China: Trademark Distinctiveness Affects The Determination Of Preemptive Registration In Bad Faith

Last Updated: 21 January 2015
Article by Jason Wang

The latter half of Article 32 of the Chinese Trademark Law 2013 (Article 31 of the Chinese Trademark Law 2001) stipulates that" preemptive registration by unfair means of a trademark with certain fame already used by another party" shall not be approved ("Bad Faith Filing Provision"). From the literal understanding of such provision, the fame of the trademark with prior use and the bad faith of the applicant of the disputed trademark are two requirements for application of law for the Bad Faith Filing Provision. In addition, the originality (namely, inherent distinctiveness, known as trademark distinctiveness) of the trademark is the premise and important consideration factor for the application of law for the Bad Faith Filing Provision, and has a significant impact on the two requirements for application of this provision. Specifically, the trademark distinctiveness directly affects the evidentiary requirements for the fame of trademark with prior use, and is an important consideration factor in determining the bad faith of the applicant of the disputed trademark.

1. The trademark distinctiveness is the premise and an important consideration factor for application of law for the Bad Faith Filing Provision

First, from the perspective of the legislative framework of the Chinese Trademark Law, the provisions of registrability of the trademark per se (absolute ground provisions) and the provisions of rights conflict (relative ground provisions) are the two basic requirements to determine whether a sign could obtain trademark registration eventually. First, the registrability of the sign per se as a trademark belongs to absolute ground, including the use prohibition provision under Article 10 of the Chinese Trademark Law 2013 and the registration prohibition provision under Articles 11 and 12 thereof. Second, whether a trademark conflicting with prior trademarks or other prior rights of third parties belongs to relative ground, including the Bad Faith Filing Provision expounded in this article and other provisions. Throughout the Chinese Trademark Law, Articles 9 and 10 thereof constitute masterplan provisions to determine whether a sign could be approved for registration as a trademark eventually. According to Article 9 thereof, the trademark application "shall have distinctive features for facilitating identification" and "shall not conflict with any prior legal rights." The use prohibition provision under Article 10 thereof prescribes the sign which shall not be used (or registered) as a trademark. The registration prohibition provision under Articles 11 and 12 embodies the first half part of Article 9 thereof, stipulating the "distinctive features for facilitating identification." The Bad Faith Filing Provision is one of the embodiments of the provision, namely, the trademark application "shall not conflict with any prior legal rights" under the latter half part of Article 9 thereof. In other words, when applying the Bad Faith Filing Provision, rather than considering Article 32 of the Chinese Trademark Law 2013 alone, provisions of trademark distinctiveness (absolute ground provisions) under Articles 11 and 12 thereof shall also be included in the scope of the adjudication in light of the masterplan provision of Article 9 thereof.

Second, from the perspective of sequence of application of law for the Chinese Trademark Law,provisions of the registrability of the trademark per se (including trademark distinctiveness provisions) prevail over provisions of the rights conflict, and provisions of the absolute ground prevail over provisions of the relative ground. "The trademark with certain fame already used by another party" in the Bad Faith Filing Provision obviously refers to an unregistered trademark, which is a TRADEMARK, rather than any "sign," that may serve to identify the source of goods or services. Therefore, when applying the Bad Faith Filing Provision, the distinctiveness stipulated under Articles 11 and 12 thereof shall be first adjudicated to ascertain whether the unregistered trademark with prior use meets the lowest requirements of being protected as a "trademark" prescribed by the Chinese Trademark Law. In other words, the distinctiveness of the trademark per se is the basic premise for the application of law for the Bad Faith Filing Provision. Of course, if the disputed trademark or sign with prior use clearly does not involve any trademark distinctiveness issue, the adjudication authority may probably not make a clear comment, but this does not mean that the premise does not exist. When the subject trademark or the sign with prior use does involve the distinctiveness issue, the adjudication authority must make a clear comment, and the sign with prior use should not be identified as the prior "right" in opposition or dispute cancellation proceeding. Of course, it will not prevent other parties from raising opposition or dispute cancellation against the disputed trademark based on absolute ground.

