the country with the largest amount of trademark applications and registrations in the world, foreign SMEs have been slower and more reluctant to file trademarks in China. In particular, they may view trademark filing in China as too expensive when compared with the low rate of success in enforcement or winning it back from a grabber. The first-to-file principle that characterizes the Chinese trademark system—a system that gives no legal value to pre-use save for a few exceptions such as that of unregistered well known trademarks—has indeed contributed to the proliferation of hostile trademark filings and theft by Chinese individuals and competing enterprises. However, what is more discouraging to foreign companies is the lack of effective strategies and legal tools to recover or block stolen and hostile trademarks. For years, trademark opposition has been the central if not the only legal strategy and tool utilized by foreign companies against similar hostile trademark filings. The rate of success has been low though, especially for brands of SMEs which do not yet enjoy much notoriety or reputation in China.
This article revisits the Chinese trademark opposition system in light of the new trademark law which has been in force since May 1, 2014, comments on the use made of trademark opposition under the prior trademark law and provides ideas on how to choose more effective and business oriented recovery strategies alternative to trademark opposition.
II. The threat of hostile filings in China
One of the negative consequences of trademark filing proliferation in a first-to-file legal system of an emerging economy is an increase of conflicts among similar trademarks, conflict which becomes an acute issue, if we consider the always large amount of bad faith similar applications by both Chinese individuals and competing Chinese companies. The result, is that foreign brands find themselves confronted with frequent attempts by third parties to obtain registration of hostile trademarks. These hostile trademarks are trademarks containing wording, pictorial elements or both, that look quite similar to an already registered trademark or to an unregistered trademark. The problem in China has not only been the continuous attempts by unknown Chinese parties to obtain the registration of a trademark that evokes and exploits a more famous and already registered brand, but also the fact that such attempts are often successful; these hostile trademark applications are, in many cases, granted by the Chinese Trademark Office.
The reasons for the high level of granted hostile trademarks may depend on several concurring factors. One factor is the very structured and rigid system of classes and subclasses in the Chinese classification of goods and services, which allows the co-existence of similar trademarks in the same class as long as they are registered in different subclasses. Another factor may be the scarce knowledge of foreign languages, e.g. English, among the Chinese examiners, which may lead to inconsistent decisions as to similarity. Another negative cause may be the not always efficient way in which work is distributed among examiners, which may hamper consistency.
The outcome of all this is always the same: large numbers of hostile similar trademarks are preliminary granted in China. This forces foreign companies affected by hostile filings to make a decision on how to react to such attacks. Trademark opposition has always been the first and foremost response to such aggressions. Whether opposition is the most effective solution for every case is questionable. Changes to the opposition system may now compel foreign brand owners to revisit their opposition strategies and consider alternative avenues and solutions.
III. The System of trademark opposition in China
The amendment to the trademark law which has been in force since May 1, 2014, has brought some relevant changes to the system of trademark opposition in China. In the view of the author, these changes, which are mostly of a restrictive nature, will help foreign companies to more carefully consider the use of opposition and determine whether there may be more effective legal tools to bring about a solution for their business, rather than a legal problem.
3.1. Introduction of restrictions as to the legitimation of the applicants
One of the goals of the new trademark law is to reduce the amount of unfounded oppositions by entitling only a restricted number of individuals or entities with the right to file trademark oppositions. Such a filter should help to reduce the amount of bogus oppositions, and thus offer relief to the overworked trademark examiners, which would improve their work flow and quality of work product. In turn, this should have a positive effect on the consistency of the decisions in pending cases.
