Amendments to China's Trademark Law are due to take effect on 1 November 2019. The changes should aid the authorities in their bid to crack down on malicious filings and trademark hoarding.
On 23 April 2019 the 10th Meeting of the Standing Committee of the National People's Congress (NPC) passed a proposal to amend China's Trademark Law. The amendments cover six articles and are due to take effect on 1 November 2019.
As China's first law in the field of intellectual property, the Trademark Law is also the most frequently amended IP rights law. Indeed, since its promulgation in 1982, the Trademark Law has been amended four times – in 1993, 2001, 2013 and 2019. The features of the law reflect the need for greater trademark protection for China's economic development on the one hand, and higher requirements as a result of drastic social changes, various reforms and the opening-up of China's trademark protection system on the other hand.
The 2013 amendments increased benefits for Chinese and foreign trademark applicants (eg, the optimisation of Chinese trademark registration procedures, a shorter registration cycle and lower registration costs). However, various issues have since garnered widespread attention, including the prevalence of malicious trademark applications and the large-scale hoarding of trademarks for illegal profits.
The latest amendments to the Trademark Law aim to solve such problems. According to the NPC Standing Committee, the latest amendments highlight:
- the use of registered trademarks to stop malicious applications; and
- the increase of compensation to stop malicious trademark infringement.
Emphasising use of registered trademarks
Article 4 of the revised Trademark Law adds the sentence: "Malicious trademark applications which are not for the purpose of use shall be rejected." This grants examiners the ex officio right to reject malicious trademark applications at the preliminary examination stage. Paragraph 3, Article 19 adds that the trademark agency will not accept the entrustment of malicious trademark applications where the marks are not being registered for use. Articles 33 and 44 stipulate that the content added to Article 4 is one of the specific reasons for raising oppositions before the China Trademark Office (CTMO) and requesting invalidation before the Trademark Review and Adjudication Board (TRAB).
These four articles of the revised Trademark Law constitute a comprehensive system to crack down on the malicious preempting and hoarding of trademarks. The system operates through the trademark agency, the CTMO and the TRAB, to fight against the proliferation of malicious trademark applications. This development will be welcomed by the trademark community both in China and abroad.
Strengthening trademark protection
Article 63 of the Trademark Law stipulates the punishment for trademark infringement. Amendments to this article include:
- the intensification of punishments for malicious trademark infringement; and
- clarification of the methods used to deal with counterfeit products and the materials and tools used to manufacture such products.
The amendments increase the compensation for malicious trademark infringement. In addition, paragraphs 4 and 5 clarify the methods used to deal with counterfeit products and the materials and tools used to manufacture such products – namely, by destroying them and thus prohibiting them from entering circulation. In this way, the punishment for malicious trademark infringement is increased and efforts to combat malicious trademark infringement are enhanced.
Article 68 of the Trademark Law regulates trademark agencies. Item 3, paragraph 1 of the article adds that trademark agencies will be punished for violating Article 4, which indicates that trademark agencies have the responsibility to refuse the entrustment of malicious trademark applications. In addition, paragraph 4 has been added to Article 68, which includes tougher administrative and judicial measures (eg, warnings and fines) that can be used to punish trademark agencies for accepting malicious trademark applications.
How to determine the nature of defensive applications
According to the NPC's report on the draft amendments, the following provision was initially proposed: "Trademark applications which are not for the purpose of use shall be rejected." However, during discussions, some members of the Standing Committee suggested that such applications should not be blanket rejected, as rights holders that have registered and actually used a trademark may apply for the same trademark for other goods or services for preventive purposes. As such, the committee members decided to include the following amendment: "Malicious trademark applications which are not for the purpose of use shall be rejected."
As mentioned earlier, the ability to make defensive trademark applications was fully considered in the process of amending Article 4 of the Trademark Law. During a trademark examination, examiners must check not only the objective necessity of the application, but also the intentions of the applicant. In principle, trademarks applied for for defensive purposes by Chinese and foreign applicants will not be considered malicious and therefore will not violate Article 4 of the Trademark Law.
Although the amended law is not due to take effect until 1 November 2019, the China National IP Administration (CNIPA) adopted measures to crack down on malicious trademark hoarding and applications in the first half of 2019, and this has achieved some positive results. According to the data released by the CNIPA on 9 July 2019, the number of trademark applications filed in the first half of 2019 was 3.438 million – down 4.1% from the same period last year, showing a rare period of decline. However, trademark applications made in China by foreign applicants rose to 127,000, which is an increase of 15.4% from the same period last year. Most applications were made by US, Japanese and UK applicants, which increased their filings by 13.6%, 31.4% and 56.9%, respectively. This reflects China's successful efforts to change the focus of its IP rights system from high-quantity to high-quality rights. The data also demonstrates the country's desire for foreign enterprises to invest and take advantage of the development opportunities in China.
