Hong Kong: The Challenges Of Trade Mark Protection In China

Last Updated: 4 December 2006
Article by Grace Chu

China is still the world’s leading producer of pirated goods – from DVDs to clothing, from sports goods to construction materials.

China introduced patent, copyright and trade mark laws and signed various treaties concerning IP rights in the early 1980s. Since then China has continued to bring in different laws and regulations to improve protection for IP rights but enforcing the law is proving to be difficult.

There are several reasons why the enforcement of IP laws is difficult in China. The vast size of the country makes it difficult with the limited judicial resources the country has for law enforcement. Local courts are struggling with the interpretation and application of ambiguous laws and the necessity for protecting IP rights.

Secondly, the awareness and respect for IP rights is low amongst the 1.6 billion Chinese. It will require substantial efforts in education to raise the general awareness for IP rights and such will be a long-term exercise.

Despite the risks from infringement of IP rights and piracy, foreign investors with valuable IP rights continue to invest into China as the attraction of the huge consumer market and a rapidly developing economy far outweigh the risks. This in turn gives rise to interesting development in piracy trends and anti- piracy strategies.

This article will discuss some of the challenges faced by foreign investors in protecting their trade marks in China.

Pick-A-Back

Along with the rapid development of the economy and industry in China, piracy has become more sophisticated and taken on new forms. Instead of direct copying and counterfeiting, a growing number of wrongdoers are adopting the pick-a-back approach.

The more learned players in the piracy business see possible conflicts between the rights of registered trade marks and registered enterprise names and rather skilfully turn them into a survival space for themselves. Currently the registration of an enterprise name is governed by the Regulations for the Management of Enterprise Name Registration. Pursuant to the Regulations, an enterprise must not register a name which is identical with or similar to the name of another enterprise in the same industry and the same geographical region. The application for registration of an enterprise name has to be made to the Administration for Industry and Commerce (AIC) in the region where the enterprise is located. The Regulations do not specifically prohibit the use of famous marks in an enterprise name but provide a general discretion for the AIC to rectify any inappropriately registered enterprise name.

The pick-a-back approach includes (1) registering a famous trade mark as an enterprise name so that the wrongdoer may legitimately use the enterprise name, ie the famous trade mark on his products or otherwise; and (2) vice versa, which is registering the name of a famous enterprise as a trade mark so that the wrongdoer may legitimately use the famous enterprise name as a trade mark.

After registering a famous trade mark as an enterprise name, the wrongdoer may freely use the enterprise name, which comprises of the famous trade mark, on his stationery, corporate literature, website, promotional materials and most importantly his products. Needless to say, such use easily results in confusion amongst the consumers in public that the products of the wrongdoer are products of the famous trade mark owner. If the famous mark owner files a complaint for trade mark infringement, the wrongdoer can raise defences such as (1) his enterprise name is properly registered; (2) the famous mark has not been used as a trade mark on his products (in some cases, the wrongdoer may actually use a mark totally different from the famous mark as his trade mark on the products but the enterprise name will always appear too, and quite prominently).

A famous mark owner will normally submit in his infringement complaint that notwithstanding the wrongdoer’s enterprise name is registered, the fact remains that the famous mark has been used on the wrongdoer’s promotional materials and products and hence an infringement of the famous mark and an act of unfair competition. In view of the rather technical legal issues, most experienced trade mark practitioners will say that the complaint should be brought before the court, not the AIC. For those complaints brought before the AIC, it transpired that the AIC officials were often confused by the enterprise name registration. The AIC would view the enterprise name registration as giving the wrongdoer an absolute right to use the enterprise name free from any challenge. The AIC would even indicate that until the enterprise name was deregistered, the infringement complaint could not stand.

On the other hand, the People’s Court has been seen to be willing to take a more robust approach on this matter. At least in one recent case, the Beijing Intermediate Court has ruled that the use of an enterprise name comprising a registered mark, which appears more prominently than the rest of the enterprise name, on similar goods constitutes infringement of the registered mark. This is a big step forward by the Chinese authority in recognizing the right of a registered mark despite it forms part of an enterprise name.