Article 33 of the new Trademark Law provides that, where any prior right owner or interested person believes that provisions of Paragraphs 2 and 3 of Article 13, Article 15, Paragraph 1 of Article 16, Article 30, Article 31 or Article 32 of the Law have been breached or any person believes that the provisions of Article 10, Article 11 or Article 12 have been violated, it may raise an objection to the Trade Office against a trademark that has been published after a preliminary examination within three months from the date of announcement. As under the old Trademark Law, any person can file opposition based on "absolute" grounds (i.e. trademarks reproducing symbols of State, non-distinctive and descriptive trademarks and 3D marks). In this case, the grounds for opposition aim at protecting general public interest, and there is, indeed, no reason to limit access to such a legal tool to specific groups of right holders. On the other hand, only the right holders or any interested parties can file opposition on "relative" grounds (i.e. unregistered well known trademarks, trademarks filed by the agent without the consent of the principal, similar or identical prior registrations, infringement of prior's existing rights, etc.). In this case, the right of opposition would serve only private business interests. Therefore in this case, the law limits access to this recourse only to those parties with such immediate economic interest. Furthermore, according to the practice and jurisprudence, interested parties are the exclusive licensees. This is the main difference in Article 30 of the old Trademark Law which allowed any person to file opposition on whatever ground.
3.2. Simplifying the procedure for trademark opposition
Article 35 of the new Trademark Law provides that in the event an objection is raised against a trademark published after preliminary examination, the Trademark Office shall consider the facts and grounds submitted by both the dissenting party and the person challenged, shall decide whether the registration is allowed within 12 months upon the expiration of announcement after investigation and verification, and shall notify the dissenting party and the person challenged in writing. Where the Trademark Office decides to approve the opposed trademark registration (i.e. rejection of the opposition), it shall grant a certificate of trademark registration to the person challenged and publish the same. The dissenting party may then file a cancellation action before the Trademark Review and Adjudication Board according to Articles 44 and 45 of the Trademark Law.
In sum, if the opponent loses, the opposed trademark gets registered and the opposition procedure is concluded. If we apply this to the case of hostile similar trademarks, considering the chances that such trademarks may be indeed confirmed in spite of an opposition, the opposition appears to no longer be the ideal, always-good-to-use tool that many believed it to be. An opposition may turn into a wasted year or more, which may prevent or preclude better and more efficient solutions to the same problem.
The inadequacy of the opposition to play the all-purpose IP tool to solve trademark conflicts was evident under the prior Trademark Law. The new Trademark Law seems to be sanctioning this as a given fact. This should have been recognized in the past as well, so that many companies would not have wasted valuable resources and time in pointless legal actions, rather than focusing those resources in finding alternative solutions more suitable to their specific cases. The new Trademark Law, with its barring preclusion to further recourse for failed opposition requests, will force foreign companies to consider and earnestly evaluate the chances of success of an opposition, and to limit its use to those cases in which such chances are objectively high, while looking elsewhere for more suitable solutions when chances are uncertain.
4. An evaluation of the use of trademark opposition by foreign companies
The success rate of trademark oppositions in China is very low for the reasons mentioned above. Also, overworked examiners were and will now be even more under pressure to deliver quick decisions while flooded with never ending amounts of recourse. The result is oppositions being used to stretch for lengthy period of times, thus blocking the possibility to overcome these deadlocks by resorting to alternative forms of IP protection which in practice may have been more efficient.
Filing opposition has always been the first recommendation of a trademark attorney to a client. Often the client's in-house counsel are IP attorneys and trained trademark specialists. It is natural for them to resort immediately and without much hesitation to a ready legal tool such as opposition to counter a hostile act of trademark filing. Also, there may be a perception that trademark opposition in China works as it does in Europe or the U.S. This is understandable from the point of view of a trademark practitioner; maybe it appears less understandable from an IP management perspective. The IP manager should not be a critical when deciding on an IP right enforcement. He should consider firstly what the business strategies and goals of his company are, what the role of each IP right is in this strategy and what are the available and appropriate legal or business tools to achieve the function of the given IP right. Also, the brand manager should always make sure of looking at the issue not just as a mere legal issue, but as a business matter overall.
