China: Prior Public Use Is Not A Necessary Element In Recognizing Bad Faith

Last Updated: 13 March 2018
Article by Cuicui Liang

"OEM" (Original Equipment Manufacturer) is a kind of production mode that many foreign enterprises are keen on. As the name implies, the trademark owners do not produce themselves, but entrust other manufacturers to produce. Many foreign companies have chosen to cooperate with Chinese manufacturers in order to reduce costs, but they did not think of registering trademarks in China before cooperating. It is usually the case that after the breakdown of the cooperative relationship, it was found that the trademark had already been registered by manufacturers, and the position was very passive. The case shared by this article encounters this situation.

The disputed trademark is "CHOPPIES" with the number of 12035146, and the registered goods include "hair lotions, cakes of toilet soap, laundry bleach, laundry detergent, soap, antibacterial hand soap, cleaning preparations, dishwashing liquid, toilet cleaners; cosmetics". The registrant is a Chinese company, who was the manufacturer of CHOPPIES washing powder. The real trademark owner (Botswana company) of the CHOPPIES trademark entrusted a Hong Kong company as an intermediator, who received the manufactured products marked CHOPPIES from the Chinese company and sold them exclusively to Botswana.

The Chinese company was essentially Botswana company's manufacturer, though Botswana and the Chinese company did not have direct business dealings and all business was conducted through the Hong Kong company. All products processed by the Chinese company were exported to Botswana. Botswana company did not make public sales in mainland China.

Botswana company requested for invalidation of the registered trademark arguing that he is the real right owner of the mark "CHOPPIES", which has been registered in many countries including Botswana on washing powder. As the OEM Manufacturer, the Chinese company should have known Botswana company's trademark, and thus the disputed trademark was registered in bad faith.

At issue before the Court is whether the indirect business relationship belongs to the "specific relationship" of Article 15 (2) of the Trademark Law? Is the use in the form of OEM "prior use"? Beijing Intellectual Property Court held a positive attitude.

Article 15 (2) of the China Trademark Law provides: Where a trademark for which a registration is applied is identical or similar to an early used trademark of another party that is not registered, in respect of the same or similar goods, and where the applicant being of contract, business or other relationship except the relationship referred to in the preceding paragraph, is fully aware of the existence of the trademark owned by the other party, the trademark shall not be registered, if the other party raises an opposition.. According to this provision, the following four elements shall be satisfied: 1. The disputed trademark and the cited mark are similar or identical; 2. The goods they cover are similar or identical; 3. The disputed parties have specific relationship; 4. The cited mark has been prior used in China.

The trademarks involved in this case are the same and the goods are similar, so we will not discuss these two elements here. Our focus is whether Botswana and the Chinese companies have such a "specific relationship" that the Chinese company knew the existence of Botswana's trademark before filing the application. In the present case, the court deems this indirect business relationship as a kind of business relationship under the provision of the Chinese Trademark Law, because the evidence provided by Botswana clearly shows that Chinese company knew the existence of Botswana's trademark. Almost all of the correspondences between the Hong Kong company and the Chinese company were copied to Botswana, in which the Chinese company explicitly praised Botswana for its products as perfect and provided Botswana company with a product package marked "CHOPPIES" for Botswana's confirmation. It can be seen that the Chinese company undoubtedly knows that CHOPPIES trademark belongs to Botswana.

Whether public use of the trademark in China is an additional necessity in this case? The Court's answer is "NO". The court made a conclusion based on comparation of several articles of the trademark law, namely Article 13 (2) (protection of unregistered well-known trademarks), Article 15 (1) (protection of trademarks registered by agents or representatives) and (2) (protection of trademarks filed by specific parties), Article 32 (protection of trademarks enjoying certain reputation through use). It is logical that, the scope of protection, the degree of protection, and the requirements for use shall be proportionate. Article 13 (2) provides the largest protection scope based on low standard about similarity of trademarks and goods, so the requirement for use is the highest. Article 15 (1) only protects those whose trademarks are filed by the agents or representatives, so the protection scope is the smallest. Hence, the requirement for use shall be certainly the lowest. Article 15 (2) and Article 32 are among them. From another point of view, the requirement for use shall be proportionate to the defense range. The smaller the defense range is, the lower the requirement for use shall be. This seems to be rationale. If the use of the cited trademark is sufficient to prove the applicant knew the cited mark before application, that is enough. In the subject case, Botswana has used its trademark in the form of OEM, through which the Chinese company obviously knew its trademark. Therefore, such use should have satisfied the prior usage requirements.

A dominant view is that public use of the trademark in the Chinese Mainland is a necessary element when applying Article 15 (2) of the Chinese Trademark Law. However, this provision aims to prevent the bad -faith registrations of those who have specific relation with the trademark owner so as to protect the fairly competitive market. If public use is a must, we are afraid that fairness cannot be achieved in certain situations similar to the subject case. Beijing Intellectual Property Court made a bold attempt for this aim. For the first time the court broke the dominant view, and canceled the bad faith registration of the OEM manufacturer.

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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