Therefore, Chinese and foreign rights holders need not worry about trademarks applied for for defensive purposes following the amendments to Article 4 of the Trademark Law. Since China uses the first-to-file principle, rights holders should actively file defensive trademark applications to prevent malicious preemption by third parties.
How to claim infringement compensation effectively
Article 63 of the revised Trademark Law is also of significance for Chinese and foreign parties when it comes to effectively safeguarding their legal rights in China.
Following the trend of improving IP rights protection, paragraph 1, Article 63 increases the maximum amount of compensation for malicious trademark infringement from three to five times the amount of actual losses. Paragraph 3 increases the maximum amount of compensation for malicious trademark infringement from Rmb3 million (approximately €392,000) to Rmb5 million (approximately €653,000), which is a large sum even in the context of international IP enforcement. The increase of compensation is exciting news for Chinese and foreign parties. Moreover, the increase of compensation to Rmb5 million has been realised over a short period of six years (between 2013 and 2019). What is more encouraging is the increase of compensation from three to five times the amount of actual losses. This increase will act as a greater deterrent to infringers and grants rights holders more adequate and credible protection. In practice, the application of punitive compensation relies heavily on the IP owner and its lawyers' capacity to provide sufficient evidence to prove the losses of the obligees, the profits of the infringer or a multiple of the licence fees. Only after the losses, profits or a multiple of licence fees is confirmed by the court can the rights holder claim punitive compensation of one to five times the amount of loss. Therefore, it is important for IP owners to choose a reliable and professional local trademark agency to handle such a case.
Paragraph 4 has been added to Article 63 and extends the punishment for infringement by stipulating that "in handling trademark disputes, the people's court shall, at the request of the obligees, order the destruction of counterfeit commodities, except under special circumstances; the materials and tools mainly used to manufacture counterfeit commodities shall be ordered to be destroyed without compensation; or in exceptional circumstances, the aforementioned materials and tools shall be prohibited from entering the commercial channels without compensation".
In previous judicial practice, the Chinese courts mostly ordered the destruction of the materials and tools 'specially' used for manufacturing counterfeit products. This practice was widely criticised by rights holders because it is difficult to prove how materials and tools have been 'specially' used to manufacture counterfeit products. Therefore, rights holders could neither claim for the destruction of the materials and tools used to manufacture counterfeit goods nor prevent the infringer or other parties from continuing to use the materials and tools in future infringement. The amended article has substituted the word 'specially' for 'mainly' and although this may appear to be a minor change, it provides legislators with more power when it comes to stopping trademark infringement and minimises the risk of further infringement. The revised clause also fully conforms with Article 46 of the Agreement on Trade-Related Aspects of Intellectual Property Rights.
How to judge trademark litigation lodged in bad faith
Paragraph 4 has been added to Article 68, which stipulates that "if a trademark litigation is lodged in bad faith, the people's court shall impose penalties according to law".
This new paragraph is intended to set a boundary between legitimate rights protection and malicious litigation, in order to achieve a balance between the protection of rights and the abuse of rights. Trademark litigation can be judged as malicious if it is intended to:
- use the registered trademark to make malicious claims;
- force other parties to purchase the registered trademark at a high price; or
- force other parties to accept a high licensing fee.
Retrial Case No 2018, 396 was listed as one of the top 10 IP rights cases in 2018 by the Supreme People's Court of China. In this case, the Supreme People's Court found the following:
- The Compass company and the Zhongwei company had more than 2,600 trademarks, which exceeded the amount for normal business use.
- The two companies always registered trademarks for assignment at a high price rather than for actual use.
- After an unsuccessful transfer of their trademarks to Japanese company Uniqlo, the two companies lodged 42 trademark infringement litigations, all with Uniqlo or its branches as defendants.
- The bad faith of the two companies was obvious and their misuse of judicial resources for illegal trademark profits was not protected by the court.
The Compass/Zhongwei case is a typical example of trademark litigation lodged in bad faith. According to paragraph 4, Article 68 of the revised Trademark Law, not only will malicious litigation be rejected by the Chinese courts, but the parties lodging such litigation will also be punished.
According to Article 112 of the Civil Procedure Law of China: "If the parties maliciously collude with each other in an attempt to infringe upon others' legitimate rights and interests through litigation or mediation, the people's court shall reject the request and impose fines and detention in accordance with the seriousness of the violation; if the parties' act constitutes a crime, the parties shall be subject to criminal liabilities." Therefore, following the implementation of the revised Trademark Law, parties that lodge malicious trademark litigation will be fined or even detained by the court according to the seriousness of the case. This should prevent the blackmailing of trademark owners to obtain illegal profits.