Third, from the perspective of judicial interpretations on protecting the unregistered trademark, the provision of unregistered well-known trademark should be applied by analogy to the unregistered trademark "with certain fame already used by another party." Rule 12 of the Supreme People's Court (SPC) Interpretations on Several Issues concerning Legal Application in the Trial of Civil Cases Involving the Protection of Well-known Trademark (Fa Shi [2009] No. 3) stipulates that "where the interested party requests to protect the unregistered well-known trademark which falls under the circumstances of being prohibited from using or registering as a trademark under Articles 10, 11 and 12 thereof, such request shall not be upheld by the court." Namely, one of the basic premises of granting the legal protection for the unregistered well-known trademark is the registrability of the sign per se as a trademark. The higher hierarchy of this judicial interpretation is actually Articles 9 and 12 of the Chinese Trademark Law. The above-mentioned judicial interpretation aims at unregistered well-known trademark, embodying that the provisions of registrability of trademark per se prevail over the provisions of rights conflict. Based on the same logic and jurisprudence, the unregistered trademark with certain fame where the Bad Faith Filing Provision applies should also be the same case. Otherwise, the protection for unregistered trademark with certain fame of the Bad Faith Filing Provision under Article 32 of the Chinese Trademark Law 2013 is even stronger than the unregistered well-known trademark under Paragraph 2, Article 13 thereof, which is obviously contrary to the legislative purpose.

Fourth, from the perspective of the judicial practice in related cases, the registrability of a sign as a trademark per se should be the premise of the Bad Faith Filing Provision, in other words, the sign in violation of the prohibitory provisions should not apply the Bad Faith Filing Provision. The second instance judgment of Beijing High Court on the "Little Fat Sheep in Chinese" case ruled that according to Article 31 of the Chinese Trademark Law 2001 (Article 32 of the Chinese Trademark Law2013), no one shall register, by unfair or illicit means, a trademark which others have already used but not yet registered in their own name before the Chinese Trademark Office ("CTMO"). When applying the Bad Faith Filing Provision under Article 31 of the Chinese Trademark Law 2001, in addition to the two requirements, namely, the prior use of trademark bearing certain fame and the bad faith of the applicant of disputed trademark, another requirement is that the trademark with prior use shall have the registrability. The trademark prohibited from registration by law shall have failed to meet that requirement.1 The first instance judgment of Beijing First Intermediate Court on the "Ca Ca Jing in Chinese" case ruled that prohibitory provisions related to Article 31 of the Chinese Trademark Law 2001 regulates the act of preemptively registering the trademark with prior use and certain fame, on the premise of not violating the other provisions of the Chinese Trademark Law. The trademark "Ca Ca Jing in Chinese" with prior use designated on the goods of "disinfection cotton" in Class 5 was rejected by the CTMO due to the violation of Item 2, Paragraph 1, Article 11 thereof. Because the trademark with prior use is in violation of the prohibitory provisions of the Chinese Trademark Law, the Bad Faith Filing Provision under Article 31 thereofshall not apply to this case2

2. The trademark distinctiveness directly affects the evidentiary requirements of the fame of the trademark with prior use

Trademark distinctiveness in broad sense includes inherent distinctiveness (namely, originality) and external distinctiveness (namely, fame). The degree of legal protection of trademark depends on both the distinctiveness and fame. The trademark distinctiveness directly affects the evidentiary requirement of the first application requirement of the Bad Faith Filing Provision (fame of the trademark with prior use). First, in terms of the provision of trademark distinctiveness alone, Paragraph 1, Article 11 of the Chinese Trademark Law provides for the inherent distinctiveness, Paragraph 2, Article 11 thereof provides for acquiring "secondary meaning" through external distinctiveness to meet the statutory requirements for the registration of a trademark. Fame of a trademark supplements its distinctiveness, and the lack of inherent distinctiveness can be reinforced by the fame acquired through use. Second, in terms of the provisions of rights conflict, if there is a relatively definite minimum standard and evidentiary requirement for fame of the trademark with prior use under the Bad Faith Filing Provision, then for trademarks with different levels of distinctiveness, evidentiary requirements concerning their fame should also be different. For the signs with very strong or relatively strong distinctiveness, the requirements of fame can be lowered accordingly. For the signs with less stronger distinctiveness but still in compliance with the legal requirements of trademark registration, the requirement of fame can be increased accordingly. For the signs lacking distinctiveness and not in compliance with the legal requirements of trademark registration (for example, the signs stipulated by Paragraph 1, Article 11 thereof), both of the following two requirements must be met: first, acquiring through use the "distinctive features" provided by Paragraph 2, Article 11 thereof, to the degree that the sign can be protected as a"trademark"; second, acquiring "certain fame" provided by Article 31 thereof through further use. In other words, not all the trademarks which lack distinctiveness or bear weaker distinctiveness cannot be protected by the Bad Faith Filing Provision, but the evidentiary requirements of fame shall definitely be increased correspondingly. The essence of the increase of evidentiary requirements is to make up for the part of lacking distinctiveness as a trademark of the sign so as to meet the standards prescribed by law.

