China: Trademarks: In Bad Faith

Last Updated: 27 September 2019
Article by Lei Fu and Bin Zhang

The number of trademark registrations in China is rapidly increasing. Economic developments, increasing public awareness of the importance of IP protection, the optimised trademark registration procedure and reduced registration costs, are all driving the increase.

Based on information released by the National Intellectual Property Administration, in the first half of 2019 the number of trademark registrations in China was 3.5 million, a year-on-year increase of 67.8%. By the end of June 2019, trademark registrations reached 22.7 million.

Meanwhile, we cannot ignore the problems that come with these: bad-faith registrations aiming at others' well-known trademarks and trademark squatting. The latter is the practice of registering trademarks similar to or identical with others' trademarks—not for use but for gaining profits from the legitimate right owners.

The administrations and the courts in China are taking measures against bad-faith trademarks during the registration procedure and in administrative or civil litigations. There are already regulations against the applications and registrations of others' well-known trademarks in the current Trademark Law.

According to article 32 of the China Trademark Law, no application for trademark registration may infringe upon the existing prior rights of others, and bad-faith registrations by illicit means of a trademark with a certain reputation already used by another party shall be prohibited.

"Once the trademark application is approved, it is under legal protection. The registrants of the bad-faith registrations are taking advantage of this."

The newest amendment of trademark law passed on April 23, 2019 also focuses on bad-faith registration and further restricted trademark squatting from the following three aspects.

First, the obligation for use of trademark registrations is emphasised, as it is added in article 4 that the "applications for trademark registrations in bad faith which are not intended for use shall be rejected". This principle would be applied in the trademark registration procedure by the Trademark Office. It could also be the basis for filing opposition against trademark application or invalidation against registered trademarks.

Second, the conduct of the trademark agencies is further regulated, with article 19 stipulating that a trademark agency is forbidden to represent the client if it knows or should know that the client is filing a trademark in bad faith for a purpose other than use.

Third, the punishment on bad-faith trademark registration has been enhanced. It is regulated that administrative punishment such as warning and monetary fine shall be imposed on the applicant or the trademark agency for a bad-faith application. If a trademark litigation is confirmed to be filed in bad faith, the court shall impose punishment on the relevant party according to the law.

These amendments show that measures against bad-faith registrations can be carried out throughout trademark prosecution and protection. The liabilities caused by bad-faith registrations might be borne by the applicant, the registrant or the trademark agency.

Act first

Taking into consideration the amended Trademark Law and the current legal practices in China, legitimate right owners should take active actions to combat against bad-faith trademarks. This is especially true in the situation where the counterparty's bad faith is obvious and the registrations cause damages. Possible actions include measures in the trademark prosecution procedure and initiating civil litigation under proper causes.

China's Trademark Law adheres to the principle of trademark registration. Once the trademark application is approved, it is under legal protection. The registrants of the bad-faith registrations are taking advantage of this to cause trouble for legitimate owners.

To avoid possible obstacles in future trademark use, legitimate right owners can file applications for the registration of their own trademarks before any bad-faith registrations appear.

They can also initiate opposition, invalidation or cancellation actions against the bad-faith registrations or applications, to stop the registration of the bad-faith trademark in the first place.

Some registrants of bad-faith trademarks may send cease and desist letters to the legitimate right owners or their authorised distributors. If it causes negative business influence and places the legal rights and interests of the right owners under risk, the right owners could file a civil litigation requesting for declaration of non-infringement.

If the registrants and the legitimate right owners are in the same industry, the right owners could also consider initiating an "unfair competition" litigation against the registrants of bad-faith trademark, claiming for compensation.

Filing complaints

Some registrants of bad-faith trademarks may take further steps. They may file complaint with the local administrations for "trademark infringement" or initiate civil litigation against the legitimate right owners based on their trademark registrations.

Based on judgments issued by the Supreme Court of the PRC, the exclusive right of a registered trademark lacking legal basis cannot be used against another's proper use. It is also confirmed that the trademark infringement claims based on a trademark right obtained in bad faith and executed in bad faith could be regarded as "abuse of right", thus would not be supported.

In view of this, it is suggested that when the legitimate right owners are involved in such litigations, the right owners shall actively collect evidence to prove the bad faith of the counterparty.

Civil litigation

If the registrants of bad-faith trademarks initiated civil litigation for trademark infringement but the litigation was not supported by the court, the legitimate right owners could then initiate civil litigation under the cause "dispute over the liability for harm caused by malicious institution of an intellectual property action".

In a judgment issued by Zhejiang High People's Court, the court confirmed the trademark registrant's bad faith not only in filing the trademark application but also in filing the trademark infringement civil litigation. The court ruled that the registrant of the bad-faith trademark shall bear the legitimate right owner's direct and indirect loss caused by the "bad-faith litigation", including the attorney fee rendered in the trademark invalidation action and the corresponding administrative litigation initiated by the legitimate right owner.

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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