China has attached unprecedented importance to the protection of trademark rights in recent years. The latest amendments to the Trademark Law aim to crack down on malicious trademark applications more effectively and punish trademark infringement more forcefully. The amendments move from a single emphasis on rights protection to a dual emphasis on both the protection of rights and the prevention of abuse.
In addition, the CNIPA is drafting a departmental regulation entitled "Several provisions on standardising application for trademark registration". The regulation will specify the latest amendments on an operational level and clarify the various types of malicious trademark application and the relevant measures available for tackling them. This regulation is expected to be published before 1 November 2019 and will act as a clear reference to the trademark examination departments of the CNIPA.
The latest amendments to the Trademark Law should prevent repeated malicious trademark filing and infringement and contribute to a more user-friendly and fairer trademark system in China. This in turn may help to promote a more optimised, convenient and fair market and business environment in the country.
The key changes
The specific amendments to the Trademark Law are as follows (changes and additions are highlighted in bold):
Paragraph 1, Article 4
Where any natural person, legal entity or other organization, in the course of his or its production or business operations, intends to acquire the exclusive right to use a trademark for his or its goods or services, an application should be filed with the Trademark Office for registration of the goods trademark. Applications for trademark registrations in bad faith which are not intended for use shall be refused.
Paragraph 3, Article 19
Trademark agency is forbidden to represent the client where it knows or should know the trademark to be filed for registration by such client falls under the circumstances prescribed in Article 4, Article 15 and Article 32 of this Law.
The prior right owner or any interested party may, within three months from the date of publication, files an opposition against an accepted and published application for registration of a trademark, if he finds that the application stands in violation of the provisions of Article 13, paragraph two or three, Article 15, Article 16, paragraph one, Article 30, Article 31, Article 32 of this law, or any person finds that the application stands in violation with the provisions of Article 4, Article 10, Article 11, Article 12, Article 19 paragraph four of this law. If no opposition is filed within the specified period, the trademark shall be registered, a certificate of registration shall be issued, and the registration shall be published.
Paragraph 1, Article 44
Where a registered trademark stands in violation of the provisions of Article 4, Article 10, Article 11, Article 12, Article 19 paragraph four of this Law, or the registration of a trademark has been acquired by fraud or any other unfair means, the Trademark Office shall declare the registered trademark invalid; any other organization or individual may request the Trademark Review and Adjudication Board to declare such a registered trademark invalid.
The amount of damage for infringement of the exclusive right to use a registered trademark shall be assessed on the basis of the actual losses suffered by the right holder because of the infringement; where it is difficult to determine the actual losses, the amount may be assessed on the basis of the profits the infringer has earned because of the infringement. Where it is difficult to determine the losses the right holder has suffered or the profits the infringer has earned, the amount may be assessed by reference to the appropriate multiple of the amount of using the registered trademark under a contractual license. Where the infringement of the exclusive right to use a registered trademark is committed in bad faith and the circumstance is serious, the amount of damage shall be more than one time but less than five times of the amount assessed by referring to the above calculation. The amount of the damage shall also include the reasonable expenses of the right holder incurred for stopping the infringing act.
When the right holder has tried his best to provide the evidence, but account books and materials relating to the infringement act are mainly under the control of the infringer, to determine the amount of damage, the people's court may order the infringer to provide the account books, materials relating to the infringement act. Where the infringer refuses to provide or provides false account books and materials, the people's court may determine the amount of damage by reference to the claim and evidences provided by the right holder.
Where it is difficult to determine the losses suffered by the right holder, the profits the infringer has earned and the fees of licensing a registered trademark, the people's court shall grant a compensation not exceeding RMB5,000,000 yuan, according to the circumstances of the act of infringement.
In examining trademark dispute cases, the people's court shall, at the request of the rights holder, order the destruction of commodities bearing counterfeit registered trademarks, except in special circumstances; order the destruction of materials and tools mainly used to manufacture commodities bearing counterfeit registered trademarks, without compensation; or, in special circumstances, order the prohibition of the aforementioned materials and tools from entering commercial channels, without compensation.
Commodities bearing counterfeit registered trademarks shall not enter commercial channels after only removing counterfeit registered trademarks.
Item 3, paragraph 1, Article 68
(3) To violate the provisions of Article 4, Article 19 paragraph three or four.
(4) To file trademark application for registration in bad faith, which shall be imposed, according to circumstances, administrative penalties such as a warning or a fine; to file trademark lawsuit in bad faith, which shall be imposed punishment according to law by the people's court.
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.