Mainland Chinese infringers who are infamous for quick thinking never stop challenging the law. There are also more advanced forms of the pick-a-back approach. One such scheme typically involves a limited liability company incorporated in Hong Kong or other foreign jurisdictions using a name which would comprise of a famous mark and then the foreign company would appoint a tier of mainland Chinese companies as licensed manufacturers, sub-licencees and distributors etc. Such schemes are devised with the intention that the mainland Chinese licencees could hide behind the complicated tier structure. The foreign company would not answer any proceeding commenced in the People’s Court. The mainland Chinese licencee would naturally defend that he was properly licensed by the foreign company and hence use of the foreign company’s name on his products and promotional materials etc was proper. The mainland Chinese licensee usually sub-licenses another mainland Chinese company as the manufacturer. In some cases, the mainland Chinese licensee even denies that the infringing products obtained by the trade mark owner in the market were his licensed products and in those cases, the sub-licensee ie the manufacturer would not appear in Court. Some other tricks include deliberately printing on the infringing products a wrong address for the foreign company or the licensee in order to support the claim that the infringing products originated from someone else.

There exist indeed some rather clever schemes of piracy, yet they can be tackled through careful investigation, the gathering of concrete evidence and an analytical mind to prove the chain of liability.

Similar Marks And Similar Goods

Under the Chinese Trade Mark Law, the registration by a third party of a mark which is identical with or similar to a registered mark in respect of the same or similar goods is not permitted.

Goods and services for registration are classified into 42 classes. According to the practice of the Chinese Trade Mark Office, each class is classified into sub-classes. If goods fall within the same class but different sub-classes, the Chinese Trade Mark Office will treat those goods as dissimilar goods and the Chinese Trade Mark Office rigidly follows such practice.

Here is a loophole that has been used by the infringers. Many trade mark registrations have been registered in respect of the class heading of a class of goods instead of precise items of goods in that class. This has been a common practice for the past 20 years as a way to seek protection for the whole class of goods. Since about 1991, the Chinese Trade Mark Office no longer permits registration of class heading and precise items of goods have to be set out in the application for registration.

Some of those old registrations which have been registered in respect of class heading and have been renewed will be treated by the Chinese Trade Mark Office as having registered for the several items of goods appearing in the class heading only, not the whole class of goods. For example, the class heading of class 25 is "clothing, hats and shoes". If a mark has been registered for the class heading, then it will be regarded as having been registered for three items of goods, namely "clothing’, "hats" and "shoes", not the whole class of class 25.

In that case, it leaves a chance for an infringer to slip in an application for registration of a similar mark in respect of goods which fall within class 25 but not within the same sub-class of "clothing", "hats" and "shoes". For instance, the infringer may be able to apply for registration in respect of "neckties and scarves".

When the infringer’s application is gazetted, the trade mark owner may of course file an opposition. But since the marks are only similar, not identical, and the goods fall within different sub-classes, the Trade Mark Office will not be easily convinced to reject the application of the infringer.

If the opposition is not successful, the infringer’s mark proceeds to registration and the trade mark owner will be left with the only alternative to issue cancellation action against the infringer’s registration. The trade mark owner may attempt to raise the similarity argument again before the Trademark Review and Adjudication Board ("TRAB"), the authority with whom the cancellation action is filed. Experience tells us that the TRAB often supports the decision of the Trade Mark Office. If the trade mark owner is determined to press his case, he should file an appeal with the Beijing Intermediate Court against the decision of the TRAB and there is a final right of appeal to the Beijing High Court.