For example, the first instance judgment of Beijing First Intermediate Court on the "Da Da Di in Chinese" case ruled that the opposed trademark designated on the services of sales promotion for others and etc. in Class 35 does not violate the Bad Faith Filing Provision under Article 31 of the Chinese Trademark Law 2001. The important reason is that "Da Da Di in Chinese" has the specific meaning which is a market with high quality and inexpensive commodity in the eyes of the public masses, and there is no evidence showing that "Da Da Di in Chinese" has a close relationship with the opponent. Under such circumstance, the first-to-file principle under the Chinese Trademark Law plays a higher role than other principles of trademark use.3 From the aspect of the trademark distinctiveness and fame, if the opponent in the "Da Da Di in Chinese" case claims prior right over the trademark according to Article 31 of the Chinese Trademark Law 2001, the opponent must prove that it had a close relationship with the trademark through prior use. Namely, the sign not only can serve to identify the source and be used as the opponent's trademark, but also enjoys certain fame as an unregistered trademark with prior use of the opponent.

From the aspect of system design, the dynamic balance between the trademark distinctiveness and fame reflects the choice among values and adjustment between public interest and individual interest, which is in compliance with the principle of interest balance of intellectual property rights, namely, protecting the legitimate rights and interests of the individual, and opposing to the monopoly of public resources at the same time. The sign lacking distinctiveness belongs to the public resources of public domain, which shall not be monopolized by part of the individuals. It is possible that public resources could evolve to private rights monopolized by the specific party in the field of trademark. But the compulsory premise is that the specific party has made considerable investments on the basis of public resources and thus the corresponding return may be obtained. Namely, the sign lacking inherent distinctiveness may become a trademark with "secondary meaning," through use and such sign shall bear certain fame.

In addition, the dynamic balance between the trademark distinctiveness and fame also reflects the rationality of system design of the absolute grounds and relative grounds, which effectively defines the boundary of individual interests and public interests. On the one hand, the starting point and the objective results of the relative grounds are benefiting individual interests, detracting from the interests of others while directly increasing their own; the relative grounds create the exclusive and monopolistic individual rights, being the "investment" with returns for individual interests. Although the absolute grounds start at individual interests, and end at the objective results of benefiting the public and derogating the interests of others without directly increasing their own individual interests; the absolute grounds create the public rights which are shared by all the public and rule out any monopoly, being the "donation" without returns for individual interests. Therefore, as an interest-driven economic rational person, the relative grounds are undoubtedly the most optimal choice, while the absolute grounds are sub-optimal choice. On the other hand, the application of provisions of the absolute grounds takes precedence over that of the relative grounds, the choice between the relative grounds and the absolute grounds is not the total freedom without any limitation; it must be subject to the specific cases and legal facts. For example, the requirement of trademark with prior use and certain fame under the Bad Faith Filing Provision certainly includes the distinctiveness of the trademark. However, if it is a matter of fact of the case that the trademark bears weak distinctiveness or lacks distinctiveness, the burden of proof related to the trademark with prior use and certain fame will undoubtedly increase. It is the system design in nature of the prisoner's dilemma that urges the benefit-tending and harm-avoiding economic rational person to make rational choices in order to achieve the fairness of the law. From this aspect, the reason why the opposition for "Da Da Di in Chinese" failed is that the opponent has mistakenly chosen the relative ground of the Bad Faith Filing Provision. Since the trademark involved lacks distinctiveness and there is no sufficient evidence to support the fame of the trademark with prior use, it failed to meet the statutory requirements of Article 31 of the Chinese Trademark Law 2001.