Rushing into an opposition in China may not in fact be the best solution for all cases of hostile similar trademark filing. Pursuing opposition as the only way to solve such problems may even lead to paradoxical occurrences and surely to economic and time losses. An example: Opposition is filed against a hostile trademark in a case of disputable similarity. The case escalates to the highest administrative recourses; after five years of litigation, the hostile trademark is finally granted. What if the owner of the hostile trademark is liquidated during the opposition process? What of the trademark was transferred to another entity with different business and interests from the fist applicant? Or what if the applicant was just a trademark grabber who would never have had the will and resources to use such trademark? A paradoxical result indeed. The trademark would be lost and years and money would have been thrown away, when an expert eye and good due diligence could have helped provide continous assessments of facts that could have led to more commercially and economically sensitive solutions, such as letting the hostile trademark be granted and rather file non-use cancellations or cancellation for liquidation of the owner of the trademark, to transact the transfer of licensing of the trademark, or to start retaliation by custom protection outside China, etc.
An assessment of the trademark value to the owner and a background investigation of the hostile party could provide information and grounds for alternatives. For instance, it is known that most trademark grabbers will never file a troll nor have sufficient resources for infringement actions. Additionally, the new trademark law recognizes a certain legal relevance to pre-use as a defense against trolls. Why then not try to go for a three-year non-use cancellation which has a very high rate of success in cases of trademarks stolen by individuals? Or , if the applicant of the hostile trademark is a foreign company, why not negotiate a Trademark co-existence agreement since the very beginning? In the new jurisprudence and according to the latest draft of court regulations by the Supreme People's Court on trademark administrative disputes, it is expressly mentioned that a court shall allow these agreements to produce legal effect! Furthermore, other circumstances emerging from an investigation of the case may help shape more effective strategies alternative to or coupled with the filing of an opposition. If for instance the hostile filing entity exports products with the hostile filing abroad, why not consider custom protection or a civil lawsuit in the destination country while filing opposition in China, thus increasing the chances of convincing the counterpart to settle for a trademark transfer or abandonment of the hostile mark? What if, aside from filing a hostile similar trademark, the Chinese grabber also uses the foreign company brand on his products in China? A civil lawsuit would help not only stop an act of infringement, but also persuade the infringer to transfer or abandon the hostile trademark filing. Given that, there are many variables of a case each may suggest different and various solutions.
Some may object that opposition deadlines are tight and that maybe there is no time for making such investigations or taking such decisions, and that not missing the opposition deadline becomes the highest priority. Well, this may be true especially if a company does not have a good trademark monitoring systems in place; surely it is no longer true for large companies and MNCs. Even if this were the case, we can still say that an opposition could be filed with the mere intent of not missing the deadline and win time for better case assessment. Nothing speaks against withdrawing it, if better solutions are found in the meanwhile. Also, SME's should consider some sort of monitoring in at least in a few key countries such as China, in order to reduce the risk of receiving warning of a hostile filing hours before expiration of the opposition deadline.
In general, investigating case backgrounds reveals information which allows companies to make better business decisions. This applies to all kinds of business activities, especially in difficult countries such as China, in light of its peculiar business habits and legal system. Blind filing of oppositions as the only tool available against hostile trademark filings has often backfired for opponents in that time and money have been lost in cases without much hope from the point of view of Chinese trademark law and practice. Determining the chances of success based on Chinese law and the factual background of a hostile filing should be a must when deciding whether to file a trademark opposition. Deciding to file an opposition as a default way to slow things down, especially in cases where the chances of success are 50% or lower, may backfire on the opponent as explained above.
The legislator has somewhat given a legal nobility to the author's vision of the real function of trademark opposition by eliminating restricting its access to specific groups of claimants and by barring from further recourse in case of a rejection of an opposition request. In this way, the opponent may be motivated to focus early on in evaluating not only the formal collision among trademarks and the level of similarity, but also in investigating the commercial and factual background of the case of hostile filing, and choose the most suitable legal and commercial tools to solve such trademark disputes, which may indeed be alternative and more efficient than filing a one-shot opposition according to the new Trademark Law.