Should the assignment of “bad faith” trade marks be approved or not?
According to the "2020 Report on Trade Mark Assignment Statistics" jointly published by PRdaily and Guofang Trade Mark Software, from 1 January 2020 to 31 December 2020, the number of applications for trade mark assignments in China is 620,125 (an increase of 24.72% compared to 122,927 applications in 2019), among which include many bad faith trade marks. This article discusses whether the assignment of “bad faith” trade marks should be approved or not.
Article 42(3) of the Trade Mark Law states that "the Trade Mark Office shall not approve the assignment of a trade mark that is likely to cause confusion or have other adverse influence, and shall notify the applicant in writing and state the reasons." Such bad faith trade marks disrupt legitimate market competition, trade mark administration and waste trade mark examination resources. These disruptions can also be identified as “having other adverse influence” in accordance with Article 4, Article 10 (1)(8) and Article 44 (1) of the Trade Mark Law. Therefore, armed with sufficient and solid evidence, the Trade Mark Office can refuse the assignment of bad faith trade marks pursuant to Article 42(3). Under the current practice, if the assigned trade marks are suspected to be in bad faith, the Trade Mark Office will issue office actions requesting the submission of evidence or intention of use regarding the assigned trade marks. If there is no evidence of use or legitimate reason for using the trade marks or if the submitted evidence is invalid, the Trade Mark Office will deem the assignment to have violated Article 42(3) and shall not approve the assignment.
Even if the assignors or the assignees can prove the bad faith trade marks are used, should the assignment be approved? This issue should be decided on a case-by-case basis. This article is of the opinion that the assignment should be approved only when genuine trade mark owners are forced to repurchase the bad faith trade marks and in any other circumstances, the assignment of bad faith trade marks should not be approved.
The first type of bad faith trade mark assignments is where pirate applicants attempt to ‘launder' these trade marks by transferring them to related parties to avoid opposition or invalidations, and the relationships between these applicants and the related parties are always difficult to ascertain. In this case, the assignment should not be approved.
The second type is where bona fide third parties purchase bad faith trade marks. These assignments should not be approved. Although bona fide third parties are not at fault and have provided consideration, they can claim damages from the assignors' failure to implement the contracts and even obtain compensation by claiming fraudulent misrepresentation. Should such assignment be approved, it will inevitably encourage pirate applicants to pre-emptively register and hoard trade marks of other parties for profit, making it even harder to tackle repetitive bad faith trade mark applications.
The third and most controversial type are trade marks in ‘bad faith' that are reassigned to the genuine trade mark owners. Assignments in this scenario should be approved in order to effectively protect the rights and interests of the genuine trade mark owners.
The spirit of trade mark legislation has always been to protect the rights and interests of genuine right holders. However, the rise of a prolific trade mark squatting industry has led to the unforeseen consequence of utilising existing articles to tackle bad faith applications. In other words, it is not the trade marks that have ‘bad faith'. The so-called bad faith trade marks are merely carriers that reflect the ‘bad faith' of the pirate applicants. The trade marks bear the bad faith when they are in the name of pirate applicants, but they can be considered trade marks in ‘good faith' that function to distinguish the origins of goods and services when assigned to their genuine trade mark owners. Therefore, when genuine trade mark owners and pirate applicants enter into a trade mark assignment agreement and record the transfer at the Trade Mark Office, these trade marks should no longer be considered as made in ‘bad faith', and it would be inappropriate to reject the assignment of such trade marks just because they were originally applied for by a trade mark squatter in bad faith.
Most genuine trade mark owners would prefer to remove bad faith trade marks through existing legal procedures. Owners will file oppositions or invalidations against these bad faith trade marks while refiling their own applications which are inevitably rejected due to the prior bad faith trade marks. Taking this approach cost owners a lot of time and expenses with uncertain outcomes, thus preventing owners from operating their business using their trade marks in China. In the end, genuine trade mark owners have to compromise by solving the problem through commercial means, such as buying back the bad faith trade marks from the pirate applicants. When both parties reach an agreement, the ownership of the bad faith trade marks can be obtained by the genuine owners in a few months through trade mark assignment recordals, and more importantly, the owners can immediately commence business operations in China. Adopting this approach makes it much easier for genuine trade mark owners to control the time and cost invested with a more certain outcome.
The author is aware that in many jurisdictions, bad faith trade marks would be considered void ab initio. Many legal practitioners would also argue that nullifying a trade mark made in bad faith would stem the trade mark squatting industry as such ill gotten assets would be rendered valueless to the pirates. At this time, the practical reality is that succeeding on grounds of bad faith remains uncertain despite the great strides being made in recent years. Another problem is the lack of unity in the examination of related but parallel matters, in particular, the difficulty in obtaining suspensions when the status of a matter depends on the outcome of a related by separate matter. It is therefore regretful that purchasing back trade mark rights through mutual agreement and the assignment procedure remains the only feasible option for genuine trade mark owners in some circumstances.
The hope is that this topic will be moot in the future given the efforts to combat trade mark squatting. Until then, the Trade Mark Office should issue office actions if they suspect the assignment relates to bad faith trade marks. Upon satisfactory confirmation that the assignees are indeed the legitimate trade mark owners with genuine intent to use the trade marks being assigned, the Trade Mark Office should approve the assignment recordal. Given the current state of affairs, this practice does not deviate from the policy of actively combating bad faith squatting, protecting the interests of the public, or maintaining fair market competition, but rather recognises the need to provide practical support to legitimate trade mark own
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.