3. The trademark distinctiveness is an important consideration factor in determining the bad faith of the applicant of the disputed trademark

According to the Trademark Examination Standard jointly issued by the CTMO and the Trademark Review and Adjudication Board (TRAB), when deciding the "unfair means" under Article 32 of the Chinese Trademark Law 2013, seven factors shall be taken into account. The sixth factor is that "the other's trademark bears strong originality."Rule 18 of the SPC Opinions on Several Issues concerning Trial of Administrative Cases Involving the Granting and Determination of Trademark Rights (Fa Fa [2010] No.12, the SPC Judicial Opinions 2010) stipulates that if the applicant who knew or should have known the trademark with certain fame already used by another party preemptively registers the trademark, it shall be affirmed that the applicant has adopted unfair means. The problem is whether meeting the requirement of "knew or should have known" is necessarily deduce the conclusion of adopting "unfair means"? In the two typical trademark re-trial cases "Duck King in Chinese" and "Fu Mei Si in Chinese & FMS" in 2013, the SPC ruled that there are exceptions to the application of the Bad Faith Filing Provision under Article 31 of the Chinese Trademark Law 2001, which has supplemented and completed the abovementioned SPC Judicial Opinions 2010 in the form of court decision.

In the "FU MEI SI in Chinese & FMS" case, the SPC ruled that generally, the trademark applicant knew or should have known the trademark with certain fame already used by the other party and preemptively registers said trademark, the intention of taking advantage of the goodwill of other's trademark could be inferred. However, it does not rule out special circumstances that although the prior trademark has certain influence, the trademark applicant does not have the bad faith to take advantage of the goodwill of prior trademark. The evidence submitted by the petitioner of disputed cancellation can prove that the petitioner was the major developer of the new products of "FU MEI SI in Chinese," and the predecessor of the registrant of disputed trademark only provided supplementary assistance. However, the predecessor of the registrant almost simultaneously commenced using the disputed trademark "FU MEI SI in Chinese & FMS," and its sales volume is greater than the petitioner of dispute cancellation prior to the application date of the disputed trademark. Prior to the application date of the disputed trademark, the petitioner of the dispute cancellation and the predecessor of the disputed trademark registrant sold simultaneously the goods bearing the trademark "FU MEI SI in Chinese & FMS" on the market, knowing the existence of each other, but without any specific agreement regarding attribution of the trademark. The Chinese Trademark Law adopts the first-to-file principle, therefore the application for registration of the disputed trademark filed by the registrant alone neither infringes the legitimate rights and interests of the petitioner of the dispute cancellation, nor violates the good faith principle, thus shall not be cancelled in accordance with Article 31 of the Chinese Trademark Law 2001. The interpretation of the First Instance Court is correct that there is no need to apply Article 31 thereof in this case. Second Instance Court's decision was solely based on the fact that the petitioner of the dispute cancellation is the first entity to use the trademark, failing to take full account of application requirements of Article 31 thereof, therefore the law is wrongly applied.4

In one of the China Courts 2013 Top 10 Innovative IP Cases, "Duck King in Chinese" case, the SPC has made a groundbreaking interpretation on the relevancy between the trademark distinctiveness and whether the petition of the disputed trademark has the intention of free-riding on and invading the goodwill owned by others. The SPC ruled that the application for registration of the opposed trademark filed by Shanghai Huaihai Duck King Roast Duck Restaurant Co., Ltd. ("Shanghai Duck King") does not constitute "preemptive registration by unfair means." One of the reasons is that the word"Duck King in Chinese" bears weak distinctiveness. Specifically, the opponent Beijing Duck King Roast Duck Restaurant Co., Ltd. ("Beijing Duck King") had applied for trademark registration of "Duck King in Chinese" in Class 42, designated on restaurants and other services to the CTMO in 2000. The CTMO rejected the application for "directly indicating the content and feature of the service" in 2001, and Beijing Duck King did not apply for review. After that, Shanghai Duck King applied the opposed trademark which was rejected based on the same ground. However, Shanghai Duck King applied to the TRAB for review, submitted the evidence of use of the opposed trademark and obtained preliminary approval and publication. One of the reasons for the disapproval of Beijing Duck King's application is the different prior administrative procedures, but such disapproval also confirms that Shanghai Duck King's application for registration of the opposed trademark is not preemptive registration by unfair means.5