In the more unfortunate cases where the trade mark owner did not file an opposition against the infringer’s mark either due to omission or under the belief that the infringer’s mark was not sufficiently similar, then an infringer may have a chance to file an infringement complaint against the trade mark owner. There is an arguable case with respect to the trade mark owner who, in our example, has a registration for "clothing, hats and shoes" but uses his mark on "neckties and scarves" beyond the three registered items "clothing, hats and shoes". In such event, the trade mark owner can immediately file with the TRAB a cancellation action against the infringer’s registration and then apply to stay the infringement complaint; or apply to the People’s Court for a declaration of non-infringement and then apply to stay the infringement complaint; or submit a reply to the infringement complaint simultaneously with filing a cancellation action or applying for a declaration of non-infringement.

The AIC with whom the infringer files the infringement complaint against the trade mark owner, the TRAB and the People’s Court may all come to different opinions of law on the same set of facts. Whilst the AIC may accept the infringement complaint from the infringer meaning that they consider the marks similar, the TRAB may decide in the cancellation action that the marks are not similar and allow the infringer’s mark to remain on the register. If the trade mark owner had acted boldly in relying on the AIC’s finding of similarity to support his cancellation action filed with the TRAB but the TRAC decided that the marks were not similar, then he would have been prejudiced to go back to the AIC to defend the infringement complaint. Therefore in preparing the applications for cancellation or stay of infringement complaint or declaration for non-infringement, it is of utmost importance to include alternative arguments.

Well Known Marks

China passed the Provisions on Protection of Well-known Marks in 2003, replacing the Provisional Regulations Concerning the Determination and Administration of Well-known Marks issued in 1996. It was believed by many that the enactment of such a law would be a solution to the very flagrant piracy of famous trade marks in China. From January to October 2005, 42 trade marks have been recognized as well known trade marks and only nine of them are trade marks belonging to foreign companies. Why so few foreign companies seek protection of their marks as well known marks is largely due to a lot of impracticalities of the law.

Firstly this law does not provide for the registration of a mark as a well-known mark. This law provides that in the course of a trade mark proceeding, which can include an opposition before the Trade Mark Office, or a trade mark infringement complaint made to the Administration for Industry and Commerce ("AIC"), or a trade mark infringement action commenced in the Intermediate Court, then the trade mark owner concerned may at the same time apply for recognition and protection of his mark as a well known mark. This means that an application for recognition as a well known mark may not be taken as an advanced measure by a trade mark owner to tackle or discourage anticipated acts of infringement. Moreover, the recognition is only relevant in that particular trade mark proceeding. Only where the scope of protection sought in a subsequent application is substantially the same as that in the previous case, may the previous recognition be relied upon.

Unlike our court system, the Chinese court system does not provide for interlocutory applications. The application for recognition as a well known mark must be filed at the time the trade mark proceeding is commenced together with all evidence. However a trade mark infringement complaint usually has to be filed almost immediately upon discovery of the infringement activities while a trade mark opposition has to be filed within a non-extendible time limit after publication of the mark in question. It follows that an application for recognition as a well known mark has to be prepared within a very short timeframe, meaning that it is not always practically possible.

Moreover, if the trade mark proceeding concerned is before the AIC, then the application for recognition as a well-known mark must be submitted to the regional authority of the AIC who will examine if the application meets the criteria under the law and then report the application to the AIC at the provincial level. The provincial AIC will again examine the application and will report it to the State Trade Mark Office. The State Trade Mark Office will decide whether the mark may be recognized as a well-known mark. The decision of the State Trade Mark Office is subject to appeal to the Beijing Intermediate Court and final appeal to the People’s High Court.

It is a long and winding path to get a final decision on protection of well-known marks. It is therefore not surprising that few foreign companies have made application under the Provisions for Protection as Well known Marks.

Conclusion

It is true that the Chinese legal system concerning IP protection contains a lot of deficiencies. But the IP laws in China, with a history of slightly more than 20 years, are relatively new compared to those in many other jurisdictions. Piracy is also attributed to other factors, like pricing competition, poor networks and infrastructure for distribution of goods resulting in poor consumer access and so on. It will require concerted efforts by manufacturers, brand owners, lawyers and law makers to overcome the piracy problems prevailing in China. Lawyers will continue to confront challenges from the law breakers with unfailing efforts.

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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