The Honorable judge at the SPC, Xiangjun KONG, takes the "Duck King in Chinese" case as an example to comment the Bad Faith Filing Provision under the Chinese Trademark Law 2001 and the abovementioned SPC Judicial Opinions 2010, and sums up a judgment method of two factors (namely, "knowing" standard and "free riding on goodwill" standard): "knowing" is a factor in determining subjective bad faith, but the bad faith of the trademark applicant / registrant cannot be necessarily concluded only through the "knowing." The standard of two factors of "knowing" standard (knew or should have known) and "free riding on goodwill" standard (with intention of free riding on and invading others' goodwill) should be deemed as the standard to determine the bad faith of the trademark applicant / registrant. According to the Honorable Judge Xiangjun KONG, when discussing the meaning of "unfair means" several years ago, the TRAB seemed to have proposed the two factors standard, but based on other considerations and the fact that there was no actual example of special circumstances at that time, the abovementioned SPC Judicial Opinions 2010 simply explained the "unfair means" under the Article 31 of the Chinese Trademark Law 2001 as "knew or should have known," without further requirement of the intention of free-riding on and invading other's goodwill. This problem was brought out or revealed by the "Duck King in Chinese" case because of its peculiarities. "It is the 'knowing' standard that was adopted in the decisions of the first and second instance courts" of the "Duck King in Chinese" case, and this case "might be a typical case which needs to assess the bad faith in respect of two factors. Obviously the TRAB adopted the judgment method of two factors, and the SPC retrial decision seems to have this preference. "6

Theoretically, the degree of trademark distinctiveness reflects the boundaries between individual interests / rights and the public interests / resources. Meanwhile, trademark distinctiveness also reflects the goodwill bore by the individual interests and individual rights. One of the underlying logic of regarding trademark distinctiveness as an important consideration factor to determine the bad faith of the applicant of the disputed trademark is the relevancy between the trademark distinctiveness and whether the applicant of disputed trademark has the intention of free-riding on or invading the goodwill of others. For the trademark of very strong or relatively strong distinctiveness, it is unlikely to reasonably explain the coincidence between the disputed trademark and the trademark with prior use. Based on this, a reasonable conclusion could be inferred that, it is hard for the applicant of disputed trademark to come up with such trademark unless it is deliberately imitated, thus the intention of applicant to invade the goodwill of others could be affirmed. For the trademark of weaker distinctiveness which can be more easily associated through intellectual activity with reasonable efforts, then, the possibility that the applicant has the intention to invade the goodwill of others is greatly lowered. As the trademark lacking distinctiveness belongs to public resources in the public domain, which is known by the public and available for the public, it is unfair to determine the applicant of the disputed trademark has the intention to invade the goodwill of others.

* This article is the English translation for Mr. Wang's article in Chinese published on China Trademark magazine (Issue 8, 2014). China Trademark magazine is sponsored by China Trademark Association under supervision of the State Administration for Industry and Commerce (SAIC) overseeing the Chinese Trademark Office (CTMO) and the Trademark Review and Adjudication Board (TRAB).

Footnotes

1 Beijing High Court Administrative Judgment (2006) Gao Xing Zhong Zi No. 94

2 Beijing First Intermediate Court Administrative Judgment(2010)Yi Zhong Zhi Xing Chu Zi No. 2192

3 Beijing First Intermediate Court Administrative Judgment(2010)Yi Zhong Zhi Xing Chu Zi No. 2974

4 The Supreme People's Court Administrative Judgment(2013)Xing Ti Zi No. 11

5 The Supreme People's Court Administrative Order(2012)Zhi Xing Zi No. 9

6 Xiangjun KONG, New Thinking on Intellectual Property Protection - IP Judicial Frontier Issues, China Legal Publishing House (2013), pp. 206-210

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